Alliance Resource Partners, L.P. (ARLP) Q2 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Alliance Resource Partners LP and Alliance Holdings GP, LP Second Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the floor over to Brian Cantrell, Senior Vice President and Chief Financial Officer, please go ahead sir.

Thank you, Brian and welcome everyone. Earlier this morning, we released 2017 second quarter earnings for both Alliance Resource Partners, or ARLP, and Alliance Holdings GP, or AHGP. And we'll now discuss these results, as well as our outlook for the balance of the year. Following our prepared remarks, we'll open the call to your questions. Before we beginning, a reminder, that some of our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties, and assumptions, that are contained in our filings from time-to-time with the Securities and Exchange Commission and are also reflected in this morning's press releases. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, neither partnership has any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise unless required by law to do so. Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP financial measures are contained at the end of the ARLP press release, which has been posted on ARLP's website and furnished to the SEC on Form 8-K. With the required preliminaries completed now, we've have a lot of ground to cover this morning. So at this point I'll turn the call over to Joe Craft, our President and Chief Executive Officer. Joe?

Thank you, Brian. Good morning everyone. ARLP and AHGP made tremendous progress during the first six months of 2017, delivering strong operating and financial results, while achieving significant milestones that have the Alliance Partnerships well positioned to continue to deliver on our goal of creating long-term value for our unitholders. Turning first to our results, ARLP's performance for the 2017 quarter was in line with our expectations. Despite the unforeseen impact that customer reports measure events and shipment deferrals impacting sales by approximately one million tons. Operationally, ARLP continue to benefit from our strategy of shifting production to our lowest cost mines as expenses per ton fell 11%, compared to the 2016 quarter. Our continued focus on controlling cost and minimizing capital has allowed ARLP to achieve attractive industry leading margins and strong distributable cash flow in the face of lower coal sales prices. Our marketing team also continued to strengthen ARLP's contract portfolio since our last report, booking an additional 8.2 million tons of coal deliveries through 2020. In keeping with our previously stated objective of opportunistically deploying capital to generate sustainable cash flows is a compliment to ARLP's core coal business. We made new oil & gas midstream investment a couple of weeks ago. This $100 million investment is structured to provide ARLP for a quarterly cash or payment in kind return as expected to be immediately accreted to our results. Our view of the second half of 2017 remains positive. We anticipate that our customers will make up for the forced measured tons and deferred shipments I mentioned earlier over the next six to nine months. And with nearly all of our planned production for the year now under contract, we believe coal volumes and revenue should be within our previous guidance range is for 2017. We expect our strong operating performance to continue giving us the confidence to confirm ARLP's full year guidance for net income, adjusted EBITDA and distributable cash flow. We're also pleased that ARLP was able to resume increasing distributions to our unitholders. As previously discussed we felt ARLP would be in a position to again consider growing unit holder distributions once the previous uncertainty and the debt capital markets was addressed. Completion of our 2025 bond offering and extending our revolving credit facility to 2021 successfully alleviated these debt market concerns, providing ARLP with a stable long-term capital structure and ample liquidity. With our conservative balance sheet intact for the foreseeable future and in consideration of our strong performance and positive outlook, the Alliance force elected to meaningful increase distributions by 14.3% at ARLP and 32.7% at AHGP compared to the 2016 and sequential quarter. I'm optimistic that ARLP's low cost operation and strong market position will support additional quarterly distribution increases in the future. Finally, I want to address the exchange transaction we announced last Friday. This all equity tax free exchange transaction is a first step for simplifying our partnership structure. Both ARLP and AHGP will remain publicly traded following the Exchange Transaction, the Alliance Partnerships are positioned for a second step transaction at a later date, whereby ARLP would become the sole reporting and trading entity with a substantially larger public float. Management will be evaluating the timing and structure of any such second step transaction, and any recommendation in this regard is subject to market, strategy considerations and regulatory conditions, including the ultimate outcome of any tax reform currently under consideration by the US Congress. The streamlined economic structure of the Alliance Partnerships is intended to enhance value for unitholders of both ARLP and AHGP. Elimination of the IDRs should lower ARLP's cost of capital and create flexibility for equity capital market transactions by ARLP, whether in the form of additional common unit issuances, if needed to pursue future growth opportunities or common unit repurchases to return long-term value to all unitholders. I'll now turn the call over to Brian for a more detailed look at results for the 2017 quarter. Brian?

Thank you, Joe. As announced this morning, the Alliance Partnerships reported results in line with our expectations for the 2017 quarter. Coal sales and production volumes increased 6.3% and 13.3% respectively, led by strong performance at our Hamilton, Gibson South and River View mines during the 2017 quarter compared to the 2016 quarter. Offsetting these increased sales volumes however was the anticipated reduction in coal sales prices, due to the expiration of higher-priced legacy contracts, which pushed total revenues down 9.7% in the 2017 quarter compared to the 2016 quarter. ARLP continued to benefit during the 2017 quarter from ongoing efforts to ship production to our lowest cost operations. As total operating expense fell 5.3% and segment adjusted EBITA expense per ton improved to 11% both as compared to the 2016 quarter. The 2017 quarter also benefited from the receipt of better than anticipated performance from our investments in the oil and gas minerals, which increased $3 million compared to the 2016 quarter. Reflecting lower coal price realizations and the negative impact of the deferred coal shipments, Joe mentioned earlier, as well as the $8.1 million make hold payment incurred upon early repayment of our private placement notes, net income fell to $63.2 million for the 2017 quarter compared to $82.7 million for the 2016 quarter. Excluding the make hold payment, adjusted EBITDA was also lower in the 2017 quarter decreasing to $141.1 million from $164.2 million for the 2016 quarter. Comparative results for the sequential quarter were similarly impacted by the factors just reviewed as well as ARLP's exceptionally strong start for the year, as coal volumes, revenues, adjusted EBITDA and net income were all lower compared to the first quarter of 2017. Year-to-date, ARLP posted increases to all of our major financial and operating metrics with coal sales and production volumes, revenues, net income, and adjusted EBITDA all higher compared to the 2016 period. And comparing ARLP's results for the 2017 quarter and period, I also want to briefly address earnings per unit. Logically, you would expect ARLP's lower net income for the 2017 quarter to result in a lower EPU compared with the 2016 quarter. As an MLP, ARLP first allocates its net income to the general and limited partner's interests based on amounts distributed and expected to be distributed, and then allocates the difference between net income and such amounts based on the respective ownership interest. However because of the unit fixed issued in the Exchange Transaction or not outstanding as a June 30, 2017, weighted average units outstanding are not impacted. Since the elimination of the IDRs in the Exchange Transaction occurred before the upcoming record date for distributions, the allocation of ARLP's net income to the general partner has significantly reduced and is reflected in ARLP's results for the 2017 quarter. Because of how EPU is calculated creates a lack of comparability between periods, we will be providing the investors in our quarterly 10-Q filing with the SEC a detailed pro-forma presentation of the above described impacts for ARLP as if the Exchange Transaction had occurred on January 1, 2016. As Joe mentioned, ARLP is confirming its previous guidance estimates for 2017. Based on results to date and expectations for the remainder of the year, we continue to expect full-year results within the following ranges; coal production of 38.1 million tons to 39.1 million tons, coal sales volumes of 38.5 million tons to 39.5 million tons, revenues excluding transportation revenues of $1.78 billion to $1.82 billion, net income of $290 million to $330 million and adjusted EBITDA of $605 million to $645 million. In addition, ARLP is maintaining its previous 2017 guidance for capital expenditures in a range of $145 million to $165 million. Total investments are now estimated in a range of $120 million to $130 million, including the $100 million investment in Kodiak and $20 million to $30 million related to the acquisition of oil and gas mineral interests. Turning now to the balance sheet, as indicated there in our last call in May, we paid off the $50 million balance remaining on our Term Loan A and repaid in full of a $145 million Series B private placement notes due June of 2018. As a result, we reduced total debt by $63.6 million, further lowered our leverage to the 0.78 times total debt to trailing 12 months adjusted EBITDA and ended 2017 quarter with strong liquidity of $625.6 million. Our 2025 unsecured bonds have performed well, recently trading approximately 116 basis points to 123 three basis points higher than our 7.5% coupon. With this strong market benchmark, our newly simplified structure and our conservative balance sheet, ARLP has ample capital market access and capacity to execute our plans and pursue future opportunities. This concludes our prepared comments and now with Brian's assistance, we'll open the call to your questions. Brian?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Levin of Seaport Global Securities. Please go ahead.

Hi. Thank you very much. Congratulations gentleman on another good quarter, particularly in the Illinois Basin where the costs keep coming down. It feels like you guys are getting yourself all the way down to the low end of the cost curve. But with regard to the transaction that you announced on Friday night after the close, can you talk about the timing of it, doing it now versus maybe waiting until tax reform and some of the issues in Washington were more settled? Is there a reason why there is this intermediate step rather than just doing it all at once, once everything had been settled?

I think once we completed our financing, we felt it was time way to go ahead and make the exchange on the IDR that we did not need to wait for that particular issue. It allowed us to increase our distribution to the level we did. So we felt delaying that step really was not necessary as we waited to see when we should focus on the next steps. So we wanted to go ahead and bring net value to the table since we've got the debt issue, reacted as you will to the debt market situation and we're successful with our bond offering and our financing from the revolver. We felt the time was right to go ahead and do the transaction with the IDR.

Got it . Makes sense.

Second step as we stated in our press release.

Got it . Now that makes sense. And then with regard to the distribution increase in the coverage ratio, I think in the press release that references at the midpoint of the ranges and assuming that the current distribution increase would be roughly 1.8 times covered. Is there - I assume this is not a one fell swoop sort of move that there will be - I guess is it fair to assume that there will be consistent quarterly distribution increases from here on out and what is the coverage ratio or the target coverage ratio that you think you know or what the board would be comfortable with?

Yes, the expectation is that we will continue to be on a path of growing our distributions on a quarterly basis. As far as the amount and the timing - excuse me - the amount and the coverage ratio question that will be determined on a quarterly basis. I think we'd never really looked at a coverage ratio target, I think as Brian mentioned, we have paid down our debt and we've got a very attractive debt coverage ratio as well. So we really, also I mean we really have no capital needs, now we're fully invested our capacity. So, I don't know that we have to maintain a high coverage ratio in anticipation of we investing in new coal mines for example. So the decision will be made on a quarterly basis and the answer is yes, we would expect greatly increase our distribution on a quarterly basis going forward.

Okay. And my last question has to do with the M&A environment. I know it's something that's been discussed on previous calls. Is there still an appetite for M&A in the coal space, I know you made a rather large oil and gas investment that you announced today but is this move in any way put cursor getting a lower cost of capital perhaps to you know finding opportunities in the - to consolidate whether it's in the Illinois Basin or Northern App and are those opportunities still out there in your view?

My answer is the same as it has been, we will continue to evaluate opportunities to grow in the coal business within the Illinois Basin and Northern App. Whether there will be actionable items in the near term, it's possible. But it's always difficult to make an acquisition go business for whatever reason. So I can't comment beyond that.

Great. Appreciate it and thanks very much.

Appreciate it, Mark.

Next question comes from Paul Forward with Stifel Nicolaus. Please go ahead.

Thanks. Good morning.

Hi, Paul.

Just want to ask about the Kodiak investment, are there any - is there any further detail that you can give us in terms of either multiples paid or the growth trajectory you expect or maybe some greater quantification of the assets that you've made in investment in anything you can give us?

Probably not a whole lot more detail, Paul, I mean this team at Kodiak is very experienced in this area. They have a track record of showing a meaningful growth and value creation. They do have a significant pipeline of future activities that our investments will help them undertake. Look at it's an accretive attractive return. And it's not anything other than we saw an opportunity, we have the capacity and we elected to deploy the cash. So that we could grow cash flows in the future and as we have done with the oil and gas mineral investments, generate cash flow that will support our coal-coal business.

Okay. Thanks Brian. On the customer deferrals, these were, I guess, I would ask, these were just kind of individual power plant service issues or was it kind of demand driven, a need to defer those deliveries and then was there any and we've heard other coal miners talk about the difficulties on the rails any problems with any rail service issues related to any of that or are those entirely separate issues?

Majority of the deferrals was force majeure, which did reflect issues at couple of power plants those tons will be made up. So that's not forgiven. So we will and those issues have been resolved. So we do expect that those tons will be delivered in the second half of the year and it may spill over into the first quarter depending on rail service to be exact. So that will - again those tons will be made up at the price I want to make sure we're clear on that. As far as the other deferrals, the weather was and we did have a slow start to the summer. So some shipments did in fact flow into the third quarter. They're not significant deferrals just sort of month-to month deferrals that more likely was weather related. As far as the railroads, we had some delay but I wouldn't characterize it any more differently than what we've had in the past. So it really wasn't transportation related but there was some tonnage that was impacted. It will be again I would characterize that more a month-to month type transaction timing than a systemic issue for us.

Thanks and Joe, you are not concerned that there might be now as you think about deferrals going into the second half of the year or first quarter of next year, you're worried about rail service possibly deteriorating over time or is that just not something you're seeing yet?

No, I'm not worried about it. I think that when you see some of your competitors complain about rail service, they are in different markets than we are in. I believe their complaints really don't tie to the areas where we're operating, but having said that Mr. Harris [ph] made clear that there needs to be change. He, I think, is striving like all of us to try to focus on increasing their efficiency, we're trying to do the same. I think that's prudent for all companies to focus on how they can reduce their costs and increase their resource utilization. So exactly how that develops I would characterize the communication that he is signaling is that the old model in the coal business the way the utilities in the rail and the producers conducted business in these to change. If our customers are going to continue to deploy a short-term buying strategy then the three of us need to come together, the producer, the rails and the customers, we've got to come together and find a win-win-win solution because we can't continue to do business in the old model and deliver the low cost efficiencies that he's acknowledged the striving for and I support. So it's in our customer's best interest, the utility customers to sit down with the rails and producers to come up with a way that we can achieve their objective, wanting to adopt short-term buying philosophy. But at the same time make sure that when they need the tonnage that the capacity of the equipment and the production is there to meet their needs so I am hopeful that will happen. And now we've had conversations with the railroads that service us as well as our customers to seek opportunities to be responsive to our customer but at the same time make sure that we're there for them. So I don't - I'm not worried about it but at the same time there's opportunity for some disruption if we don't come together and clarify exactly the timing for deliveries. So that the equipment is there, the production is there when the customers need it. As we look at the second half, there is the potential. If you look at July temperatures, they've been running slightly above normal. Our forecast that we follow suggests that August is going to be above normal for our market area. So when you combine those two with some additional export opportunities we see, it is possible that the second half shipments can come in above where we've been running. And we need to make sure our transportation providers are there to allow us to take advantage of those opportunities. We'll have to do that with communication.

Thanks, Joe. And well, just along the same lines, last question, as you look at 2018 you'd probably only got about half of your coal committed to customers and I guess that goes along the same lines of your customers are looking for a new kind of shorter term model but at the same time you've got a lot of uncommitted coal for next year. Do you see the risk rising that you'll have to scale back again? Is the risk that that you won't be able to place all of the uncommitted to 18 million tons or 19 million tons and you'll have to cut back or do you anticipate that you will - your customers will be more active in locking up to 2018 tons over the next few months?

It's more than that. Now I don't believe we will have to cut back. I believe that customers will be out in the next quarter and in fourth quarter to fill substantially lot of their open position. I believe the low cost producers is going to be able to secure tonnage. I would hope that we could actually increase volume next year but we will see how the market responds. As we mentioned in the past we think there are some higher cost producers that have supply in the market today on the basis of higher price legacy contracts. Those contracts expire at the end of this year. So we're confident at this moment in time that we will be able to place our tonnage for next year at comparable levels that we have in 2017 if not improve or increase those volumes.

Great. Thanks very much.

Next question from Lucas Pipes with FBR Capital Markets. Please go ahead.

Hey, good morning everybody.

Good morning.

So I wanted to ask you, Brian, on the pricing side and I'm sure you can appreciate this question. Because of some of the pricing points that we see on our screen so they seem awfully low kind of in comparison to where you're selling your coal in the second quarter or expected that to sell it in 2017. Brian where would you put kind of the pricing range for 2018 when you put tons to bed not, not looking for an exact number but just I think this is something that's on investors' mind, would appreciate kind of a zip code in terms of what they should be penciling in?

I think on our previous call we indicated that we had at that time expected price realizations in '18 to be comparable to our - what we're seeing in 2017. Joe just indicated depending on how higher cost supply reacts and what natural gas pricing looks like except it could vary a little bit. We're looking at it. We may have a bit of a bias to that being a little bit better in '17 compared to '18. But it did -

'18 compared to -

I'm sorry, '18 compared to '17. But it does remain fluid and there's a lot of factors as you know that go into where prices ultimately settle. We're comfortable with our prior comments around 2017 and in 2018, we expect them to be comparable if not a little bit better.

Got it. Okay that's helpful and then.

When you're looking at your screen, fiscal markets are trading appreciably higher than that. Again you have to think in terms of the high cost producers to try to model the prices you see on your screen that's just going to accelerate the shutdowns as I talked about earlier. So we don't anticipate the markets are appreciably higher than that. At the same time, they're not high enough to keep that that tonnage on the market in our view. So that is consistent with what I was trying to say a few minutes ago.

Yeah. And Lucas, as we've talked in the past the things you see on the screen are maybe directional indicators but you have to consider the qualities that are reflected on those screens BTU content, chlorine, etcetera where it's delivered and you have to factor all of that in compared to the various qualities transportation advantages that we can bring to the marker. So it's tough to generalize and we have opportunities to view better than what the screens may otherwise indicate.

The biggest issue is volume. Many of the exits that you're looking at are train by train or vessel by vessel type base but not in ton transactions.

That's very helpful. And maybe to switch over to the cost side, again with an eye towards 2018, Joe I think you just mentioned that you're looking to maybe sell more coal in '18 versus '17, what would you say is going to be the impact on the cost side? And directionally for 2018, what else do you think are opportunities in terms of cost cutting? And when you put that all together what do you think is kind of a good cost number to use going forward?

On the cost side, we do believe the costs that you're seeing are sustainable. We believe that there's opportunity to continue to make some efficiency improvements. We, with the top administration being able to fill out certain positions across the government it might help our efficiency as well. As far as how that ties to that cost then I think that we should see them comparable to 2017 members would be my guess if we brought on additional production it's not going to be a lot. So that could help incrementally but I don't foresee it being a substantial enough number that's going to move the needle significantly.

But to that point on efficiencies going forward we do have excess capacity within our existing installed infrastructure. So regardless of additional tones that we bring on across those incremental tones is very attractive and if we're able to do that it should help us from an overall perspective.

Great. Great, well appreciate all that color and good luck with everything. Thank you.

Thanks, Lucas.

Next question comes from Eric Pallone with Goldman Sachs Asset Management. Please go ahead.

Hi. Thanks for taking my call. I just wanted to follow up on the Kodiak investment. You guys or can you guys disclose some of the economics around that deal like what the coupon payment would be on that preferred investment and then maybe the triggers for pick for cash pay and how I guess Kodiak would make that determination? Thanks.

We are not able to disclose the specifics around the economics under our agreement with them. And there are - they do have some optionality over the next 18, 24 months or so I believe in terms of whether they pay us through PIK or through cash or a combination thereof once that initial period lapses and all of those turn to cash. So they have some optionality on how they perform and it's difficult to get precise there but I will tell you that the structure of the term is very attractive for us. And as we said in the releases and as in our comments that it will be accretive to our results.

Okay. Thanks. It's itself. And then would economics realized from that transaction be included in your EBITDA guidance for this year or that all show up as a cash flow statement item?

It is employed at in our EBITA guide for this year, yes.

Okay. All right, thank you very much.

Thank you.

Next question comes from Nick [indiscernible] with Stifle. Please go ahead.

Hi. Good morning. Thanks for taking the question. Regarding potential acquisitions you guys are looking at, how do you balance the use of your equity versus debt and how should we think about maximum leverage you guys are willing to incur?

Historically we have not used equity in financing for acquisitions. We haven't done a whole lot of acquisitions. We have grown organically, but we mostly finance those with internally generated cash flow with our high coverage ratio that we have on our existing operations. I would expect that any acquisition or asset transaction would probably be financed in one of the way we've done it in the past. You can never rule out using equity depending on the opportunity but historically we have not done. So as far as the debt that we would take on that we've mentioned in the past that we like being in the one times range that's debt to EBITDA. We have also mentioned in the past that if we did an acquisition, we could take it up to two times for temporary basis if we expect - if we could see the opportunity to get it back into the one time range within a reasonable time period. So hopefully that answers your question.

In terms of the reasonable time period, is that over what sort of - sorry?

Three to five years.

It will be transaction specific but within a reasonable commendable time.

Okay, great, thank you.

[Operator Instructions] The next question comes from Joseph Pezzano, private investor. Please go out.

I'm just curious with all these changes as far as stock prices, we see any hopefully an increase of stock price? I know it's hard to say on everything, but I'm just curious.

It's hard to predict how the markets will react but if you look at the yields that we are trading at prior to the distribution increase, if yields just stay constant with an increase in distribution, you would expect a nice uptick in equity prices as well. Markets are not always efficient. So obviously we can't give you a precise answer, but we're hopeful that by increasing returns to our unitholders that our equity price will react favorably as well.

Okay. Thank you.

Next question comes from Lin Shen with HITE. Please go ahead.

Hey. This is James Jampel on Lin Shen of HITE. I just got a couple of questions. And I think you mentioned that coverage had declined over time. Could you foresee going to something like a one to one coverage ratio and then varying distribution quarter to quarter based on cash flow?

No that was debt that we were talking.

Yeah that was a debt leverage not distribution coverage.

So there's no change in your coverage ratio for equity going forward?

Coverage ratio is based on our distributable cash flow and the level of our distribution, midpoint of our guidance for this year were just south of 1.8 times and assuming that the $0.50 distribution we declared for this quarter remains intact for the balance of the year. If we continue to increase distributions as we're hopeful and optimistic that we will be able to, you may see the distribution coverage trend down a little bit. But in terms of going to a one to one, no, that's not something we're striving toward and then particularly we're not striving toward going to a variable distribution model. If you look back over time, we've generally gotten down into the 1.5 times level plus or minus depending on the particular period. And we like knowing that we have a solid coverage so that any distribution we declare we have comfort that it is sustainable over the long term.

Okay. Fair enough. In your view, should the G&A burden at AHGP caused you to trade at a discount and what run rate should we use for the G&A at AHGP?

No, I don't think it should cause a contrary to the discount at all the total G&A at AHGP I believe is about $2 million a year plus or minus. There will be opportunities if we do ultimately fully simplify the partnership structure to reduce that, but it's not meaningful enough at the GP level that it should have any impact on how it trades.

Okay.

There still remains a 1% interest in GP interest at AHGP also. So there will be additional cash flows other than the distribution rolling in that can help cover that too many dollar cost.

Right. Thanks for that clarification.

But it should be pretty transparent.

Yeah, what the distribution is whatever we get from ARLP or that units owned more likely will be distributed out.

Yeah, the GP has generally been in the - because there's no operating activity at that level, we've distributed right around 1.1 times levels.

1.01.

Our coverage has been in the 1.0 to 1.1 times level. And we don't see the reason for that to change. So essentially all the cash flows that come into the GP will be paid out to its unitholders.

Great. And last one for me, how would different outcomes on tax reform change the desire to consolidate to two entities? What are you looking for to come out of Washington?

Now and again there are several things we're looking at not only taxes that have resulted in the decision to do this transaction and two-step transaction. So tax is, one, to try to just understand what the new rules are. So it's not that we're looking for anything. It's just - wanting to know what the rules are before we do something and then if the law changes we said well we thought this was going to be the result but if they change the law and we didn't anticipate that it could get you different result. So that is a factor, but there are other factors that will also go into the decision for the second step.

Yeah, tax considerations are important, but as Joe said they are not the only thing, you guys know us well, we are very deliberate. We want to thoroughly evaluate all of our options and alternatives before we take the next step and most situations on those circumstances no different.

All right. Thank you. Lin, did you have a question on top.

No, thank you.

All right. Thank you.

Thank you, guys.

[Operator Instructions] The next question comes from Brad Seagraves with Davenport. Please go ahead.

Hey, guys. Congratulations on the transaction. I just was wondering just given the lack of yield compression we've seen so far to date, would it make sense to lay out some sort of minimum long-term distribution increase guidance just a minimum level something that won't get you over your SKUs that might give the more good confidence in future increases?

No, we haven't done that in the past. Our Board is more comfortable making a decision on that by annual basis. We've made our decision for this quarter. As we look in October, we're going to have more clarity back to the question that was raised earlier about how the tonnage volumes will - what we expect the volumes to be. Expressed what I believe they will be, but we will have more certainty in the October time period with what those will be based on what we anticipate to be a significant amount of proposals coming out from our customers. So our Board is not comfortable at this moment to give that guidance but I believe when we roll into the October earnings call or next earnings call that we will have more clarity on that by having a better feel for what our volume in 2018 and pricing will be that can give you that the guidance you're seeking.

Okay, thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Cantrell for any closing remarks.

Thank you, Brian. And thanks to everyone for your time this morning as well as your continued support and interest in both ARLP and AHGP. As Joe mentioned, our next quarterly earnings call and release are scheduled for late October and we look forward to discussing our results for the 2017 third quarter with you at that time. This concludes our call, and thanks to everyone again for your participation.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.