Good morning, and welcome to the Alliance Resource Partners, L.P. Third Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian L. Cantrell, Senior VP and Chief Financial Officer. Please go ahead.

Thank you, Sarah, and welcome to everyone. Earlier this morning, Alliance Resource Partners released its third quarter 2019 earnings and we will now discuss these results as well as our outlook for the remainder of the year. Following our prepared remarks, we will open the call to your questions. Before we begin, 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 release. 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. And providing these remarks, the partnership has no 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 financial measures and the most directly comparable GAAP financial measures are contained at the end of ARLP’s press release, which has been posted on our website and furnished to the SEC on Form 8-K. With the required preliminaries out of the way, I will begin with – I will turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer for his perspective on the markets and ARLP’s outlook for the remainder of 2019. Joe?

Thank you, Brian and good morning everyone. Following a year, where we enjoyed record coal sales volumes of 40.4 million tons, including a record 11.2 million tons sold in the export market, ARLP entered 2019 with expectations for another record setting sales year relying on export shipment levels similar to, if not slightly higher than last year. For the first couple of months of 2019, the market was meeting our expectations. As the year progressed; however, the international coal markets deteriorated. In Europe, weak power demand, aggressive marketing by Russian producers, and an oversupply of LNG have all contributed to a 30% drop in API-2 thermal coal prices since the beginning of the year leading to what we believe will be a 20% year-over-year decline in eastern thermal exports by U.S. producers in 2019. For ARLP, we now expect a disappointing 7.4 million tons of export sales in 2019. As hedges fall off at the end of this year, we believe it may take a couple of quarters or more for international prices to return to a level where U.S. producers will again participate in the thermal export markets in a meaningful way. This international market downturn has not changed our belief in the long-term fundamentals for growth in coal demand globally, and we continue to believe ARLP will deliver 10% to 20% of our total coal sales volumes into the export market for years to come. A loss of export volumes as well as falling domestic demand due to low natural gas prices has caused a significant supply overhang in the United States, pressuring domestic coal prices to levels which we believe are unsustainable for most of ARLP’s competitors. We currently anticipate these conditions will require the industry to rationalize production to stabilize the markets so fundamentals can improve.…

Thank you, Joe. I’ll cover the details behind our performance beginning with a review of our results for coal operations in the 2019 quarter. A build in ARLP’s coal inventory impacted the performance of our coal segment during the 2019 quarter. Delayed shipments of contracted tons pushed ARLP’s coal inventories higher to 2.5 million tons, an increase of 1 million tons over the sequential quarter. This inventory build contributed to reduced coal sales volumes in the 2019 quarter and in combination with lower coal price realizations, negatively impacted coal sales revenues by approximately $40.3 million compared to the 2018 quarter. Results for the 2019 quarter and nine months were also impacted by a non-recurring, non-cash asset impairment charge of $15.2 million recognized by ARLP upon the closure of the Dotiki mine in August. Segment adjusted EBITDA expense per ton in the 2019 quarter was comparable to the 2018 quarter. However, the lower revenue, I just mentioned caused segment adjusted EBITDA from our coal operations to decline by $15.8 million falling 9.9% to $144 million. Sequentially, although segment adjusted EBITDA expense per ton improved by 1.2%, lower coal sales volumes and revenues led segment adjusted EBITDA from coal to fall $10.2 million or 6.6%. Reflecting strong performance at start the year, results for ARLP’s coal operations during the first nine months of 2019 were generally comparable to the first nine months of last year. Turning now to our mineral segment, oil and gas royalties and lease bonuses contributed total revenues of $14.2 million during the 2019 quarter, an increase of 14.1% over the sequential quarter. Including equity income from our AllDale III limited partnership investment, segment adjusted EBITDA for minerals declined 9.9% sequentially to $12.2 million for the 2019 quarter. With the addition of the Wing assets in August and active…

[Operator Instructions] Our first question comes from Mark Levin with Seaport Global. Please go ahead.

Hey gentlemen. Thanks for taking my questions. A couple of them. The first on the export side, Joe. I think you referenced maybe doing 7 million tons this year. Any preliminary thoughts about what it could look like in 2020? I ask only because you mentioned in the release that you may ship some exports overseas even into a weaker market. So, if 7 million tons is the baseline this year, what would you think is a reasonable expectation for 2020?

It’s very difficult to answer that question with everything that’s going on in the consolidation of our industry. So, if we look at the volume we picked up since the second quarter call, we picked up over 3 million tons of domestic sales from what I would call a consolidation of the industry. As I mentioned in the release and in my opening remarks, we believe there will continue to be some supply responses that I believe will create opportunities for us. So they may or may not happen. So depending on whether there they will be opportunities for us to pick up more sales and more market share because of consolidation that will impact what we do in the export market. I mentioned in the release we can decide to – our volume is the issue, do we want to participate in the export market or not with these price levels that we currently see, I would not rule it out, but there may be better opportunities domestically than the export markets. So, it’s really hard to predict. I do believe we will be involved in the export market in 2020, but it probably won’t be in the first quarter because we probably wait and see how the action of other producers may create opportunities. I may want to wait a while before I commit some in the export market in the first part of the year. But we do believe in the fundamentals of the export market we want to participate in, and I’m sure we will be selling into that market in 2020. Exactly how much, I just can’t give you a guess right now.

Got it. And as it relates to your distribution coverage, I think it was one times today, and it looks like it’s going to slip below one time in Q4. How are you thinking about the dividend as you go into 2020? I think Brian referenced a second ago, the dislocation may be in the capital markets, particularly as it relates to looking for term financing. I know that sometimes it’s access to capital, sometimes there’s maybe a wait on that decision. But I’m just curious how you’re thinking about the distribution headed into this type of market in 2020.

Answer to this question is similar to my last one with a lot of the opportunities that may present itself in the consolidation. As we look at the distribution going into 2020, first off, we think 2020 will definitely be – it’s going to be a correction year for the industry, and I think with that correction year, we should be coming out of 2020 a lot stronger, and be in a position to have coverage ratios greater than one times and closer to what we’ve experienced in the past. As we look at 2020 and we stress test the opportunities in front of us, it really comes down to what kind of volume can we secure. And based on what we have targeted, if we can achieve our objectives, we believe that we can have a distribution at current levels at one times coverage ratio.

And Joe, – I’m sorry, go head.

Maybe a little bit more, maybe a little less, but we feel if we do our job and we can achieve the sales commitments that we have targeted, we should be able to sustain this distribution.

Got it. And last question relates to that point, which is, what is a reasonable volume target for 2020 if things happen the way you hope? And then related to that point, I think on the last call you had mentioned $1.25 of margin, maybe plus or minus depending upon the market, in terms of change in 2020. So your shipments and margin expectations for 2020 as you look at the world today? Thank you.

So, the margin will be dependent on the volume. If we maintain our volume at 2019 levels, I would expect that margin reduction to go from $1.25, maybe another $0.50 or $0.75, it’s hard – again, we are not that far advanced in our planning to know, but there would be pressure because to maintain that volume, we would have to participate in the export markets at low prices. So if we elect not to participate in the export markets, then the production would be 2 million to 3 million tons lower and margins would stay within that $1.25, maybe slip to $1.50 or so. And we closed Dotiki that was one of our higher cost operations, so we will be getting the benefit of having some of that market or some of that production coming from lower cost operations, so we do expect to see some cost reduction in 2020 to offset the revenue reduction that is anticipated because of the weak markets.

Got it, great. Thank you very much for your answers.

Our next question comes from Daniel Scott with Clarksons. Please go ahead.

Hey, thanks. Good morning Joe and Brian. Thanks. So last quarter, Joe, you talked about the kind of M&A environment out there being the most active, I think you’d said in your career and certainly a number of years, and I assume that, that is the same today. If you could give a little update on that, and then more specifically, there is clearly two of your larger peers, one public, one private, that are – the way their bonds are trading would indicate upcoming bankruptcies. Are those two, in particular or maybe distressed operators in general? Are they pulling this -- the usual scenario of overproducing to try to hang on? Is that one of the biggest overhangs here? And is that equal to some potential opportunity for you either directly or indirectly through M&A when that comes to fruition?

The answer to your first question, the activity continues. So yes, it’s the industry with these pricing. These prices are just not sustainable. So every participant is trying to evaluate what is their best decision. Is it to close or to partner or to sell. So there is lot of conversations going on relative to who we are talking to and what may happen. It’s a little premature to talk about that. I think it’s clear where we have our focus in the thermal business for low-cost operations or anything that’s low cost that we can transact with. That’s what we’re going to be trying to position ourselves to achieve.

Okay. That’s helpful. Now as far as back to the distribution policy and Mark’s question a bit there. Having your yield up in your 16% here, I understand the suspension of increases, I think you’ve illustrated your intention of maintaining and stress testing the ability to do that. But also given your current trading levels is – when does unit repurchase or can it become part of the conversation as well?

It can be. I think that, that capital is going to compete with what our opportunities are for investment, whether it be in the coal business and/or the minerals business. So whether we reduce – if we – the implication of your question, I think, is that, will we be better off taken $15 million out of our distributions and buying back units. And I’m of the view that using that $15 million for distributions provides more value to the shareholders than buying back $15 million worth of units. If we didn’t have all these opportunities, whether to grow and to sustain for the long term and buy at a time where hopefully we’re at the low end of the market, then that would be a different answer, I believe. But I think everything for me gets back to how we allocate capital, and we’ve got some very interesting investment opportunities in front us that if we can complete then I think that’s in the best interest for the long-term value to company.

Okay. And just one last follow-up here. I’m sure, I can predict the non-answer, but so far the diversification into minerals has been pretty very well received and is performing nice and steady. When you talk about opportunities on the coal side due to the distressed nature of the markets and the competitors, is that kind of diversification plan stay intact? Or is it just up against the potential returns if the coal side is distressed enough?

No. I think it does stay intact. I think as we look at the coal space, we’re trying to think creatively as to how we would finance that, to where it would not slow down our interest in growing the oil and gas side. So if the oil and gas – the people – so we’re seeing lot of opportunities on the oil and gas side also. And the only thing that would keep us from doing deals on the minerals side is if the sellers’ expectations are unrealistic, which right now, I’d say, they probably are. But if there’s more realistic valuation expectation on the oil and gas side, then I could see us participating in that as well in 2020.

Great. Thanks for the color. I appreciate you guys.

Our next question comes from Lucas Pipes of B. Riley FBR. Please go ahead.

Hey, good morning everyone. I wanted to follow-up a little bit more in 2020 and appreciate the disclosure of the committed and priced sales tons. But I wanted if you can give us a flavor for the price level at which those tons are committed and priced if one average would be great, if there’s a way to move break it out between Illinois basin and Northern Appa that would be extra appreciated? Thank you.

Most of the commitments have been in the Illinois basin. We’ve had some in Northern Apps. So most of the committed tons are Illinois basin. And the pricing – I prefer not to get into that because we’re right in the middle of several solicitations and negotiating those as we speak. So for competitive reasons that be like, I can’t really address that question. I can only give you the guidance that I gave earlier as to what I think would happen in the margins, which prime be helpful to be responsive to where you’re headed, but I can’t help you build the model right now because of negotiations are going on.

That’s helpful. I appreciate that. And maybe to hone in on that just a little bit. I think you said earlier you would be looking to maintain the distribution if the sales distribution paraphrasing a little bit. The sales distribution delivers according to plan, can you share with investors and us what about that plan is? Is it $40 Illinois basin prices, $45.35? What are you shooting for?

I can’t go there. I guess we would be – probably without consolidation, without us acquiring somebody. I don’t see our volume increasing beyond where 2019 is? It could fall depending on what we decide to do in participating in the export market, whether we pick up any additional market share because other competitors, close mines and we assume contracts or if we aren’t successful on the bids that we have targeted, not the bids, but if we are not successful and the targeted markets that we should acquire at prices that I think are competitive, then our volume could drop. But right now, based on my best judgment, we’re looking at a range of anywhere from $37.5 million to $41 million in 2020. Factoring in all those considerations, I can’t see that they’d be much higher than that if any, absent an acquisition, it’s possible, but it’s probably not likely. Could it be lower? Yes. Do I expect it to be right now? I do not.

That’s very helpful. Thank you Joe. Maybe one last one. You mentioned in the release and I think on the call as well that you see no catalyst for crisis to rise. So is it kind of fair to conclude that you’re baking in current prom quarter prices in all of your estimates for 2020 meaning though I think it’s a $1.25 to a $1.50 margin increase?

That’s decreased. Not margin increase.

Sorry. Decrease. Sorry about that.

So I would say that the first half of the year is going to – we’re going to build more pressure in the first half of the year. There’s a couple of reasons for that. One is we’re winding down in East Kentucky for our MC operation where we are transitioning to a new reserve base. And the timing of that is, I believe, May before we get into that reserve. So the wrapping up of deal reserve is higher cost than what the new reserve will be. So we could be a little pressured. It’s only one million ton annual run rate. So there could be some pressure there. If we participate in the export market, the near term export pricing is lower, so that could have some impact in the first quarter. So those are two factors. The third factor is, we are continuing to operate and reduce operating ships at several of our operations that probably will continue into the first quarter. We believe that the way we’re – again, depending on what operating scenarios we pick, that should stabilize itself that into the first quarter or maybe at the end of the second quarter to where we’re hoping we can get back to a full capacity position for operations so we can be lower cost. So – but I don’t think it’s going to be uniform across all four quarters to answer your question.

That’s very helpful. Joe and Brian, thank you very much for the color and best of luck.

Thanks Lucas.

Thanks Lucas.

Our next question comes from Matthew Fields with Bank of America Merrill Lynch. Please go ahead.

Hey guys. A little bit on the comments you made about picking up 11 million tons under contracts since the last quarter. You said, I think, three million of that was from consolidations in the industry. Does that mean you won business from competitors that are in financial distress or have filed. Is that what that comment means?

It means that we either bought some contracts or paid for some contracts and/or just assumed contracts for people that we’re closing operations. And for most of that volume – and then there was another contract that we got where a competitor had shut its operations and the customer was not getting tons from that particular competitor, and we won a bid by bidding lower than others to secure that business. So that market would not had happened had that competitor not ceased production. So there were three at least three, maybe four, but there were at least three that I know off the top of my head, contracts that we got for 2020 production that were direct results of mines closing and the market share we picked up with minimal capital.

Okay, great. But one of them you had to kind of bid very low for it? So is it…

Right. So the customer came and said, listen, I need the supply. I need to cover this position. We want to bid on it, and we did.

Okay. Great. And those were mainly tilted towards 2020 and not all the way out to 2023?

No. Two of the three 2020.

Great. Thank you. And then a lot about the distribution on this call, but obviously, with EBITDA declining and your leverage ticking up for the oil and gas acquisitions, where do you feel comfortable with your balance sheet? And sort of what leverage level may you have to get to when you start to think about cutting the dividends?

It’s really more of a question of making sure we have – in terms of our distribution policy, making sure we have control over that and can access the capacity in those markets that we believe we need. We are not trying to say at a certain leverage level that, say, trigger in terms of a decision we make around distribution. We’ve long said and this hasn’t really changed, that we’ll be in a position to potentially see leverage increase up into the one and a half range, if we felt like there was a path toward bringing it back down over a reasonable period of time, and that really hasn’t changed. We exited the quarter with liquidity at about $340 million or so. Having liquidity in that $300 million to $350 million range is a level that we would be comfortable at. So it’s really not a linear decision in terms of how we view the balance sheet on our distribution policy and leverage levels. That’s really kind of multifaceted and what our outlook is in terms of where we’re comfortable and going at any particular time.

Yes. We are celebrating our 20th year of being a public company. I think one of the strengths of our company and one of our successes is, we have not overlevered. We believed in a strong balance sheet, and that hasn’t changed. We are still very committed to maintaining a very strong balance sheet. And relative to distributions, we don’t expect to borrow to pay distributions. And we believe we can generate sufficient cash flow to maintain our current rate now. We need to have 2020 be a correction year where we can get back in balance. So it may slide below a little bit in 2020. It might, but our expectation is that, going forward, we will be able to maintain this distribution and hopefully get back to the type of distribution coverage ratios that we have experienced over the last 15, 20 years.

And to leverage levels that are more in keeping with how we’ve been running the business in the recent past.

Right.

Okay. That’s it for me. Thanks very much.

Our next question comes from Nick Jarmoszuk with Stifel. Please go ahead.

Hi, good morning. Thanks for taking my questions. A question on the distribution and the debt trading levels. The bonds are currently trading below par. How do you weigh the equation of cutting the distribution, delevering and reducing the balance sheet’s reliance on the debt capital markets? Because with the 2020 being the correction year, it’s difficult to envision a scenario where the market is going to want to refinance you or provide you a capital for the Wing acquisition. So longer term, what if the debt capital markets don’t want to be there for you? How do you adjust the balance sheet for that?

Well, we believe that the trading our bonds were a direct correlation to activity by others in the bond marketplace. They have nothing to do with our current and/or future prospects. We believe that it will be a correction year. If it’s not a correction year, we will have to adapt to that. We know there is capital available, it’s just high cost. It’s higher cost than what we can get in the equipment financing market, as an example. So the reason in the second quarter, Brian made the comment of looking into bond markets, the bond market was very favorable and was wanting to trade where our existing bonds were at 102%, I believe, at that time. And so when we were exploring it, if we could maintain or increase our capacity at levels that were comparable to where our existing bonds were, we were exploring that. But then Brian said in his comments that the spreads jumped 200 basis points or so, and – but we’ve decided to pull back, believing they will get back to more normal level once we get clarity on how the shakeout of the industry is going to occur in 2020. And if it doesn’t, we’ll have to adjust. We may have to do some of this things that you just suggested. But if we feel like that this is temporary and we can manage through it, then there’s no reason, in my view, that we should overreact by taking a reduction that could send a signal that’s a wrong signal.

Well, I think it’s actually the right signal to send to bondholders to get the bond prices up because then it shows that defending balance sheet and paying down debt is a higher priority than distributing cash to shareholder or to unitholders which you can do that in perpetuity after principal is returned. That’s just one analyst’s opinion.

This is Joe. Let me just answer to you by that. We have shown the willingness to do that a couple years ago. So having this did for you, it’s not a big charge. I mean, we could definitely make the adjustment just what you said, and we’ve done it before. We will do it again under the scenario that you outlined if necessary, but I don’t believe my future crystal ball is not like yours. I mean, I believe there will be increasing cash flow. I believe we will be able to show a customer demand that wants our product, that will allow us to grow once we get the higher-cost producers to face reality and get back to a supply-demand position that will stabilize the market, and then when the export market pops back up, we got even more opportunity, and we just need to get through this troll to be able to convert that story to reality. And the bondholders should feel like, with our coverage rate and with our debt – our leverage levels that it’s still a very, very safe investment for the bond market, which is trading at yields that are greater than a lot of other industries that have probably higher risk than what we did, in my opinion.

Historically, obviously, commodity businesses cycle, capital market cycle windows open and close. And unless or until the market tells us that, that typical pattern is no longer the case, we will wait until conditions improve and access the markets at the appropriate time. As Joe mentioned, if the market turn out to be different and are not there for us long term, we’ll take the steps we need to take to make sure that we maintain the balance sheet in a manner that's consistent with how we've done in the past.

Okay. And then follow-up on the comment that was made earlier regarding how you see the basins playing out and how you're looking or how the industries are looking to close partner sell. In terms of partner opportunities that Alliance is looking at. Do any of the opportunities that exist or that you're contemplating required Department of Justice for you?

They probably would. I mean they would expect that we meet the threshold of Hart-Scott-Rodino. So they would have to be reviewed.

Okay. That’s all I had. Thank you.

Our next question comes from Lin Shen with Hite. Please go ahead.

Hey, good morning and thanks for taking my question. When you negotiate with utility for 2020 price, I would think natural gas presence assumption could be a key factor for both parties. So, can you talk about what are you expecting for natural gas prices next year and also how big difference your exemptions versus buyers?

So I think that when we look at 2019, we've seen the volatility of natural gas, and the conversations that I've had with some utility executives is that, and it's more important what their forecast is instead of mine. They see the range being comparable in 2020 as it was in 2019. But the point they would make to me is with the commitment that they've made to the coal fleet, they want those plants to run, they believe, in diversification. And they believe gas has done the damage that gas is going to do to coal. Now weather, if weather spikes, then gas; maybe in the winters they do coal. But as far as the base low-type commitment to coal, we are expecting from the customer conversations we've had that we've taken our hit, 2019 compared to 2018 and then 2020. The expectation is gas is probably basically trade the way it did in 2019 and then volumes for our customer region domestically should be comparable in 2020 as it was in 2019.

Got it. And also when you talk about you expecting – you're expecting more pressure reductions for certain coal markets in U.S. It sounds like you think you already did what Alliance can do, but expecting the peers cutting more? Is any more production cut you can do on your mine for 2020?

I mean we’ve talked about that. Joe said here is our view of what we expect in 2020. If our view doesn't play out, based on those current expectations, our volumes may need to drop further." And yes, we have the ability to adjust our volumes should that be necessary. You saw this play out in a similar way in the 2015, 2016 timeframe. So yes, we’re not dependent upon actions of others alone. We have the ability to modify our operating schedules and our total production levels as needed.

Great. Last question, these days, we are hearing more and more positive news for U.S.-China trade talks. I remember, last year, there was some discussion that if China-U.S. kind of reach a deal, Chinese buyer can buy more U.S. coal. I think that's kind of news last year. Have you guys heard any update on that for this round of trade discussion between U.S. and China?

Not exactly, sure I understood your question, but you're asking what is the impact of the U.S.-China trade talks?

Yes. I mean, is it possible like a Chinese buyer can U.S. coals if there's success discussion?

We don’t really participate in that market. I think the bigger issue for the trade issue relates to the midmarket as to how that – the global economy as to how the trade impact issues affect the global economy, number one. And number two, how much steel does China produce that then impacts other nations that buy U.S. metallurgical coal. So we've seen U.S. met coal also dropped 15% to 25% in price, which we participate smally. I mean, we shifted about 600,000 tons.

650,000 this year something like that, yes.

Yes, in 2019 in the metallurgical market. So, it has some market on us, but again, we believe that the overhang there is not as great as in the U.S. domestic thermal market. So I don't really think that trade talks are going to impact the U.S. thermal market in more than they already have, and I think it's really more of a mix issue, which we’re not that exposed to.

Great. Thank you very much.

Our next question is a follow-up from Mark Levin with Seaport Global. Please go ahead.

Yes. Thanks very much. And just two quick modeling questions. I’m not sure if you want to disclose it, but I’m going to ask anyway. Any idea on the seven million tons of exports that you guys will do this year? What the EBITDA contribution might be?

I think you asked this question last quarter.

I did, I did. I know they are kind of co-mingled, Brian, but I was just thought I'd give another run just to see if there is a way to just take those seven million tons and apply some sort of margin to them. I mean the way I was thinking about is that you wouldn't – you probably wouldn't have shipped them into the export market if you weren't getting better realizations than you are domestically, or least, is good. So is there anything faulty with that math of just taking seven and using the floor domestic margin? Or is that not right?

I will start with 7.4 instead of 7.

Sure, I’m sorry. Yes.

That’s okay. And it also gets into the mix between thermal and met. As we just mentioned this year, I think we'll sell about 650,000 tons into the met market in 2019 that compares to about 1 million tons last year.

Okay.

And so it really would get back to your expectations, Mark, on how the met market is going to look like and whether that would be something that could be attractive to us in 2020 as well. So it's overall volume issue and then a mix between met, if any, and thermal.

Got it. Yes. Now that’s perfect. Brian, correct me if I'm wrong as I may have forgotten this. In terms of the pricing that you guys get on met, I vaguely recall you're saying something like maybe 55% of the benchmark or 50% – something to that affect. Is that still – or what is the right way to think about how you price that met?

Yes. When they are – that rule of thumb did apply for a while. It doesn't apply today. And what our sales are doing, it really depends on what market we go to. And so it's hard to project exactly what it is, but I think it's fair to say that our pricing is $15 below, at least going into 2020 from 2019.

Okay, okay. Is there a rule of thumb as how to think about modeling it now or they are just too many pieces?

There are just too many variables.

Okay, right. It makes sense. Transportation, okay, thanks guys.

Our next question is also a follow-up from Lucas Pipes with B. Riley FBR. Please go ahead.

Hey, thank you for taking my follow-up question. Mark got most of it, but I have one left, and that's the comment regarding electricity demand decline in the U.S. of 2% year-on-year. Do you have a rough sense for what proportion of that decline is driven by weather versus efficiency in the power sector of LED light bulbs, et cetera would appreciate your thoughts on that?

I don’t have that. but I would think it’s probably more weather-related than specifically related to efficiencies. And then you've got the increase in manufacturing and then there is some downward pressure recently. It's – I don't really have it that precise, I'm sorry.

I’m not sure anybody does quite frankly, but so…

We don’t, I don’t have. I’m sorry, I can’t help you on that.

That’s helpful. I will see if maybe there is something out there and…

The only thing I can respond – the only way I can respond to that is, again, talking to utilities based on the way they're looking at 2020. There is an expectation that right now that their volume in 2020 will be comparable to 2019.

Okay. It could be interesting, hopefully, it's really just weather and then we should see an increase in 2020, I would assume. Yes, good data point for sure. So maybe just a second follow-up since – while I have you, in terms of – sorry to go back to the distribution question, but – so it seems like we're looking at a slightly weaker Q4 and then a weaker first half of 2020 and you mentioned a lot of attractive investment opportunities. So how do you square all of that? I assume you hit below one-time's coverage in the next few quarters and then that markets are tighter as you mentioned throughout the call. How does all of this factor into your thinking? Thank you very much.

So, over the distribution, we assume that there will be no transactions, and there will be no further benefit from the consolidation of us making up any market share. So when we stress test our current operations, we look at domestic targets, we look at the international benchmarks and we make judgments on what we believe volume-wise we will produce, based on 95% probability we pick up the business that we're bidding at the prices that we're bidding. So that's looking strictly at what we control. And based on what we've done so far, we're still in our planning to see that. But based on what we've done so far and trying to determine what's the right decision for our distribution, we believe that if we can achieve 95% probability of better volume that we can achieve close to the one times coverage ratio. Our goal is to beat an excess of one times, but it may fall slightly short of that in 2020, but believing that the consolidation in 2020 that will occur, I think it has to occur that we will roll out at 2020 and move to a better pricing environment that will allow us to get back to greater than one times coverage ratio more likely to 1.2 times. But it's really going to be dependent on how fast the export market returns and how fast the consolidation occurs. So that's the way we look at it. So we're not counting on any of the things outside our control. It will happen when we feel comfortable making a decision to maintain our distribution at current levels. So that's what we believe they are sustainable.

Just another question occurred to me. Given the importance on the export side, is there something that the administration could do? So for example, when it comes to exports, is that something where the – where increased investments, for example, could help and make a difference? Or do you think that's really all driven by LNG prices, power policy in Europe, et cetera? Would appreciate your thoughts if there is anything that the administration could do to make U.S. coal exports more competitive?

And I think we've got plenty of capacity, so that's not an issue for the coal side. I think the LNG side of the equation, the administration has been advocating for that and you could argue that, that's had an impact on us in a negative way because the LNG did impact low to year – this year, but I think longer term, those prices will price at levels that coal will be competitive. I think we're just in a short-term low on LNG prices. I think those will go higher for the investments that are being made there; they have to meet the growing demand. So the good news about low prices is low prices tend to solve the problem.

Every time.

Every time. So we believe that the administration is doing what they can to help the coal industry. The President is very much a strong support of our industry. He is doing everything he can to help us.

Good, good. Well, best of luck, I really appreciate all the color. Thank you very much.

Our next question is a follow-up from Matthew Fields with Bank of America Merrill Lynch. Please go ahead.

I hate to be the dead horse on this distribution, but you're talking about all this consolidation and strategic opportunities and whatnot and where your bonds are trading right now. It will be really, really hard to finance anything or really expensive to finance anything. You're kind of already in the middle of your comfort zone liquidity-wise that you previously stated. So anything major would sort of put you out of your comfort zone. All I'm saying is, I think, why not take like a one-year holiday on your distribution if 2020 is going to be this correction year to take advantage of these great opportunities that you see in front of you? And not sort of jeopardize the balance sheet as a way of doing it?

We don't plan to jeopardize the balance sheet. We plan to finance any participation in a way that it will not jeopardize our balance sheet. If the draconian view that you have plays out, then we may have to look at it differently. But just more optimistic than you are as to what will happen in the industry and where the cash flows it will result once the industry goes through its consolidation. Now whether the lenders will be there or not, I'd like to believe once you present a clear picture on what the future cash flows are that those bondholders would want to invest similar to what they did a couple of years ago when we went out to show them what our cash flow projections were or what our future – what our operating plans were. And we're still – we're operating to achieve the goals that I've set out. And we feel comfortable that we can generate the cash flow necessary to discharge the operating plan that I've laid out for you this morning, I can't do it anymore clearly I don't think. Is there a risk? Yes, there is risk, but yes, we had just…

Like you mentioned earlier, you've shown willingness to cut the dividend, which you did in the spring of 2016. Can you just sort of walk us through maybe the parallels between then and now? And what might cause your – what caused your thinking then to change? And what might cause your thinking to change now?

What caused it then was our lenders basically said you needed to. They have capital at that time, so we did.

Specifically, the commercial banks at that time with the issues that a number of our competitors were having and the risks that they saw on their balance sheets and their credit, as a result, folks were looking for covenant structures, et cetera, that would have essentially taken away our ability to control our distribution policy, and we were unwilling to do that. So we took the steps necessary to make certain that, that capacity and that market was there for us in a way that allowed us to maintain control over how we want to manage the company and plan for our distributions long term. That's what drove it at that point in time. As we've said several times this morning, we will do what we need to in order to preserve the integrity of our balance sheet and gain access to the capacity that we need. We've laid out what we believe we'll be able to accomplish. The campaigned draconian pictures of the assumed debt capital markets aren't here today, and they'll never be here. If that happens, we'll need to adjust our thinking. We just don't expect that to be the case long term.

Fair enough. Thanks for all the color.

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

Thank you, Sarah. A good call this morning, and thank you everybody for your participation. We look forward to our next call in late January of 2020, at which time we'll review our fourth quarter and 2019 full year results. And we will have completed our planning process that we've talked about several times today, and we'll be offering our initial guidance for 2020. That concludes our call today. Thanks to everyone and for your participation and your continued support in ARLP.

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