Greetings, and welcome to the Alliance Resource Partners First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cary Marshall, Senior Vice President and Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its first quarter 2024 financial and operating results, and we will now discuss those results as well as our perspective on current market conditions and reiterated outlook for 2024. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties and assumptions 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. In 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 this morning'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 a review of our results for the first quarter; give an update of our 2024 guidance; then turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer, for his comments. Let me start by recognizing the dedicated efforts of our entire team that delivered solid first quarter results and a good start to the…

Thank you, and good morning, everyone. I want to begin my comments by thanking the entire Alliance organization for their resilience, continued hard work and dedication in delivering a solid and safe start to 2024. Cary did an excellent job summarizing our first quarter 2024 results and updating our guidance for the full year. Almost 4 full months into 2024,we continue to expect that our coal sales book will be equally as strong as last year and be the anchor to deliver another solid revenue year. We entered 2024 with over 90% of our coal sales volumes committed and priced at similar levels relative to 2023. And during the quarter, we made modest updates to that contracted order book. While low natural gas prices are suppressing domestic coal demand, we continue to have confidence the export market demand will remain available to us this year supporting our sales guidance for the year. We also expect our production to be more predictable this year due to our belief that we have moved beyond the several adverse geologic areas that we faced last year. As we think about the outlook for the domestic coal industry and the markets we serve, several key themes are emerging. Data center growth driven by artificial intelligence and industrial load led by electric vehicles and battery manufacturing, are driving significant growth in anticipated electricity demand over the next several years. This outlook underscores the critical need for reliable, affordable baseload fuel for electric generation. The past few months have shown no shortage of rising concerns about the nation's grid and its ability to reliably serve rapidly increasing load expectations. While I could talk for hours about those examples, let me highlight 3 in particular. First, according to the grid -- the Clean Grid Initiatives/Grid Strategies report, the…

[Operator Instructions] Your first question comes from the line of Nathan Martin with The Benchmark Company.

Joe, Cary, congrats on the strong start to the year. I wanted to lead off with the market-related question. For '24, you guys only added about 100,000 tons looks like. And Cary, I know you mentioned how the first quarter is usually low from a seasonality perspective. But there was a bit of a shift downward in the domestic commitments and the exports increased assuming some of that has to do with the high domestic stockpiles maybe customers electing to take minimums. It would be great to get your thoughts what's driving that shift? How are conversations with customers going? Would you expect there to be any further pressure on domestic commitments, just given the mild winter and low nat-gas prices, stockpiles that we've already talked about?

Yes. I think that specific to that one minor change that did result in some negotiation to extend some tons into the out years as to where the market is continues to be pressured by low natural gas prices. We do see natural gas production being curtailed a little bit to try to bring that market back into more of a balance. We're seeing price of natural gas moving up a little bit as we speak, and we think that it will finish strong going towards the end of the year similar to what the current strip is projecting and suggesting. So -- and a lot will depend -- the answer to your question will depend a lot on what the weather is this summer because that will have an impact, obviously. But based on what we believe is the case today, we do believe that those tons that we have contracted will be delivered this year as we are guiding to. As we're looking beyond this year, we are seeing several solicitations. We've got 4 different solicitations that we are currently bidding or in negotiations for all of them are multiyear, expect or bidding or RFPs for multiyear contracts. So we feel that we're in a great position to complete this year as we're projecting the export markets, as I said in my opening comments, we believe are open to us. And we feel confident that over the next 5 to 6 years, we'll be able to maintain our volumes at current levels.

Appreciate those comments, Joe. And then maybe kind of along the same lines, '25, you did add a little bit more, maybe 700,000 tons. It looks like First, any of that, some rollover tonnage maybe you just alluded to from '24? And then maybe could you give us any commentary on what prices look like on those tons, whether it's domestic or export? Just so we can kind of compare to what we're seeing out there in the marketplace on reports that we view.

Yes. So the pricing of the contracts that we did enter into in the quarter were at levels that were quite a bit higher than what you would see as the current spot market prices. So we do believe as we move forward that our customers are recognizing that natural gas demand is going to grow because of LNG and pricing will be more constructive in the out years compared to what we're experiencing currently. I think that our customers also recognize that we have experienced inflation like most people in the world these days. And so they are so far in our conversations have been understanding that we need to make adequate margins to continue to invest in the industry to be there for the long term, to be there for them as they want to keep their plants open for the long term as well. So we're encouraged so far based on our experience, but we've got 4 other solicitations out there that we're talking to. So stay tuned.

Okay. Got it. And then maybe just a final one. Are you guys -- is the ARLP seeing any impacts from the Baltimore port outage that we're currently experiencing?

We are not. We have very little -- nothing just like one vessel that we had for the year. So most of our shipments do not go through Baltimore. So we have not seen any direct impact to us. And we really haven't seen any indirect impact at this moment in time. So it's been a nonevent for us.

Okay. Got it. Yes. I guess I should have been more specific. Just wondering if you guys were able to pick up any business because of the outage, but it sounds like no material impact in. Okay. Very helpful.

Our next question comes from the line of Mark Reichman with NOBLE Capital Markets.

Prices for Illinois Basin and Appalachia volumes were above the high end of the guidance ranges. And so I was just kind of curious if that was just do more to more export volumes. And if we are expecting the balance of the volume for 2024 to be from export -- in the export market, does that imply that maybe within your guidance range for 2024, you might be closer to the high end versus the low end? Just kind of how you're thinking about pricing for the balance of the year?

I think the pricing for the quarter reflects our contract book. So both for the first quarter and second quarter, most of our sales are based off our contracts we had going into the year. So as we go to the back end of the year, we would expect that the export pricing that we're looking at will be at lower levels, that will trend us down to the upper end of the ranges that we've given in our guidance if we're successful in achieving those prices in the $110 million to $120 million API 2 range. So that's sort of what we've targeted that we believe is reasonable for us to expect in the back half of the year for the export shipments that we're going to need to finish to complete our book for 2024.

And then could you just share some additional light on the bitcoin mining activities, I mean, including the rationale and any potential risks?

Yes. I think, Mark, just as it relates to the bitcoin mining activity, as I mentioned in my prepared remarks, it was just an opportunity that we saw due to the fact that we've got excess power at our mining operations. And back in 2020, we were just looking for a way to potentially be able to monetize that particular asset that we had. And so at that particular point in time, we chose to enter into the bitcoin mining area and purchase some miners and have been mining there ever since, since late 2020 into 2021. And -- if you look at the end of the quarter, we ended up with about 425 bitcoin at quarter end in terms of what we own. We're not actually out there buying bitcoin or anything of that nature. We're mining the bitcoin associated with these miners that we have.

And we are selling what we need to cover our expenses. So our exposure is limited. And we do have some extra capacity that we're renting out to other bitcoin miners within the data center that we've effectively built for this bitcoin mining to take advantage of the low energy cost we have.

Oh, I see. Okay. Well, I appreciate that. And just one final question. You've really done a great job growing the oil and gas business. And I was just wondering kind of how you're thinking about that going forward. I mean, right now, you're weighted more to oil. Do you see that continuing? Or do you -- I guess it's really driven by what's out there in terms of the acquisition opportunities. But do you -- will you kind of continue to maintain a preference for oil exposure or is this anticipated growth in LNG change your thinking in any way with respect to natural gas?

Our focus today and really for the last 2 years has been in the Permian Basin. So we have been more focused on the liquids side of the oil and gas space. And I think we'll continue to do that. As we do move into the Delaware, it does have a little bit more gas exposure than what we have in the Midland, but we're not changing our strategy as far as looking for more the liquid side of the oil and gas sector in our Royalty business at this moment in time.

Our next question comes from the line of Dave Storms with Stonegate Capital.

Just hoping because I know you mentioned that you're expecting 2 longwall moves in the second quarter. Do you have a sense of how many longwall moves we should expect in the second half of the year? And any logistical challenges around the additional infrastructure projects that you mentioned?

Yes. As it relates to the longwall moves, Dave, we actually have 3 longwall moves in the upcoming quarter. So one at each of our longwall operations, which would be 1 in the Illinois Basin, 2 in Northern Appalachia. If you look in the back half of the year in the third quarter, we're anticipating 2 longwall moves in the third quarter and 1 longwall move in the fourth quarter.

Understood. That's very helpful. And then you also had a little bit of outside coal purchases in the quarter. It looks like it's coming down sequentially. How should we be thinking about outside whole purchases maybe in the next quarter and then throughout the balance of the year if you have that foresight?

Yes. I think when you look at coal purchases for the year, I think they came in -- or for the quarter, it was right about $9 million or so. We do anticipate those to continue on through the balance of the year, not to that level, but I think as we look on a going-forward basis, more in the neighborhood of $5 million a quarter throughout the balance of the year.

Understood. Very helpful. And then just one more for me. Are you -- and apologies if I missed this, are you able to quantify how much of your 2024 order book is contracted and how much is exposed to the spot market?

So when you look at our 2024 order book, we've got 32.6 million tons committed at this particular point in time. Our guidance ranges are anywhere from 34 million to 35.8 million tons of overall sales. So if you take the midpoint of that guidance range, it's about 93% committed.

Our next question comes from the line of David Marsh with Singular Research.

Just echo some previous comments, congrats on the quarter, it was very good.

Thank you, David.

I just wanted to follow up on the previous question there with regard to outside volumes or outside purchases. It looked like your inventory ticked up a bit sequentially and you did produce a bit more than -- was sold in the quarter. Could you just give us a little bit better understanding of what the need is for the incremental outside purchases just because the positioning of the coal?

Yes. Really, the outside purchases really for the most part for this year is related to our metallurgical operation, and it's just a nice blend coal that we put in associated with our met tons that allows us to benefit our metallurgical sales throughout this year.

Okay. And then just a follow-up on your comments, Cary, about the notes and plan to take those out throughout the course of the year. Can you talk a little bit more? You mentioned some potential financing alternatives around those. Could you just talk about some of those alternatives? And what your timing -- how you guys feel about timing in terms of taking those notes out?

Sure. And glad to do that. I think, as I mentioned in my prepared remarks, we are looking at the options to refinance those senior notes. We -- that is what we would like to do. There are some -- the markets are open at this particular point in time. We do have a couple of different avenues that we could go down in terms of refinancing those senior notes. But I don't want to get into too much specifics as it relates to it at this point in time, but there's a couple of different avenues that we're going down at this particular point in time. As we take a look at that, we are looking to get that done here over the next 6 months or so. So hopefully, we'll be in a position to get that all completely taken care of throughout the next 6 months or so.

Well, as bitcoin mining information is interesting, maybe that helps to repay some of those lists. It sounds like you guys are not really playing to inventory that stuff. It sounds like you're going to kind of [indiscernible] to produce or inventory a little bit, I guess, just a little more insight there. That was -- that's a very interesting new information.

Yes, and to be clear on that, in terms of what we're doing right now, we're mining the bitcoin, and we're selling generally on a monthly basis to cover our operating costs. So we are actually accumulating bitcoin over time. So we do hold 425 bitcoin right now. And at quarter end, as I mentioned, that was valued at about $30 million. So we'll continue to do that. Our costs are lower than where the bitcoin pricing is today. So we would anticipate continuing to accumulate coins on a monthly basis.

Could you talk about your production rates and your production costs relative to that operation?

Yes. We just underwent the halving event here over this past month. But if you kind of take a look at the first quarter, if you just kind of look at what our average operating expense was and just kind of look at it on a per coin basis, it was a little bit over $24,000 per coin in the first quarter was our average cost as we mine these coins. So when we look at the first quarter overall, we mined 69 bitcoin in the first quarter. We retained 51 of those bitcoin in the first quarter. So we sold about 25%. Now we've got the halving event, so we'll have to see how the halving event turns out as to the amount of bitcoin that we mined here quarterly on a going-forward basis, there's a number of factors that go into that. But that kind of gives you a sense as to where we were, at least in the first quarter in terms of what our costs were and how our mining was at that particular point in time.

[Operator Instructions] Our next question comes from the line of Yves Siegel with Siegel Assets.

Cary, I'm sorry. I'm just not that up to date. What does a halving event means?

Well, -- so when you get into the bitcoin protocol and essentially, there's a finite number of bitcoin that is expected to exist over the period of time of bitcoin from the beginning to the end, basically, there's an absolute amount. And so at various points along the way, effectively, they have or essentially reduce the number of bitcoin that can be produced to try to be able to meter in the bitcoin as it goes forward to approach the ending number, the finite numbers that they're actually trying to do. So as a result, you're -- effectively your cost almost double, and you're producing about half the bitcoin that was otherwise produced in the previous 2- or 3-year period. That goes between each of these halving events. It's just part of the normal protocol of the way the bitcoin universe is set up. that people participate in.

Generally, the halving event occurs about once every 4 years.

All right. So I guess the other way to ask a question, how many bitcoins do you think you'll mine for the full year?

I think -- well, of course, the first quarter, we had the benefit of the halving event. I think when we look at the full year in total, our projections would show somewhere between 175 to 190 or so bitcoin for the year in total that we would mine. Now we would monetize some of that to cover our operating expenses. So our net would probably be, I don't know, it may be around 60% of that number or so, ultimately at the end of the day.

Yes. So that becomes material right now?

I don't know what it looks like right now.

Yes. All right. Well, moving to something else, I guess, Joe, has your strategy evolved with the changing environment? Just your remarks earlier, -- just -- it seems like a game changer in terms of the electricity consumption going forward. So -- and not only that, it sounds like there's growing recognition that renewables will continue to grow, but they just can't solve the electricity needs. So -- has that informed you to maybe tweak the strategy at all?

No. I think that in fact, I guess it's probably given us some more optimism that our coal operations will continue longer than when we started looking at some of this diversification. So we believe that our demand is going to be extended longer than what we thought at the time we entered into this type of strategy several years ago. Now as far as some of the things we're looking at because of the growth in the data centers and some of the areas of -- if you look at various components of data centers and you look at the land aspect and where these data centers are located, we see that there could be some opportunities for us in participating in that value chain in some way. So we're exploring that. So as we think about different things, we can invest in, we're very, very focused on only looking at those things where we have core competencies and that we have either relationships and/or skills that have been demonstrated by our past experience. And so as I mentioned, what's going on in the data center world has definitely opened opportunities for us to consider beyond some of the things that we've already talked about previously, of trying to work in areas that we feel like we can invest in companies and then be suppliers to those companies and/or utilize some of the technology and be able to either manufacture sale service and growing our Matrix subsidiary and other things that may relate to the significant demand that's going on, with the various technology advances that are occurring. The back of data centers, as an example, just last week in Indiana, amazon announced an $11 billion data center investment in Indiana, and Google announced a $2 billion investment in Indiana. So those are significant new adds. And we expect that several other announcements will be made over the course of this year as the United States continues to want to be a first mover in the artificial intelligence world, relative to their view of that in the national security implications of being a first mover relative to China as an example. So no, it hasn't changed. It does give us a little bit more cash flow as we think about investing I think that we also feel more confident today on oil and gas based on what -- where we see the demand for oil and gas over the next couple of decades. So we do believe there's opportunities for us to be able to invest the cash flow that we are going to have that's going to allow for it, for growth for our unitholders.

And last question. Is there an opportunity for you to grow the coal that you export to take advantage of the growth in coal demand?

We don't -- well, we see from the United States position for export thermal to be relatively flat. So we do not see that as a growing part of the opportunity that we may be able to pick up some more market share, but we don't see the actual absolute increase in demand for international markets for thermal coal. And we're not planning on that over the next decade.

We have no further questions at this time. Mr. Marshall, I would like to turn the floor back over to you for closing comments.

Thank you, operator. And to everyone on the call, we appreciate your time this morning as well as and also your continued support and interest in Alliance. Our next call to discuss our second quarter 2024 financial and operating results is currently expected to occur in July and we hope everyone will join us again at that time. This concludes our call for the day. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.