What Alliance Resource Partners (ARLP) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: Revenue rose 5.5% year over year to $603 million, while net income increased 46.8% to $139.6 million and adjusted EBITDA grew 26.3% to $233.9 million. Results were aided by higher coal shipments, Hamilton mine production returning, and the AllDale III and IV royalty acquisition.
• Coal operations improved: Coal volumes increased 7.4% to 9.3 million tons, while lower expenses per ton offset weaker average pricing. A new multiyear Mettiki agreement will return nearly 150 miners to production and is expected to boost 2027 output by about 550,000 tons.
• Royalty growth strengthened cash flow: Royalty revenue climbed 52.5% to $87.5 million, led by record oil-and-gas volumes from AllDale. Free cash flow reached $198.6 million, distribution coverage rose to 1.76 times, and ARLP tightened its 2026 coal-volume and pricing guidance.

Alliance Resource Partners NASDAQ: ARLP reported higher third-quarter 2026 revenue, earnings and adjusted EBITDA, supported by stronger coal shipments, the return of longwall production at its Hamilton mine and the first full-quarter contribution from its AllDale III and IV oil-and-gas royalty acquisition.

Total revenue increased 5.5% from a year earlier to $603 million. Net income attributable to ARLP rose 46.8% to $139.6 million, or $1.08 per basic and diluted limited partner unit, while adjusted EBITDA attributable to ARLP increased 26.3% to $233.9 million.

Results also improved sequentially from the second quarter. Revenue rose 9.3%, net income increased 75.5%, and adjusted EBITDA attributable to ARLP grew 26.4%.

The partnership said net income benefited from a $16.5 million increase in the fair value of digital assets and a $6.3 million non-cash gain from remeasuring its prior equity interest in AllDale III following the acquisition of AllDale III and IV. Those gains were partly offset by higher income-tax expense and a $7.3 million loss on derivative instruments assumed in the acquisition, including $6.7 million that was unrealized.

Beginning this quarter, ARLP changed its adjusted EBITDA presentation to include non-controlling interests and report adjusted EBITDA attributable to ARLP, excluding amounts attributable to non-controlling interests in AllDale III and IV and Cavalier Minerals. Prior-period figures were adjusted to conform with the revised presentation.

Coal operations benefit from higher volumes and lower costs

Coal sales volumes reached 9.3 million tons, up 7.4% year over year and 9.2% sequentially. Coal segment adjusted EBITDA increased 18.6% from the prior-year quarter to $186.8 million, as higher volumes and lower expenses per ton outweighed lower average realized pricing.

Average coal sales price declined 8.3% year over year to $53.93 per ton, primarily because of a larger mix of lower-priced Tunnel Ridge volumes. Segment adjusted EBITDA expense per ton improved 13.1% to $35.64. The resulting spread between sales price and EBITDA expense widened to $18.29 per ton from $16.19 per ton in the second quarter.

In the Illinois Basin, volumes increased 6.4% year over year to 7 million tons, driven by Hamilton’s resumption of longwall production. Illinois Basin adjusted EBITDA rose 32.6% to $139.8 million, while adjusted EBITDA expense per ton fell 10.2% to $31.77.

Appalachia coal sales volumes climbed 10.7% to 2.3 million tons on strong Tunnel Ridge sales. However, average pricing in the region fell 25.1% to $62.35 per ton due to the larger Tunnel Ridge sales mix. Appalachia expense per ton improved 19.9% to $46.25.

Chairman, President and Chief Executive Officer Joe Craft said Hamilton set monthly production records in July and August after returning from an extended move and was the company’s lowest-cost operation during the quarter. He said the fourth quarter’s Illinois Basin cost performance should be comparable, while 2027 should benefit from a full year of Hamilton production.

Mettiki agreement restores production plans

ARLP also announced a new multiyear coal supply agreement for its Mettiki operation, which had suspended mining after the partnership issued a WARN notice during the first quarter. The agreement will allow the mine and nearly 150 miners to return to production.

The mine is transitioning from longwall mining to two room-and-pillar sections operating two shifts per day by the end of the first quarter of 2027. ARLP expects Mettiki’s 2027 production to be about 550,000 tons higher than its 2026 production, with lower EBITDA expense per ton.

Craft said the agreement with Mettiki’s largest historical customer reflected the mine’s importance to the customer’s security of coal supply as it evaluates electricity demand tied to data-center contracts. He added that the revised mining approach could provide flexibility to participate selectively in the export metallurgical coal market.

ARLP said it added 4.2 million committed and priced coal tons through 2028 during the quarter. It has 31.7 million tons committed and priced for 2027, including 700,000 tons related to Mettiki’s new agreement. Export commitments total 3.7 million tons for 2026 and 3 million tons for 2027.

Craft said export volumes have exceeded expectations, although barge capacity constraints and higher transportation costs could limit growth. If logistics conditions improve, he said ARLP could potentially exceed this year’s coal sales volumes by 500,000 to 1 million tons without additional investment or operational changes.

Royalty business posts record revenue and volumes

Total royalty revenue rose 52.5% year over year to $87.5 million, while royalty segment adjusted EBITDA attributable to ARLP increased 40% to $61.8 million.

The oil-and-gas royalty segment recorded quarterly records of $59.8 million in revenue and 1.45 million barrels of oil equivalent in volumes, largely reflecting the AllDale III and IV acquisition. Oil-and-gas royalty adjusted EBITDA attributable to ARLP increased 61.4% from a year earlier to $43.6 million.

Average sales price per barrel of oil equivalent rose 15.5% year over year to $41.21, as higher realized crude prices more than offset a greater natural-gas weighting after the acquisition. Sequentially, the average price declined 16.6% due to lower realized crude prices and the higher natural-gas mix.

Chief Financial Officer Cary Marshall said ARLP expects volume growth in 2027 even without further acquisitions, while also continuing to pursue royalty acquisitions and reinvest cash flow from the business. The partnership is completing reserve studies and expects to provide 2027 guidance with fourth-quarter results in February.

Cash flow strengthens as company tightens outlook

Free cash flow totaled $198.6 million in the quarter, while distributable cash flow rose about 29% from a year earlier to $136.8 million. Distribution coverage increased to 1.76 times.

At Sept. 30, total debt and finance leases stood at $679.9 million, with net debt of $595 million. Total and net leverage were 0.89 times and 0.78 times trailing 12-month adjusted EBITDA attributable to ARLP, respectively. The partnership ended the quarter with $430.8 million of liquidity and held 673 Bitcoin valued at $56.3 million.

Marshall said ARLP expects to amortize a new $150 million, 18-month minerals debt facility using cash flow from its minerals business. Craft said the partnership intends to maintain distribution coverage of at least 1.5 times on a sustained basis before considering an increase in its distribution.

For 2026, ARLP tightened its coal guidance and now expects sales volumes of 34.5 million to 35.5 million tons, coal sales pricing of $54.25 to $54.75 per ton, and segment adjusted EBITDA expense of $37.50 to $38.50 per ton.

About Alliance Resource Partners (NASDAQ:ARLP)

Alliance Resource Partners, L.P. NASDAQ: ARLP is a diversified natural resource company headquartered in Tulsa, Oklahoma. The company's primary business is the production and marketing of coal, which it supplies to electric utilities and industrial customers in the United States.

Alliance Resource Partners operates coal mines in the Illinois Basin and Appalachia, producing primarily thermal coal used for electricity generation. Its operations include underground and surface mining, coal processing, transportation and marketing activities.

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