Q3 2019 Earnings Call

As a reminder, this conference is being recorded.

I would now like to introduce your host for today's topic, Tiffany Spanish natural resource partners head of Investorrelations. The same as she may begin.

Good morning, and welcome to the natural resource partners third quarter 2019 Conference call is calling thing was casting a replay will be available on our website.

Warning me today are pregnant as president and Chief operating officer, and Crystal less Chief Financial Officer. Some of our comments today main creed forward looking statements or flipping and our kids views about future events. These matters involve risks and uncertainty is that could cause they're actual adults to mix really differ from our friends looking statements.

He's ready to start discussing on our peace form 10, K. and other security in Exchange Commission filings, we undertake no obligation to revise or update publicly any forward looking statements for any reason or comments. Today also played nongaap financial matters additional details and reconciliation almost directly comparable got measures are included in our third.

Between 19, crusts really which can be found on our website.

I would like to remind everyone that we do not intend to discuss the operations are outlooks for any particular cold lefty or get into details market. Fundamentalists. In addition are afraid of general recursive public disclosure some commentary for specific questions regarding our said aspects of segment.

Now I'd like to turn the call over to pregnant as our president and Chief operating officer.

Thank you Tiffany and welcome everyone to our quarterly cool.

I'm pleased to announce but in our P. continues to generate significant amounts of cash in her attractive returns on Capitol, which allowed us to add $81 million to common unitholders equity and pay out nearly 33 million of common unitholder distributions over the last year.

Excluding discontinued operations in the one time payment received last year to satellite legal dispute, we recorded 175 million a free cash flow over the last 12 months in our consolidate return on capital employed over the same period was 16.4% with the cold segment coming in at 17% and soda.

Ash delivering almost 21%.

Cash flow cushion, which is the free cash flow remaining after mandatory debt repayments of our private placement note payments would prefer dividends and the common current current common unit distribution was $40 million over the same period.

While we have posted solve results over the last year. It has not been for lack of challenges.

Falling coal prices in particular prices for metallurgical coal or putting increasing pressure on our list c.'s.

Four of our lessees black too Black Hawk Cambria, Anna Marie have declared bankruptcy this year and foresight, our largest let's see representing roughly 25% of our coal segment revenues has recently entered into a forbearance agreement with its lenders.

Falling cold prices have not yet had a significant direct impact on our results, but we believe that's about to change as contracts entered into last year by our last they use expire and are replaced with new contracts and what we believe will be lower prices.

We do not have the same visibility into this process as do our last these we anticipate our coal revenues to be significantly lower in the months ahead than we've experienced in the recent past.

When combined with the 40 plus per cent distribution cut to finance the capacity expansion at our soda Ash joint venture announced last quarter, we expect our cash flow cushion to shrink considerably.

Despite this negative sentiment we are confident however that the progress made in recent years to reduce debt builds liquidity and streamline costs positions us well to ride out. This storm we are in a much better position and during the 2015 16 downturn.

We believe we will continue to have ample cash flow and liquidity to run our business pay our obligations and make distributions to our common in prefer to eat at holders. We also expect to continue our multi year trend of reducing debt, albeit at a slower paced than we've delivered in recent years.

$112 million cash.

For your bank facility with 100 million available borrowing capacity and no parent company bond maturities for over five years I'm confident we have the financial strength.

Dorm walk continuing to build common unit hold directly.

Without I'll turn it over to Chris to cover our financial performance.

Thank you Craig and good morning, everyone.

During a third quarter, we generated 42 million of operating and free cash flow and 39 million of net income.

Basic in deleted earnings per common unit for the third quarter were $2.53 per unit in one dollar and 66 cents per unit respectively.

Our call Realty segment, generating 41 million of operating cash flow 42 million of free cash flow and 40 million of net income during the third quarter of 2019.

Despite we can call markets overall results from our Cobra multisegment relatively flat compared to the prior your quarter increases in certain areas were offset by reduce <unk> realizations and other properties.

Specifically.

11 million of total increases from games on asset sales and disposals additional minimum least revenue and additional least amendment t. revenue, we're all set.

9 million of total decreases in cold royalty processing and transportation revenues driven by the weekend coal markets. The temporary idling certain properties did olesky bankruptcy's any idling of our pinnacle properties has to fourth quarter of 2018.

In total <unk>, let's see sold 5 million tons of our coal.

During the third quarter of 2019, and we saw a coalfields prices began to decline as a result of the we can call markets.

It turns or a <unk> sales mix metallurgical call made up approximately 55% of our total cold World T. sales volumes and approximately 60% of our cold world to revenues during the third quarter.

Losing onto our second business segment or soda segment generated 14 million of net income and 6 million of free cash flow during a third quarter of 2019.

That income increased 5 million compared to deprive your poor as a result of increase production in sales volumes and increased domestic and international sales prices compared to the prior quarter.

We receive $6 million less free cash flow from general I only get a third quarter of 2019 compared to the prior Porter.

Discussed in our previous attorneys call. This decrease is due to general findings distribution reduction in order to find an expansion project that is intended to provide significant increases in production capacity free cash flow and cash distributions to entropy over the long term.

We expect to receive approximately 25 to 28 million of annual cast distributions from general filming for the next two to three years.

Our corporate financing segment costs, and the third quarter were 15 million down 6 million or 30% compared to pry. Your Porter, primarily due to lower interest expense, resulting from the $263 million of debt, we prepaid over the last 12 months.

Regarding distributions, we paid a quarterly 45 cents per unit distribution to our common unit holders and a quarterly cash distribution.

1.5 million <unk> holders in August .

In October we declared another quarterly cash distribution at 45 cents for common unit and a 7.5 million cash distribution door prefer gentleness.

[laughter].

And with that altering the call back over to the operator for questions.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad <unk> roster.

Your first question comes from Mark Levin <unk>. Your line is okay.

Great up a couple of quick questions one related to the some of the some of the items that you called out the 6.1 million dollar gain on asset sales and disposals, and then roughly three and a half million of increase minimum revenues related to Hillsborough I can you talk maybe about the repeatability of of of those as we kind of model out key for.

<unk> can you do 2020, or there's just discrete one time items or should we be thinking about additional asset sales and disposals and also how to think about the increased minimum a straight line revenue from <unk> going forward.

Short. Thank you Mark this is Chris the the gain on asset sales, we we had about $6 million this quarter and that was primarily related to a an asset sales disposal similar to other transactions. We've had in the past like imminent domain transactions or or or right of way easement type of transactions you know that's something that's that.

That does happen to in our business, but we don't plan on that those types of transactions. The other Hillsborough that is something that we do expect to be ongoing going forward.

Okay, Great and then you know you reference. So this this quarter I think you had your last you sell about 5 million tons of coal and then during Craig's comments, obviously reference to number of the last season <unk> you know that had gone bankrupt and clearly there's a lot of weakness in the back home market with people idling <unk> I realize you don't give guidance other than to say that.

You you you expect it to be materially weaker right can you yeah, I from what you're seeing I mean, and and as we kind of think ahead I assume 5 million is not the the the proper run rate to use going forward, but any way to think about how to model volume's going forward given all of the things that we're seeing in the market right now.

Hi, Mark. This is correct, we don't have that visibility. Unfortunately, and this is budget season for 2020, with our less ease and with us and what what we observe is that the greater the level of uncertainty as to what the market's gonna look like in the coming months.

Later, the budget cycle tends to to conclude so we just don't have good visibility from our lessees, yet I think it's because they really haven't made their decisions and put their contracts and place yet either.

That's that's a fair point I think I'm, Craig you'd reference once before that you would look at the 2015 2016 collapsing met prices when.

Seaborne premium level met prices went below $100 a metric ton and stayed there for quite awhile I think you would reference maybe it was that our conference or another venue that hum you'd stress tested the the the cash flow against Hmm, you know that type of a market. Maybe you can refresh us that doesn't seem like things are going to get that.

But of course them at prices out of everybody's control and it's very macro driven but maybe you can give us some color about what you learned if you took that 2015 2016 mortgage and overlaid it with you know what what 2020 could break.

Yes, Yeah, what we've said before is that we felt we would still have a positive cash flow cushion, albeit a modest one if we were it to go through a 2015 16 environment again, which I think in many respects. We can argue that we've we've we're in in some portion of you know I have some similarities to where we are.

Today to that period, then as far as what what that means to us I I, we still think that if that were to happen again, we're going to be.

<unk> going to decrease substantially.

We still think we'll we'll be have sufficient cash location to do what we need to could eat go negative for a quarter or two or.

Potentially yeah, but I think are sustainable basis year over year I.

I think we still have the ability to to do with things. We said earlier that to continue to run our business.

Debts and continue to pay down debt.

And that and then obviously takes into account or into consideration lower cash distributions from center, Wyoming General Wyoming.

Yes, it does <unk>.

Then the last question I was going to ask just has to do with all the bankruptcy's you'd referenced in your in your prepared remarks, maybe again, you can sort of refresh US with you know you went through a a previous round of bankruptcy through the coal industry. Several years ago during that last sort of met coal price wash out.

Can you maybe remind us you know how the courts treated some of you release contracts or what what what what what was the eventual results of what you learned from going through that process and how that may relate to what you're going through now or what what what we're or maybe even which different this time around if anything.

What I'd like to comment on with that markets is just the principal underlying economic driver I think it is is really the key factor that determines the outcome of our assets.

Leases in any bankruptcy I think it falls back on one fundamental premise and that is.

If the underlying operation is actually profitable, it's economically viable over the long term.

And it will emerge from bankruptcy and continue operating there may be some temporary idling during the the the bankruptcy process. There may even there may be a delay in cash receipts and cash from that asset for us while the bankruptcy proceedings are taking place but anyway.

If an operator can make money with that property for the long term that property invariably emerges from the bankruptcy process operating.

And are we tend to not have any material change in our in our cash flows contract structure to the negative on the other hand, if you if the asset to which you've least to an operator is not profitable.

If it's if it's marginal just losing money if it has excessive liabilities for the operator associated with it.

But make it a bad economic proposition for for that operator for another operator, the chances are that the contract structure contract trucks structure, we have won't protect us.

We've been fortunate I would say through the vast majority of bankruptcy's, but at least we endured from 2015 to now that we've not we've not had significant amounts of of properties that were not viable into bankruptcy process not economically viable. So they've survived the bankruptcy process and our contract structure for the.

The most part is remained intact, but it's all it's a case by case basis and it depends on the quality quality assets.

Great. Thank you very much color correct. Thanks.

Thanks for the questions.

Once again, if you'd like to ask the question. Please press star followed by the number one on your telephone keypad.

We have no further questions I turn the call back over to the presenters for closing remarks.

Thank you everyone for joining us on this call and we appreciate you follow and NRP in your investment in RP, We look forward to talking to you soon have a good day bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.