Q4 2019 Earnings Call
Ladies and gentlemen, and welcome to the natural resource Partners LP fourth quarter 2019 earnings Conference call.
As a reminder, this conference call is being recorded.
This time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
Require any further assistance please press star zero.
I'd now like to introduce your host for today's conference typically Sammis natural resource partners manager Investor Relations Ms. Sammis you may begin.
Good morning, and welcome to natural resource partners fourth quarter 2019 conference call todays call is being webcast a replay will be available on our website joining.
Joining me today, our Craig Nunez, President and Chief operating Officer, and Chrysalis Chief Financial Officer.
Her comments today.
Forward looking statements, reflecting NRP isn't views about future events.
Matters involve risks and uncertainties that could cause our actual results may materially differ from are forward looking statements.
The risks are discussed in interviews form 10-K, another securities and Exchange Commission filings, we undertake no obligation to revise or update publicly any forward looking statements for any reason.
Our comments today also include non-GAAP financial measure additional details and reconciliations to the most directly comparable GAAP measures are included in our fourth quarter 2019 press release, which can be found on our website.
I would like to remind everyone that we do not intend to discuss the operations our outlook for any particular coal left the Oregon into detailed market fundamentals.
In addition, I refer you to general resources public disclosures and commentary for specific questions regarding our soda ash and stuff like that.
Now I would like to turn the call over to crack minutes, our president and Chief operating officer.
Thank you Tiffany and welcome everyone to our quarterly call I'm pleased to announce that NRP continues to generate significant amounts of cash which allowed us to pay off $163 million of debt at 62 million to common unit holders equity before non cash accounting impairments and pay out nearly 33 million up.
Common unit holder distributions over the last year.
Excluding discontinued operations, we recorded 139 million or free cash flow over the last 12 month and our consolidated return on capital employed before impairments 16.1%.
With the goal segment coming in at 18.3, and soda Ash delivery 19.
Our cash flow cushion, which is the free cash flow remaining after mandatory debt repayments of our private placement notes payments of preferred dividends and the current common unit distribution was $7.8 million over the same period.
I'm also very pleased to announce that the long standing lawsuit against us by Anadarko has been resolved with the court ruling in our favor in all respects and zero liability for NRP with this matter behind US we have no material litigation outstanding.
We are especially pleased that we have been able to continue executing on our multiyear plan to de lever and de risk our business. During what has turned out to be a challenging time for the coal industry in general and a financial crisis for a number of our lessees in particular as pointed out in previous calls a number of our live.
Sees went bankrupt last year and foresight, our largest Leslie has been in a forbearance agreement with its vendors since October. The fact that we have been able to generate solid operating and financial performance. In spite of these development makes it clear that the actions we took in recent years to fortify our finance.
I will position and streamline our cost structure are now paying off.
We believe we are well positioned to continue paying down debt and making distributions to our unit holders despite the challenging business environment.
Even at current benchmark prices for met and thermal coal, which are down approximately 30% and 45% respectively from the average prices as recently as the fourth quarter of 2018.
We expect our coal business to generate robust free cash flow.
And our soda ash investment, which has recently seen its cash distribution to reduced to fund a large expansion project said an annual production record in 2019 and is positioned to deliver higher cash distributions following completion of the plant expansion.
In our peace cash flow cushion remains in positive territory, and we have almost $200 million of liquidity should we needed consisting of 98 million of cash and 100 million of untapped borrowing capacity. Additionally, our parent company bonds have more than five years before maturity and our bank facility, which is.
Undrawn has over three years of life remaining.
Against this backdrop, the rising tide of sustainable investing has resulted in a level of investor activism that few would have envision not long ago.
Impact on companies with exposure to thermal coal has been significant with some institutional investors, even going so far as to van companies from their portfolios that have thermal coal exposure exceeding certain thresholds.
While bias against thermal coal investments has been most visible in the equity markets. The trend is also alive and well in the bank and bond markets. Even the insurance market is taking notice as several large casualty insurers recently announced plans to stop underwriting liability insurance for thermal coal companies all.
Which leads to the questions.
What are we at NRP doing in response to lives quite a lot I'm pleased to say.
We took numerous transformative actions in recent years with the goal of Rightsizing, our business solidifying our capital structure and providing the financial flexibility to live within internally generated cash flow.
Since we cannot control capital providers appetite for our business, we've been laser focused on minimizing the need to ask for money.
This was the driver last year and behind the extension of our debt maturities as far out in the future as possible to minimize the likelihood of having to source external capital for refinancing.
We worked hard to prepare our business and capital structure for anything the market find throw away.
So to sum it up coal markets are challenging soda ash distributions are down as we build cash for expansion and many investors are skeptical of coal all the while our businesses continue to generate robust amounts of free cash flow, which we are using to pay down debt build partner's equity.
And paid distributions to our unitholders with that I'll turn the call over to Chris to cover our financial performance.
Thank you Craig and good morning, everyone.
I'd like to start out summarizing some significant items that are impacting comparisons between 2019 in 2018.
Starting with items that occurred in 2019.
First we recognized $148 million asset impairment expense in the fourth quarter.
As a reminder, asset impairment is a noncash expense and does not have an impact on our debt covenant compliance.
And second we recognize the 29 million loss on early extinguishment of debt in connection with refinancings of or bonds and revolving credit facility.
These refinancings reduced our ongoing interest cost extended maturities and significantly improved our liquidity and financial flexibility.
Moving to items that occurred in 2018.
First we recognize 18 million of noncash asset impairment expense.
In our 2018 fourth quarter results were impacted by the Hillsboro litigation settlement with fore sight, which resulted in the receipt of 25 million of cash that was recognized as other income in Q4 2018.
And lastly, our full year 2018 results included a 13 million gain in our soda ash segment related to a royalty dispute litigation settlement.
With all of that being said, let's discuss our overall fourth quarter and year end results.
During the fourth quarter 2019, we generated 19 million of operating cash flow and $28 million net income from continuing operations, excluding the impact of asset impairments.
Full year 2019 amounts were 137 million of operating cash flow and 123 million of net income excluding asset impairment.
Moving to our segment results are co royalty segment generated 41 million of revenue and other income and 39 million of operating cash flow during the fourth quarter of 2019.
Full year 2019 amounts were $217 million of revenue in other income and 179 million of operating cash flow.
These results were lower compared to the prior year periods, primarily due to two main factors.
First was weak in metallurgical and thermal coal markets.
Second was a 25 million onetime payment we received from the Hillsboro litigation settlement in the fourth quarter of 2018.
These two drivers of our low results in 2019 were partially offset by increased revenues from our Hillsboro property that began to ramp that we began to recognize in 2019. After the completion of the litigation settlement with fore sight.
Additionally, full year 2019 results benefited from a 16 million increase in revenues related to lessee forfeitures of Recoupable balances from minimum is paid in prior years.
In terms of our co royalties sales mix metallurgical coal made up approximately 45% of our total coal royalties sales volumes and approximately 60% of our co royalty revenue during the fourth quarter of 2019.
And met coal made up approximately 50% of sales volumes and 65% of sales revenues for the full year 2019.
I'd also like to point out the while a number of our lessees went through the bankruptcy process in 2019, let's see bankruptcies had a minimal net impact upon our 2019 financial results as bad debt expense from bankrupt lessees was offset by lease amendments we executed during the bankruptcy process for certain leases that generated cash.
Cash flow in revenues, we recognized in 2019.
And finally as previously mentioned our 2019 coral He segment results were impacted by 148 million of noncash asset impairments in the fourth quarter.
Moving to our second business segment soda Ash, we received 6 million and 32 million of cash distributions from general Wyoming during the fourth quarter and full year 2019, respectively.
This compares to 10 million and 47 million in the comparable prior year periods.
As discussed in our previous earnings call the managing partner of generating decided to reduce distributions during 2019 to fund a multiyear capacity expansion project that is expected to result in higher future earnings and cash distributions.
As a result, we expect to receive approximately 25 million to 28 million of annual cash distributions from general roaming until the project is funded.
In regards to our soda ash business operating performance net income decreased 3 million compared to the prior year quarter, primarily due to a 4% decrease in average sales price and a 1% decrease in sales volumes compared to prior year quarter.
For the full year 2019, our soda ash net income decreased 1 million from 48 million in 2018 down to 47 million in 2019.
Excluding the impact of a $13 million gain from a royalty dispute litigation settlement in the third quarter 2018.
Our full year 2019, net income increased 11 million compared to the prior year as a result, a record 2019 soda ash production of 2.7 million short tons and a slightly average sales price in full year 2019.
Our corporate and financing segment costs declined 8 million in the fourth quarter 2019, compared the prior year quarter, primarily due to lower interest expense as a result of to $163 million of debt, we've repaid over the last 12 months.
Cash paid for interest in the fourth quarter of 2019 increased 15 million as compared to prior year quarter. As a result of the timing of interest payments on our parent company bonds that were refinanced in the second quarter 2019.
We pay interest on our Nu parent company bonds in June in December compared to paying interest in March in September on the previously issued parent company bonds.
For full year 2019, our corporate financing segment cost increased 7 million compared to the prior year as a result at the 29 million loss on early extinguishment of debt we recognized in the second quarter 2019 in connection with their debt refinancings.
Excluding the impact of this loss, our corporate and financing segment cost decreased 22 million in 2019 as compared to prior year, driven by less debt and lower interest expense.
Regarding our common and preferred unit distributions, we paid a quarterly 45 cents per unit distribution to our common unit holders and a quarterly cash distribution of 7.5 million to our preferred unit holders in the fourth quarter of 2019.
Full year 2019 quarterly distributions were $1.80 per common unit and 30 million to our preferred unitholders.
In addition, we paid an eight.
Per unit special distribution in May 2019 to our common unitholders cover their tax liability, resulting from the sale of our construction aggregates business in December of 2018.
And finally in February this year, we paid a quarterly cash distribution of 45 cents per common unit and a 7.5 million cash distribution to our preferred unitholders.
And with that I'll turn it back over to the operator for questions.
Thank you and as a reminder to ask a question you'll need to press star one on your telephone and withdraw your question principal powder Heskey.
First question his remarks 11 with benchmark company. Your line is open.
Great. Thanks, very much and congratulations on navigating through very very challenging times.
First question has to do with just sort of housekeeping question for 2020, the up the mandatory principal payment kieser, Bobby would that figure is.
Sure Mark on or on our Opcos senior notes, that's about 45 million.
45 billion this year got it Okay and then one of the things just looking at kind of the other revenues. This year production lease minimum there's a minimum lease straight line revenues.
Pretty big step up so in total almost $40 million versus the year earlier $10 million.
Can you maybe give us some thoughts about.
How does how to think about going forward given sort of all the all the activity that's been going on in the coal industry. Those two line items specifically.
Sure Mark So like I said in my prepared remarks, we had some significant items in 2019 that are.
Impact comparison, one of those was was those forfeitures of lessee receivable balances that was increased about 16 million in 2019.
So thats something that was that was so one time.
Event that we can't expect to to continue going forward.
And in regards to our minimum straight line revenues that that was also mentioned is the additional revenue we recognized in 2019 compared to 2018, primarily driven by the the Hillsboro revenue that we're now recognizing after the litigation settlement, which we do expect that to continue and that will obviously will will recur.
Got it okay fair enough and so that number will obviously be less than.
More than the tend that you had 18, but less than the 38, obviously that you got 19.
Right.
Great. Okay, and then just in general.
And I know, it's a fore sight is going through it forbearance as one of your largest lessees, but just generally speaking is there any any anything you can say about how that process.
Effects or will affect NRP in 2020.
Hi, Mark this is Craig.
What we can say of course is that we follow the them as you are in the public markets and to the extent they have a restructuring a bankruptcy a problem something along those lines. We suspect that we'll have the same issues. We've had with other bankruptcies in the numerous bankruptcies we've gone through.
The past, we don't have any insight at this point on exactly what that May mean for us will add mean that our cash flows will be reduced or or will they stay the same or are we don't we do know that we've been quite successful throughout.
Past, which we've had quite a number of bankruptcies over the last five years and restructurings with lessees and we've been quite successful.
Essentially.
Maintaining our to our terms and maintaining our cash flows from those those those.
Those bankruptcies as we've talked about previously on earlier calls the key driver as to whether or not.
Our leases continue to produce and continue to generate royalty revenues for us and minimum payments for us and the like is the actual economic viability of the properties themselves as the assets are more profitable than they tend to keep operating regardless of who the operator.
For his and regardless of what the bankruptcy settlement is.
And we tend to keep getting paid if those those mines are not profitable if they were not economically viable and those are usually the assets. They get shares in the bankruptcy process fortunate thing about fore sight.
We're not the operator, but.
Here is that those are their assets or some of the lowest cost.
As long as cost mine decent Mississippi.
So.
They are pretty good assets to have.
Got it very very helpful. And then Greg I know in the past you've not wanted to give you necessarily a leverage target and I understand that it's clear that you want to continue to you know to reduce debt I think that's that's prudent but I'm just curious around free cash flow cushion I think you mentioned $8 million last year and that being the more relevant metric.
Terms of what excess cash ultimately looks like is there a number from a free cash flow cushion perspective that I mean, it does it just simply need to be positive or is there a number or something that you're kind of looking to you know we're targeting.
Don't have a target on free cash flow cushion what I will tell you is that.
Hi, My gut looking out at the landscape today. My gut tells me that I think we're going to have a positive margin say in the next 12 months.
And.
I think that would be good in this environment to maintain a positive free cash flow margin because that cushion to Houston because that means that we are continuing to de lever and continuing to pay our distributions.
And so improving the balance sheet de risking the business.
By the the environment.
And it sounds like your talk just from your comments it sounds like you're confident that despite the environment that you should be able to maintain the common distribution is that fair statement or about putting words in your mouth.
Well my lawyers always say be careful whenever you used the words confident for anything but thats our plan.
Got it Okay fair enough and then just the last question and I'm fairly confident.
You know.
You won't be able to give any guidance here, but I'll I'll, Alaska. Nonetheless, just kind of looking at your sales volume in in 2019, it was roughly 23.7.
Versus 26.9 in 2018, and you've got some lessees that are obviously the thermal market is under.
Under threat and even the even the met market while prices of recoveries, there is still pretty pretty tough environment any Atlantic basin, but.
26, nine to 23, seven any any thoughts.
So you know as to as to what that number could look like in 2020, and I know you're going to say no guidance, but just maybe even generally speaking what the with the expectations are what you see out in the landscape.
Well my my gut just tells me looking at it but I don't think we're going to have material changes on it but that's just okay. Since we don't we don't operate.
We don't operate we don't work the mine plans per se.
It's hard for us to give that guidance.
At all any guy should all along that just because.
We have a little more insight probably than and.
Just someone looking from the outside in but we don't operate and we don't make those operating decisions.
But it doesn't even from from your perspective, though it doesn't look like there is a catastrophic fall kind of what you can tell obviously anything can happen, but but.
Doesn't look at the at least at this point in time is something something I wouldnt.
I would not I would not NV I would not envision anything.
As you define it catastrophic as you say catastrophic absence, some catastrophic corresponding change in the the economic environment.
Okay great.
There you know.
That's perfect. Thanks, I appreciate all the color.
You got it.
And again, that's star one when your telephone to ask a question for next question is from Nick Jarmoszuk with Stifel. Your line is open.
Hi, good morning.
Given that the.
Opco amortization is are lower in 2020, how do you think about buyback opportunities with the Holdco notes.
Buyback opportunities with the Holdco notes.
Yes.
Well.
Always like to buy a dollar for something less than a dollar if you can.
And.
In order to so.
Looking at buying back debt would always be on the table.
With excess cash that we deem that we had and I can say that we'll consider that.
It's not been a big push yet because we have been having a great deal of uncertainty in our operating environment.
And as long as we have that we'd like the idea of having a significant cash flow cushion or.
Having a significant amount of cash liquidity on hand.
But.
Thats, all I can say about them.
Okay, and then on the four sites situation can you talk about how you are managing receivables are they on cash terms or whats the age of their receivables are.
We don't ever disclose that information for any lessees at all.
I would I guess, what I would direct you to is our fourth quarter results.
That was.
Foresight was as we understand it was in the same.
Forbearance situation in Q4 that they are in.
Say now and as you can tell from our results that there was no material impact to our results in Q4.
As a result of fore sight.
And one other thing you can look at as our accounts receivable balance compare that in what we had in 2018 compared to what we have the into 2019.
Okay, It's gone down a couple of million.
Okay. So is it fair to say that is a lessees starts becoming stress you become more active in managing that credit risk.
Yes.
I guess conceptually, yes, it's fair to say that but I would say that we are always extremely active at managing lessees AD and if if we are.
Not actively managing them in advance of them becoming.
More financially stressed them, we're probably not looking ahead as wells, we should be so we try to stay ahead of the game.
Okay.
And then while.
We're monitoring public developments on fall just as you are have there been any discussions with Philip regarding the structure of.
ER of their leases.
Well as we said that as of late as we said that as we said at the beginning of the call and as we've done repeatedly over the years with with every company every lessee we've had thats.
Been and financial difficulties in bankruptcy, but close to bankruptcy or bankruptcy.
We just cannot comment on any of that at all whether we are or or not in discussions with them about anything I will say that.
If you look back throughout the bankruptcies that we've had.
Theres theres not a lot of record of reach.
Renegotiating the terms of our leases.
The detriment of of the company to have in RP.
Okay.
Thats all ahead. Thank you.
You bet thanks for the questions.
There are no further questions at this time, we'll turn the call back over to Mr. news for any closing remarks.
Thank you everyone for joining our call. We appreciate your interest in NRP, we've been getting a lot of calls from a number of view and and.
Appreciate I appreciate your support.
Thank you and until next quarter take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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