Q1 2020 Earnings Call

During the session you wouldn't get depressed so one.

So if you require and you've heard assistance. Please press star Zero I will now like to turn the conference over to your speaker today, Tiffany San <unk> Investor Relations. Please go ahead.

Good morning, and welcome to the National Research Partners first quarter 2020 conference call today's call is being webcast a replay will be available on our website.

Joining me today, our Craig Nunez, President and Chief Operating Officer, Chris Nolan Chief Financial Officer in Kevin Craig Executive Vice President of coal.

And my comments today may include forward looking statements, reflecting NRP views about future that.

He's matters involve risks and uncertainties that could cause our actual results to materially differ from afterwards looking statements.

He's really start to stuff and our peace form 10-K in other Securities Exchange Commission filings.

We undertake no obligation to revise or update publicly any forward looking statements for any reason our comments today, all non-GAAP financial measures I.

Additional detailed and reconciliations to the most directly comparable GAAP measures are included in our first quarter press release, which can be found on our website.

I remind everyone that we do not intend to discuss the operations our outlook for any particular colletti are detailed market sentiment fundamentals.

In addition, higher free degenerate resources public disclosures and commentary for specific questions regarding our soda ash that segment.

Now I would like to turn the call of <unk>, Craig Nunez, our president and Chief operating Officer.

Thank you Tiffany good morning, all I hope you and your loved ones are safe and healthy.

Cobot 19 has changed the way, we live work and interact with others. It has familiarized us with telecommuting contact tracing and zooming.

It has reminded us of the importance of the people in industries are central to our way of life.

And the difficulties that result, when those people and activities are threatened.

Most importantly, it reminded us that we're all in this together.

I hope that in the years to calm everyone. We'll look back with pride and how they responded to this challenge and those who come after US we'll say that this generation of Americans power generation was the strongest they need to come before or since.

I'm pleased to announce that we and NRP are doing our part.

We continue to operate under CDC guidelines government imposed rules and company remote work protocols.

Our employees are safe and the partnership is conducting business as usual.

Our succession management plans and delegation of authorities are in place we need them.

Our conservative financial approach the hard work of our team.

The support of our bank debt and equity holders in recent years are now paid off.

We have robust liquidity, consisting of $107 million of cash and 100 million of available borrowing capacity.

We continue to generate significant free cash flow.

Our parent company bonds do not mature until 2025.

All of which provides us with a great deal of financial flexibility to manage through this pandemic.

We recorded $146 million free cash flow over the last 12 months.

Paid off $93 million of dead.

Added $41 million to common unitholders equity before noncash accounting impairments.

Paid out 32 million of common unitholder distributions.

Our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortization and distributions on our common and preferred units was $35 million over the same period.

Well the cobot 19 pandemic did not have immaterial impact on our first quarter results.

We believe that declining demand for steel electricity in class will negatively impact our cash flow in the months ahead.

Falling prices for metallurgical and thermal CRO or protein operators cost of production.

Nine of our lessees have idled operations on various NRP properties over the last month.

While these sizably idlings have been characterized as temporary and most have already resumed operations.

Fair to say that our lessees are having a tough time.

The soda ash market has been hit by significant drop in demand for flat class.

Specifically glass used an automobile manufacturing.

Global soda ash prices have declined approximately 20% since the fall.

Well, we cannot predict the extent to which our company will be impacted by these events. We do expect our cash flow cushion to go negative in the months ahead compared to 35 million positive Christian realized over the last 12 months. Despite that we believe that are significant liquidity buffer you can.

Can you free cash flow generation will provide us with the financial flexibility and to the margin of safety necessary to continue operating business as usual, which includes a pain are amortizing debt when do.

As you're aware, we announced two weeks ago that we're not going to pay the common unit distribution that would have been paid this month.

That decision is consistent with the financial strategy, we've employed in recent years to de lever and de risk the partnership.

It is my hope that we will feel comfortable reinstating the distribution in August, but we must wait to see how the covert 19 situation plays out over the coming months before making that decision.

In many respects, we now face the most uncertain business environment in a generation.

I am pleased and confident that the numerous transformative actions completed in recent years to rightsize, our business solidify our capital structure and build liquidity have positioned in RP well to weather the storm and continue executing on our multiyear plan to enhance unitholder value by deal.

Levering and de risking our capital structure.

And with that I'll turn the call over to Chris to cover our financial results.

Thank you Craig and good morning, everyone.

During the first quarter 2020, we generated 30 million operating cash flow from continuing operations and $19 million net income.

Basic and diluted earnings per common unit for the first quarter were 90 cents per unit and 52 cents per unit respectively.

Our co royalties segment generated 27 million of net income and 31 million of operating cash flow during the first quarter 2020.

These results were lower as compared to prior year quarter, primarily due to decline and global steel demand that resulted in a weaker market for metallurgical coal.

As a result, both sales volumes and prices for metallurgical coal were lower in the first quarter 2020 compared to the prior year period.

In terms of our coal royalties sales mix metallurgical coal made up approximately 60% of our total coal royalties sales volumes and approximately 65% over coal worldview revenue during the first quarter 2020.

I'd also like to note that our largest lessee foresight energy continues to operate despite filing for bankruptcy in March of 2020.

Prior to its bankruptcy filings foresight entered into agreements with its pre petition lenders to support its restructuring process.

In addition, foresight amended contracts with certain of its other key counterparties, including NRP to support the restructuring plans.

We do not believe the amendments to our agreements were foresight love the material adverse effect in our financial condition or results of operations.

And it's bankruptcy filings foresight announced its intention to continue to operate the sugar camp Williamson and Hillsboro mine and complex.

Well for such filings announced idling of Macoupin mine for side also announced that they wrecked recommence longwall production at its low cost Hillsboro mine.

We expect that adverse impacts from the idling. The Macoupin mine will be partially offset by the benefits we were seeing from increased production at the Hillsboro mine.

With that being said foresights ability to operate profitably and emerge from bankruptcy, we'll continue to be impacted by weaken demand for thermal coal in the global Koby 19 pandemic.

And at this time, we can't be certain that for such bankruptcy restructuring plan. As currently proposed will be implemented an ultimate blue approved by the bankruptcy court.

Moving to our second business segment soda Ash net income being decreased 5 million compared the prior year quarter, driven by lower international demand that resulted in lower international soda ash pricing and volumes sold.

General Wyoming started to see the impact of Koby 19 on its operations towards the end of the first quarter in the form of slowing global demand and downward pricing pressure.

And while we believe it did not have a material adverse effect on first quarter results. It will have a negative impact on subsequent quarters.

The extent in duration Twoish cobot, 19 will impact demand, it's highly uncertain and cannot be predicted with confidence at this time.

We received $7 million to cash distributions from Gener, Wyoming during the first quarter 2020, compared to 10 million in the prior year quarter.

As discussed on previous earnings calls the managing partner Gener, Wyoming decided to reduce distributions during 2019 to fund a multiyear capacity expansion project.

They continue to develop plans and execute the early phases for this project.

Prior to the Kobin 19 pandemic expected to receive approximately 25 to 28 million of annual cash distributions from general Wyoming until the project is completed.

However, we're unable at this time to predict the ultimate impact called the 19 may have on Jerre Wyoming's business for the future distributions that we received from tier one of them.

Our corporate and financing segment costs declined 4 million in the first quarter 2020, compared the prior year quarter, primarily due to lower interest expense as a result 93 million dollar to debt we've repaid over the last 12 months.

Operating cash flow was 22 million higher compared to the prior year quarter, primarily due to the timing of interest payments on our parent company bonds that we refinanced in the second quarter 2019.

Interest payments on our existing 9.1% to 5% bonds are due in Q2 in Q4.

Well they were due in Q1 in Q3 on our prior 10.5% bonds.

In February we paid a quarterly 45 cents per unit distribution door common unit holders and a quarterly cash distribution of 7.5 million to our preferred unit holders with respect to the fourth quarter 2019.

However, as Craig mentioned earlier due to the unprecedented uncertainty that exists in the near intermediate term, we suspended or call me distribution with respect to the first quarter 2020, and we'll pay in kind 3.75 million or one half of the 7.5 million quarterly preferred unit distribution.

This decision enables NRP to conserve almost nine and have no cash into we have more visibility into the financial impact caused by the coke in 19 pandemic.

We remain focused on those things we can control in protecting our business with a clear priority on cash and liquidity in this in certain industry and global environment.

And with that I'll turn the call back over the operator for questions.

Thank you at this time if he likes asked a question press star one on your telephone keypad, if you'd like to withdraw your question has to Penske piece old well be compiled the question.

Your first question comes from a line of Smart Kleban, but benchmark company. Please go ahead.

Great. Thanks, very much hope you guys are doing well and staying safe.

Just a quick question as it relates to your comment about the cash flow cushion turning negative.

Does that impact or will that impact you know how you guys think about how much liquidity or cash you want to hold.

Versus paying down debt I mean, how does how does the cash uses change on the environment in which we have this if at all.

Mark This is Craig I'll take the first stab at that let Chris had on if he wants it doesn't change anything at all.

The the beauty of our liquidity position.

Is that that cash flow Cushing could go.

Significantly negative and we have a very long runway, we could fund that negative cash flow cushion.

With the liquidity that we have so it gives us a.

It doesn't change our view, we're going to continue to pay down debt.

And as as I said in the prepared remarks, we would like to reinstate the common distribution in August. However, we just need to see how things play out over the next couple of months in the macro environment before we do Chris do you have any comment on that.

No I think I think you had all the key points there.

Great and I guess, we're sitting here on this midway three or.

We were kind of working our way through the.

Through the second quarter, not looking for guidance, but just I think you'd mentioned nine idlings most of which.

On your properties most of which are some of which had returned.

You know you to the extent you do have visibility you know you into Twoq. Since we are sitting here in the middle of it I mean is usually you're going to be a step change or should we expect a step change in it.

And what shows up as co royalty production I mean, obviously, we can see the prices on the met side or at least have a general idea directionally, but just kind of thinking about what you guys you're seeing from a volume perspective, maybe you could.

Answer that without being specific.

Sure sure Mark I'll take a swing at that.

We try to help you with and then I'll, let Kevin.

Comment as well if he has further comments keep in mind that we we receive payments.

At the end of a month for the production that occurred the previous month. So we really don't have visibility for example into.

March until the end of April when we don't have visibility into April until the end of May in our coal business.

So other than what we can glean from from talking with our operators, but it is fair to say that in April as we were collecting for March we did see a decline and I would say its a.

Noticeable declined in production that occurred.

That was starting to occur.

That we expect to continue.

I don't know what's happening I don't know, how that's going to react with the the resumption of operations a number of our properties, but we are starting to see a decline that it's certainly nothing that's on the magnitude that at this point gives us concern.

Regarding our ability to continue operating business as usual given the the free cash flow generation that we have and also the if that doesn't prove to be enough.

We also have significant cash reserves and liquidity.

So Kevin do you have any other comments.

No Craig I can get too good summary of what we're seeing so for here and again.

Q2.

Got it.

Back to your distribution comment about audit I mean are there certain things that you're looking for certain metrics or what what exactly would give you the confidence to Brazil. What are you specifically looking to see.

We want to see what happens with our.

Our trend in cash flows.

And that's that's trending cash flows both from the coal side and the soda ash side as well.

We're just in the.

We're somewhat in the early innings.

Have seen the impact on the business most of those businesses.

From with respect to covert 19.

And what we don't know is if things are going to somewhat stabilized and begin to come back up again, we don't know exactly how deep the trough is going to be or how long the duration is going to be and we're hoping that in the next couple of months, we'll have more visibility into that we watch the medical.

Numbers, but we're certainly not experts at the the medical side So I.

I can't say that we have any from targets on number of new inspections or that type of thing because that's just not inside our wheel house, but we are interested to see what happens to global soda ash demand and pricing. We are interested to see what happens to volumes and pricing on the men terminals.

Hi.

As we get into.

Later, this month and into June and July to see if the reopening of the American U.S. economy.

We've seen that.

China is ahead of us and see how that reopening continues to play out.

Great Britain is announcing plans to reopen Germany's doing the same thing various parts of Europe are doing the same thing we want to see how this plays out and then of course, if we get a months down the road and suddenly cases are spiking again and those economies are closing back up that will not be.

Hi, Good result, if on the other hand.

Everything continues to proceed and relatively positive fashion.

Hopefully soda ash and coal demand and pricing will respond accordingly, and we will feel more optimistic about about what we can do with the distribution.

Thanks that makes perfect sense, we'll great appreciate the time smart.

Thanks for your questions Mark.

Hi, there no further questions at this time I will turn the call back over to the presenters for closing remarks.

Thank you operator, and thank you everyone for participating in our call and thank you for your support of in RP. This was a very unique.

It's somewhat interesting time, and so tragic time, and we will continue to to work and be safe and attempt to deliver value to.

You for all of our stakeholders so with that thank you for participating stay safe and healthy have a good day.

This concludes today's conference call you may now disconnect.

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