Q1 2022 Natural Resource Partners LP Earnings Call

Call that since as Jim had ceased paying distributions during the pandemic. They resume distributions in November and we received $7 million at that time and $13 million in February .

We continue working to identify opportunities on our large acreage footprint to capitalize on the transitional energy economy.

As Youll recall, we announced our first timber.

Sequestration transaction in the fourth quarter of last year, and our first sub surface Cotwo sequestration lease in the first quarter of this year.

So in summary, and ERP generated $152 million of free cash flow over the last 12 months, our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortizations and distributions on our common and preferred units is rising significantly while COVID-19, Lockdowns in China.

And the war in Ukraine pose risks to the global economy, and our business lines. We are optimistic that the strong performance realized in recent quarters will continue for the foreseeable future.

We remain committed to paying down debt solidifying our capital structure and paying common unit distributions and with that I'll turn the call over to Chris to cover the financial results.

Thank you Craig and good morning, everyone.

During the first quarter, we generated $52 million.

Operating cash flow and $64 million of net income.

Our mineral rights segment generated $48 million of operating cash flow and $63 million and net income in the first quarter of 2022, an improvement over the prior year quarter of $22 million and $42 million, respectively, driven by stronger demand and pricing for metallurgical coal, which made up 50% of our total core.

Royalty sales volumes and 80% of our coal royalty revenues during the first quarter of 2022.

Okay.

Moving to our soda Ash business segment net income in the first quarter of 2022 was $15 million, an improvement of $13 million as compared to the previous year quarter, primarily due to higher international pricing in 2022.

Free cash flow in the first quarter of 2022 improved $9 million as compared to the prior year quarter because of Suzanne Wyoming's decision to reinstate the regularly quarterly regular quarterly distributions in November .

As a result of their improved financial performance.

Our corporate and financing segment costs for the first quarter of 2022 were relatively flat as compared to the prior year quarter.

Segment free cash flow decreased $2 million as compared to the prior year quarter, primarily due to an increase in incentive compensation paid out in the first quarter of 2022 because of significantly improved operating results last year. However.

However, this decrease was partially offset by lower cash paid for interest because of less debt outstanding.

Regarding distributions in February of 2022, we paid a quarterly <unk> 45 per common unit distributions and a quarterly cash distribution of $7 5 million to our preferred unit holders for the fourth quarter of 2021.

In addition, we also redeemed all outstanding paid in kind preferred units at par during the first quarter of 2022.

As Craig previously mentioned today, we announced an increase in the distribution to our common unitholders from 45 to 75 cents per common unit for the first quarter of 2022.

We remain steadfast in our strategy to continue using cash flow to pay down debt and solidify our capital structure the.

The decision to increase coming in distributions was based on our substantial free cash flow generation solid liquidity and positive outlook for our business lines, coupled with higher expected common unitholder income tax liability for 2022, resulting from the improved financial performance.

We plan to take advantage of the strong free cash flow generation to accelerate our deleveraging and returned more cash to our unitholders.

Okay.

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

Thank you.

At this time I would like to remind everyone in order to ask for questions. Please press Star then the number one on your telephone keypad again that is star one.

To ask for questions.

Well phosphate just a moment to compile the Q&A roster.

Again, if you would like to ask question. Please press Star then the <unk>.

Number one on your telephone keypad.

Your first question comes from the line of Sean.

Sorry, Marshall from Rollyson equities your line is open.

Hi.

Thank you for taking my question.

I'm just wondering how you guys are thinking about Dr outstanding 12% coupons.

I know you guys, Hey, Dan the textures.

Yes, hi.

On the capital structure, given that free cash flow.

Your line capacity then answer so I'm wondering if you guys are thinking about it.

Hi, Andy.

Perspective on when that might be telling you guys can address.

And then a question, but that's my main question.

Good morning. Thanks, Thanks for the question I'll take a stab at this and then you can ask your following question.

We have $417 million of debt outstanding at the end of the quarter and then we have the $250 million preferred that you're referring to.

We are focused primarily on reducing our debt balances and getting them to a point, where we feel comfortable that given the pressure and the difficulty that companies with exposure to coal such as us having.

Timing of refinancing we want to get to the point, where we feel comfortable and then we can either pay those bonds off of refinance them in 2025, when they mature.

Once we reach that point, then I think.

We're clearly going to be interested in looking at those preferreds, one thing I'd like to point out about the preferreds is that there is a redemption, our I call. It a redemption premium for those that over time as we make preferred distributions that redemption premium typically it reduces and it goes down if we were to redeem those preferred today for example.

Ample.

In order to redeem the $250 million, we would have to pay in excess of $300 million to buy them back. So there is some economic disincentive to tackle those preferreds initially.

In the near term.

Furthermore, I would point out that the preferreds have very specific equity characteristics to them they give us significant flexibility.

From.

In the event of a downturn in one or more of our business lines.

So we have to balance the 12% cost of those with the.

With the.

The flexibility that that having them.

Versus having debt provides us one of those one of the benefits of the preferreds as there are no events of default with them.

Whereas when we find ourselves in a difficult position in the future as we've been in in the not too distant past.

If we were in a position where we were unable to make an interest payment for instance that could trigger a default.

For the business, but if we are unable to pay the preferreds.

It doesn't trigger a default doesn't doesn't put us out of the business so to speak.

Got it got it that makes a lot of sense.

In the context, I guess, obviously you know that.

Bonds coupon at 99.

<unk> is still.

Yes, good reduction in interest expense that you guys are able to pay down the debt as long as it's Matt.

No alcohol, especially 2025 is not too far off.

Awesome I will sorry, let me add.

Let me add this color to that.

Yeah, we are continuously evaluating.

The best use of our of our <unk>.

Cash flow cushion of our excess cash is it too.

Is it to pay down.

To accelerate the debt pay down is it to pay off the preferreds is it to increase distributions.

We're constantly as you know is that the buyback units, we're constantly looking at every opportunity and considering the economic merits of those.

Yes, it makes sense to me to be holistic because you know that.

Annualized free cash flow Jennifer generation of the company here relative to you guys market cap, even though you'd obviously be units performed very well.

Total shareholder return wise like the multiple applied under free cash flow. If you guys think tighten.

Titan performance can be sustained if not pretty pretty high free cash flow yield I'll just stop here.

Alright.

Nice to be realistic about it but.

I would welcome I'm wondering about.

Last year, I know youre not going to comment on any specific co lessee, but.

I know last year that we had this place.

Fixed agreement in place with the primary thermal coal.

And that expired and has now become a more conventional royalty arrangement with them and I was wondering like.

Did did the move up in thermal coal is that entirely been reflected in payments that you might have received on your sort of new.

The arrangement with that.

Overall thermal coal segment or can we expect.

More substantial kind of P&L impact over the course of the year on the thermal coal side, Matt I know, it's a smaller proportion.

Alright, Thank you revenue.

I just wanted to I know, it's hard to quantify that specifically.

Any color on whether we can expect.

Thank you for your patience as we go through the year relative to the fixed.

Payment that we received.

That's a good question, it's a smaller portion, but it's an important portion.

Kevin I'm going to let you take the first stab at that.

Sure, Thanks, Craig and I would tell you that.

The fixed payment plan is in the past and that's back to Eric.

Lease arrangement and a percentage of gross sales price.

Dan.

Oftentimes in this business.

Tons are contracted.

Prior to upward moves or downward moves in the market and I believe that's what we're seeing here.

Part of this was under contract prior to the.

Robust move upward in thermal coal pricing, we believe over time, our crosshairs lessee portfolio.

<unk>.

We will.

Okay.

The pricing will catch up with our.

Royalties, but that'll be over some time.

It makes sense to me.

That makes sense.

Yes completely.

I see.

Spot pricing.

My terminal all significant buoyancy, there wondering whether you can see that reflected.

Well.

You see that.

When I look at you know operate.

As a lessor.

You don't have control of course over how your lessees.

Contract and market and sell their coal.

Our other metals for that matter and you're you receive a royalty off of that price that they may sell it for.

And sometimes a lessee feels in their best interest to contracted for an extended period of time.

And.

And sometimes that.

Works to the advantage of the lesser and lesser or sometimes.

When you look back and you say well I wish we wouldn't have contracted that but.

So we think it's going to be a little bit longer before those those contracts roll off and we start to see better pricing.

Okay. Thanks, a lot.

Great color, thanks, very much for that.

Yes, that's just print is principally an illinois based on them.

Got it.

Thanks, very much for your time guys I appreciate the color.

Operating results and looking forward to the trajectory continuing.

You bet. Thanks.

Paul.

And there are no further questions I would now like to turn the call back to Craig Yes. Please go ahead Sir.

Thank you operator, and thank you everyone for joining our call.

Appreciate you being with us and RP I know that most of you have been.

With us.

Having stakes in our company for either on the equity or the fixed income side for for quite a while now and.

You've been quite faithful to the business.

And in our long term turnaround story that we've had.

Right now the windows.

And our sales.

Wins at our back and we are attempting to.

Hey, sorry to confuse the metaphors, but hey, as much as we can while the Sunshine.

Right now it's a good time to be in our business lines, and we're going to work to accelerate our plans to improve the partnership in <unk>.

<unk> position.

Position us well for the future. So thanks for your time.

Thanks for your support and we will talk to you next quarter if not before thank you.

And this concludes today's call. Thank you all for participating you may now disconnect.

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