Alliance Resource Partners Reports Mixed Q3 Results with Strong Operational Improvements

Stonegate Capital Partners has updated its coverage of Alliance Resource Partners, L.P. (NASDAQ: ARLP) following the company's third-quarter 2025 results, revealing a mixed performance where operational improvements helped counterbalance pricing pressures. The partnership reported total revenues of $571.4 million for the quarter, representing a 6.9% decrease year-over-year, primarily driven by lower coal price realizations and reduced transportation revenues despite increased production volumes.

Despite the revenue decline, ARLP demonstrated strong operational execution with net income rising to $95.1 million compared to $86.9 million in the same quarter last year. This improvement was supported by lower operating costs and higher investment income. Adjusted EBITDA reached $185.8 million, marking a significant 14.8% sequential increase from the previous quarter. The partnership's performance highlights the importance of cost management in navigating commodity price volatility, particularly in the energy sector where pricing fluctuations can significantly impact profitability.

Coal operations showed notable strength with sales volumes increasing 3.9% year-over-year to 8.70 million tons, though average realized coal prices declined 7.5% to $58.78 per ton. Regional performance varied significantly, with the Illinois Basin experiencing a 10.8% increase in sales volumes to 6.61 million tons, driven by improved production efficiency and fewer operational disruptions. However, pricing in this region fell 9.9% to $51.03 per ton. Appalachian operations saw volumes decline 13.3% to 2.09 million tons as the Tunnel Ridge mine transitioned to a new longwall district, though pricing in this region improved 3.1% to $83.28 per ton due to a stronger sales mix.

The royalty business segment delivered robust performance with total royalty revenues reaching $57.4 million. Coal royalty tons sold surged 38.1% to 7.06 million tons, with average revenue per royalty ton increasing 7.4% to $3.50. Oil and gas royalties contributed $32.1 million, with volumes sold increasing 4.1% to 0.899 million BOE, although average sales price per BOE declined 10.5% to $35.68. This diversification provides important stability to ARLP's revenue streams amid coal market fluctuations.

Financial positioning remains strong with ARLP ending the quarter with $541.8 million in total liquidity, including $94.5 million in cash and $447.3 million available under credit facilities. Free cash flow generation was substantial at $151.4 million for the quarter, supporting the partnership's quarterly cash distribution of $0.60 per unit. Notably, ARLP held 568 Bitcoin valued at $64.8 million at quarter-end, reflecting the company's strategic approach to asset diversification. The partnership tightened its full-year 2025 guidance, projecting fourth-quarter results comparable to the third quarter, supported by continued operational improvements and cost initiatives.

Stonegate Capital Partners' valuation analysis using an EV/EBITDA framework with a 6.25x multiple midpoint suggests a fair value range of $30.52 to $33.31 for ARLP units. This assessment considers the partnership's improving operational execution, strong liquidity position, and ability to maintain distributions despite commodity price headwinds. The results demonstrate ARLP's resilience in managing through market cycles while maintaining financial discipline and shareholder returns.