Natural Resource Partners L.P. Announces Second Quarter 2017 Results

HOUSTON, Aug. 8, 2017 /PRNewswire/ -- 

Second Quarter 2017 Highlights

• Net income and net income attributable to the common unitholders and general partner of $50.0 millionand$42.4 million, respectively
• Basic and diluted net income per common unit of $3.39 and $1.13,⁽¹⁾ respectively
• Net cash provided by operating activities of $34.9 million
• Adjusted EBITDA of $62.7 million⁽²⁾
• Net debt reduction of $98.1 million

Natural Resource Partners L.P. (NYSE:NRP) today reported second quarter of 2017 net income of $50.0 million, net income attributable to the common unitholders and general partner of $42.4 million, net cash from operating activities of $34.9 million, and adjusted EBITDA of $62.7 million.  These results were impacted by a fair value adjustment on warrant liability, costs associated with recapitalization expenses, gains on asset sales and non-cash revenue from lease modifications and terminations as illustrated in the tables included in this release.  Adjusting for these items, net income attributable to the common unitholders and general partner for the second quarter of 2017 was $18.4 million⁽²⁾.

During the second quarter, we continued to execute on our deleveraging strategy, reducing our total outstanding debt by an additional $98.1 million, bringing our total debt reduction since December 31, 2016 to $244.1 million.  Continued strong metallurgical coal markets, steady distributions from our soda ash business, and improved sequential performance from our construction aggregates segment all combined to generate improved cash flow for NRP.

Segment Information and Outlook

Coal Royalty and Other

NRP derived approximately 60% of the coal royalty revenues and approximately 45% of the related production from metallurgical coal during the six months ended June 30, 2017.  NRP continued to benefit from higher metallurgical coal prices compared to 2016, with substantially increased price realizations in Central and Southern Appalachia. While metallurgical coal prices have retreated in 2017 from the peaks reached in the fourth quarter of 2016 and early in the second quarter of 2017, they remained significantly higher than in the comparable period in 2016.  Notably, very few tons were sold at the peak of the market, as buyers generally elected to stay out of the market anticipating a short-term price spike.  Most recently, met coal prices have increased approximately $20 per metric ton since mid-June as a result of global supply disruptions and increased imports into China.

Thermal coal prices have also improved over the prior year as inventories have come down significantly, in part due to production cuts over the last two years.  Normal summer weather and natural gas prices that continue to remain around $3/mcf have combined to reduce inventories at the end of May to approximately 100 days of supply, down from over 130 days of supply at the end of May 2016.

Coal royalty and other revenue for the second quarter 2017 was $52.8 million and coal royalty and other operating income was $42.1 million, representing sequential increases of 3% and 20% respectively.  Compared to the same period of 2016, coal royalty and other revenue and coal royalty and other operating income both declined 31%.  After adjusting for impairment charges, gains on asset sales and the $35.5 million of non-cash revenues related to lease modifications and terminations recognized in the second quarter of 2016, coal royalty and other revenue increased $6.6 million, or 16%, and coal royalty and other operating income increased $11.1 million, or 41%.

Soda Ash

During the second quarter, international prices for soda ash, particularly in Asia, continued to be strong, and domestic prices have improved slightly over last year.  Revenues and other income related to our equity investment in Ciner Wyoming decreased $1.8 million, or 18%, from $10.2 million in the three months ended June 30, 2016 to $8.4 million in the three months ended June 30, 2017.  This variance was primarily driven by lower production output and higher maintenance expenses compared to the prior period.  NRP received $12.25 million in cash distributions from Ciner Wyoming in the second quarter of 2017 compared to $9.8 million in 2016.

Construction Aggregates

Revenues and net income for the second quarter 2017 increased significantly over the first quarter of 2017, due to increased activity at all locations as weather conditions improved. Second quarter 2017 revenue and other income rose $2.1 million over the second quarter 2016 to $33.7 million while net income declined $0.8 million  to $2.6 million.  Although production and revenues increased on a consolidated basis compared to the same period in 2016, weaker pricing due to diminished natural gas drilling in the Marcellus and the lack of infrastructure spending in West Virginia, as well as cutbacks in military spending in the Clarksville market, resulted in lower margins and earnings at those operations.  In addition, the Southern Aggregates operation experienced significant rainfall in the second quarter, but the Louisiana market has improved significantly over the course of the summer.

The table below presents NRP's business results by segment for the three months ended June 30, 2017 and June 30, 2016:

Debt Reduction and Liquidity

In the first quarter of 2017, NRP completed several recapitalization transactions that improved NRP's balance sheet and strengthened its financial credit position.  During the three months ended June 30, 2017, NRP redeemed $90.0 million in principal of its 9.125% senior notes and paid off $7.3 million of Opco's senior notes.  In addition, through the sale of one of its assets,  Opco's $0.8 million utility local improvement obligation was transfered to the purchaser. At the end of the second quarter NRP had $220.8 million of liquidity, consisting of $180 million available under the Opco credit facility and $40.8 million in cash.  NRP's consolidated debt to Adjusted EBITDA ratio stands at 4.0x, down from 4.5x at year-end 2016 and 5.3x at year-end 2015.  NRP remains focused on further reducing its debt and repositioning the partnership for long-term growth.

Second Quarter 2017 Distributions

On July 27, 2017, the Board of Directors of GP Natural Resource Partners LLC declared a distribution of $0.45 per unit to be paid by the Partnership on August 14, 2017 to common unitholders of record on August 7, 2017. In addition, the Board declared a distribution on NRP's 12.0% Class A Convertible Preferred Units.  One-half of the distribution on the preferred units will be paid-in-kind through the issuance of 3,769 additional preferred units.

Conference Call

A conference call will be held today at 10:00 a.m. ET.  To join the conference call, dial (844) 379-6938 and provide the conference code 54804730.  Investors may also listen to the call via the Investor Relations section of the NRP website at www.nrplp.com.

Audio replays of the conference call will be available for approximately one week.  To access the replay, dial (855) 859-2056 and provide the conference code 54804730 or visit the Investor Relations section of NRP's website.

Company Profile

Natural Resource Partners L.P., a master limited partnership headquartered in Houston, TX, is a diversified natural resource company that owns interests in coal, aggregates and industrial minerals across the United States.  A large percentage of NRP's revenues are generated from royalties and other passive income.  In addition, NRP owns an equity investment in Ciner Wyoming, a trona/soda ash operation, and a construction aggregates company.

For additional information, please contact Kathy H. Roberts at 713-751-7555 or kroberts@nrplp.com.  Further information about NRP is available on the partnership's website at http://www.nrplp.com.

Non-GAAP Financial Measures

"Adjusted EBITDA" is a non-GAAP financial measure that we define as net income (loss) from continuing operations less equity earnings from unconsolidated investment, gain on reserve swap, fair value adjustments for warrant liabilities and income to non-controlling interest; plus distributions from unconsolidated investment, interest expense, debt modification expense, loss on extinguishment of debt, warrant issuance expense, depreciation, depletion and amortization and asset impairments.  Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or loss attributable to partners, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring items that materially affect our net income (loss), the lack of comparability of results of operations of different companies and the different methods of calculating Adjusted EBITDA reported by different companies. In addition, Adjusted EBITDA presented below is not calculated or presented on the same basis as Consolidated EBITDA as defined in our partnership agreement. Adjusted EBITDA is a supplemental performance measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis.

"Distributable Cash Flow" is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities of continuing operations, plus returns of equity from unconsolidated investment, proceeds from sales of assets, including those included in discontinued operations, and return on long-term contract receivables (including affiliate); less maintenance capital expenditures and distributions to non-controlling interest. DCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. DCF may not be calculated the same for us as for other companies. DCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the Partnership's ability to make cash distributions to our common and preferred unitholders and our general partner and repay debt.

"Adjusted Net Income" is a non-GAAP financial measure that we define as Net income attributable to common unitholders and general partner, plus recapitalization transaction expenses and asset impairments; less gains on asset sales, non-cash revenue from lease modifications and terminations and fair value adjustments for warrant liabilities. Adjusted net income should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing and financial activities, or other income or cash flow statement data prepared in accordance with GAAP. Our management team believes Adjusted net income is useful in evaluating our financial performance because restructuring transaction expenses are one time charges, gains on asset sales are not related to the operations of our business and asset impairments and fair value adjustments for warrant liabilities are non-cash charges and excluding these from net income allows us to better compare results period-over-period. Reconciliations of Net income attributable to common unitholders and general partner to Adjusted net income are included in the table on the first page of this release.

"Adjusted Coal Royalty and Other Revenue" is a non-GAAP financial measure that we define as Coal royalty and other revenues less gains on asset sales and non-cash revenue associated with lease modifications and terminations. Adjusted coal royalty and other revenue should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing and financial activities, or other income or cash flow statement data prepared in accordance with GAAP. Our management team believes Adjusted coal royalty and other revenue useful in evaluating our financial performance because gains on asset sales are not related to the operations of our business and excluding these from Coal royalty and other revenue allows us to better compare results period-over-period. Reconciliations of Coal royalty and other revenue to Adjusted coal royalty and other revenue are included in the tables attached to this release.

"Adjusted Coal Royalty and Other Operating Income" is a non-GAAP financial measure that we define as Coal royalty and other operating income plus asset impairments less gains on asset sales and non-cash revenue associated with lease modifications and terminations. Adjusted coal royalty and other operating income should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing and financial activities, or other income or cash flow statement data prepared in accordance with GAAP. Our management team believes Adjusted coal royalty and other operating income is useful in evaluating our financial performance because gains on asset sales are not related to the operations of our business and asset impairments and non-cash revenue associated with lease modifications and forfeitures are non-cash charges and excluding these from Coal royalty and other operating income allows us to better compare results period-over-period. Reconciliations of Coal royalty and other operating income to Adjusted coal royalty and other operating income are included in the tables attached to this release.

"Adjusted Revenue and Other Income" is a non-GAAP financial measure that we define as Revenue and other income less gains on asset sales and non-cash revenue associated with lease modifications and terminations. Adjusted revenue and other income should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing and financial activities, or other income or cash flow statement data prepared in accordance with GAAP. Our management team believes Adjusted revenue and other income is useful in evaluating our financial performance because gains on asset sales are not related to the operations of our business and non-cash revenue associated with lease modifications and forfeitures  and excluding these from revenues and other income allows us to better compare results period-over-period. Reconciliations of Revenue and other income  to Adjusted revenue and other income are included in the tables attached to this release.

"Adjusted Corporate and Financing Costs" is a non-GAAP financial measure that we define as Corporate and financing net loss from continuing operations plus debt modification expense, loss on extinguishment of debt, warrant issuance expense and performance based incentive compensation expense less  fair value adjustments for warrant liabilities. Adjusted corporate and financing costs should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing and financial activities, or other income or cash flow statement data prepared in accordance with GAAP. Our management team believes Adjusted corporate and financing costs is useful in evaluating our financial performance because debt modification expense, loss on extinguishment of debt, warrant issuance expense and performance based incentive compensation expense are one time charges and fair value adjustments for warrant liabilities are non-cash charges and excluding these from net loss allows us to better compare results period-over-period. Reconciliations of Corporate and financing net loss from continuing operations to Adjusted corporate and financing costs are included in the tables attached to this release.

Forward-Looking Statements

This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements.  These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.  Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership.  These risks include, but are not limited to, commodity prices; decreases in demand for coal, aggregates and industrial minerals, including trona/soda ash; changes in operating conditions and costs; production cuts by our lessees; unanticipated geologic problems; our liquidity, leverage and access to capital and financing sources; changes in the legislative or regulatory environment, and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

-Financial Tables Follow-

The table below presents NRP's business results by segment for the six months ended June 30, 2017 and June 30, 2016: