SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2024

SEGMENT INFORMATION

SEGMENT INFORMATION

18.SEGMENT INFORMATION

We operate in the United States as a diversified natural resource company that generates operating and royalty income from the production and marketing of coal to major domestic and international utilities, and industrial users as well as royalty income from oil & gas mineral interests. We aggregate multiple operating segments into four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties. We also have an "all other" category referred to as Other, Corporate and Elimination. Our two coal operations reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia and a coal loading terminal in Indiana on the Ohio River. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) basins. The operations within our Oil & Gas Royalties reportable segment primarily include receiving royalties and lease bonuses for our oil & gas mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties, which are either (a) leased to our mining complexes or (b) near our coal mining operations but not yet leased.

The Illinois Basin Coal Operations reportable segment includes (a) the Gibson County Coal, LLC's mining complex, (b) the Warrior Coal, LLC mining complex, (c) the River View mining complex and (d) the Hamilton mining complex. The segment also includes our Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") coal loading terminal in Indiana which operates on the Ohio River, Mid-America Carbonates, LLC and other support services, and our non-operating mining complexes.      

The Appalachia Coal Operations reportable segment includes (a) the Mettiki mining complex, (b) the Tunnel Ridge, LLC mining complex and (c) the MC Mining, LLC mining complex.

The Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by Alliance Minerals through its consolidated subsidiaries as well as equity interests held in AllDale III (Note 11 – Equity Investments).

The Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties that are (a) leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments or (b) located near our operations and external mining operations. Approximately 64% of the coal sold by our coal operations' mines is leased from our Coal Royalties entities.

Other, Corporate and Elimination includes marketing and administrative activities, the Matrix Group, our investments in Francis, Infinitum, NGP ET IV, and Ascend (see Note 11 – Equity Investments), Wildcat Insurance, LLC which assists the ARLP Partnership with its insurance requirements, AROP Funding and Alliance Finance (both discussed in Note 8 – Long-Term Debt) and our crypto-mining activities. The eliminations included in Other, Corporate and Elimination primarily represent the intercompany coal royalty transactions described above between our Coal Royalties reportable segment and our coal operations' mines.

Reportable segment results are presented below.

	Coal Operations				Royalties				Other,
	Illinois								Corporate and
	Basin		Appalachia		Oil & Gas		Coal		Elimination		Consolidated
	(in thousands)
Three Months Ended March 31, 2024
Revenues - Outside (1)	$	397,841	$	198,013	$	37,345	$	6	$	18,492	$	651,697
Revenues - Intercompany		—		—		—		18,702		(18,702)		—
Total revenues (1)		397,841		198,013		37,345		18,708		(210)		651,697
Segment Adjusted EBITDA Expense (2)		233,087		117,502		4,940		6,264		(3,466)		358,327
Segment Adjusted EBITDA (3)		140,278		74,235		31,402		12,444		2,195		260,554
Total assets		1,019,209		520,093		783,309		320,217		322,959		2,965,787
Capital expenditures (4)		96,133		26,451		—		—		1,262		123,846
Three Months Ended March 31, 2023
Revenues - Outside (1)	$	360,406	$	251,259	$	35,537	$	—	$	15,720	$	662,922
Revenues - Intercompany		—		—		—		15,513		(15,513)		—
Total revenues (1)		360,406		251,259		35,537		15,513		207		662,922
Segment Adjusted EBITDA Expense (2)		207,069		125,799		4,424		5,388		(3,384)		339,296
Segment Adjusted EBITDA (3)		132,008		116,550		30,045		10,125		3,219		291,947
Total assets		840,792		459,834		768,728		326,064		392,331		2,787,749
Capital expenditures (4)		61,982		32,505		2		400		585		95,474

(1) Revenues included in the Other, Corporate and Elimination column are attributable to intercompany eliminations, which are primarily intercompany coal royalty eliminations, outside revenues at the Matrix Group and awarded digital assets received for our crypto-mining activities.

(2) Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases, if applicable, and other income or expense as adjusted to remove certain items from operating expenses that we characterize as unrepresentative of our ongoing operations such as litigation accruals. Transportation expenses are excluded as these expenses are passed through to our customers and, consequently, we do not realize any gain or loss

on transportation revenues.  Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments.  Segment Adjusted EBITDA Expense is a key component of Segment Adjusted EBITDA in addition to coal sales, royalty revenues and other revenues.  The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating performance as it primarily relates to our operating expenses.  

The following is a reconciliation of Operating expenses (excluding depreciation, depletion and amortization), the most comparable GAAP financial measure, to consolidated Segment Adjusted EBITDA Expense:

	Three Months Ended
	March 31,
	2024		2023
	(in thousands)
Operating expenses (excluding depreciation, depletion and amortization)	$	363,859	$	338,723
Litigation expense accrual		(15,250)		—
Outside coal purchases		9,112		—
Other expense		606		573
Segment Adjusted EBITDA Expense	$	358,327	$	339,296

(3) Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization and general and administrative expenses modified for certain items that we characterize as unrepresentative of our ongoing operations, such as the change in fair value of digital assets and litigation accruals. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external users of our financial statements such as investors, commercial banks, research analysts and others.  We believe that the presentation of EBITDA provides useful information to investors regarding our performance and results of operations because EBITDA, when used in conjunction with related GAAP financial measures, (i) provides additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provides investors with the financial analytical framework upon which we base financial, operational, compensation and planning decisions and (iii) presents a measurement that investors, rating agencies and debt holders have indicated is useful in assessing us and our results of operations.

Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from consolidated Segment Adjusted EBITDA allows management to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.

The following is a reconciliation of Net income, the most comparable GAAP financial measure, to Consolidated Segment Adjusted EBITDA:

	Three Months Ended
	March 31,
	2024		2023
	(in thousands)
Net income	$	159,567	$	192,678
Noncontrolling interest		(1,510)		(1,493)
Net income attributable to ARLP	$	158,057	$	191,185
General and administrative		22,129		21,085
Depreciation, depletion and amortization		65,549		65,550
Interest expense, net		6,473		9,886
Change in fair value of digital assets		(11,853)		—
Litigation expense accrual		15,250		—
Income tax expense		4,949		4,241
Consolidated Segment Adjusted EBITDA	$	260,554	$	291,947

(4) Capital expenditures exclude $72.3 million paid for the JC Resources Acquisition for the three months ended March 31, 2023 and $1.8 million and $2.8 million paid towards oil & gas reserve acquisitions for the three months ended March 31, 2024 and 2023 respectively. (See Note 3 – Acquisitions).