Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis present management’s view of our business, financial condition and overall performance and should be read in conjunction with our consolidated financial statements and footnotes included elsewhere in this filing. Our discussion and analysis consist of the following subjects:
•
Executive Overview
•
Results of Operations
•
Liquidity and Capital Resources
•
Inflation
•
Environmental Regulation
•
Related Party Transactions
•
Summary of Critical Accounting Estimates
•
Recent Accounting Standards
As used in this Item 7, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer to Natural Resource Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners" refer to Natural Resource Partners L.P. only, and not to NRP (Operating) LLC or any of Natural Resource Partners L.P.’s subsidiaries. References to "Opco" refer to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. NRP Finance Corporation ("NRP Finance") is a wholly owned subsidiary of NRP and was a co-issuer with NRP on the 9.125% senior notes due 2025 (the "2025 Senior Notes").
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Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) less equity earnings from unconsolidated investment, net income attributable to non-controlling interest and gain on reserve swap; plus total distributions from unconsolidated investment, interest expense, net, debt modification expense, loss on extinguishment of debt, 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 or Consolidated EBITDDA as defined in Opco's debt agreements. See " Item 8. Financial Statements and Supplementary Data—Note 11. Debt, Net " included elsewhere in this Annual Report on Form 10-K for a description of Opco’s debt agreements. 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
Distributable cash flow ("DCF") represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings, proceeds from asset sales and disposals, including sales of discontinued operations, and return of long-term contract receivables, less maintenance capital expenditures. 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. In addition, DCF presented below is not calculated or presented on the same basis as distributable cash flow as defined in our partnership agreement, which is used as a metric to determine whether we are able to increase quarterly distributions to our common unitholders. 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 our ability to make cash distributions and repay debt.
Free Cash Flow
Free cash flow ("FCF") represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings and return of long-term contract receivables, less maintenance and expansion capital expenditures and cash flow used in acquisition costs classified as investing or financing activities. FCF is calculated before mandatory debt repayments. FCF 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. FCF may not be calculated the same for us as for other companies. FCF 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 our ability to make cash distributions and repay debt.
Leverage Ratio
Leverage ratio represents the outstanding principal of NRP's debt at the end of the period divided by the last twelve months' Adjusted EBITDA as defined above. NRP believes that leverage ratio is a useful measure to management and investors to evaluate and monitor the indebtedness of NRP relative to its ability to generate income to service such debt and in understanding trends in NRP’s overall financial condition. Leverage ratio may not be calculated the same for us as for other companies and is not a substitute for, and should not be used in conjunction with, GAAP financial ratios.
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Executive Overview
We are a diversified natural resource company engaged principally in the business of owning, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal and other natural resources and own a non-controlling 49% interest in Sisecam Wyoming LLC ("Sisecam Wyoming"), a trona ore mining and soda ash production business. Our common units trade on the New York Stock Exchange under the symbol "NRP." Our business is organized into two operating segments:
Mineral Rights —consists of approximately 13 million acres of mineral interests and other subsurface rights across the United States. If combined in a single tract, our ownership would cover roughly 20,000 square miles. Our ownership provides critical inputs for the manufacturing of steel, electricity and basic building materials, as well as opportunities for carbon sequestration and renewable energy. We are working to strategically redefine our business as a key player in the transitional energy economy in the years to come.
Soda Ash —consists of our 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining and soda ash production business located in the Green River Basin of Wyoming. Sisecam Wyoming mines trona and processes it into soda ash that is sold both domestically and internationally into the glass and chemicals industries.
Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury, legal and accounting and other corporate-level activity not specifically allocated to a segment.
Our financial results by segment for the year ended December 31, 2023 are as follows:
Operating Segments
Corporate and
(In thousands)
Mineral Rights
Soda Ash
Financing
Total
Revenues and other income
$
296,612
$
73,397
$
—
$
370,009
Net income (loss)
$
245,527
$
73,140
$
(40,232
)
$
278,435
Asset impairments
556
—
—
556
Net income (loss) excluding asset impairments
$
246,083
$
73,140
$
(40,232
)
$
278,991
Adjusted EBITDA (1)
$
264,554
$
81,221
$
(26,111
)
$
319,664
Cash flow provided by (used in) continuing operations
Operating activities
$
259,983
$
81,207
$
(30,212
)
$
310,978
Investing activities
$
5,426
$
—
$
(10
)
$
5,416
Financing activities
$
(583
)
$
—
$
(342,913
)
$
(343,496
)
Distributable cash flow (1)
$
265,409
$
81,207
$
(30,222
)
$
316,394
Free cash flow (1)
$
262,446
$
81,207
$
(30,222
)
$
313,431
(1)
See"—Results of Operations" below for reconciliations to the most comparable GAAP financial measures.
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Current Results/Market Commentary
Business Outlook and Quarterly Distributions
We generated $311.0 million of operating cash flow and $313.4 million of free cash flow during the year ended December 31, 2023, and ended the year w ith $71.2 million of liq uidity consisting of $12.0 million of cash and cash equivalents a nd $59.2 million of borrowing capacity under our Opco Credit Facility. As of December 31, 2023 our leverage ratio was 0.5x.
In 2023, we received notices from holders of the Class A Convertible Preferred Units representing limited partner interests in NRP (the "preferred units") exercising their right to either convert or redeem, at our election, an aggregate of 83,333 preferred units. We chose to redeem the preferred units for $83.3 million in cash rather than converting them into common units. In 2023, we also executed negotiated transactions with holders of the preferred units pursuant to which we repurchased and retired an aggregate of 95,001 preferred units for $95.0 million in cash. Of the originally issued 250,000 preferred units, 71,666 preferred units remain outstanding as of December 31, 2023. Following these redemptions and repurchases, the subject units were retired and no longer remain outstanding and Blackstone ceased to own any preferred units. All rights of Blackstone related to its ownership of preferred units ceased, including Blackstone's right to appoint a board designee.
In 2023, we negotiated transactions with holders of the warrants to purchase common units (the "warrants") pursuant to which we repurchased and retired an aggregate of 752,500 warrants with a strike price of $22.81 and 710,000 warrants with a strike price of $34.00 for approximately $56.1 million in cash.
In January and February 2024, holders of our warrants exercised a total of 1,219,665 warrants with a strike price of $34.00. We settled the warrants on a net basis with a total of $56 million in cash and 198,767 common units. Following these transactions, of the originally issued 4,000,000 warrants, 320,335 warrants with a strike price of $34.00 remain outstanding.
In February 2024, we exercised our option under the Opco Credit Facility to increase the total aggregate commitment under the Opco Credit Facility twice, initially by $30 million from $155.0 million to $185.0 million and subsequently by $15.0 million from $185.0 million to $200.0 million. These increases in the total aggregate commitment were made pursuant to an accordion feature of the Opco Credit Facility. In connection with the initial increase, a new lender joined the lending group with a commitment of $30.0 million. The Opco Credit Facility otherwise continues to operate under its existing terms and conditions in all material respects.
In February 2024, the Board of Directors declared a cash distribution of $0.75 per common unit of NRP with respect to the fourth quarter of 2023 as well as a $2.15 million cash distribution on the preferred units with respect to the fourth quarter of 2023. Additionally, NRP has announced it will pay special cash distribution of $2.44 in March 2024 to help cover unitholder tax liabilities associated with owning NRP's common units in 2023. Future distributions on our common and preferred units will be determined on a quarterly basis by the Board of Directors. The Board of Directors considers numerous factors each quarter in determining cash distributions, including profitability, cash flow, debt service obligations, market conditions and outlook, estimated unitholder income tax liability and the level of cash reserves that the Board of Directors determines is necessary for future operating and capital needs.
Mineral Rights Business Segment
Revenues and other income during the year ended December 31, 2023 decreased $32.6 million, or 10%, as compared to the prior year primarily due to decreased metallurgical coal sales prices, decreased revenues from oil and gas royalties, lower transportation and processing services revenues and certain carbon neutral initiative transactions entered into in 2022. Cash provided by operating activities and free cash flow decreased $2.8 million and $2.1 million, respectively, compared to the prior year period primarily due to the lower revenues during the year ended December 31, 2023 as compared to the prior year period.
Metallurgical and thermal coal prices saw significant variability in 2023, and were off the record highs seen in 2022, but finished the year strong relative to historical norms. We believe limitations from ongoing labor shortages, access to capital, and inflationary pressures should provide continued price support for metallurgical and thermal coal in 2024, despite headwinds from lower steel demand and the long-term secular decline in thermal energy production.
We continue to explore and identify carbon neutral revenue sources across our large portfolio of surface, mineral, and timber assets, including the permanent sequestration of carbon dioxide underground and in standing forests, and the generation of electricity using geothermal, solar and wind energy, as well as lithium production. While the timing and likelihood of additional cash flows being realized from these activities is uncertain, we believe our large ownership footprint throughout the United States provides additional opportunities to create value in this regard with minimal capital investment by us.
Soda Ash Business Segment
Revenues and other income during the year ended December 31, 2023 were higher by $13.6 million, or 23%, as compared to the prior year primarily due to higher sales prices driven by strong demand domestically, partially offset by lower soda ash production and sales volumes.
Cash provided by operating activities and free cash flow during the year ended December 31, 2023 increased $36.5 million as compared to the prior year period due to higher distributions received from Sisecam Wyoming in 2023 stemming from Sisecam Wyoming's strong operating performance in the first half of the year.
Strong sales prices at Sisecam Wyoming for the year ended December 31, 2023 more than offset input cost inflation, supply chain difficulties, and the influx of supply from China in the latter part of the year. However, we believe this increase in global soda ash production will result in an oversupplied market and a decline in soda ash prices in 2024.
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Results of Operations
Year Ended December 31, 2023 and 2022 Compared
Revenues and Other Income
The following table includes our revenues and other income by operating segment:
For the Year Ended December 31,
Increase
Percentage
Operating Segment (In thousands)
2023
2022
(Decrease)
Change
Mineral Rights
$
296,612
$
329,167
$
(32,555
)
(10
)%
Soda Ash
73,397
59,795
13,602
23
%
Total
$
370,009
$
388,962
$
(18,953
)
(5
)%
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The changes in revenues and other income are discussed for each of the operating segments below:
Mineral Rights
The following table presents coal sales volumes, coal royalty revenue per ton and coal royalty revenues by major coal producing region, the significant categories of other revenues and other income:
For the Year Ended December 31,
Increase
Percentage
(In thousands, except per ton data)
2023
2022
(Decrease)
Change
Coal sales volumes (tons)
Appalachia
Northern
1,145
1,696
(551
)
(32
)%
Central
13,927
13,646
281
2
%
Southern
2,670
1,784
886
50
%
Total Appalachia
17,742
17,126
616
4
%
Illinois Basin
8,119
11,135
(3,016
)
(27
)%
Northern Powder River Basin
4,589
4,288
301
7
%
Gulf Coast
1,477
385
1,092
284
%
Total coal sales volumes
31,927
32,934
(1,007
)
(3
)%
Coal royalty revenue per ton
Appalachia
Northern
$
7.15
$
8.75
$
(1.60
)
(18
)%
Central
8.95
10.47
(1.52
)
(15
)%
Southern
12.81
13.50
(0.69
)
(5
)%
Illinois Basin
3.61
2.50
1.11
44
%
Northern Powder River Basin
4.50
4.07
0.43
11
%
Gulf Coast
0.66
0.58
0.08
14
%
Combined average coal royalty revenue per ton
6.83
6.90
(0.07
)
(1
)%
Coal royalty revenues
Appalachia
Northern
$
8,192
$
14,836
$
(6,644
)
(45
)%
Central
124,631
142,930
(18,299
)
(13
)%
Southern
34,205
24,076
10,129
42
%
Total Appalachia
167,028
181,842
(14,814
)
(8
)%
Illinois Basin
29,350
27,856
1,494
5
%
Northern Powder River Basin
20,666
17,437
3,229
19
%
Gulf Coast
969
223
746
335
%
Unadjusted coal royalty revenues
218,013
227,358
(9,345
)
(4
)%
Coal royalty adjustment for minimum leases
(2
)
(402
)
400
100
%
Total coal royalty revenues
$
218,011
$
226,956
$
(8,945
)
(4
)%
Other revenues
Production lease minimum revenues
$
3,322
$
5,854
$
(2,532
)
(43
)%
Minimum lease straight-line revenues
19,389
18,792
597
3
%
Carbon neutral initiative revenues
2,969
8,600
(5,631
)
(65
)%
Wheelage revenues
12,191
13,961
(1,770
)
(13
)%
Property tax revenues
6,219
5,878
341
6
%
Coal overriding royalty revenues
2,175
3,434
(1,259
)
(37
)%
Lease amendment revenues
3,070
3,201
(131
)
(4
)%
Aggregates royalty revenues
2,876
3,299
(423
)
(13
)%
Oil and gas royalty revenues
7,387
16,161
(8,774
)
(54
)%
Other revenues
1,124
877
247
28
%
Total other revenues
$
60,722
$
80,057
$
(19,335
)
(24
)%
Royalty and other mineral rights
$
278,733
$
307,013
$
(28,280
)
(9
)%
Transportation and processing services revenues
14,923
21,072
(6,149
)
(29
)%
Gain on asset sales and disposals
2,956
1,082
1,874
173
%
Total Mineral Rights segment revenues and other income
$
296,612
$
329,167
$
(32,555
)
(10
)%
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Coal Royalty Revenues
Approximately 70% of coal royalty revenues and approximately 50% of coal royalty sales volumes were derived from metallurgical coal during the year ended December 31, 2023. Total coal royalty revenues decreased $8.9 million from 2022 to 2023. The discussion by region is as follows:
•
Appalachia : Coal royalty revenues decreased $14.8 million primarily due to decreased metallurgical coal sales prices during the year ended December 31, 2023, as compared to the prior year.
•
Illinois Basin : Coal royalty revenues increased $1.5 million primarily due to higher thermal coal sales prices, partially offset by lower coal sales volumes as compared to the prior year.
•
Northern Powder River Basin : Coal royalty revenues increased $3.2 million due to increased sales volumes and higher coal sales prices during the year ended December 31, 2023, as compared to the prior year. The increase in sales volumes was due to our lessee mining more on our property during 2023 as compared to 2022 in accordance with its mine plan.
Other Revenues
Other revenues decreased $19.3 million during the year ended December 31, 2023 as compared to the prior year primarily due to the following:
•
An $8.8 million d ecrease in oil and gas revenues primarily as a result of decreased natural gas prices as compared to the prior year;
•
A $5.6 million decreas e in carbon neutral initiative revenues as compared to the prior year. Carbon neutral initiative revenues recognized in 2023 primarily related to subsurface CO 2 storage and forest offset credits. Carbon neutral initiative revenues recognized in 2022 primarily related to subsurface CO 2 storage and geothermal energy transactions; and
•
A $2.5 million decrease in production lease minimum revenues primarily as a result of a decrease in breakage revenues as compared to the prior year.
Transportation and Processing Services Revenues
Transportation and processing services revenues decreased $6.1 million during the year ended December 31, 2023 as compared to the prior year primarily due to a temporary relocation of certain production off of NRP's coal reserves. The fee per ton associated with the transportation and processing of the non-NRP coal is less than the fee per ton associated with the transportation and processing of NRP coal.
Soda Ash
Revenues and other income related to our Soda Ash segment increased $13.6 million c ompared to the prior year primarily due to higher sales prices driven by strong demand domestically, partially offset by lower soda ash production and sales volumes.
Operating and Other Expenses
The following table presents the significant categories of our consolidated operating and other expenses:
For the Year Ended December 31,
Increase
Percentage
(In thousands)
2023
2022
(Decrease)
Change
Operating expenses
Operating and maintenance expenses
$
32,315
$
34,903
$
(2,588
)
(7
)%
Depreciation, depletion and amortization
18,489
22,519
(4,030
)
(18
)%
General and administrative expenses
26,111
21,852
4,259
19
%
Asset impairments
556
4,457
(3,901
)
(88
)%
Total operating expenses
$
77,471
$
83,731
$
(6,260
)
(7
)%
Other expenses, net
Interest expense, net
$
14,103
$
26,274
$
(12,171
)
(46
)%
Loss on extinguishment of debt
—
10,465
(10,465
)
(100
)%
Total other expenses, net
$
14,103
$
36,739
$
(22,636
)
(62
)%
Total operating expenses decreased $6.3 million primarily due to the following:
•
A $2.6 million decrease in operating and maintenance expenses primarily as a result of lower overriding royalty expense from an agreement with Western Pocahontas Properties Limited Partnership ("WPPLP") in 2023 as compared to 2022. This overriding royalty expense is fully offset by coal royalty revenue we receive from this property.
•
A $3.9 million decrease in asset impairments as compared to the prior year.
•
A $4.0 million decrease in depreciation, depletion and amortization expense primarily driven by lower Illinois Basin coal royalty sales volumes during the year ended December 31, 2023, as compared to the prior year.
These decreases were partially offset by a $4.3 million increase in general and administrative expenses primarily due to higher long-term incentive expense during the year ended December 31, 2023, as compared to the prior year.
Total other expenses, net decreas ed $22.6 million pri marily due to a $12.2 million decrease in interest expense, net as a result of less debt outstanding during 2023 as compared to the prior year, and a $10.5 million decrease related to the loss on early extinguishment of debt related to the retirement of the 2025 Senior Notes during the year ended December 31, 2022.
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Adjusted EBITDA (Non-GAAP Financial Measure)
The following table reconciles net income (loss) (the most comparable GAAP financial measure) to Adjusted EBITDA by business segment:
Operating Segments
Corporate and
For the Year Ended (In thousands)
Mineral Rights
Soda Ash
Financing
Total
December 31, 2023
Net income (loss)
$
245,527
$
73,140
$
(40,232
)
$
278,435
Less: equity earnings from unconsolidated investment
—
(73,397
)
—
(73,397
)
Add: total distributions from unconsolidated investment
—
81,478
—
81,478
Add: interest expense, net
—
—
14,103
14,103
Add: depreciation, depletion and amortization
18,471
—
18
18,489
Add: asset impairments
556
—
—
556
Adjusted EBITDA
$
264,554
$
81,221
$
(26,111
)
$
319,664
December 31, 2022
Net income (loss)
$
267,448
$
59,635
$
(58,591
)
$
268,492
Less: equity earnings from unconsolidated investment
—
(59,795
)
—
(59,795
)
Add: total distributions from unconsolidated investment
—
44,835
—
44,835
Add: interest expense, net
—
—
26,274
26,274
Add: loss on extinguishment of debt
—
—
10,465
10,465
Add: depreciation, depletion and amortization
22,519
—
—
22,519
Add: asset impairments
4,457
—
—
4,457
Adjusted EBITDA
$
294,424
$
44,675
$
(21,852
)
$
317,247
Net income increased $9.9 million primarily due to the decrease in operating and other expenses, net, partially offset by the decrease in revenues and other income, both discussed above. Adjusted EBITDA increased $2.4 million primarily due to a $36.5 million increase in Adjusted EBITDA within our Soda Ash segment as a result of higher cash distributions received from Sisecam Wyoming during the year ended December 31, 2023 as compared to the prior year due to Sisecam Wyoming's strong operating performance in the first half of 2023. This increase was partially offset by a $29.9 million decrease in Adjusted EBITDA within our Mineral Rights segment as a result of lower revenues and other income during the year ended December 31, 2023 as discussed above and a $4.3 million decrease in Adjusted EBITDA within our Corporate and Financing segment as a result of the increase in general and administrative expenses during the year ended December 31, 2023 as discussed above.
Distributable Cash Flow ("DCF") and Free Cash Flow ("FCF") (Non-GAAP Financial Measures)
The following table presents the three major categories of the statement of cash flows by business segment:
Operating Segments
Corporate and
For the Year Ended (In thousands)
Mineral Rights
Soda Ash
Financing
Total
December 31, 2023
Cash flow provided by (used in)
Operating activities
$
259,983
$
81,207
$
(30,212
)
$
310,978
Investing activities
5,426
—
(10
)
5,416
Financing activities
(583
)
—
(342,913
)
(343,496
)
December 31, 2022
Cash flow provided by (used in)
Operating activities
$
262,807
$
44,672
$
(40,641
)
$
266,838
Investing activities
2,806
—
(118
)
2,688
Financing activities
(614
)
—
(365,341
)
(365,955
)
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The following tables reconcile net cash provided by (used in) operating activities (the most comparable GAAP financial measure) by business segment to DCF and FCF:
Operating Segments
Corporate and
For the Year Ended (In thousands)
Mineral Rights
Soda Ash
Financing
Total
December 31, 2023
Net cash provided by (used in) operating activities
$
259,983
$
81,207
$
(30,212
)
$
310,978
Add: proceeds from asset sales and disposals
2,963
—
—
2,963
Add: return of long-term contract receivable
2,463
—
—
2,463
Less: maintenance capital expenditures
—
—
(10
)
(10
)
Distributable cash flow
$
265,409
$
81,207
$
(30,222
)
$
316,394
Less: proceeds from asset sales and disposals
(2,963
)
—
—
(2,963
)
Free cash flow
$
262,446
$
81,207
$
(30,222
)
$
313,431
Operating Segments
Corporate and
For the Year Ended (In thousands)
Mineral Rights
Soda Ash
Financing
Total
December 31, 2022
Net cash provided by (used in) operating activities
$
262,807
$
44,672
$
(40,641
)
$
266,838
Add: proceeds from asset sales and disposals
1,083
—
—
1,083
Add: return of long-term contract receivable
1,723
—
—
1,723
Less: maintenance capital expenditures
—
—
(118
)
(118
)
Distributable cash flow
$
265,613
$
44,672
$
(40,759
)
$
269,526
Less: proceeds from asset sales and disposals
(1,083
)
—
—
(1,083
)
Free cash flow
$
264,530
$
44,672
$
(40,759
)
$
268,443
Cash provided by operating activities, DCF and FCF increased $44.1 million, $46.9 million and $45.0 million, respectively from 2022 to 2023. The discussion by segment is as follows.
•
Mineral Rights Segment: Cash provided by operating activities, DCF and FCF decreased $2.8 million, $0.2 million and $2.1 million, respectively primarily due to the segment's decrease in revenues and other income as discussed above.
•
Soda Ash Segment: Cash provided by operating activities, DCF and FCF increased $36.5 million as a result of higher cash distributions received from Sisecam Wyoming in 2023 driven by Sisecam Wyoming's strong operating performance in the first half of 2023.
•
Corporate and Financing Segment: Cash used in operating activities decreased $10.4 million and DCF and FCF increased $10.5 million primarily due to lower cash paid for interest in 2023 as a result of the retirement of the 2025 Senior Notes in 2022.
For discussion of our Results of Operations comparing 2022 to 2021, refer to our 2022 Annual Report on Form 10-K filed March 3, 2023 under Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . "
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Liquidity and Capital Resources
Current Liquidity
As of December 31, 2023, we had total liquidity of $71.2 million, consisting of $12.0 million of cash and cash equivalents and $59.2 million in borrowing capacity under our Opco Credit Facility. We have debt service obligations, including approximately $31 million of principal repayments on Opco’s senior notes in 2024. As of December 31, 2023 our leverage ratio was 0.5x. The following table calculates our leverage ratio:
(In thousands)
For the Year Ended December 31, 2023
Adjusted EBITDA
$
319,664
Debt—at December 31, 2023
$
155,525
Leverage Ratio
0.5x
Cash Flows
Year Ended December 31, 2023 and 2022 Compared
Cash flows provided by operating activities increased $44.1 million, from $266.8 million during the year ended December 31, 2022 to $311.0 million during the year ended December 31, 2023 due to increased cash flow within our Soda Ash and Corporate and Financing segments, partially offset by decreased cash flow within our Mineral Rights segment, all discussed above.
Cash flows used in financing activities decreased $22.5 million, from $366.0 million used during the year ended December 31, 2022 to $343.5 million used during the year ended December 31, 2023 primarily due to the following:
•
$300.0 million of cash used to retire the 2025 Senior Notes in 2022;
•
$178.8 million o f increased borrowings on the Opco Credit Facility in 2023;
•
$19.3 million of cash used to redeem the preferred units paid-in-kind in 2022;
•
$9.1 million of decreased cash used for other items, net primarily due to the premiums paid related to the retirement of the 2025 Senior Notes in 2022; and
•
$8.2 million of decreased cash used for preferred unit distributions as a result of the preferred unit redemptions in 2023.
These decreases in cash flow used were partially offset by the following:
•
$178.3 million of cash used to redeem the preferred units in 2023;
•
$223.0 million of cash used to repay a portion of the Opco Credit Facility in 2023;
•
$56.1 million of cash used to settle certain of our warrants in 2023; and
•
$35.5 million of increased cash distributions to common unitholders and the general partner as a result of the special cash distribution of $2.43/unit made in the first quarter of 2023 in addition to increasing our common unit distributions to $0.75/unit beginning in the second quarter of 2022.
For discussion of our Cash Flows comparing 2022 to 2021, refer to our 2022 Annual Report on Form 10-K filed March 3, 2023 under Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. "
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Capital Resources and Obligations
Debt, Net
We had the following debt outstanding as of December 31, 2023 and 2022:
December 31,
(In thousands)
2023
2022
Current portion of long-term debt, net
$
30,785
$
39,076
Long-term debt, net
124,273
129,205
Total debt, net
$
155,058
$
168,281
We have been and continue to be in compliance with the terms of the financial covenants contained in our debt agreements. For additional information regarding our debt and the agreements governing our debt, including the covenants contained therein, see " Item 8. Financial Statements and Supplementary Data—Note 11. Debt, Net " in this Annual Report on Form 10-K.
Debt Obligations
The following table reflects our long-term, non-cancelable debt obligations as of December 31, 2023:
Payments Due by Period
Debt Obligations (In thousands)
Total
2024
2025
2026
2027
2028
Thereafter
Opco:
Debt principal payments (including current maturities) (1)
$
155,525
$
31,028
$
14,332
$
14,331
$
95,834
$
-
$
—
Debt interest payments (2)
4,899
2,724
1,450
725
—
—
—
Total
$
160,424
$
33,752
$
15,782
$
15,056
$
95,834
$
—
$
—
(1)
The amounts indicated in the table include principal due on Opco’s senior notes and credit facility.
(2)
The amounts indicated in the table include interest due on Opco’s senior notes.
Preferred Units and Warrants
As of December 31, 2023 there were 71,666 preferred units outstanding. As of December 31, 2022 there were 250,000 preferred units outstanding. As of December 31, 2023 there were 1,540,000 warrants with a strike price of $34.00 outstanding. As of December 31, 2022 there were 3,002,500 warrants outstanding, which included warrants to purchase 752,500 common units at a strike price of $22.81 and warrants to purchase 2,250,00 common units with a strike price of $34.00. For more information on our preferred units and warrants, see " Item 8. Financial Statements and Supplementary Data—Note 4. Class A Convertible Preferred Units and Warrants " in this Annual Report on Form 10-K.
Inflation
Despite rising costs beginning in 2021 and continuing into 2023, inflation did not have a material impact on operations for the years ended December 31, 2023, 2022 and 2021.
Environmental Regulation
For additional information on environmental regulation that may have a material impact on our business, see " Items 1. and 2. Business and Properties—Regulation and Environmental Matters ."
Related Party Transactions
The information required by this Item is included under " Item 8. Financial Statements and Supplementary Data—Note 13. Related Party Transactions " and " Item 13. Certain Relationships and Related Transactions, and Director Independence " in this Annual Report on Form 10-K and is incorporated by reference herein.
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Summary of Critical Accounting Estimates
Preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See " Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies " in the audited Consolidated Financial Statements of this Form 10-K for discussion of our significant accounting policies. The following critical accounting policies are affected by estimates and assumptions used in the preparation of Consolidated Financial Statements. We evaluate our estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Revenues
Mineral Rights Segment Revenues
Royalty-based leases. Approximately two-thirds of our royalty-based leases have initial terms of five to 40 years, with substantially all lessees having the option to extend the lease for additional terms. For these types of leases, the lessees generally make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral mined and sold. Most of our coal and aggregates royalty leases require the lessee to pay quarterly or annual minimum amounts, either made in advance or arrears, which are generally recoupable through actual royalty production over certain time periods that generally range from three to five years.
We have defined our coal and aggregates royalty lease performance obligation as providing the lessee the right to mine and sell our coal or aggregates over the lease term. We then evaluated the likelihood that consideration we expected to receive from our lessees resulting from production would exceed consideration expected to be received from minimum payments over the lease term.
As a result of this evaluation, revenue recognition from our royalty-based leases is based on either production or minimum payments as follows:
•
Production Leases : Leases for which we expect that consideration from production will be greater than consideration from minimums over the lease term. Revenue for these leases is recognized over time based on production as royalty revenues, as applicable. Deferred revenue from minimums is recognized as royalty revenues when recoupment occurs or as production lease minimum revenues when the recoupment period expires. In addition, we recognize breakage revenue from minimums when we determine that recoupment is remote. This breakage revenue is included in production lease minimum revenues.
•
Minimum Leases : Leases for which we expect that consideration from minimums will be greater than consideration from production over the lease term. Revenue for these leases is recognized straight-line over the lease term based on the minimum consideration amount as minimum lease straight-line revenues.
This evaluation is performed at the inception of the lease and only reassessed upon modification or renewal of the lease.
Mineral Rights
Mineral rights owned and leased are recorded at its original cost of construction or, upon acquisition, at fair value of the assets acquired. Coal and aggregates mineral rights are depleted on a unit-of-production basis by lease, based upon minerals mined in relation to the net cost of the mineral properties and estimated economic tonnage as estimated by our internal reserve engineers. The technologies and economic data used by our internal reserve engineers in the estimation of our economic tonnage include, but are not limited to, drill logs, geophysical logs, geologic maps including isopach, mine, and coal quality, cross sections, statistical analysis, and available public production data. There are numerous uncertainties inherent in estimating the quantities and qualities of economic tonnage, including many factors beyond our control. Estimates of economically recoverable tonnage depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results.
Asset Impairment
We have developed procedures to evaluate our long-lived assets, including intangible assets, for possible impairment periodically or whenever events or changes in circumstances indicate an asset's net book value may not be recoverable. Potential events or circumstances include, but are not limited to, specific events such as a reduction in economically recoverable tons or production ceasing on a property for an extended period. A long-lived asset is deemed impaired when the future expected undiscounted cash flows from its use and disposition is less than the asset's net book value. Impairment is measured based on the estimated fair value, which is usually determined based upon the present value of the projected future cash flow compared to the asset's net book value. We believe our estimates of cash flows and discount rates are consistent with those of principal market participants.
We evaluate our equity investment for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment loss. The fair value of the impaired investment is based on quoted market prices, or upon the present value of expected cash flows using discount rates believed to be consistent with those used by principal market participants, plus market analysis of comparable assets owned by the investee, if appropriate.
Recent Accounting Standards
In November 2023, the FASB issued ASU No. 2023-07 — Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures ("ASU 2023-07"). The amendments in ASU 2023-07 improve reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses. The guidance is effective for annual and interim periods beginning after December 15, 2023 and is to be adopted retrospectively to all prior periods presented in the financial statements. We do not expect the adoption of ASU 2023-07 to have a material effect on our Consolidated Financial Statements.
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