Foresight Energy LP Reports Third Quarter 20181 Results

Foresight Energy LP (Foresight or the Partnership) (NYSE:FELP) today reported financial and operating results for the third quarter ended September 30, 2018. Foresight generated coal sales revenues of nearly $292 million on sales volumes of 6.1 million tons resulting in a net loss attributable to limited partner units of $27.7 million, Adjusted EBITDA of $57.6 million, and cash flows from operations of $51.3 million. Net loss attributable to limited partner units and Adjusted EBITDA include $25 million in charges related to the settlement of litigation with Natural Resource Partners L.P. (NRP) related to matters at Hillsboro Energy and Macoupin Energy.

During the third quarter, we continued to take advantage of a strong export market and an improved domestic spot market to realize significant year-over-year improvements in our sales volumes, said Mr. Robert D. Moore, Chairman, President and Chief Executive Officer. With our unique access to international and domestic markets, plus our industry-leading cost structure, Foresight remains well-positioned to continue to opportunistically place its thermal coal production and to capture solid margins. Regarding the settlement of litigation with NRP, we are pleased to have reached a mutually beneficial resolution to these lawsuits, which provides us with future operational flexibility at Hillsboro Energy, while significantly reducing the lease holding cost.

Foresight also announced that due to the Partnerships operating performance during the third quarter, the Board of Directors of its General Partner approved a quarterly cash distribution of $0.0565 per unit from retained excess cash flow. The distribution is payable on December 21, 2018 for unitholders of record on December 11, 2018.

Third Quarter Consolidated Financial Results

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Coal sales totaled nearly $292.0 million for the third quarter 2018 compared to $229.7 million for the third quarter 2017, representing an increase of $62.3 million, or 27%. The increase in coal sales revenues was due to higher coal sales volumes combined with higher coal sales realization per ton sold. Coal sales volumes and coal sales realization per ton sold were higher due to increased export sales, which experienced more favorable API2 pricing during 2018.

Cost of coal produced was $133.7 million, or $22.28 per ton sold, for the third quarter 2018 compared to $122.8 million, or $23.43 per ton sold, for the third quarter 2017. The increase in total cost of production was due to an increase in produced tons sold offset by a lower cash cost per ton sold. The lower cash cost per ton sold resulted from no longwall moves occurring during the third quarter of 2018, compared to one longwall move in the prior year period. Additionally, cost of coal produced (excluding depreciation, depletion and amortization) for the third quarter of 2017 included $4.3 million arising from the non-cash adjustment of inventory to fair value related to the application of pushdown accounting.

Transportation costs increased approximately $21.8 million from the third quarter 2017 to the third quarter 2018 due to a higher percentage of sales going to the export market during the current year period and the additional transportation and transloading costs associated therewith.

Other operating (income) expense, net for the third quarter 2018 includes $25.0 million in charges related to the settlement of litigation with NRP related to matters arising from the combustion event at Hillsboro Energy and royalty matters at Macoupin Energy. While the matters with NRP are settled, Foresight remains in discussions with its insurance providers regarding further potential recoveries under its policies related to the Hillsboro Energy combustion event; however, there can be no assurances that Foresight will receive any further insurance recoveries related to the Hillsboro combustion event.

During the third quarter 2018, Foresight generated operating cash flows of $51.3 million and ended the period with $43.1 million in cash and $129.7 million of available borrowing capacity, net of outstanding borrowings and letters of credit, under its revolving credit facility. Capital expenditures for the quarter ended September 30, 2018 totaled $18.6 million compared to $15.2 million for the quarter ended September 30, 2017.

Guidance for 2018

Based on Foresights remaining contracted position, third quarter and year-to-date performance, and its current outlook on pricing and the coal markets in general, the Partnership is affirming and updating the following guidance for 2018:

Sales Volumes “ Based on current committed position and expectations for the remainder of 2018, Foresight is projecting sales volumes to be between 22.4 and 23.0 million tons, with approximately 9.0 million tons expected to be sold into the international market.

Adjusted EBITDA “ Based on the projected sales volumes and operating cost structure, Foresight currently expects to generate Adjusted EBITDA in a range of $305 to $325 million.

Capital Expenditures “ Total 2018 capital expenditures are estimated to be between $70 and $77 million.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. These statements contain words such as possible, intend, will, if and expect and can be impacted by numerous factors, including risks relating to the securities markets, the impact of adverse market conditions affecting business of the Partnership, adverse changes in laws including with respect to tax and regulatory matters and other risks. There can be no assurance that actual results will not differ from those expected by management of the Partnership. Known material factors that could cause actual results to differ from those in the forward-looking statements are described in Part I, Item 1A. Risk Factors of the Partnerships Annual Report on Form 10-K filed on March 7, 2018. The Partnership undertakes no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which the Partnership becomes aware of, after the date hereof.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of the Partnerships consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

¢ the Partnerships operating performance as compared to other publicly traded partnerships, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
¢ the Partnerships ability to incur and service debt and fund capital expenditures; and
¢ the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and

growth opportunities.

The Partnership defines Adjusted EBITDA as net income (loss) attributable to controlling interests before interest, income taxes, depreciation, depletion, amortization and accretion. Adjusted EBITDA is also adjusted for equity-based compensation, losses/gains on commodity derivative contracts, settlements of derivative contracts, a change in the fair value of the warrant liability and material nonrecurring or other items, which may not reflect the trend of future results. As it relates to commodity derivative contracts, the Adjusted EBITDA calculation removes the total impact of derivative gains/losses on net income (loss) during the period and then adds/deducts to Adjusted EBITDA the amount of aggregate settlements during the period. Adjusted EBITDA also includes any insurance recoveries received, regardless of whether they relate to the recovery of mitigation costs, the receipt of business interruption proceeds, or the recovery of losses on machinery and equipment.

The Partnership believes the presentation of Adjusted EBITDA provides useful information to investors in assessing the Partnerships financial condition and results of operations. Adjusted EBITDA should not be considered an alternative to net (loss) income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with U.S. GAAP, nor should Adjusted EBITDA be considered an alternative to operating surplus, adjusted operating surplus or other definitions in the Partnerships partnership agreement. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, of the items that affects net (loss) income. Additionally, because Adjusted EBITDA may be defined differently by other companies in the industry, and the Partnerships definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, the utility of such a measure is diminished. For a reconciliation of Adjusted EBITDA to net loss, please see the table below.

This press release references forward-looking estimates of Adjusted EBITDA projected to be generated by the Partnership during the year ending December 31, 2018. A reconciliation of estimated 2018 Adjusted EBITDA to U.S. GAAP net income (loss) is not provided because U.S. GAAP net income (loss) for the projection period is not practical to assess due to unknown variables and uncertainty related to future results. In recent years, the Partnership has recognized significant asset impairment charges, transition and reorganization costs, losses on early extinguishment of debt, and debt restructuring costs. While these items affect U.S. GAAP net income (loss), they are generally excluded from Adjusted EBITDA. Therefore, these items do not materially impact the Partnerships ability to forecast Adjusted EBITDA.

About Foresight Energy LP

Foresight is a leading producer and marketer of thermal coal controlling over 1.7 billion tons of coal reserves in the Illinois Basin. Foresight currently operates two longwall mining complexes with three longwall mining systems (Williamson (one longwall mining system) and Sugar Camp (two longwall mining systems), one continuous mining operation (Macoupin) and the Sitran river terminal on the Ohio River. Foresights operations are strategically located near multiple rail and river transportation access points, providing transportation cost certainty and flexibility to direct shipments to the domestic and international markets. Foresight also owns coal interests and mining assets located in southeastern Ohio.

Foresight Energy LP
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
 
(Successor)       (Successor)
September 30, December 31,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 43,070 $ 2,179
Accounts receivable 38,583 35,158
Due from affiliates 32,055 37,685
Financing receivables – affiliate 3,327 3,138
Inventories, net 52,924 40,539
Prepaid royalties 4,000
Deferred longwall costs 14,172 9,520
Other prepaid expenses and current assets 8,139 10,844
Contract-based intangibles   1,430   11,268
Total current assets 193,700 154,331
Property, plant, equipment and development, net 2,168,348 2,378,605
Due from affiliates 947
Financing receivables – affiliate 61,514 64,097
Prepaid royalties, net 2,295 1,250
Other assets 4,640 5,358
Contract-based intangibles   1,058   2,052
Total assets $ 2,431,555 $ 2,606,640
Liabilities and partners capital
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 41,498 $ 109,532
Current portion of sale-leaseback financing arrangements 5,851 4,148
Accrued interest 26,342 13,410
Accounts payable 96,284 76,658
Accrued expenses and other current liabilities 80,662 62,442
Asset retirement obligations 4,416 4,416
Due to affiliates 23,384 13,324
Contract-based intangibles   16,844   28,688
Total current liabilities 295,281 312,618
Long-term debt and capital lease obligations 1,209,172 1,205,000
Sale-leaseback financing arrangements 192,298 196,496
Asset retirement obligations 51,686 39,655
Other long-term liabilities 29,857 32,330
Contract-based intangibles   69,027   144,715
Total liabilities 1,847,321 1,930,814
Limited partners’ capital:

Common unitholders (80,844 and 77,644 units outstanding as of September 30, 2018

and December 31, 2017, respectively)

370,884 421,161

Subordinated unitholder (64,955 units outstanding as of September 30, 2018 and

December 31, 2017)

  213,350   254,665
Total partners’ capital   584,234   675,826
Total liabilities and partners’ capital $ 2,431,555 $ 2,606,640
 
Foresight Energy LP
Unaudited Condensed Consolidated Statements of Operations
(In Thousands, Except Per Unit Data)
 
    (Successor)   (Successor)     (Successor)   (Successor)   (Predecessor)

Three Months

Ended

September 30,

2018

Three Months

Ended

September 30,

2017

Nine Months

Ended

September 30,

2018

Period From

April 1, 2017

through

September 30,

2017

Period From

January 1,

2017

through

March 31,

2017

Revenues:
Coal sales $ 291,987 $ 229,670 $ 800,366 $ 434,186 $ 227,813
Other revenues   1,949   2,770   5,718   5,347   2,581
Total revenues 293,936 232,440 806,084 439,533 230,394
 
Costs and expenses:
Cost of coal produced (excluding depreciation, depletion and amortization) 133,670 122,839 391,222 228,629 117,762
Cost of coal purchased 6,312 11,969 7,973
Transportation 61,239 39,414 166,716 67,672 37,726
Depreciation, depletion and amortization 52,780 53,754 159,512 103,291 39,298
Contract amortization and write-off (4,855 ) (15,611 ) (76,699 ) (6,878 )
Accretion on asset retirement obligations 558 726 1,848 1,454 710
Selling, general and administrative 10,465 7,858 28,774 15,135 6,554
Long-lived asset impairments 110,689
Loss on commodity derivative contracts 1,101 2,218 1,492
Other operating (income) expense, net   24,849   (48 )   (18,782 )   (13,538 )   451
Operating income 8,918 22,407 30,835 41,550 18,428
Other expenses:
Interest expense, net 36,619 35,988 109,327 71,408 43,380
Change in fair value of warrants (9,278 )
Loss on early extinguishment of debt           95,510
Net loss $ (27,701 ) $ (13,581 ) $ (78,492 ) $ (29,858 ) $ (111,184 )
 
Net loss available to limited partner units – basic and diluted:
Common unitholders $ (13,298 ) $ (5,097 ) $ (37,177 ) $ (13,887 ) $ (56,259 )
Subordinated unitholder $ (14,403 ) $ (8,484 ) $ (41,315 ) $ (15,971 ) $ (54,925 )
 
Net loss per limited partner unit – basic and diluted:
Common unitholders $ (0.17 ) $ (0.07 ) $ (0.47 ) $ (0.18 ) $ (0.85 )
Subordinated unitholder $ (0.22 ) $ (0.13 ) $ (0.64 ) $ (0.25 ) $ (0.85 )
 
Weighted average limited partner units outstanding – basic and diluted:
Common units 80,505 77,510 79,737 76,893 66,533
Subordinated units 64,955 64,955 64,955 64,955 64,955
 

Distributions declared per limited partner unit

$ 0.0565 $ 0.0647 $ 0.1695 $ 0.0647 $
 
Foresight Energy LP
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 
    (Successor)   (Successor)   (Predecessor)

Nine Months

Ended

September 30,

2018

Period From

April 1, 2017

through

September 30,

2017

Period From

January 1, 2017

through

March 31, 2017

Cash flows from operating activities
Net loss $ (78,492 ) $ (29,858 ) $ (111,184 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization 159,512 103,291 39,298
Amortization of debt discount and deferred issuance costs 2,015 1,273 6,365
Contract amortization and write-off (76,699 ) (6,878 )
Equity-based compensation 530 439 318
Loss on commodity derivative contracts 2,218 1,492
Settlements of commodity derivative contracts 320 3,724
Realized gains on coal derivatives included in investing activities (3,520 )
Long-lived asset impairments 110,689
Insurance proceeds included in investing activities (42,947 )
Change in fair value of warrants (9,278 )
Debt extinguishment expense 95,510
Other 8,915 1,321
Changes in operating assets and liabilities:
Accounts receivable (3,425 ) 9,450 19,695
Due from/to affiliates, net 16,637 6,923 (13,157 )
Inventories (10,307 ) (22,159 ) (917 )
Prepaid expenses and other assets (244 ) (4,759 ) (5,117 )
Prepaid royalties 2,955 6,240 (241 )
Commodity derivative assets and liabilities 266 (532 )
Accounts payable 19,626 (582 ) 7,324
Accrued interest 12,932 22,493 (9,803 )
Accrued expenses and other current liabilities 18,667 1,188 (3,430 )
Other   2,155   1,300   1,782
Net cash provided by operating activities 133,604 100,080 19,650
Cash flows from investing activities
Investment in property, plant, equipment and development (50,872 ) (36,960 ) (19,908 )
Return of investment on financing arrangements with Murray Energy (affiliate) 2,394 1,452 705
Insurance proceeds 42,947
Settlement of certain coal derivatives 3,520
Proceeds from sale of property, plant and equipment       1,898
Net cash used in investing activities (5,531 ) (35,508 ) (13,785 )
Cash flows from financing activities
Borrowings under revolving credit facility 50,000
Payments on revolving credit facility (22,000 ) (352,500 )
Net change in borrowings under A/R securitization program (10,300 ) 7,000
Proceeds from long-term debt and capital lease obligations 1,234,438
Payments on long-term debt and capital lease obligations (93,877 ) (23,539 ) (970,721 )
Payments on short-term debt (5,180 )
Proceeds from issuance of common units to Murray Energy (affiliate) 60,586
Distributions paid (13,574 ) (5,026 )
Debt extinguishment costs (57,645 )
Debt issuance costs paid (27,328 )
Other   (2,551 )   (3,471 )   (1,892 )
Net cash used in financing activities   (87,182 )   (42,336 )   (108,062 )
Net increase (decrease) in cash, cash equivalents, and restricted cash 40,891 22,236 (102,197 )
Cash, cash equivalents, and restricted cash, beginning of period   2,179   14,724   116,921
Cash, cash equivalents, and restricted cash, end of period $ 43,070 $ 36,960 $ 14,724
 

Reconciliation of U.S. GAAP Net Loss to Adjusted EBITDA (In Thousands)

 
   

(Successor)

Three

Months

Ended

September

30, 2018

 

(Successor)

Three

Months

Ended

September

30, 2017

 

(Successor)

Nine Months

Ended

September

30, 2018

 

(Successor)

Period From

April 1, 2017

through

September

30, 2017

 

(Predecessor)

Period From

January 1,

2017

through

March 31,

2017

 

Combined –

Period From

January 1,

2017

through

September

30, 2017

Net loss(1)(2) $ (27,701 ) $ (13,581 ) $ (78,492 ) $ (29,858 ) $ (111,184 ) $ (141,042 )
Interest expense, net 36,619 35,988 109,327 71,408 43,380 114,788
Depreciation, depletion and amortization 52,780 53,754 159,512 103,291 39,298 142,589
Accretion on asset retirement obligations 558 726 1,848 1,454 710 2,164
Contract amortization and write-off (4,855 ) (15,611 ) (76,699 ) (6,878 ) (6,878 )

Noncash impact of recording coal inventory

to fair value in pushdown accounting

4,306 8,868 8,868
Equity-based compensation 178 228 530 439 318 757
Long-lived asset impairments 110,689
Loss on commodity derivative contracts 1,101 2,218 1,492 3,710

Settlements of commodity derivative

contracts

(124 ) 320 3,724 4,044
Change in fair value of warrants (9,278 ) (9,278 )
Loss on early extinguishment of debt           95,510   95,510
Adjusted EBITDA $ 57,579 $ 66,787 $ 226,715 $ 151,262 $ 63,970 $ 215,232
 

(1) – Included in net loss during the three and nine months ended September 30, 2018 was expense of $25.0 million related to the settlement of

litigation related to the Hillsboro and Macoupin matters.

(2) – Included in net loss during the nine months ended September 30, 2018 and the three months and combined period ended September 30,

2017 was insurance proceeds of $44.1 million, $1.5 million, and $12.8 million, respectively, from the Hillsboro mine combustion event.

 

Operating Metrics (In Thousands, Except Per Ton Data)

 
   

(Successor)

Three

Months

Ended

September

30, 2018

   

(Successor)

Three

Months

Ended

September

30, 2017

   

(Successor)

Nine Months

Ended

September

30, 2018

   

(Successor)

Period From

April 1,2017

through

September

30, 2017

   

(Predecessor)

Period From

January 1,

2017

through

March 31,

2017

   

Combined –

Period From

January 1,

2017

through

September

30, 2017

Produced tons sold 6,000 5,242 16,978 10,077 5,165 15,242
Purchased tons sold   143     272     118   118
Total tons sold   6,143   5,242   17,250   10,077   5,283   15,360
 
Tons produced 6,167 5,297 17,252 10,957 5,267 16,224
 
Coal sales realization per ton sold(1) $ 47.53 $ 43.81 $ 46.40 $ 43.09 $ 43.12 $ 43.10
Cash cost per ton sold(2) $ 22.28 $ 23.43 $ 23.04 $ 22.69 $ 22.80 $ 22.73
Netback to mine realization per ton sold(3) $ 37.56 $ 36.29 $ 36.73 $ 36.37 $ 35.98 $ 36.24
 
(1) – Coal sales realization per ton sold is defined as coal sales divided by total tons sold.
(2) – Cash cost per ton sold is defined as cost of coal produced (excluding depreciation, depletion and amortization) divided by produced tons sold.
(3) – Netback to mine realization per ton sold is defined as coal sales less transportation expense divided by tons sold.

1 Foresight adopted pushdown accounting as of March 31, 2017 as a result of Murray Energy obtaining control of its general partner. As required by pushdown accounting, the Partnership revalued its balance sheet on the change of control date and therefore certain financial statement line items are not comparable to prior periods. As such, operational results prior to March 31, 2017 were recorded on the predecessor financial statements (the Predecessor). Operational results subsequent to March 31, 2017 were recorded on the successor financial statements (the Successor).

Foresight Energy LP
Cody E. Nett, 740-338-3100
Corporate
Secretary and Director of Media and Investor Relations
[email protected]
[email protected]

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