Alliance's revenue rose 3.1% during the fourth quarter compared to the third quarter to $366.5 million, while its EBITDA increased by 2.1% to $121.4 million. Driving that sequential improvement were increased coal sales, and higher oil and gas royalty revenues. While revenue was down 19.2% year over year because of the impacts from the COVID-19 pandemic, EBITDA only fell 3.8% thanks to the positive effect of its cost-cutting initiatives.
The coal miner also generated $90.6 million of free cash flow during the fourth quarter. That allowed it to reduce debt and finance lease obligations by $67.8 million, which helped boost its liquidity by $70.2 million. The company ended 2020 with a 1.54 times debt-to-EBITDA ratio, a nearly 10% improvement from the third quarter and comfortably below its 2.5 times leverage covenant. One factor that helped the company generate so much excess cash was its prior decision to suspend its distribution in March. The company plans to review that policy at the end of the first quarter. If market conditions and its balance sheet continue improving, it could reinstate a quarterly distribution.
Alliance Resource Partners expects to sell 10% more coal in 2021 than last year, thanks to its existing contracts and improving market conditions. Add that to rebounding oil and gas prices, and the company anticipates that its EBITDA will rise this year. That could enable it to start returning cash to investors once again.
However, the energy company's longer-term outlook remains cloudy, given the energy sector's transition to renewable energy. With most utilities planning to retire their coal plants in the coming years, and oil and gas usage also likely to diminish over time, Alliance will need to change fuel sources before it runs out of gas.