Atlas Energy Solutions Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2024

There are 8 speakers on the call.

Operator

Welcome to Atlas Energy Solutions Acquisition of Hi Crush and 2023 4th Quarter Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to Kyle Turlington, Vice President of Investor Relations. Thank you. You may begin.

Speaker 1

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the Q4 of 2023. With us today are Bud Brigham, CEO and John Turner, President and CFO. Bud and John will be sharing their comments on the company's operational and financial performance for the Q4 full year 2023 and insights on the acquisition of Hi Crush that we announced today, after which we will open the call up for Q and A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward looking statements as defined under the U. S.

Speaker 1

Securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the perspectives we filed with the SEC on September 12, 2023, in connection with our recent corporate reorganization, our quarterly reports on Form 10 Q and our other SEC filings.

Speaker 1

You should not place undue reliance on forward looking statements, and we undertake no obligation to update these forward looking statements. We will also make reference to certain non GAAP financial measures such as adjusted EBITDA, adjusted free cash flow and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in this morning's press release. With that said, I will turn the call over to Bud Brigham.

Speaker 2

Thank you, Kyle. Today is an exciting day, not only for Atlas, but for Hi Crush and their stakeholders, the Permian Basin sand and logistics market and our customers. Atlas is acquiring Hi Crush for $450,000,000 which consists of $175,000,000 in equity, dollars 150,000,000 in cash and a $125,000,000 deferred cash payment in the form of a seller's note. The acquisition of Hi Crush further strengthens Atlas position as a leading provider of proppant and proppant logistics in the Permian Basin. Our increased scale and enhanced offerings are tailored to meet the needs of our large scale customers in the Permian Basin.

Speaker 2

As it relates to the importance of scale and reliability, we recently heard a high level executive from a leading oil service company coined the phrase, more sand, more barrels and he is exactly right. With service intensity rising, scale and reliability are paramount today with the leading edge frac crews now pumping over 100,000 tons of sand per month. In my opinion, Atlas and Hi Crush have been the 2 most innovative proppant companies within the Permian Basin with the rollout of Hi Crush's Encore Mobile Mines and the development of our Dune Express conveyor system, which remains on time and on budget, coupled with our innovative multi trailer delivery solution. These disruptive offerings are currently helping to take trucks off the public roads and making the communities in the heart of the Permian Basin safer places to live and work. And we anticipate that the Dune Express will further enhance these benefits.

Speaker 2

We have the utmost respect and appreciation for what the team at Hi Crush has built. And we are looking forward to combining best practices from our respective organizations to help our customers become even more efficient. The $450,000,000 acquisition of Hi Crush includes all its Permian Basin operations consisting of 2 plants at Kermit which share the same giant open dune as our existing Kermit facilities, 7 currently deployed on core mobile mines of which 5 are in the Midland Basin and 2 in the Delaware Basin, with an additional Midland Basin deployment slated for the Q2 of 2024 and a 9th deployment planned for later in 2024. Atlas is also acquiring 100% of Pronghorn Energy Services with this acquisition of Hi Crush, which is a leading provider of damp sand last mile solutions. We are excited to combine Pronghorn's last mile expertise with Atlas' innovative multi trailer last mile offering.

Speaker 2

We believe that the broadened offering will be well received by our customers. The acquisition of Hi Crush will add 12,000,000 tons to our production capacity, which consists of 5,000,000 tons of dry sand production at their 2 Kermit mines and approximately 7,000,000 tons in the aggregate of wet sand production across their Encore mines. In some pro form a, Atlas will have approximately 21,000,000 tons of dry sand production capacity and around 7,000,000 tons of wet sand production capacity for a total of 28,000,000 tons of overall production capacity. This scale is unmatched in the Permian Basin. The merits of this acquisition are numerous.

Speaker 2

1st and foremost, this transaction enhances our geographic footprint and customer base in the Midland Basin, logistically advantaging us to more Midland Basin operators, while also providing a complementary damp sand offering through the Encore Mobile Mine portfolio. This is a significant improvement in our ability to compete for work in a subset of the market in the Midland Basin. Similarly, there is little customer overlap between the two companies and Hi Crush has very strong relationships with certain key operators in the Midland Basin. The broadening of our customer base as a result of the acquisition will be very beneficial, further aligning Atlas with more of the largest operators in the Permian. With the recent consolidation that has taken place in the Permian, size and scale have quickly become an absolute imperative to aptly service the development programs of these large scale Permian operators and to help drive further efficiencies in the industry.

Speaker 2

We believe the acquisition pushes us to the forefront of industry in that regard. This acquisition adds meaningfully to Atlas' Atlas' competencies, product and logistics offerings and makes us a better organization as a whole, more fit to lead the industry from the front. Atlas and Hi Crush are 2 of the lowest cost producers of proppant in the Permian Basin. This acquisition will provide us with valuable insights for optimization of our production and logistics strategies and methods to lower costs and enhance efficiency. Hi Crush has been one of the most innovative companies in sand and logistics and our acquisition of its techniques, processes and technologies should be exciting to our customers in the Permian.

Speaker 2

This transaction meaningfully increases the cash flow profile of Atlas pro form a for the acquisition and exhibits double digit accretion across key share metrics. We expect to fully realize $20,000,000 in annualized synergies by 2026. We now have a potential low cost solution to increase volumes down the Doon Express. And we accomplished this without adding new supply to the market by absorbing Hi Crush's Kermit operations which sit about 2 miles from our plants at Kermit where the Dune Express begins. Finally, with the acquisition of Pronghorn, we will have created the largest logistics and last mile service in the Permian with the capacity to move more sand on a yearly basis than anyone else that we know of.

Speaker 2

The acquisition allows us to further leverage our logistics offerings with additional scale, which should also increase efficiencies. Ultimately, our scale should provide even greater growth opportunities with market share expectations that better align with our sand production share. In summary, 2024 is already set up to be a very exciting year for Atlas. First, we are just a few quarters away from the commencement of the Dune Express, which remains on time and on budget and which should have a very positive impact on our cash flows next year. 2nd, the highly accretive acquisition of Hi Crush provides our shareholders with greater visibility for 2024 and beyond due to the heavily contracted nature of our combined production and our more diverse customer base.

Speaker 2

And 3rd, and partly as a result, Atlas is uniquely positioned to match up with the growing scale of our Permian Basin customers, such that we can uniquely provide the differentiated capacity and throughput as well as the associated efficiencies and reliability that Permian operators need. Our pro form a production capacity of over 28,000,000 tons following the completion of acquisition is easily the largest in the Permian. And also makes us the largest

Speaker 3

Thanks, Bud. And I also echo your enthusiasm for the Hi Crush acquisition. In addition to providing more color on the transaction, I will also provide some initial commentary on our Q4 2023 standalone results and provide some additional guidance on our outlook for 2024 post acquisition. As Bud mentioned earlier, following the closing of the acquisition, on a combined basis, we will have 28,000,000 tons of annualized production capacity, increasing to about 29,000,000 tons in 2025 with a full year's contribution and the benefit of these additional Encore deployments. The effective date of the transaction is February 29, 2024.

Speaker 3

As our contracting volumes and Permian activity levels remain strong and completion efficiencies continue to compound profit usage, we'd expect to continue to operate at greater than 85% to 90% utilization going forward. Taking into account Hi Crush's contracts, we expect our sand prices for 20.24 to average between $26 $28 a ton. Assuming just over 3 quarters of contribution from Hi Crush, we expect 2024 adjusted EBITDA to range between $425,000,000 to 4 $75,000,000 We expect total CapEx for 2024 to be between $335,000,000 $360,000,000 This includes between $285,000,000 $305,000,000 in growth CapEx consisting of $220,000,000 for the construction of the Dune Express between $25,000,000 $45,000,000 on Encore deployments and another $40,000,000 in other CapEx. We are forecasting maintenance CapEx for 2024 to be between $50,000,000 $55,000,000 The $175,000,000 equity component of the acquisition consideration consists of approximately $9,700,000 of newly issued shares of our common stock, which amounts to just under 9% of our outstanding shares on a pro form a basis. The up front cash portion of the consideration and the near term capital expenditures of Hi Crush have been financed with a new one $150,000,000 acquisition term loan with Stonebriar Commercial Finance under an amendment to our existing credit facility and with a draw of $50,000,000 under our amended and upsized ABL facility.

Speaker 3

The $125,000,000 in deferred cash consideration is secured by a seller's note, which bears interest at either 5% in cash or 7% when paid in kind at our option. The maturity of the seller's note is in 2026, but can be paid off at any time prior to that without penalty. Our net debt as of December 31, 2023, pro form a for the acquisition and related financing is approximately $245,000,000 consisting of $505,000,000 of debt less $260,000,000 of cash. We will have a modest 0.5 net leverage ratio at closing and plan to methodically pay down debt using a portion of our significant expected free cash flow, while also returning capital to shareholders as we have done consistently in the past. Our acquisition of 1 of the leading profit suppliers in the Permian Basin greatly enhances our ability to increase shareholder returns.

Speaker 3

As Bud highlighted earlier, our anticipated enhanced cash flows from the acquisition supports a 5% increase in our total dividend, which is now $0.21 per share comprised of a $0.16 per share base dividend and a $0.05 per share variable dividend. Pro form a maintenance CapEx beyond 2024 is expected to be between $50,000,000 $60,000,000 annually, providing Atlas with multiple avenues to further increase shareholders' return once the remaining growth CapEx associated with the Den Express and additional Encore mine subsides. The heavily contracted nature of our operations post acquisition reduces our cash flow volatility and with the commissioning of the Dune Express, our ability to increase shareholder return is strengthened by this transaction. Given the transaction structure, which includes an equity component and a deferred payment, our balance sheet and liquidity will remain healthy. The acquisition of Hyattress sets Atlas up to thrive in tough market conditions and positions Atlas to deliver enhanced returns in a normalized environment.

Speaker 3

I will now turn my attention to our standalone Q4 and full year 2023 results. 2023 was a remarkable year. We sold 18,000,000 shares and raised approximately $324,000,000 in gross proceeds in our initial public offering in March. Accounting for our latest dividend amount, we will have paid out $146,000,000 in total dividends and distributions to our investors since inception. We delivered full year total company revenue of $614,000,000 an increase of 27% year over year.

Speaker 3

Total company adjusted EBITDA was $330,000,000 up 25% year over year. We achieved our 1st sand delivery with our assets in January, our first double trailer delivery in March and our first triple trailer delivery in April. Our logistics revenue was $146,000,000 up 96% year over year. We completed our new Kermit plant facility in December on time and on budget, increasing our standalone production capacity to 16,000,000 tons, up from 10,000,000 tons. In October, we announced a corporate reorganization transaction or UPCE simplification that enabled us to trade under a single class of common stock.

Speaker 3

2024 will be another exciting year as we look forward to the integration of our new operations following completion of the High Press acquisition, the completion of the Dune Express and the arrival of our 2 new state of the art dredges. For the Q4 of 'twenty three, we reported total sales of $141,000,000 Our revenue from profit sales was $100,000,000 Our profit sales volumes were down more than expected quarter over quarter to 2,600,000 tons. Aside from typical holiday and weather slowdowns, we saw our customers taking extended holiday breaks given budget exhaustion driven by efficiencies. However, we have seen our customers return to normal activity levels in the Q1 of 'forty four. Our average sales price for the Q4 was $39 per ton.

Speaker 3

Moving to service sales, which is revenue generated by our logistics operation, we reported $41,000,000 in revenues for the quarter. As of February 1, we have taken delivery of all 120 trucks, which is up from 27 trucks from our 3rd quarter update. In total, cost of sales excluding DD and A for the quarter decreased $5,000,000 to $67,000,000 For the Q4, our per ton plant operating costs were $10.63 per ton, which is above the prior period driven by lower volumes. Further, we expect the delivery of our new specialized dredging equipment in early 2024 to provide incremental improvements in operational performance and further reductions in our mining costs once these assets are fully commissioned by the middle of this year. Royalty expenses for the quarter were down 17% to $3,000,000 due again to lower volumes.

Speaker 3

SG and A expense for the quarter was $14,000,000 Gross interest expense for the quarter was $5,000,000 which is offset by $3,000,000 of interest income generated during the period, resulting in net interest expense of $2,000,000 We expect our interest income to decline in future quarters as we draw down on our cash reserves to a normalized level as we complete our growth projects. Depreciation, depletion and accretion expense for the quarter was $12,000,000 We generated net income of $36,000,000 for the quarter, representing a strong net income margin of 26 percent and earnings per share of $0.36 Net cash provided by operating activities for the quarter was $86,000,000 compared to $55,000,000 during the Q3. Adjusted EBITDA for the period was $69,000,000 representing a sequential decrease of 18% and an adjusted EBITDA margin of 49%. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx for the quarter was $57,000,000 representing a sequential decrease of 18% and adjusted free cash flow margin of 40%. Lastly, we spent a total of $106,000,000 on growth projects in the 4th quarter, which includes our new Kermit facility, the Dune Express, our well site delivery assets production enhancement in our existing facilities.

Speaker 3

We incurred $12,000,000 of maintenance CapEx during the quarter. With that, I will now turn the call back over to Bud.

Speaker 2

The near term merits of this acquisition are easy to see, but the real value will be created over the next 5 years as the entire basin will benefit from a larger, more innovative and more reliable profit and logistics provider. We will have the ability to supply incremental sand in a tight market similar to the first half of twenty twenty three and adjust production in periods of low activity, creating a more stable market for our investors and our customers. Since our inception, Atlas has looked for ways to bring proppant closer to the wellsite in order to lower costs and reduce traffic on public roads. We are innovators and disruptors. And with this acquisition, we're even better positioned to deliver further innovations and advancements to the most prolific shale basin in the world.

Speaker 2

That concludes our prepared remarks and we will now let the operator open the line for questions. Thank you all for joining us on our Q4 call.

Operator

At this time, we will be conducting a question and answer session. You. Our first question is from Don Crist with Johnson Rice. Please proceed.

Speaker 4

Good morning, gentlemen. I think most of us were pretty surprised with the announcement this morning. But as they're kind of looking stepping back and looking at it, the proximity of the Kermit mines and the addition of the wet sand mobile mines makes a lot of sense. But in your eyes, how does this make Atlas a better company going forward, not only for 'twenty four, but 'twenty five and 'twenty six and beyond?

Speaker 2

Well, thank you. And I will start with that and John may want to add to it. But you're right, we've talked about the fact that it's a high it's been a high bar for us given our differentiated margins and associated with that low cost structure. But this deal is really special. As you touched on, 2 things.

Speaker 2

1, extremely complementary asset base that's it's really a 1 +1equals3 transaction. That combined with the fact, these guys like us have been the leading innovators. And so we share the similar cultures and values and innovative entrepreneurial environment. So it is going to be more apparent how powerful those synergies play out or are going to become more evident over the next 5 years. A couple more specifics and you've heard us say this over and over that scale is really important.

Speaker 2

I mean operators are demonstrating that and scale gives you the opportunity to drive down costs, drive up margins, increase automation. And we need to match up with that. And on proppant, it's about throughput and reliability associated with that scale. This gives us more redundancy in the field, more options for the operator so that we can debottleneck sand. We had said and that ties in with logistics, we want to be logistically advantaged to every single operator in the Permian.

Speaker 2

This is a big step forward for us in that regard, particularly in the Midland Basin. Associated with that, it's really a complementary customer base, because it brings logistically advantaged assets and logistics in the Midland Basin, it brings complementary customers into our portfolio. So that's beneficial to our shareholders. And last, and John may want to add to this, I mean, this is a very accretive transaction, even before all the synergies and application of best practices on our respective assets. And so we believe over time, it's really going to help us to accelerate returning capital to our shareholders.

Speaker 2

John, do you want to add anything?

Speaker 3

Yes. I mean, Don, when we looked at this looked at the acquisition, we needed something that was going to meet both our financial and operational goals. Like Bud said, it's very complementary on the operational side, and what we what our goals are and what we want to accomplish. One is on the logistics front, Atlas has quietly become one of the leading logistics providers in the Permian. But when you look at what Pronghorn has as well, they have they are one of the largest logistics providers in the Permian.

Speaker 3

So when you look at that on day 1, you're going to have the largest logistics stand in logistics frac sand provider in the Permian. So it met on the operational side. There were other things that met. Like Bud said, it expands our footprint into the Midland Basin where we'll have more sand logistically advantaged located to well sites. And then also on the Doon Express, I mean, obviously, there's been some questions about our plant capabilities and the ability to produce 13,000,000 tons.

Speaker 3

I mean, the proximity of their Kermit mines will be very complementary to what's going with the Duke Express and as we get the Duke Express up and launch. And then also operationally on OpEx side, I mean we're going to obviously there's going to be a lot of synergies on that side. And then on the financial side, I mean this met our goals as a company. I mean it's a very high return rate of return internal rate of return project less than a 3 year payback on heavily contracted volumes. It's going to support any acquisition or anything that we did, any investment that we make in the future or whether it be this one or any other one is going to have to really support our return profile that includes a significant return of cash to shareholders through dividends.

Speaker 3

And so this one really supports that. So looking, I mean, over time, I mean, the larger company, reduce our cost to produce is going to we're still going to have the leading margins in the industry and I mean across all the oilfield service company space. So we think that supports us our future as a company going forward on goals and then also that for our shareholders.

Speaker 2

Hope that helps, Don.

Speaker 4

Yes. And just one kind of semi related follow-up. As you were bringing in the electric dredges this year, we had as the analysts had your costs coming down quite a bit for 2024. As you roll in the Hi Crush assets, I don't know what their operational costs are today to produce. Can you give us a little bit of guidance around that?

Speaker 4

And is this going to increase that what we had previously?

Speaker 3

Back in 2021, we were at 6.50 a ton on our when we had 100% dredge feed into our mining process. That number has come up to 10.30 as we increase production and our dredges couldn't keep up. These 2 new dredges that one is already being commissioned out there and other ones are arriving here shortly. Once we get those dredges incorporated into our mining operation, we're expecting our cost is our long term mining cost is going to be down in the say mid-seven dollars s per ton. That's just for mining.

Speaker 3

On high crush, their OpEx in $23 was just over $11 a ton. Obviously, that's higher than our $7 but we do think there's going to be that we're I mean, we are optimistic that we're going to be able to get this number down over time. For the future, the combined synergies that we've identified some modeling so far, I mean, we've taken 2024, we're going to be around $9 a ton. And then once we and that's on the identified synergies, I mean there's probably going to be other synergies that we're going to be able to accomplish. And over time, we think we're going to be able to get their cost the entire company's cost down to around $7 a ton.

Speaker 3

So when you look at it, I think overall I didn't incorporate any sort of synergies from G and A or maintenance CapEx there. I think those costs are going to come down. So over time, I think it's going to actually be we're going to be producing sand at a lower cost per ton than we would as a standalone.

Speaker 4

I appreciate all the answers. I'll turn it back.

Speaker 5

You're welcome.

Operator

Our next question is from Luc Lamoine with Piper Sandler. Please proceed.

Speaker 6

Hey, good morning. John, you kind of loosely alluded to it, morning. When you're at your Kermit facility, you can see the 2 high crush mines right next door. Can you just talk about any plans to tie this in the Dune Express? And then you kind of hit on it earlier as well, but then your ability to convert the high crush mines to dredging from yellow iron?

Speaker 3

Yes. That's something Luke that we can definitely like you said, I mean the proximity of those mines are within 2 miles of our permit mine. That's something that we haven't fully vetted on what the cost would be, but it's something that we definitely think will be a synergistic from the Dune Express point of view. Obviously, connecting a mine or 2 mines via conveyor is going to be less expensive than building bringing out an additional 5000000 to 6000000 tons of capacity. So yes, we obviously see significant cost savings there.

Speaker 3

On the dredging front, that is something that we are investigating. We haven't fully evaluated that, but that's something that we're definitely looking at. And I do think that we are going to have an extra dredge here at some point here pretty soon and that's something we may run over there and see if we can start dredging mining over on their location. They definitely do have water like we do. We just have to figure out how we're going to if it's going to work.

Speaker 3

But then there's other things that we may be able to do if we can't fully dredge mine over there. I mean, the other thing is, is the dredges that we have arriving on location are going to be they're going to be able to provide a significant amount of feed into our current mines. There may be ways that we could even be hook those dredges up over to their feed to their mines and then feed their process with these dredges as well. So there's a I guess what I want to say is there's just a lot of things, a lot of opportunity here, a lot of optionality that we don't have a full handle on, but that's something that we're definitely going to be looking at over here as we progress forward.

Speaker 6

Okay. And then on the Encore Mobile Mini Mines, can you just talk about your opportunity and comfort with wet sand, the mining operations and maybe if you can see some opportunities just kind of improve the operations as well?

Speaker 2

Yes. This is Budd. I might just start, but John will probably add to it. I think some of you probably heard us early on, we were concerned about the challenges associated with wet sand. And obviously, we've been sold out of dry sand.

Speaker 2

So we weren't particularly motivated to move that direction. It's really a credit to Hi Crush and their team and again their culture, their innovative culture that they've really solved those challenges and doing a great job with the wet sand. So that's that combined with the fact that it's logistically advantaged to operators there over in the east side of the Midland Basin particularly made it compelling. And again, it's credit to those guys and it's very complementary to what we're doing. John, do you want to add to that?

Speaker 3

Yes. I mean, we I do think that I agree with Scott. I think the Hi Crush team has done an amazing job on the West Hand front. I think that and on the logistics side as well, I think that we're going to as a company, what we're going to do is we're going to come together and we're going to bring in the best ideas and see if there's anything that they're doing and we can apply it within in our operations and we're also going to do the same thing. Are there things that we can do at their operations, like I said, their Encore mines that we're doing and

Speaker 2

see Automation.

Speaker 3

Yes, automation and things like that and incorporate that in. So I definitely think there's going to be some opportunity there as well.

Speaker 6

Okay. Thanks a bunch and congrats on the deal. Thank you.

Operator

Our next question is from Jim Rolleison with Raymond James. Please proceed.

Speaker 5

Hey, good morning guys and congrats on the transaction. Thank you. John, maybe can you split out just obviously you guys break out the sand side from the logistics side the way you report financials. Maybe just I know we don't have all the financial details yet because it's not closed, but I'd love to get just kind of a rough split of maybe revenues and EBITDA from Hi Crush between their actual sand operations versus the logistics, so we can kind of think about that from a modeling perspective?

Speaker 3

Hey, I'm going to let Brian answer that. Jim, it's pretty close to fifty-fifty. They're also very heavily weighted in the logistics business like us.

Speaker 5

And do you think, Brian, margin wise, is there a logistics business somewhere running close to what you guys have been doing historically? Just kind of trying to bear that part out to get to the $110,000,000 to $125,000,000 of guidance.

Speaker 3

Yes, very similar. Obviously, we've got a change coming up with the Dune Express to expand margins, but historically, it's pretty similar.

Speaker 2

Yes. I might add just kind of thematically to help you think about the logistics. When you think about we talked about this as we were at a conference recently and the fact that historically OpEx 70% of OpEx has been labor man in the seat. And when you look at what we're doing with the Dune Express, we're completely eliminating the man in the seat for that 42 mile haul into the most prolific producing province in the country. They're into the center of the Delaware Northern Delaware Basin.

Speaker 2

And then we've got Last Mile from there. But then you look at so that's going to be a real leapfrog forward in terms obviously in terms of cost structure and margin capture for us and will be additive to 25. And then on top of that, you look what we're doing with the high capacity trucking, double, triple trailering, significantly reducing the cost per ton delivered with that. And then similarly in the Midland Basin, what High Crush has been doing with the proximal Encore mines, taking trucks off the road and reducing drive time. So it's really exciting when you think about over time what we're going to be able to do to really to change the logistics business and really move that more towards when you look at the Dune Express, it really is a midstream enterprise.

Speaker 2

And so the margin impact over time is really going to be exciting and as you go forward. And you look at the margins of this company, we have a slide, Slide 14 in the investor deck that shows, I mean, nobody has enjoys the margins that we do and we tried about half the multiple of those companies that approach us even on the margin. So it's really exciting as you roll forward with this company, with this scale and with the complementary assets we're adding and the innovative culture, we're going to be able to further drop down our cost structure and drop up our margins, which are already at very exciting levels. I don't know

Speaker 5

if you guys want to add to that.

Speaker 3

No, Matt, I think that's thank you. That's well covered.

Speaker 5

Thanks for that color, Budd. And then John, last thing, just on the $26 to $28 a ton kind of full year pricing, maybe a little color. When we sat here a quarter ago, you guys were kind of talking market was in the mid upper 20s to low 30s and you were still about 40% contracted. Obviously, on a combined basis, you guys are 80% contracted. Maybe how some color on how the Hi Crush contracting weighed on that versus just new where the market's been with a weak market we've had going into the back half of the fourth quarter, just kind of how you ended up at this range versus where we had been historically?

Speaker 3

Yes. The Hi Crush was they have a contract profile but they were heavily contracted there at a more lower price than what we were contracted at. So really what you're seeing there is an adjustment of is reflective of what their where their contract position is. I'd say that they're almost 100% contracted on their 24 volumes and it's at a lower price than where we were as it where our contract profile is. Got it.

Speaker 3

Thanks guys.

Operator

Our next question is from Shawn Mitchell with Daniel Energy Partners. Please proceed.

Speaker 7

Good morning, guys. Congrats on the deal. Bud, I think you addressed this a little bit in your opening comments. But can you just talk a little bit about customer overlap, in particular in Kermit maybe or in the Delaware because obviously the Midland is somewhat new, but what's the overlap in customer mix here in Kermit?

Speaker 2

Well, there's not much. It's very complementary in terms customers. John, I don't know if there's any specific I mean, the fact that their assets are weighted towards the Midland Basin and then our and their logistics is weighted towards the Midland Basin and our logistics what we've been doing, of course, with the Dune Express and the high capacity trucking has really had more impact in the Delaware Basin. So it's kind of been natural organic that we have very complementary customer basis. We've been logistically challenged on the far eastern side of the Midland Basin given the distances to move our proppant over there.

Speaker 2

So it's just it's a very beneficial in that regard. Yes.

Speaker 3

I mean, like Bud said, I think there's very little overlap. Obviously, some of the largest most of the largest produced operators in the Permian Basin, I think they ICREZ has done a great job with those customers and those customers value those relationships just like ours do and we look forward to maintaining those relationships going forward and serving those customers. Our entire top tier customer base look forward to serving them going forward.

Speaker 2

I mean, I think part of it is logistics is so key to your proppant sales. And so it's been natural that even our Kermit plant has been more weighted to the Midland Basin because that's where their logistics assets are. And we dominate the Delaware because our logistic assets are second to none in the Delaware. So, it's really worked out well and very complementary.

Speaker 7

And Bud or John, as you look at the combined assets or the assets of the combined company, where do you guys see maybe an opportunity for growth? I mean, I

Speaker 5

think,

Speaker 7

What are you most excited about when you look at the combined assets?

Speaker 2

Maybe I'll just make a general comment. John may have some specifics. I mean, I just think it's really exciting where Atlas is positioned, particularly after this transaction that this basin and the oiling the shale has been a significant evolution in my view we're in the mid early mid innings of this evolution to more of a factory type operation. And so it's all about scale and you're seeing that on the operator side. And on the service side, we're uniquely positioned with the scale on logistics and proppant to match the scale of the operator.

Speaker 2

So there are going to be a lot of opportunities associated with this distribution network to make operators' jobs easier and to eliminate the bottlenecks, particularly on sand and the blender, and we're uniquely positioned to do that. So I just think we're going to have a lot of opportunities to grow other green shoots that we can't even imagine right now. John, do you want to add to that?

Speaker 3

Yes. I mean, nothing in particular other than these two companies have been really the only ones that have been investing in the frac sand and logistics space significantly. And as of today, I mean, I don't we can't necessarily tell you where the future growth is going to be, but I can what I can assure you is that we're going to continue making those investments working with our partners operating partners to make sure that efficiencies on well sites continue to improve. And in overall frac sand intensity is going to continue to increase. Bud mentioned that on this call.

Speaker 3

We're going to be looking at opportunities to help our customers increase that intensity.

Speaker 1

And Sean, real quick, you talked about growth. I think one thing we're excited about is growth in distributions, which this acquisition certainly enhances that.

Speaker 7

Absolutely. Well, guys, thanks for the time and congrats again on the deal.

Speaker 2

Thank you. Really appreciate it.

Operator

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

Speaker 2

Yes. We want to thank everybody for joining us for this call. This is an exciting and really transformational event in our company's history. We really look forward to following up in subsequent quarters. So thank you all very much.

Speaker 2

Thanks, guys.

Operator

Thank you. This does conclude today's conference. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Atlas Energy Solutions Q4 2023
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