Greetings. Welcome to the Atlas Energy Solutions' Acquisition of Hi-Crush and 2023 Fourth Quarter Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Kyle Turlington, Vice President of Investor Relations. Thank you. You may begin.

Hello and welcome to the Atlas Energy Solutions' conference call and webcast for the fourth quarter 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 fourth quarter and 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&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. 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 or results could differ materially. You can learn more about these risks in the prospectus we filed with the SEC on September 12th, 2023 in connection with our recent corporate reorganization, our quarterly reports on Form 10-Q; and our other SEC filings. 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.

Thank you, Kyle. Today, it's 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 million, which consists of $175 million in equity, $150 million in cash, and a $125 million 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. As it relates to the importance of scale and reliability, we recently heard a high-level executive from the leading oil service company, coin the phrase "more sand, more barrels" and he is exactly right. With surface 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 two 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. We have the utmost respect and appreciation to 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 million acquisition of Hi-Crush includes all its Permian Basin operations, consisting…

Thanks, Budd. 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 fourth quarter 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'll have 28 million tons of annualized production capacity increasing to about 29 million 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 29th, 2024. As our contracted volumes and Permian activity levels remained strong and completion efficiencies continue to compound proppant 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 2024 to average between $26 and $28 a ton. Assuming just over three quarters of contribution from Hi-Crush, we expect 2024 adjusted EBITDA to range between $425 million to $475 million. We expect total CapEx for 2024 to be between $335 million and $360 million. This includes between $285 million and $305 million in growth CapEx, consisting of $220 million for the construction of the Dune Express between $25 million and $45 million on Encore deployments and another $40 million in other CapEx. We are forecasting maintenance CapEx for 2024 to be between $50 million and $55 million. The $175 million equity component of the acquisition consideration consists of approximately $9.7 million of newly issued shares of our common stock, which amounts to just under 9% of our outstanding shares on a pro forma basis. The upfront cash portion of the consideration and the near-term capital expenditures of Hi-Crush have been financed with a new $150…

The near-term merits of this acquisition are easy to see that the real value will be created over the next five years as the entire basin will benefit from a larger, more innovative, and more reliable proppant and logistics provider. We will have the ability to supply incremental sand in a tight market similar to the first half of 2023 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 are even better positioned to deliver further innovations and advancements to the most prolific shale basin in the world. 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 fourth quarter call.

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

Morning gentlemen. I think most of us were pretty surprised with the announcement this morning. But after 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 2024, but 2025 and 2026 and beyond?

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 been a high bar for us given our differentiated margins associated with that low cost structure. But this deal is really special. As you touched on, two things. One, extremely complementary asset base that it's really a one plus one equals three transaction. That, combined with the fact these guys like us have been the leading innovators. And so we share the similar cultures and values, an 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 five years. A couple more specifics. And you've heard us say this over and over the scale is really important. I mean operators are demonstrating that, scale gives you the opportunity to drop down cost, 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 operators so that we can debottleneck sand. We had said and that it ties in with logistics, we want to be logistically advantaged to every single operator in the Permian. 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 that 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. John, do you want to add anything?

Yeah. I mean, Don, when we 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 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. So when you look at that on day one, you're going to have the largest logistics -- sand logistics frac sand provider in the Permian. So it meant on the operational side, there were other things that met like -- but said, it expands our footprint into the Midland Basin. We're we'll have more sand logistically advantaged located to well sites. And then also on the Dune Express, I mean, obviously, there's been some questions about our plant capabilities and the ability to produce 13 million tons. I mean, the proximity of their termite mines we'll be very complementary to what's going to happen with the Dune Express as we get to do Dune 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 re-internal rate of return project, less than a three-year payback on heavily contracted volumes. It's going to support any acquisition or anything that we -- any investment that we make in the future or whether it be this one and the other one is going to have to really support our return profile that includes a significant return of cash to shareholders through dividends -- and so this one really supports that. So look, I mean, over time, I mean the larger company reduce -- will 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 companies in the space. So we think that supports us our future as a company going forward, our goals and then also that for our shareholders.

Hope that helps, Don.

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

Back in 2021, we were at $650 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 drug just couldn't keep up. These two new dredges that one is already being commissioned out there, another one live in here shortly. Once we get those dredges incorporated into our mining operation, we're expecting our costs -- our long-term mining cost is going to be down in the, say, mid-amid-$7s per ton. That's just for mining. On Hi-Crush, their OpEx in 2023 was just over $11 a ton. Obviously, that's higher than our 7. But we do think there's going to be that -- 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. So when you look at it, I think, overall, I didn't incorporate any sort of synergies from G&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 stand-alone.

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

Yeah. You're welcome.

Our next question is from Luke Lemoine with Piper Sandler. Please proceed.

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

Yes, that's something, Luke, that we can definitely -- like you said, I mean, the proximity does monitor within two miles of our current 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 synergistic from the Dune Express point of view. Obviously, connecting a mine or two mines via conveyor is going to be going to be less expensive than building -- bringing out an additional 5 million tons to 6 million tons of capacity. So yes, we obviously see significant cost savings there. On the dredging front, that is something that we are investigating. We haven't been 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 drag here at some point here pretty soon, and that's something we may run over there and see if we can see if we can then start to drag money over in their location. They definitely do have water like we did. We just have to figure out how we're going to -- if it's going to work. And -- 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 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 took those dredges up over to their minds and then feed their process will be dredges as well. So there's -- 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.

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

Yeah, this is Bud. I might just start, but John will probably add to it. I think some of you probably heard us already on. We were concerned about the challenges associated with wet sand. And obviously, we can sold out of dry sand. 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 sought those challenges and doing a great job with the web sand. So 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 corrected for those guys, and it's very complementary to what we're doing. John, do you want to add to that?

I mean we -- I do think that -- I agree with that. I think the Hi-Crush team has done an amazing job on the wet sand front. I think that 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 that we can apply it within -- in our operations, and we're also going to do the same thing or the things that we can do at their operations, like I said, they're on core mines that we're doing in...

Automation...

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

Okay. Thanks bunch and Congrats on the deal.

Thank you.

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

Hey, good morning, guys. Congrats on the transaction. 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.

I'm going to let Brian answer that. Yes. Jim, it's pretty close to 50-50. They're also very heavily weighted in the logistics business like us.

And do you think, Brian, margin-wise, is their logistics business somewhere running close to what you guys have been doing historically? Just kind of trying to fare it that part out to get to the 110 to 125 of guidance.

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

Yes. I might add just kind of thematically to help you think about the logistics. When you think about -- and we talked about this as we were at a conference recently and the fact that historically, OpEx, 70% of OpEx has been labor made in the seat. And when you look at what we're doing with the Don Express, we're completely eliminating the ban of the seat for that 42-mile haul into the most prolific producing province in the country. They're in the center of the Delaware -- Northern Delaware Basin. And then we've got last mile from there. But then you look at -- so that's going to be a real leap 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 at 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 Hi-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 change the logistics business and really move it more tort when you're looking to do an express it really is a midstream enterprise. And so the margin impact over time is really going to be exciting 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 enjoyed the margins that we do and we try to 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 the scale and with the complementary assets we're adding and the innovative culture, we're going to be able to further drive down our cost structure and drive up our margins, which are already at very exciting levels. I don't know if you guys want to add to that.

Yes, I think I think it's well covered.

Thanks for that color, Bud. 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 within 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 where the market has been, where the weak market we've had going into the back half of the fourth quarter? Just kind of how you ended up with this range versus where we had been historically.

Yes. The Hi-Crush was -- they have a contract profile that they were heavily contracted there at a more lower price than what we were contracting that. So really, what you're seeing there is an adjustment is reflective of what were their contract position. As you know there -- 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 where our contract profile is.

Got it. Thanks guys.

Thank you.

Our next question is from Sean Mitchell with Daniel Energy Partners.

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 and the customer mix here in Kermit?

Well, there's not much. It's very complementary in terms of customers. John, I don't know if there's any specific -- I mean, the fact that their assets are certainly weighted towards the Midland Basin and the 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 is really have more impact in the Delaware Basin. So it's kind of been natural, organic that we have very complementary customer bases. We've been logistically challenged on the far eastern side of the Midland Basin, given the distances to move our proppant over there. So it's just -- it's very beneficial in that regard. I don't know...

Yes. I mean, I'd like Bud, I think there's very little overlap. Obviously, some of the largest -- most of the largest produce operators in the Permian Basin. I think the areas 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 customers look forward to serving that going forward.

I mean, I think part of it is logistics is so key to your proppant sales. And so it's been natural that even though Kermit plant has been more weighted to the Midland Basin because that's where the 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.

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, what are you most excited about in terms of silos, boxes, more trailers, mobile mines? What are you most excited about when you look at the combined assets?

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 shale has been a significant evolution and might be 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. 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 in other green shoots that we can even imagine now. John, do you want to add to one.

Yes. I mean, nothing in particular other than these two companies have been -- have been really the only ones that have been investing in the frac sand and logistics space significantly. And as of today, 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, the operating partners to make sure that efficiencies on the well sites continue to improve and overall -- frac pain intensity is going to continue to increase, but I mentioned that on this call. We're going to be looking at opportunities to help our customers increase that intensity.

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, so.

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

Thank you. Really appreciate it.

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.

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.

Thanks, guys.

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