Q2 2023 Atlas Energy Solutions Inc Earnings Call
Greetings and welcome to the second quarter 2023 financial and operational results conference call at.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kyle Turlington, Vice President of Investor Relations.
Thank you Kyle you may begin.
Hello, and welcome to the Atlas Energy Solutions Conference call and webcast for the second quarter 2023 with US today are Bud break I'm, Chairman and CEO , John Turner, President CFO , Chris Shaw, Chief supply chain Officer, Bob John and Chris will be sharing their comments on the company's operational and financial performance for the second quarter.
Our 2023, after which we will open the call 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.
Such our actual outcomes and results could differ materially you can learn more about these risks in our registration statement on form S. One filed with the U S Securities and Exchange Commission on January 31, 2023 in connection with our initial public offering our quarterly reports on Form 10-Q, the registration the registration statement on form S. Four will be.
Finally in connection with our <unk> simplification transaction and 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 yesterday's pressure really press release with that said I'll turn the call over to Bud Brigham.
Thank you Paul and thanks to everyone for joining us today for our second quarter Conference call.
We're very pleased with our second quarter operational and financial results in spite of the volatile market conditions. Our team delivered another record quarter across a range of operational and profitability metrics, including total sales sales volumes net income and adjusted EBITDA to name a few.
We've made good progress, reducing our operating costs on a per ton basis in my view with more to come.
Our capital projects to grow our business are progressing as planned on time and on budget.
These capital investments are being made in three different areas of our business, including first carpet mining and production.
Expansion will increase our production by approximately 50%.
We believe we are already the largest proppant producer in the Permian.
And our growth will further enhance our scale, which is beneficial in order to reliably match the scale and efficiencies of our large scale customers.
Our existing scale and associated reliability, even prior to this expansion is one of the reasons, we enjoyed better pricing stability than many of our peers.
Looking forward in this regard we've already secured commitments for over 6 million tons of our production for 2024, which is well ahead of the less than 4 million tons, we had under contract for the 2023 fiscal year at this time last year.
Given that our expansion increases our capacity by about 50% for 2024, so around 15 million tons, that's about 40% of our anticipated production capacity next year that is spoken for.
Again, our anticipated production capacity for 2024 is up close to 50% from our current capacity of approximately 11 million tonnes.
We aim to have approximately 80% of our 2024 capacity committed by year end as a reminder, we had that same goal entering 2023 and due to intense demand we ended up more than 90% contracted.
The second area of expansion and associated capital investment, So our logistics offering which includes our innovative high capacity trucking and delivery systems.
Our logistics and delivery systems enhance efficiencies for the industry and as a result, we are growing our market share as Chris will discuss in a bit.
This logistics offering is important as these trucking and delivery systems will seamlessly interface with our don't express conveyor system, which is expected to come online late in 2024.
And that brings me to the third area of capital investment in our business, our Didnt Express, which is really more similar to a midstream enterprise.
Like the other capital investments that don't express it's on time and on budget with expected commencement in the fourth quarter of 2024.
Whereas the plant expansion increases our production capacity by approximately 50% in 2024 <unk>.
We expect that don't express to further increase our revenues and cash flows in 2025.
These major capital investment initiatives will begin winding down late this year with the completion of our plant expansion to the benefit of our discretionary cash flow in 2024.
Particularly given that the expansion should increase our production capacity by approximately 50%.
And of course, our current capital investment commitments are expected to decline further late in 2024 with the completion of our doing express construction.
As a result during 2024, we expect to experience a major revenue and cash flow increase and given the decline in Capex also an increase of our discretionary cash flow.
This should continue in Q4 2024 and into 2020, Fob with anticipated completion and commencement of our doing express conveyor system.
Again don't express is really more similar to a midstream type enterprise, which should further drive growth and our margins distributions and cash flow starting 2020, while sick.
Significantly enhancing reliability and efficiencies.
Importantly, our high capacity trucking don't Express will also provides substantial environmental and societal benefits, particularly given the fact that we will be taking thousands of trucks off these dangerous commercial roads.
<unk> ambitions and potentially saving lives.
Thinking of this.
We've just released a new video about that don't express and our other initiatives.
As linked in our earnings release and our website.
It's quite important formative so I encourage you to take a look at it.
Regarding the macro environment that we're operating in the Permian proppant market remains very healthy.
Although the downdraft in oil prices during the second quarter combined with economic uncertainty to delay the increase in the Frac count that we expected we continue to see frac fleets gain efficiencies, which are driving up sand consumption.
For the third quarter, our production remains sold out and particularly given how heavily contracted we are we expect to remain busy throughout 2023.
One thing investors should recognize is that there is stratification and the proppant and logistics markets just as there is with the operators.
Which is based both on the quality of the reserves and their operational capability, including scale.
Which is very important for driving reliability and efficiencies.
The fact that we control the largest and highest quality proppant reserves that we produce more proppant that anyone in the Permian.
For us what's important advantages and makes our results less volatile.
So the unmatched scale and quality of our reserves.
With our unique dredging operations.
Lowers our per unit cost structure, while enhancing our consistency and reliability to the benefit of our premium customers.
These are among the reasons, we are so heavily contracted and we don't always see price softness when other smaller lower tier proppant producers do.
So we remain encouraged by the overall market fundamentals and believe that we remain on a path to another record year for Permian sand consumption more.
Assuming commodity prices remain attractive this will continue to put pressure on Permian sand suppliers to keep up with the demands of Permian operators.
Given our level of contracted volumes, which continues to grow our exceptional margins and cash flows we are comfortable putting forward a second quarter dividend at 20 cents per share, which as of Friday's close equates to an annualized dividend yield of four 1% and is 33%.
Our first quarter dividend and related distributions.
The dividend is comprised of a 15 cent per share base dividend with a <unk> <unk> per share a variable dividend.
As our Capex investments wind down later this year and during the course of 2024, we expect our cash generation to increase potentially providing more flexibility for our board to grow the dividend, particularly during 2024 and beyond.
As we continue to work with the board to clearly define our dividend framework.
Installation of our base dividend is a major step towards providing enhanced visibility to our investors of our plans around our return of capital program.
A quick summary note on our financial performance.
As shown on slide 12 in our deck.
I'm proud of the fact that our margins are industry, leading even above that of the big three and the midstream peers.
While our growth has and should continue to also lead the industry.
In addition, our first two quarters as a public company should provide evidence to.
So the stability and health of our business.
It does not blow in the wind with oil prices like some in the oilfield service space largely due to our scale and reliability, which matches up with our scaled high quality customer base.
Over time, our exceptional and steady financial performance should be reflected in our stock price performance.
And we have a positive development with regard to our corporate structure.
As announced today the board unanimously approved an up C simplification transaction and we're looking forward to getting that completed soon hopefully by the end of the third quarter.
In connection with the simplification transaction.
All outstanding shares of class, a common stock and all outstanding common units of our operating subsidiary will be exchanged on a one to one basis for shares of common stock of a newly formed public holding company and all outstanding shares of our class B Steiman start will be canceled.
The transaction is expected to simplify our corporate structure into a single class of shares and we believe the simplicity and transparency of this new structure will be beneficial to our shareholders.
Finally, I would like to address the recent news that the department of interior.
King to advance a listing of the dunes sagebrush lizard.
Species Act.
We want to be very clear that we are prepared in the event that the D C.
Department of interior eventually lifts the lessor.
We have done many things proactively with regard to DSO conservation and to protect our business. Most importantly, but becoming a participant in the 2021 C. C. I E, which will allow us to operate just as we are today.
Of an Esa listing.
Many of our customers are also participants in the 2021 Cc I E as well.
As a result, and I think again, we believe we're very well positioned to continue to operate at full capacity even in the event of a listing.
With that I will turn the call over to Chris <unk>, our chief supply chain officer to provide you with an update regarding our trucking and logistics business.
Thank you Budd.
Heartless energy solutions continues our evolution from a profit manufacturer.
<unk> delivered to the blender solution.
Our vertical integration into logistics underpins, our long term strategy to continue to expand our reach across the oilfields value chain and offer disruptive solutions for our customers.
We continue to grow our logistics fleet, having taken delivery of 66 trucks, which are operated by Atlas employees and all of our 323 high capacity trailers.
Equipment deliveries are progressing on time and on budget.
We expect to reach our planned 120 truck fleet by the end of this year.
As a reminder, on January 30 of this year, we made our first deliveries with our high capacity trailers capable of hauling one five times that of your typical industry.
Since that time, we've been delivering double now even triple trailer loads to the website.
To put this in perspective, where you're achieving delivered payloads that range between 70 to 100 tons of sand, which is almost three to four times the industry average.
Obviously Atlas is driving major efficiencies with these offerings to the benefit of our customers and local communities.
Our differentiated solutions and associated service quality provide enhanced efficiency reliability and safety compared to traditional sand delivery methods.
Customer demand for our deliberate blender solutions is clearly reflected in our revenue growth.
Actually quarter over quarter revenue increased 45% and year to date year over year revenue increased 159%.
Our logistics solutions, we're intentionally commercialized prior to the <unk> Express.
Almost 90% of our last mile business is in the Delaware Basin, and 100% of our Atlas High capacity fleet is operating in the Delaware Basin.
As our customers and the broader market increase adoption of high capacity multi trailer deliveries. We expect continued associated market share gains in the Delaware that will seamlessly integrate into the <unk> Express upon commencement in Q4 of 2024.
That I will turn the call over to our President and CFO John Turner.
Thank you Chris today, I will review, our second quarter 2023, operating results and comment on our financial position.
First looking at our profit production results for the second quarter of 2023.
Our sales volumes were 2.8 million tonnes, which equates to an annualized run rate of just over 11 3 million tonnes.
We generated record sales of $161.8 million, representing at 5.5% sequential increase.
On product sales our sales volumes grew by approximately two 6% sequentially, while our average mine gate price declined moderately from $46.45 per ton to $44 40, 21 cents per ton, resulting in relatively flat product sales.
As a reminder, given our significant contract coverage, we are limited participants in the spot market during the second quarter.
But when we did make spot market sales, we were able to achieve good pricing in the mid to low $40 per ton range.
We've also been working with both existing customers and new customers on contracts for 'twenty 'twenty, four and beyond and we've made good progress on that front.
Now moving to the service sales, which is revenue generated by our logistics operations for the second quarter of 2023, we reported a quarterly record of $36 $6 million in revenue.
Representing a 45% increase of $11 $3 million when compared to our prior period.
This increase was primarily driven by expanding the size of our trucking fleet, which allowed us to take on more work. We ended July with 66 trucks, which is an addition of 43 trucks since last quarter.
And total cost of sales, excluding DD&A quarter over quarter increased by $900000 to $63 $5 million. This increase was primarily driven by higher trucking and last mile logistics costs, resulting from the increase in the size of our fleet is nearly fully offset by a reduction in our mining mobile equipment.
And fuel costs as we were able to mine more tons with our dredging assets and also benefited from lower traditional mining rates with our new vendor.
We continue to see improvements in our dredge mining operations and we expect our mining cost to continue to moderate as our dredge mighty and utilization rates continue to increase throughout the remainder of the year and into 2024.
For the second quarter, our per ton plant operating costs were $9.62, which is 16% below the $11.46 per ton we reported in Q1 of this year.
In addition, we expect the delivery of new specialized dredging equipment in early 2024 to provide for significant potential improvements in operational performance and reductions in our mining costs Royal.
The royalty expenses for the quarter were $4 $3 million, representing a 46% sequential decrease and this decrease was due to the removal of the Kermit overriding royalty interest for the full quarter, which ceased towards the end of the first quarter in connection with our IPO.
SG&A expense for the quarter was $12 2 million, representing a sequential increase of 43%.
Adjusting for noncash stock compensation, our quarter over quarter, our cash G&A increased 34% from $7 9 million to $10 6 million.
The increase in cash cost was largely the result of our IPO and the transition to a public company incentive compensation plan as the vast majority of our 2017 unit based incentive compensation expense.
I had been expensed in prior periods.
Increase in cat the cash component of our G&A was largely associated with increased professional fees associated with the <unk> simplification and other costs related to tax structuring and other corporate matters that were front loaded in the period just after the IPO and in some cases will not be repeated.
Interest expense was $4 million for the quarter. Most of this was associated with our term loan, which bears interest at 8.47% and has a 2027 maturity.
We generated $3 $5 million of interest income for the period, which will likely decline in future quarters as we draw down on our cash reserves to fund our growth.
Expenditures that didn't expressing in carbon expansion.
Depreciation depletion and accretion expense for the quarter increased to $9 $4 million, representing a sequential increase of 10, 7%.
This increase was due to higher depletion expense associated with higher sales volumes and additional depreciable assets placed into service as compared to the prior period.
We generated a record net income of $71 $2 million for the second quarter, representing a net income margin of 44% and earnings per share of <unk> 67 cents.
Yeah.
Net cash provided by operating activities for the quarter was $103 $9 million compared to 54 point.
$2 million in the first quarter. This increase was largely due to our accounts receivable balance normalizing from the elevated levels. We saw during the first quarter. In addition to higher net income generated during the period.
Adjusted EBITDA for the period was a record $92 $8 million, representing a sequential increase of 10, 5% and an adjusted EBITDA margin of 57% adjusted free cash flow, which we define as adjusted EBITDA less maintenance capex for the quarter was $81 $9 million representing a sequential.
The increase at six 5% and adjusted cash flow margin of 51% during the second quarter, we converted 88% of our adjusted EBITDA to adjusted free cash flow given our low levels of required maintenance capital expenditures.
Capital expenditures for the quarter were $106 $9 million. This included $96 million spent on growth projects, which includes our kermit expansion and they don't express and $10 $9 million of maintenance Capex.
What do you expect growth capital expenditures to continue to increase in the second half of the year as we progress on on doing express construction.
Which will be partially offset by declining permit expansion expenditures as construction activities taper off as we approach commercial in service of that additional capacity.
We have already spent approximately $66 million out of our budget at $400 million on that don't express.
For a permit expansion, we have spent $151 million with approximately $54 million remaining.
The Kermit expansion is expected to be fully available by year end 2023, with some volumes become available early in the September to October timeframe.
We're making great progress on the construction is then expressed and continue to track on time and on budget.
As of July 31, we had ordered more than 80% of the materials and equipment for the project Similarly, greater than 50% of the purchases associated with installation and labor have been contracted for as well and we have cleared approximately 36 of the 42 miles of right away.
At this time, we have not taken action to pursue additional growth projects belong the permit expansion the buildout of our trucking fleet for the remainder of 2023 and don't express construction or currently underway. We may decide down the road to build additional capacity, but don't see any need to make that decision today as some of you may recall.
Our Kermit and monahan plants are much more productive and efficient than we originally anticipated. We believe the Kermit plant expansion will potentially also be more efficient and we've been anticipating it would like to see what the production potential is prior to making further capex decisions. In addition, and more specifically when accounting for our new state of the art dredges and.
Wet and dry capacity, we think it is likely that we will be able to expand our stated production capacity above the 15 and a half million tons for next year without additional capital expenditures.
We also expect maintenance capital expenditures to remain more or less at second quarter levels for the remainder of the year.
As Bud mentioned earlier, we previously.
Distributed $15 million per quarter, and we are increasing our distributions this quarter to $20 million. This amounts to a 20 cent per share dividend for our class a shareholders and a corresponding 20 cent per unit distribution for our holders of our common units of our operating subsidiary Gabe.
Given our exceptional cash generation and our future contracted volumes were comfortable increasing our distribution this quarter to $20 million and installing a 15 cent per share base dividend as well with potential for future growth and dividends as our capital investments wind down over the course of 2024.
As of June 32023.
Our total liquidity was $416 million. This was comprised of $342 million in cash and equivalents and 70 $74 million of availability under our ABL facility under which we had no borrowings outstanding.
Principal balance of our term loan sits at $132 million and our current capital lease balance is <unk>.
$39 million and so the total amount of debt outstanding is currently a $172 million and we ended the quarter with a total debt to latest 12 months adjusted EBITDA ratio of one five times.
Subsequent to the end of the quarter.
We entered into an agreement with Dunbar commercial finance, our current term loan lender to refinance our existing 2021 loan credit facility with a new $180 million term loan facility. Additionally, the new term loan facility will include an additional $100 million delayed draw facility. The transaction is leverage neutral.
<unk> our maturity to August 20th Dirty provides the company with an additional $100 million in liquidity and most importantly, it removes some of the restricted covenants governing our payment of dividends to better align with our plans to be a distributed enterprise over the long term.
I will now turn the call back over to Bud Brigham for closing remarks.
Thanks, John to conclude I'm very proud of our team and this company.
I will finish by pointing out a single metric that directly validates the quality work of our team and this company.
The fact that our customers have significantly increased our proppant purchases from outlets over time.
We have seen our sand volume per customer per quarter grow by over 50% from this time last year.
This is appropriate illustration of the importance of aligning with the right customers of the fact that our customers appreciate our scale, our reliability, our quality and our expanding and growing logistics offerings.
These are regions Atlas remains extremely busy in 2023, and we're very excited and optimistic about 2024 and beyond.
<unk>.
Thank you we will now be conducting a question and answer session. Okay. We'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
One moment, please while we poll for questions.
Thank you. Our first question is from Derek <unk> with Barclays. Please proceed with your question.
Hey, good morning, guys.
Good morning.
So I appreciate all the color you talked about being 40% contracted for 2024, and you plan to bring that up to 80% by the end of the year. Just wanted to ask you about the interplay of the weakening spot market pricing that we're seeing and how that may weigh on contract negotiations for 2024, you highlighted spot market prices.
But again that low $40 per ton range, well, but where is that gone now and we've heard numbers more with a two handle on it. So ultimately where do you see this pricing per ton trending into 2024, and you work against the weakening spot market with trying to contract up your volumes for next year.
Well. This is that's about all I'll start off and then these guys might want to add to my comments.
All right.
As we've mentioned on the call we're sold out.
We continue to be sold out.
We have not seen.
Given that they given that we're so highly contracted we have not.
Hey did access the spot market.
You know.
There is a.
Stratification in the market just as there is with operators as I've mentioned on the call.
The scale of our operations and the scale of our customers. So I think provides us and the rollout reliability we've demonstrated for them.
So that's what the.
A very steady.
So you know our business continues to be healthy and and we're adding more contracts on top of that 6 million tons. We have committed for next year.
Do you guys want to add anything to that yes. This is John I mean, the long term like I said, the long term fundamentals and the Terminator healthy as ever.
23 will be a record year for saying because some people were expecting a new record of 24.
You know most of our right now the analysts had are right I mean, when you look at the analysts' numbers out there for 2024 I think the range is 35 to $39.
Couple of peg at that rate.
What prices and that's what we guided to.
What originally in the research analysts Gartner research analyst that yet.
Got it great.
That's super helpful.
Just wanted to switch over to your Capex I. Appreciate the color you gave on the duty express the Kermit and maintenance, but just thinking about 2024.
Kermit two expansion off the table just help us anything else that we should be surprised about just thinking about maintenance for 2020 for trucking logistics Capex for 2024, and then maybe some help on the cadence of the <unk> Express Capex over the next 18 months up until it's commissioned.
Yes.
So first off on the on the plant expansion.
Plant expansion not the first plant expansion, the second 5 million tonnes.
But the answer to that is yes, we have paused the capex the capex piece on that but we do still think that we're going to potentially be able to get those volumes out of our plants as they currently exist. So we're going to wait and see what happens with that with those with that capex associated with that that additional 5 million tons. I mean, we still think that.
The 5 million tons or potentially up to 5 million tons of additional tons is going to be there.
We'll have to see how we're going to do that and we can.
That's going to be through plant efficiencies.
Efficiencies with the dredges.
We're going to wait to see how this plant expansion performs there on the Capex for the <unk> Express.
It's still on time and on budget that really just the timing.
But what I'd say is just the timing.
The difference in timing of modeling.
We can't control the way that our vendors.
Bill Us and we.
We pay obviously when they when they build it but we don't control that but when we model. It we model it as the cash is going out the door at the door. So when you're looking at for the remainder of 'twenty four.
You know, we're looking at another $160 million from here to the end of the year on Capex for the data Express and then next year. The remainder of that will be spent the remainder of the 400 will be spent next year. So that's 66 already spent another.
Another 160 through the end of this year and the remainder of that that will be spent through the end of next year.
On the on the on the on that.
On the logistics side, we haven't made any decisions yet on cash for capital expenditures as it relates to <unk>.
In our logistics offerings next year, but you know as soon as we get those we'll let the market now.
Great I appreciate all the color I'll turn it back.
Great.
Thank you. Our next question is from Neil Mehta with Goldman Sachs. Please proceed with your question.
Thank you. Good morning, good morning team did loved the videos. Thanks for that it's helpful to visualize. It. That's my first question is just on the <unk> Express.
It sounds like it's tracking okay, but as you think about the two or three most critical path items to get to completion what are they what are the tail risks, we should be aware of and how are you trying to mitigate those.
Yeah.
Neil Thanks, and you know that is a good reminder, for everybody out there. There is a video out there on our website for everybody to look at but so to answer the question.
We're in great shape.
Talking about critical path items number one they can.
Electrical gear.
Which is what we'd say is our E houses those represent 9% of our overall budget and these are the longest lead time items and currently on order.
Those are currently on order with an August to September 2020 for estimated delivery date installation of those will take three to five weeks and so we have a two to three months cushion today and we feel we feel very good about where those are.
Another one is the conveyor belt, that's roughly 10% of the overall budget.
As it relates to equipment being delivered we are actually receive it our first of.
The three built shipments to the port of Houston This week Oh.
Week earlier than expected our remaining two built shipments will be delivered at the end of September in mid in mid November So you know.
Those are.
Those are they include a five month install but you know obviously the things will be on site well before we're going to be installing those and then theres. The cross country conveyor module components, which represents around 13% of the budget due to the sheer volume of the material required a majority of our vendors had to reconfigure their manufacturing facilities, along with designing and implementing.
<unk>.
And retooling.
<unk> for the production of these components were currently on schedule for April of next year. This includes the idle or assemblies concrete sleepers route pedals and can bear module steel.
What are the things that we do.
As a company.
In construction as we do this what we call vendor audits, we preferred vendor audits and basically it.
It's a way for us to verify where our vendors are in the production process and then also to evaluate their quality control and so we constantly do these vendor audits in fact.
We are extending one of our folks overseas here in a couple of weeks is going to go look at all of our overseas vendors to make sure that these guys are our vendors are on time and all it all up the spec on the quality control front, so that when that equipment arrived at it we get it right. We can make sure that it's going to arrive on time and then it's.
Also going to arrive at a meeting the standards that we need is basically by the trust, but verify procedure and in it and it ultimately ends up and better outcome for Atlas and its investors.
Yes, that's a lot of good color there and then the follow up is on the dividend.
Let's say that.
I know this is an evolving topic, because then reclassify inflection you'll see a lot of it in the back half of 'twenty four 'twenty five but as you think about the preferred allocation of capital to shareholders shall we think the dividend.
What's your what's your view on the variable dividend I know you've used in past instruments.
As well some just your perspective on return of capital would be great. Thank you.
Yeah. This is Bob I'll start John and Michael Knott.
Add to my comments.
We certainly believe in the distribution model.
Our prior companies.
Had a fixed.
Our base dividend at a variable on top of it.
Phyllis.
Philosophically.
In my view, its very beneficial because it adds some transparency.
And and and visibility.
<unk> that.
As far as the ability of the business to profitably grow and generate value for shareholders.
Uh huh.
We're excited that we've got.
Given our level highly contracted volumes over 90% contracted with strong pricing and growing contract for 2024.
Plenty of confidence to go ahead and implement our base dividend even through this period of high Capex.
Further to increase our dividend this quarter by 33% to $20 million. So.
I would expect of course, the board will be determining that we will be working on a longer term a formalized dividend policy.
Over the next few months and into 2024, I would expect probably by early 2024, and we will be putting that out to market but.
Particularly given our industry leading margins.
<unk> been better than the big three in midstream enterprises, and the cash generation of this of this company as our Capex began its tapering down.
Capex investments begin tapering down in 2024, we're going to have a significant ramp up in district distributable cash flow.
<unk>.
<unk>.
Our dividends will be a high priority.
Down the road, we could have some some high rate of return in high ROI Capex growth projects.
Subsequent to the.
Expansion that <unk> won't be evaluating those but regardless I expect atlas to can to be a very compelling distributing enterprise on a go forward basis.
John D.
I think that's fair.
Great. Thanks, John .
Yeah.
Yeah.
Thank you. Our next question is from Luke Lemoine with Piper Sandler. Please proceed with your question.
Hey, good morning.
You know what your nameplate capacity the past few quarters since you gain efficiency at your plants.
Electric dredges are helping as well and you've commented that you might be able to get the current phase two volumes with current nameplate.
And Kermit phase one expansion.
Just wanted to make sure that youre seeing that total nameplate could be close to 20 million tons per annum with your current nameplate and Kermit phase one expansion is that right.
Yeah, maybe I'll make a quick general comment then John probably will want to add to it.
As he touched on.
When we designed and built our plants they have exceeded our production expectations.
We have two things happening now of course, we have the expansion.
Uh huh.
We continue to innovate.
In advance on design. So there is a bigger range production potential.
Potential for this expansion.
And we want to see how that plays out but the other thing is in.
And John May want to elaborate further on this but it's our existing plants. So as you know and as you've touched on it's been touched on the dredging.
Is.
Is continuing to advance and it's going to get more and more efficient and those other things that we're doing at our existing facilities that have the potential to benefit our production capacity as well. So we do think there's going to be incremental capacity, we're going to be able to deliver without additional growth capex and we kind of wanted to get a better.
Handle on that on a go forward basis, John do you want to add to that yeah. So the original play at FERC that we talked about I guess originally.
Was doing.
I didn't express itself can be 13 million tonnes. We did we had $5 million of original test that we're going to bring another $10 million additional volumes that youre planning to plant expansions.
Get to that 13 million. So you can fully supply to doing it Didnt Express.
So right now it looks like you know like Bud said is that we're going to be able to.
Fulfill that need without spending the additional $150 million of capex on that additional 5 million tonnes.
To say I mean, what we're I wouldn't when we say we're looking at additional black expanding our capacity up is that yes, we definitely think we're going to be able to hit the data expressive. It fulfilled at express and then potentially get up higher than that.
Alright, perfect. Thanks, John Thanks, a lot.
You bet.
Thank you. Our next question is from Jim Rollyson with Raymond James. Please proceed with your question.
Good morning, gentlemen.
Yes.
Hey, Brian Good morning, just back on the.
Looking back on the dune sagebrush possibility of being added to the endangered species list.
You guys have been kind of involved in that from the very beginning and helping craft the CCA a.
Setting aside acreage for habitat curious so so it doesn't seem like there was any impact one way or the other truly on on your operations, but curious your view.
And if this actually goes through once we get past the litigation phase of that kind of where you know where do you see this impacting the rest of the Permian suppliers and could this actually turn out if it happens because it's actually turned out to be a net benefit for you all from a market share perspective.
Yeah.
And as you touched on you know where you have been involved since the founding of Atlas.
And.
Mitigating the risk associated with the D S L and and our general counsel.
But our our attorney involved in this Rick Fletcher as is.
<unk> been intimately involved in been a real leader in the effort and we can make them available if anybody wants to ask him questions on it but we spent a lot of time working with the department of interior and and we were the first I think to join the craft at Cc I E.
Which is.
Very beneficial conservation plan.
Certainly the largest contributor to conservation, we're dedicating 17000 acres.
Put the lizard for habitat nobody else can dedicate that kind of acreage that Atlas can so that's another benefit of the scale that we have out there and that of course, given our participation.
Well.
We're extremely confident that even though you're paying up list listing which would be several years out and would likely be challenged in the Supreme Court ultimately by industry.
EBIT in the van up successful listing.
We would be fully operational and not impacted as far as its impact on others I think we're seeing more.
Companies join including a number of our customers.
Joining the concert Cc I E I expect that to continue.
There will be some I'm sure at risk of it and it could affect.
Supply, but but.
Firstly I'm optimistic.
One given the timeframes involved in to the way our industry will mobilize and three just.
The importance of.
The Permian production for for energy production for our country.
And for the World.
Personally I think it's unlikely in my view that there will be serious significant constraints on the industry.
That's just my personal view.
Regardless of how it plays out Atlas it's in.
Outstanding position.
And Jim one thing to add real quick any listing of the DSL will not have any impact on the on the June Express just wanted to make that point, yes, that's correct.
Yep, that's great color.
Oh.
Go ahead.
I'm, sorry, I hope that helps.
No that's perfect answer and John as a follow up just going back to cost obviously costs have come down a bit more this quarter pretty good sequential improvement and it sounds like you'll continue to work that lower and then you take delivery early next year of the new Dredges are Q2, two further aid that.
Just kind of wanted to circle up and check on how youre thinking about that cost trajectory relative to maybe kind of getting back to the.
Closer to the mid single digits like we talked about during the original IPO due diligence. If you are still kind of cool.
Cool with that trajectory.
Yeah, we're still on that trajectory look I mean, you know back like I think 2021, I mean, we're sub seven on an opex basis and Thats, what we were.
Fully utilizing all of our mining was primarily come into all of it the cemetery.
<unk> when we expanded our production capacity out there we needed to bring on additional dredges in and if we will be able to get to those lower opex per unit numbers until.
Until we have our new dredges come on in the quarter.
In the first quarter of next year, so, but yes, we do see a good trajectory and getting back down to that or.
We're down six 8% this quarter.
There were some changes that we made and we see still see us improving on that and then once we are fully utilizing dredge mining toward all of our production is kind of three judges, yes, we do see as being back to that mid single digit range like we talked about.
Excellent. Thank you guys good quarter.
Thank you Ed.
Thank you. Our next question is from Don Crist with Johnson Rice. Please proceed with your question.
Good morning, gentlemen, I wanted to ask a question about Kermit and the timing of the Kermit expansion. So I think I read correctly in the press release that you're going to start up the wet plant this quarter and then start selling.
Next quarter and I just wanted to know if that was kind of early in the quarter were kind of late in the quarter. When we going to see those sales because that could be upwards of a $1 2 million tons in the quarter, just kind of want to see timing around that.
Yeah as far as the timing of that I mean, I I don't necessarily think that we will have one 2 million tons to sell in the fourth quarter, that's going to be a ramp up process.
We're going to be Washington sand here.
Hearsay and you know and then bringing those volumes on for sales a little bit later in the quarter. So it wouldn't be until the end of the quarter.
You start seeing volumes come on.
Yeah.
Okay.
And then on the logistics side, obviously that has ramped up a little bit faster than we originally discussed in kind of outpaced our expectations for this quarter, but can you give us any kind of parameters around how revenues on the logistics side, we would ramp up maybe through the end of this year, obviously theyre going to wrap up cigna.
<unk> next year with <unk> Express, but just kind of the rest of this year, how we look at kind of logistics revenue ramping.
Yes, I mean, we've.
This is Chris Shaw, we more than doubled our service sales compared to the first six months of 2022 and we're in the early stages of that ramp you referenced our logistics revenue.
We continue to be a significant area of growth for us roughly 10% of our delivered Lowe's, where multi trailers during the during the quarter in terms of margin outlook for the second half.
We expect gross margins to remain relatively static, but logistics business, but overall gross profit.
Overall gross profit to increase as we continue to build out our fleet.
As we see more and more of our customers' touched on earlier around.
The option of the multi trailer offerings.
We do expect to see some gross margin expansion due.
Due to the operators due to the efficiency of the operations and we continue to make steady progress on the last mile contracts and awards.
As you noticed the revenues.
Schedule.
EBIT is ahead of us yet.
Excuse me gross profits.
Schedule and our truck deliveries in working working with our vendors and partnerships, they're being able to pull some of those deliveries and work to support the growth of the business and I think one thing that you. Just mentioned is important to remember is that a lot of the contract and that we're doing this year includes excludes logistics as well.
Yes.
From just a very short period of time from a from a sand company to a solutions company and there's been great adoption.
We move forward.
It's actually they're demanding it in 2024, so yes, so the transit versus last year, we were.
That being said this year were contract and same day delivery in Florida or logistic trip.
Yeah.
I appreciate that and if I could sneak in just one more you know theres been a lot of churn recently on.
On activity and just curious is maybe your top 15 customers or so is the rig count for them kind of flat or up or down either way any kind of color around that.
Yeah, we have we actually have some numbers I'll, let these guys state the numbers, but just just dramatically so.
And kind of restating, what I said before I mean in the <unk>.
Call that that we've seen our customers, it's kind of natural selection that we have the scale and our reliability plus environmental benefits without capacity trucking trucking and ultimately, but the don't express that's really important to the scaled quality operators and so that's why we've seen them grow their pull on <unk>.
For most of about 50% over the last year or so so these are these are large scale operators say that the activity doesn't blow in the wind with oil prices like like some do.
They like the fact that we're going to be sustainable and be there for them, they're going to be sustainable for us as customers. So.
What was that number we actually looked at.
The rig counts for the for our operators actually it has not gone down.
Yes, correct, yes.
It stayed very stable, but yet our output, but the output on the on the completion side as Scott Yeah.
Yeah. So.
Yes.
Yeah.
The call on our sand as our market share obviously continues to grow.
They are buying 50% more sand from us and the rig count actually has not declined.
So that's part of the reason we have not seen the.
The price softness maybe that might be some of the smaller producers that might be lower tier product tend to see that.
Not every company experiences the same demand or the same pricing in the market. Yes, we are seeing tremendous efficiencies in 2022 was supposed to be efficiency gains. We're seeing in the first half of 2023 is massive efficiency gains on the drilling side more footage per day lateral footage between Wellington on the completion side.
With the integration of the new equipment and so forth.
We have seen that really take off.
A dramatic effect on efficiency.
<unk> tons per day pulp deficiencies hours pumped per day as a result, we.
We are seeing tremendous gains in every.
Single well operators are now doing silo.
We're doing zippers zipper operators are doing a simulcast auctions even triangle fracs.
Okay.
Now so we're seeing a tremendous intensity game right now in 2023.
We move into 2024 for sure.
I appreciate all the color. Thank you I'll turn it back.
Yes. Thank you.
Thank you. Our next question is from Sean Mitchell with Daniel Energy Partners. Please proceed with your question.
Good morning, guys. Thanks for squeezing me in here.
Just but I think he answered this in the last question, but I want to make sure.
I understand this clearly it seems like with the <unk> express kind of well under way with construction and whatnot in your logistics business is it's kind of moving a little bit faster pace than maybe we expected but is is the customer mix changing and are the conversations with prospects better today.
It sounds like the answer is yes, but I just want to kind of confirm that but really want to talk about customer mix and then all the <unk>.
Second question I have is as your logistics business is probably growing at a faster pace and you have more trucks coming on in the back half of this year, what's the labor market looks like for drivers.
Yeah. Thank you. Thank you, Sean maybe I'll start and these guys may add to it.
Do you think I mean as evidenced by that.
But that.
Our customers are pulling more sand from us it's of course, the larger customers.
The high quality large scale operators that have scaled operations out there that need the reliability sustainability and of course I do love the environmental benefits that we're providing so I don't think I expect that to continue in fact.
The fact that we're ahead of schedule on on contracting.
Volumes for next year relative to last year.
As a sign of that.
I expect that to continue.
So vantage that we provide are going to be increasingly important, particularly as we get closer to the <unk> xpress launch.
I expect our market share.
Those large scale customers to continue to grow.
Want to add anything to that.
Yes, I would just say that we continue to high grade our customer base and really make strategic partnerships.
Create accretive value for both parties, we see that.
That approach work work extremely well.
From both a contracting.
Partnership.
The partnership approach, yes in terms of Covid.
I'll, let you know as you can say in terms of the labor market for the drivers.
No.
You can read all the stats out there around driver shortages across the U S.
No different in the Permian.
We create.
Great work life balance for our folks we put together a very fair packages and make sure that.
Our employees enjoy coming to work every day.
And then an overall.
<unk> you.
Two actually.
Have their friends and recommendations come in we've seen a lot of that once once drivers get here.
They refer folks and so we don't anticipate any any major challenges on the labor side of things. We would continue to keep an island a lot of it has got a lot of those shutdowns are very familiar with our plan of operations because they've been coming through our plants, that's five years or so.
And they and they witness Atlas.
They pass I talked to our employees that are out there so what do we.
We do a pretty good job.
Yeah.
People.
They talked a lot of these things we're talking about that our customers appreciate our scale and reliability.
And the fact that we're performing so well makes it all the better.
Just for people to come to work and I enjoyed working with us.
Uh huh.
It helps us to both attract and retain quality people.
Got it thanks guys.
Thank you.
Operator, we have time for one more question.
Okay. Our final question is from Scott Gruber with Citigroup. Please proceed with your question.
Hey, good morning, Thanks for squeezing me in.
Thank you Scott.
No problem.
Just one question here.
We talked to investors about the boom Express.
What are the key questions, we get is around servicing along with it.
Is up and running I believe you made some enhancements to the year design relative to some of the other active players out there.
Can you provide some color on.
How you are in handset design in and how you think about operating costs and maintaining the line once it's up and running.
Yes, as far as some of the some of the some of the features on our all the dead Express.
Yes, as far as making it more reliable.
When we have when.
When we when.
When we constructed our plants. We did the same thing we actually looked at the biggest the highest quarter failure of ore.
There were points on the where the where the typically where the weather was a breakdown.
Or were areas, where we could we could maintain uptime and where we can design make it better better product and design a better a better better system I'm one of those were areas what's idlers the.
The belt itself is probably the most of it is one of the most important parts of the conveyor obviously, if the belt over.
Over time, we'll experienced wear and tear but.
We came in when we were designed in the.
Data expressed we recognize that.
We recognize that idlers, where a place where you experienced that high wear and tear on the belt those idlers typically.
They typically go out in the way historically companies that are good operators of conveyors that figured out weather and idlers borne out they just basically have to drive up and down the line to listen for the.
The sound or the conveyor.
Out of the Eilers weekend as it goes out it creates to admit the sound we actually designed in our desire to have a smart idler that has had the microchip in it so that idle or will notify us when it's going out. So we can actually go out there and replace that either before it before it expires.
The other thing is as you know go into the Opex.
And the maintenance.
I think our opex and maintenance as we have.
We plan to have a full maintenance crew full crews of maintenance.
It's working out all the all the conveyor.
I think it maintaining the converted the biggest part of the Opex is going to be electricity. So.
Anyway.
That's just wanted the redundancies and one of the one of the.
Designs that we put into the conveyor there's many others that we could go into yes, I think from an overall perspective.
And the same approach that we have with our plants.
Using technology to structurally increase the uptime and reduce opex.
Through a number of engineered capabilities, along with remote monitoring and maintenance programs.
Got it that's good color I appreciate it thank you.
Great. Thank you.
Thank you there are no further questions at this time I'd like to hand, the floor back over to Bud Brigham Chairman and CEO for any closing comments.
Well. Thank you everybody for joining us for the call. We look forward to following up subsequent to the completion of this quarter take care.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.