Atlas Energy Solutions Inc

NYSE:AESI

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to Atlas Energy Solutions acquisition of Hi-Crush and 2023 Fourth Quarter Results. [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.

[Kyle Turlington, executive]

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the fourth quarter of 2023. The -- with us today are Bud Brigham, CEO; and John Turner, President and CFO. Bed 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 and results could differ materially. You can learn more about these risks in the prospectus 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. 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.

[Ben Brigham, executive]

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 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 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 Dun Express will further enhance these benefits. 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 million acquisition of Hi-Crush includes all its Permian Basin operations, consisting of 2 plants at Kermit, which share the same giant open done as our existing come facilities, 7 currently deployed OnCore 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 second quarter of 2024 and a night 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're excited to combine Pronghorns last mile expertise with Atlas' innovative multi-trailer last mile offering. We believe that the broadened offering will be well received by our customers.

The acquisition of Hi-Crush will add 12 million tons to our production capacity, which consists of 5 million tons of dry sand production at their 2 Kermit mines and approximately 7 million tons in the aggregate of wet sand production across their OnCore mines. In sum, pro forma, Atlas will have approximately 21 million tons of dry sand production capacity and around 7 million tons of wet sand production capacity, for a total of 28 million tons of overall production capacity. This scale is unmatched in the Permian Basin.

The merits of this acquisition are numerous. First 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 2 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 one of the largest operators in the Permian. We -- with the recent consolidation that has taken place in the Permian, size and scale have quickly become an absolute imperative to apply service the development programs of these large-scale Permian operators and to help drive further efficiencies in the industry.

We believe the acquisition pushes us to the forefront of the industry in that regard. This acquisition adds meaningfully to 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. This transaction meaningfully increases the cash flow profile of Atlas pro forma for the acquisition and exhibits double-digit accretion across key share metrics.

We expect to fully realize $20 million in annualized synergies by 2026. We now have a potential low-cost solution to increase volumes down the Dun Express, and we accomplish 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 Dun 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. 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 action 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 Don Express, which remains on time and on budget and which should have a very positive impact on our cash flows next year.

Second, 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 a more diverse customer base.

And third, 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 associated efficiencies and reliability that Permian operators need. Our pro forma production capacity of over 28 million tons following the completion of the acquisition is easily the largest in the Permian. And also makes us the largest profit manufacturer in North America. Furthermore, this production is nearly 80% contracted for 2024.

I will now turn the call over to our President and CFO, John Turner.

[John Turner, executive]

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 fourth quarter 2023 stand-alone 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 the full year's contribution and the benefit of these additional Encore deployments.

The effective date of the transaction is February 29, 2024, as our contracted volumes and Permian activity levels remained 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 between $26 and $28 a ton.

Assuming just over 3 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 Dun Express between $25 million and $45 million on OnCore deployments and another $40 million in other CapEx.

We're 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 million acquisition term loan with stone by our commercial finance under an amendment to our existing credit facility and with a draw of $50 million under our amended and upsized ABL facility.

The $125 million 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 and 2023 pro forma for the acquisition and related financing is approximately $245 million, consisting of $505 million of debt less $260 million 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 one of the leading profit suppliers in the Permian Basin greatly enhances our ability to increase shareholder returns. As Bed 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 forma maintenance CapEx beyond 2024 is expected to be between $50 million and $60 million annually, providing Atlas with multiple avenues to further increase shareholders' return once the remaining growth CapEx associated with the Dun Express and additional OnCore mine subsides. The heavily contracted nature of our operations post acquisition reduces our cash flow volatility.

And with the commissioning of the Don Express, our ability to increase shareholder return to strengthen 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 Hi-Crush sets Atlas up to thrive in tough market conditions and positions Atlas to deliver enhanced returns in a normalized environment.

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

Total company adjusted EBITDA was $330 million, up 25% year-over-year. We achieved our first 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 million, up 96% year-over-year. We completed our new Kermit plant facility in December on time and on budget, increasing our stand-alone production capacity to 16 million tons, up from 10 million tons.

In October, we announced a corporate reorganization transaction or UPS simplification that enabled us to trade under a single plot of common stock. 2024 will be another exciting year as we look forward to the integration of our new operations following the completion of the Hi-Crush acquisition, the completion of the Dun Express and the arrival of our 2 new state-of-the-art dredges.

For the fourth quarter of '23, we reported total sales of $141 million. Our revenue from profit sales was $100 million. Our profit sales volumes were down more than expected quarter-over-quarter to 2.6 million 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 first quarter of 44%.

Our average sales price for the fourth quarter was $39 per ton. Moving to service sales, which is revenue generated by our logistics operation, we reported $41 million 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 third quarter update. In total, cost of sales excluding DD&A for the quarter decreased $5 million to $67 million.

For the fourth quarter, 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 million due again to lower volumes. SG&A expense for the quarter was $14 million. Gross interest expense for the quarter was $5 million, which is offset by $3 million of interest income generated during the period, resulting in net interest $2 million. We expect our interest income to decline in future quarters as we draw down on our cash reserves from a normalized level as we complete our growth products.

Depreciation, depletion and accretion expense for the quarter was $12 million. We generated net income of $36 million for the quarter, representing a strong net income margin of 26% and earnings per share of $0.36. Net cash provided by operating activities for the quarter was a -- adjusted EBITDA for the period was $69 million, 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 million, representing a sequential decrease of 18% and adjusted free cash flow margin of 40%.

Lastly, we spent a total of $106 million on growth projects in the fourth quarter, which includes our new Kermit facility, the Dun Express, our well site delivery assets and production enhancement in our existing facilities, we incurred $12 million of maintenance CapEx during the quarter.

With that, I will now turn the call back over to Bud.

[Ben Brigham, executive]

The near-term merits of this acquisition are easy to see that the real value will be created over the next 5 years as the entire basin will benefit from a larger -- 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 well site 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.

[Operator]

[Operator Instructions] Our first question is from Don Crist with Johnson Rice.

[Donald Crist, analyst]

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 current 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 24, but 25 and 26 and beyond.

[Ben Brigham, executive]

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 2 things: one, extremely complementary asset base that it's really a 1 plus 1 equals 3 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 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. 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 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 these 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?

[John Turner, executive]

Yes. 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 of 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 1, you're going to have the largest logistics standard logistics frac sand provider in the Permian. So it meant on the operational side, there were other things that Matt. Like -- but 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 Dun Express, obviously, there's been some questions about our plant capabilities and the ability to produce 13 million tons. The proximity of their term at mines will be very complementary in what's going to happen with the Dun Express and as we get to Dun Express up and launch. And then also operationally on OpEx side, we're going to -- obviously, there's going to be a lot of synergies on that side.

And then on the financial side, this met our goals as a company. It's a very high return rate of -- 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 -- 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, over time, the larger company will reduce our cost to produce is going to -- we're still going to have the leading margins in the industry. And 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.

[Ben Brigham, executive]

Hope that helps, Don.

[Donald Crist, analyst]

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

[John Turner, executive]

Back in '21, we were at $650 a ton on our -- when we had 100% dredge feed in our mining process. That number has come up to 1030 as we increase production and our dredges just couldn't keep up. These 2 new dredges that one is already being commissioned out there, another one relive 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 $7 per ton. That's just for mining.

On Hi-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 -- 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 modelling so far. We think 2024, we're going to be around $9 a ton. And then once we -- and test on the identified synergies, there's probably going to be other synergies that we're going to be able to accomplish.

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.

[Operator]

Our next question is from Luke Lemoine with Piper Sandler.

[Luke Lemoine, analyst]

John, you loosely alluded to -- but when you're at your current facility, you can see the 2 Hi-Crush mines right next door. Can you just talk about any plans to tie this into Dun 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.

[John Turner, executive]

Yes, that's something, Luke, that we can definitely -- like you said, the proximity does monitor within 2 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 Dun Express point of view. Obviously, connecting a mine or 2 mines via conveyor is going to be going to be less expensive than building -- bringing out an additional 5 million 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 make. We may run over there and see if we can then start to drag money over on their locations. 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 mind over there. 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.

[Luke Lemoine, analyst]

Okay. And then on the OnCore 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.

[Ben Brigham, executive]

Yes, this point 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've been 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 innovative culture that they've really sought those challenges and doing a great job with the wet 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?

[John Turner, executive]

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 -- 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 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, their own core mines that we're doing in…

[Ben Brigham, executive]

Automation.

[John Turner, executive]

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

[Luke Lemoine, analyst]

Okay. Congrats on the deal.

[Ben Brigham, executive]

Thank you.

[Operator]

Our next question is from James Rollyson with Raymond James.

[James Rollyson, analyst]

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.

[John Turner, executive]

I'm going to let Brian answer that.

[Brian Leveille, executive]

Yes. Jim, it's pretty close to 50-50. They're also very heavily weighted in the logistics business like us.

[James Rollyson, analyst]

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 bear that part out to get to the $110 million to $125 million of guidance.

[Brian Leveille, executive]

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

[Ben Brigham, executive]

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 man in the seat. And when you look at what we're doing with the Dun Express, we're completely unlimited -- 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 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 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 towards when you look at the Dun 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 -- nobody has enjoyed the margins that we did 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 drive down our cost structure and drive up our margins, which are already at...

[James Rollyson, analyst]

Is well covered. And then, John, last thing, just on the $26 to $28 a ton kind of full year pricing, maybe a little color, 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.

[John Turner, executive]

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

[Operator]

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

[Sean Mitchell, analyst]

Congrats on the deal. But 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?

[Ben Brigham, executive]

Well, there's not much. It's very complementary in terms of customers. John, I don't know if there's any specific -- the fact that their assets are weighted towards the Midland Basin and the logistics is weighted towards the Midland Basin and all logistics what we've been doing, of course, with the Dun 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 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...

[John Turner, executive]

Yes. I'd like Bud said, I think it there's very little overlap. Obviously, some of the largest -- most of the largest produce operators in the Permian Basin. I think the Hi-Crush has done a great job with those customers and those customers value those relationships just like ours do, and we look forward to maintaining of those relationships going forward and certain of those customers our entire top-tier customers look forward to serving that going forward.

[Ben Brigham, executive]

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.

[Sean Mitchell, analyst]

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? 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?

[Ben Brigham, executive]

Maybe I'll just make a general comment. John may have some specifics. I just think it's really exciting where Atlas is positioned, particularly after this transaction that this basin and in 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. 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 that.

[John Turner, executive]

Yes. Nothing in particular other than these 2 companies 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 in well sites continue to improve and overall frac an 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.

[Kyle Turlington, executive]

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.

[Sean Mitchell, analyst]

Absolutely. Congrats again on the deal. 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.

[Ben Brigham, executive]

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.

[Kyle Turlington, executive]

Thanks, guys.

[Operator]

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