AESI
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 2, 2024, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
Item 3. |
46 |
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Item 4. |
47 |
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PART II. |
48 |
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Item 1. |
48 |
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Item 1A. |
48 |
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Item 2. |
48 |
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Item 3. |
48 |
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Item 4. |
48 |
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Item 5. |
48 |
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Item 6. |
49 |
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51 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Atlas Energy Solutions Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
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March 31, |
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December 31, |
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2024 |
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2023 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Inventories |
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Spare part inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Finance lease right-of-use assets |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accounts payable - related parties |
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Accrued liabilities |
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Current portion of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net of discount and deferred financing costs |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common Stock, $ |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Atlas Energy Solutions Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Product sales |
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$ |
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$ |
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Service sales |
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Total sales |
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Cost of sales (excluding depreciation, depletion and accretion expense) |
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Depreciation, depletion and accretion expense |
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Gross profit |
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Selling, general and administrative expense (including stock and unit-based compensation expense of $ |
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Operating income |
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Interest expense, net |
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( |
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( |
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Other income |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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Less: Pre-IPO net income attributable to Atlas Sand Company, LLC |
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Less: Net income attributable to redeemable noncontrolling interest |
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Net income attributable to Atlas Energy Solutions Inc. |
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$ |
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$ |
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Net income per common share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Atlas Energy Solutions Inc.
Condensed Consolidated Statements of Stockholders' and Members' Equity and Redeemable Noncontrolling Interest
(Unaudited)
(In thousands)
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Redeemable |
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Members' |
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Old Atlas |
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Old Atlas |
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New Atlas |
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Additional |
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Stockholders' |
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Noncontrolling |
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Equity |
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Class A |
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Class B |
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Common Stock |
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Paid-In- |
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Retained |
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and Members' |
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Interest |
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Value |
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Shares |
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Value |
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Shares |
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Value |
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Shares |
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Value |
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Capital |
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Earnings |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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— |
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$ |
— |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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Member distributions |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Net income prior |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Effect of Reorganization and reclassification to redeemable noncontrolling interest |
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( |
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— |
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— |
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( |
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— |
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( |
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Issuance of Common Stock in |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Deferred tax liability arising |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income after IPO |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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Redeemable |
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Members' |
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Old Atlas |
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Old Atlas |
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New Atlas |
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Additional |
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Stockholders' |
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Noncontrolling |
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Equity |
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Class A |
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Class B |
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Common Stock |
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Paid-In- |
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Accumulated |
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and Members' |
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Interest |
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Value |
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Shares |
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Value |
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Shares |
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Value |
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Shares |
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Value |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
— |
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$ |
— |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Dividend equivalent rights |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Common Stock upon vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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Equity issued in connection with Hi-Crush Transaction |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
— |
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$ |
— |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Atlas Energy Solutions Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, depletion and accretion expense |
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Amortization of debt discount |
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Amortization of deferred financing costs |
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Amortization of Hi-Crush intangible assets |
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Stock and unit-based compensation |
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Deferred income tax |
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Other |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Accounts receivable - related party |
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Inventories |
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( |
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Spare part inventories |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
) |
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( |
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Other long-term assets |
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( |
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Accounts payable |
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( |
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Accounts payable - related parties |
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( |
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Deferred revenue |
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( |
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Accrued liabilities and other liabilities |
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Net cash provided by operating activities |
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Investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Hi-Crush acquisition, net of cash acquired |
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( |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities: |
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Principal payments on term loan borrowings |
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( |
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( |
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Proceeds from borrowings |
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Issuance costs associated with debt financing |
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( |
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( |
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Payments under finance leases |
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( |
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( |
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Repayment of notes payable |
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( |
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Dividends and distributions |
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( |
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Net proceeds from IPO |
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Payment of offering costs |
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( |
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Member distributions |
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( |
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Net cash provided by financing activities |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental cash flow information |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
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Supplemental disclosure of non-cash investing activities: |
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Property, plant and equipment in accounts payable and accrued liabilities |
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$ |
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$ |
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Asset retirement obligations incurred |
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$ |
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$ |
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Hi-Crush acquisition consideration, equity issuance |
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$ |
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$ |
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||
Hi-Crush acquisition consideration, Deferred Cash Consideration Note |
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$ |
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$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Atlas Energy Solutions Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Business and Organization
Atlas Energy Solutions Inc., a Delaware corporation (f/k/a New Atlas HoldCo. Inc.) (“New Atlas” and together with its subsidiaries “we,” “us,” “our,” or the “Company”), was formed on June 28, 2023, pursuant to the laws of the State of Delaware, and is the successor to AESI Holdings Inc. (f/k/a Atlas Energy Solutions Inc.), a Delaware corporation (“Old Atlas”). New Atlas is a holding company and the ultimate parent company of Atlas Sand Company, LLC (“Atlas LLC”), a Delaware limited liability company formed on April 20, 2017. Atlas LLC is a producer of high-quality, locally sourced 100 mesh and 40/70 sand used as a proppant during the well completion process. Proppant is necessary to facilitate the recovery of hydrocarbons from oil and natural gas wells. One hundred percent of Atlas LLC’s sand reserves are located in Winkler and Ward Counties, Texas, within the Permian Basin and operations consist of proppant production and processing facilities, including two facilities near Kermit, Texas (together, the “Kermit facility”) and a third facility near Monahans, Texas (the “Monahans facility”). Pursuant to the Hi-Crush Transaction discussed and defined below, we acquired additional facilities near Kermit and the OnCore distributed mining network.
We are currently building a logistics platform with the goal of increasing the efficiency, safety and sustainability of the oil and natural gas industry within the Permian Basin. This will include the Dune Express, an overland conveyor infrastructure solution currently under construction, coupled with our growing fleet of fit-for-purpose trucks and trailers. With the Hi-Crush Transaction, we expanded our logistics offering through the addition of Pronghorn, a leading multi-basin provider of proppant logistics and wellsite services.
We sell products and services primarily to oil and natural gas exploration and production companies and oilfield services companies primarily under supply agreements and also through spot sales on the open market.
Initial Public Offering
On March 13, 2023, Old Atlas completed its initial public offering (the “IPO”) of
Reorganization
In connection with the IPO and pursuant to a master reorganization agreement dated March 8, 2023, by and among Old Atlas, Atlas Sand Management Company, LLC, a Texas limited liability company (“ASMC”), Atlas LLC, Atlas Sand Holdings, LLC, a Delaware limited liability company (“Holdings”), Atlas Sand Operating, LLC, a Delaware limited liability company (“Atlas Operating”), Atlas Sand Holdings II, LLC, a Delaware limited liability company (“Holdings II”), Atlas Sand Management Company II, LLC, a Delaware limited liability company (“ASMC II”), and Atlas Sand Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), Old Atlas and the parties thereto completed certain restructuring transactions (the “Reorganization”). As part of the Reorganization:
5
As a result of the Reorganization, (i) Old Atlas’s sole material asset consisted, and still consists, of Operating Units, (ii) Atlas Operating’s sole material asset consisted, and still consists, of 100% of the membership interests in Atlas LLC and (iii) Atlas LLC owned, and still owns, all of the Company’s operating assets. Old Atlas is the managing member of Atlas Operating and is responsible for all operational, management and administrative decisions relating to Atlas LLC’s business and consolidates the financial results of Atlas LLC and its subsidiaries.
As a result of the IPO and Reorganization:
On March 13, 2023, the date on which Old Atlas closed the IPO, a corresponding deferred tax liability of approximately $
On September 13, 2023, we distributed the Operating Units and shares of Old Atlas Common Stock previously held by the HoldCos to the Legacy Owners in accordance with the distribution provisions of each respective HoldCo operating agreement. Immediately following the distribution, the Legacy Owners held shares of Old Atlas Class A Common Stock or Old Atlas Class B Common Stock (and corresponding Operating Units) directly.
Up-C Simplification
On October 2, 2023, Old Atlas and the Company completed the Up-C Simplification (as defined below) contemplated by the Master Reorganization Agreement (the “Master Reorganization Agreement”), dated as of July 31, 2023, by and among the Company, Old Atlas, Atlas Operating, AESI Merger Sub Inc., a Delaware corporation (“PubCo Merger Sub”), Atlas Operating Merger Sub, LLC, a Delaware limited liability company (“Opco Merger Sub” and, together with PubCo Merger Sub, the “Merger Subs”), and Holdings, in order to, among other things, reorganize under a new public holding company (the “Up-C Simplification”).
Pursuant to the Master Reorganization Agreement, (a) PubCo Merger Sub merged with and into Old Atlas (the “PubCo Merger”), as a result of which (i) each share of Old Atlas Class A Common Stock then issued and outstanding was exchanged for one share of Common Stock of New Atlas, par value $
In connection with the Up-C Simplification:
6
After completion of the Up-C Simplification, New Atlas replaced Old Atlas as the publicly held entity and, through its subsidiaries, conducts all of the operations previously conducted by Old Atlas, and Old Atlas remains the managing member of Atlas Operating.
The Up-C Simplification was a common control transaction; therefore, the redeemable noncontrolling interest was acquired as an equity transaction. The redeemable noncontrolling interest was adjusted to the maximum redemption amount based on the 10-day volume-weighted average closing price of shares of Old Atlas Class A Common Stock at the redemption date. The carrying amount of the redeemable noncontrolling interest was reclassified to reflect the change in the Company’s ownership interest with an offsetting entry to additional paid-in capital. On October 2, 2023, the date the Up-C Simplification was completed, a corresponding deferred tax liability of approximately $
Hi-Crush Transaction
On March 5, 2024 (“Closing Date”), the Company consummated the transaction (the “Hi-Crush Transaction”) pursuant to that certain Agreement and Plan of Merger, dated February 26, 2024 (the “Merger Agreement”), by and among the Company, Atlas LLC, Wyatt Merger Sub 1 Inc., a Delaware corporation and direct, wholly-owned subsidiary of Atlas LLC, Wyatt Merger Sub 2, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of Atlas LLC, Hi-Crush Inc., a Delaware corporation (“Hi-Crush”), each stockholder that had executed the Merger Agreement or a joinder thereto (each a “Hi-Crush Stockholder” and, collectively, the “Hi-Crush Stockholders”), Clearlake Capital Partners V Finance, L.P., solely in its capacity as the Hi-Crush Stockholders’ representative and HC Minerals Inc., a Delaware corporation (collectively, the “Parties”), pursuant to which the Company acquired Hi-Crush’s Permian Basin proppant production and logistics businesses and operations in exchange for mixed consideration totaling $
The foregoing description of the Hi-Crush Transaction and the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 to this Quarterly Report on Form 10-Q (this “Report”).
7
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”). All adjustments necessary for a fair presentation of the Financial Statements have been included. Such adjustments are of a normal, recurring nature. These Financial Statements include the accounts of New Atlas, Old Atlas, Atlas Operating, Atlas LLC, and Atlas LLC’s wholly-owned subsidiaries: Atlas Sand Employee Company, LLC; Atlas OLC Employee Company, LLC; Atlas Construction Employee Company, LLC; Atlas Sand Employee Holding Company, LLC; Fountainhead Logistics Employee Company, LLC; Atlas Sand Construction, LLC; OLC Kermit, LLC; OLC Monahans, LLC; Fountainhead Logistics, LLC; Fountainhead Transportation Services, LLC; and Fountainhead Equipment Leasing, LLC.
The Company acquired Hi-Crush and certain of its wholly-owned subsidiaries on March 5, 2024. These Financial Statements include the accounts of Hi-Crush Operating, LLC (“Hi-Crush Operating”) (f/k/a Hi-Crush Inc.) and the following wholly-owned subsidiaries of Hi-Crush Operating: Hi-Crush LMS LLC; Hi-Crush Investments LLC; OnCore Processing LLC; Hi-Crush Permian Sand LLC; Hi-Crush PODS LLC; NexStage LLC; FB Logistics LLC; BulkTracer Holdings LLC; PropDispatch LLC; Pronghorn Logistics Holdings, LLC; and Pronghorn Logistics, LLC. Refer to Note 3- Hi-Crush Transaction for further discussion.
The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other period. The Financial Statements and these notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included within the Company’s Annual Report on Form 10-K.
Reorganization
As discussed in Note 1 - Business and Organization, as a result of our IPO and the Reorganization and prior to the Up-C Simplification, Old Atlas became the managing member of Atlas Operating and consolidated entities in which it had a controlling financial interest. The Reorganization was considered a transaction between entities under common control. As a result, the Financial Statements for periods prior to the IPO and the Reorganization have been adjusted to combine the previously separate entities for presentation purposes. However, Old Atlas and Atlas Operating had no operations or assets and liabilities prior to our IPO. As such, for periods prior to the completion of our IPO, the Financial Statements represent the historical financial position and results of operations of Atlas LLC and its subsidiaries. For periods after the completion of our IPO through the end of the reporting period, the financial position and results of operations include those of Old Atlas and New Atlas.
Up-C Simplification
As discussed in Note 1 - Business and Organization, as a result of the Up-C Simplification, New Atlas replaced Old Atlas as the publicly held entity and, through its subsidiaries, conducts all of the operations previously conducted by Old Atlas, and Old Atlas remains the managing member of Atlas Operating. The Up-C Simplification was considered an acquisition of noncontrolling interest transaction between entities under common control. As such, the condensed consolidated financial statements and results of operations of Old Atlas are included in the Financial Statements of New Atlas on the same basis as previously presented except for the acquisition of noncontrolling interest which was accounted for as an equity transaction.
Consolidation
The Financial Statements include the accounts of the Company and controlled subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these Financial Statements include, but are not limited to: the proppant reserves and their impact on calculating the depletion expense under the units-of-production method; the depreciation and amortization associated with property, plant and equipment; stock-based and unit-based compensation; asset retirement obligations; business combinations; valuation of goodwill and acquired intangible assets; and certain liabilities. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
8
Business Combination
Business combinations are accounted for using the acquisition method of accounting in accordance with the Accounting Standards Codification (“ASC”) 805, “Business Combinations.” The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 820, “Fair Value Measurement.” Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill. Any acquisition-related costs incurred by the Company are expensed as incurred. Operating results of an acquired business are included in the Company’s results of operations from the date of acquisition. We use all available information to estimate fair values, including quoted market prices, the carrying value of acquired assets and assumed liabilities and valuation techniques such as discounted cash flows, relief-from-royalty method, with or without method, or multi-period excess earnings method. We engage third-party appraisal firms to assist in the fair value determination of identifiable long-lived assets, identifiable intangible assets, as well as any contingent consideration that provides for additional consideration to be paid to the seller if certain future conditions are met. These estimates are reviewed during the 12-month measurement period and adjusted based on actual results. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our financial condition or results of operations. The purchase price in the Hi-Crush Transaction includes a holdback, which is considered contingent consideration and estimated at fair value. The holdback is subject to increases or reductions based on changes in the estimated net working capital amounts compared to the final settlement of the net working capital. The holdback is payable the later of (i) seventy-five days after the closing of the Hi-Crush Transaction and (ii) thirty days after the date that the required Hi-Crush financial statements have been provided to the Company. The holdback is recorded in Other current liabilities on our condensed consolidated balance sheets. Contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted, if necessary.
Since the Closing Date, the acquired companies have adopted all of the Company's accounting policies.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments that are readily convertible into cash and have original maturities of three months or less when purchased. As of March 31, 2024, we have deposits of $
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at cost when earned and represent claims against third parties that will be settled in cash. These receivables generally do not bear interest. The carrying value of our receivables, net of allowance for credit losses, represents the estimated collectable amount. If events or changes in circumstances indicate specific receivable balances may be impaired, further consideration is given to our ability to collect those balances and the allowance is adjusted accordingly. We perform credit evaluations of new customers, and sometimes require deposits and prepayments, to mitigate credit risk. When it is probable that all or part of an outstanding balance will not be collected, we establish an allowance for credit losses.
On January 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments,” which replaced the prior incurred loss impairment model with an expected credit loss impairment model for financial instruments, including accounts receivable. The adoption of ASU 2016-13 did not result in a material cumulative-effect adjustment to retained earnings on January 1, 2023.
We are exposed to credit losses primarily through sales of products and services. We analyze accounts receivable on an individual customer and overall basis through review of historical collection experience and current aging status of our customer accounts. We also consider the financial condition and economic environment of our customers in evaluating the need for an allowance. As of March 31, 2024 and 2023, we had $
As of March 31, 2024, two customers represented
9
Goodwill and Acquired Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is not amortized, but is reviewed for each reporting unit for impairment annually during the fourth quarter or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of our business. We may assess our goodwill for impairment initially using a qualitative approach to determine whether conditions exist that indicate it is more likely than not that a reporting unit’s carrying value is greater than its fair value, and if such conditions are identified, then a quantitative analysis will be performed to determine if there is any impairment.
The Company amortizes the cost of definite-lived intangible assets on a straight-line basis over their estimated useful lives of
Other Intangible Assets
Other intangible assets consist of internal-use software. The Company applies the provisions of ASC 350, “Intangibles-Goodwill and Other.” Costs associated with the acquisition of an internal-use software are capitalized when incurred and amortized over the estimated useful life of the license or application, which is generally one to five years. As of March 31, 2024 and December 31, 2023, the balance of other intangible assets was $
Amortization associated with the other intangibles was $
Asset Retirement Obligations
In accordance with ASC 410-20, Asset Retirement Obligations, the Company records a liability for asset retirement obligations at the fair value of the estimated costs to retire a tangible long-lived asset at the time the liability is incurred, when there is a legal obligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the obligation can be made. The Company has asset retirement obligations with respect to certain assets due to various contractual obligations to clean and/or dispose of those assets at the time they are retired.
A liability for the fair value of an asset retirement obligation, with a corresponding increase to the carrying value of related long-lived assets, is recognized at the time of an obligating event. The asset is depreciated using the straight-line method, and the discounted liability is increased through accretion over the expected timing of settlement.
The estimated liability is based on third-party estimates of costs to abandon, including estimated economic lives and external estimates as to the cost to bring the land to a state required by the lease agreements. The Company utilized a discounted rate reflecting management’s best estimate of the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in the estimated costs, changes in the economic life or if federal or state regulators enact new requirements regarding the abandonment. Accretion expense, which was $
Changes in the asset retirement obligations are as follows for the three months ended (in thousands):
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March 31, |
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March 31, |
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2024 |
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2023 |
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Accretion expense |
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$ |
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Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
10
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The amounts reported in the balance sheets as current assets or liabilities, including cash and cash equivalents, accounts receivable, spare parts inventories, inventories, prepaid expenses and other current assets, accounts payable, accrued liabilities and deferred revenues approximate fair value due to the short-term maturities of these instruments. The Company’s policy is to recognize transfers between levels at the end of the period. This disclosure does not impact the Company’s financial position, results of operations or cash flows.
As of the dates indicated, our long-term debt consisted of the following (in thousands):
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At March 31, 2024 |
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At December 31, 2023 |
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Carrying Value |
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Fair Value |
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Financial liabilities |
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Outstanding principal amount of the 2023 Term Loan Credit Facility |
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$ |
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$ |
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$ |
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$ |
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Level 2 – Market Approach |
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Outstanding principal amount of the ADDT Loan |
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$ |
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$ |
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$ |
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$ |
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Level 2 – Market Approach |
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Outstanding principal amount of the 2023 ABL Credit Facility |
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$ |
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$ |
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$ |
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$ |
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Level 2 – Quoted Prices |
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Outstanding principal amount of the of the Deferred Cash Consideration Note |
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$ |
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$ |
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$ |
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$ |
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Level 2 – Market Approach |
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Outstanding amount of the other indebtedness |
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$ |
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$ |
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$ |
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$ |
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Level 1 – Quoted Prices |
11
Revenues
Under ASC Topic 606 - Revenue from Contracts with Customers (“ASC 606”), revenue recognition is based on the transfer of control, or the customer’s ability to benefit from the services and products in an amount that reflects the consideration expected to be received in exchange for those services and products. In recognizing revenue for products and services, the transaction price is determined from sales orders or contracts with customers.
The Company generates product revenues from the sale of product that customers purchase for use in the oil and gas industry. Revenues are derived from product sold to customers under supply agreements, the terms of which can extend for over one year, and from spot sales through individual purchase orders executed at prevailing market rates. The Company’s product revenues are primarily a function of the price per ton realized and the volumes sold. Pricing structures under the supply agreements are, in certain cases, subject to certain contractual adjustments and consist of a combination of negotiated pricing and fixed pricing. These arrangements may undergo periodic negotiations regarding pricing and volume requirements, which may occur in volatile market conditions.
The Company generates service revenue by providing transportation, storage solutions, equipment rental, and contract labor services to companies in the oil and gas industry. Transportation services typically consist of transporting product from the plant facilities to the wellsite. The amounts invoiced reflect the transportation services rendered. Equipment rental services provide customers with use of the Company's fleet equipment either for a contractual period or for work orders. The amounts invoiced reflect either the contractual monthly minimum, or the length of time the equipment was utilized in the billing period. Labor services provide the customers with supervisory, logistics, or field personnel. The amounts invoiced for storage solutions and contract labor services reflect the amount of time these services were utilized in the billing period. Transportation, storage solutions, equipment rental, and contract labor services are contracted through formal agreements or work orders executed under established pricing terms.
The Company recognizes revenue for product at a point in time following the transfer of control and satisfaction of the performance obligation of such items to the customer, under ASC 606, which typically occurs upon customer pick-up at the facilities. The Company recognizes revenue for services when services are rendered to the customer and the performance obligation is satisfied. The Company’s standard collection terms are generally 30 days, with certain customer payment terms extending up to 60 days.
Certain of the Company’s contracts contain shortfall provisions that calculate agreed upon fees that are billed when the customer does not meet the minimum purchases over a period of time defined in each contract and when collectability is reasonably certain. As the Company does not have the ability to predict customers’ orders over the period, there are constraints around the ability to recognize the variability in consideration related to this condition. The Company recognized shortfall provision revenue of $
The Company’s revenue is generated in Texas, New Mexico, Ohio, and Oklahoma for the three months ended March 31, 2024 and in Texas and New Mexico for the three months ended March 31, 2023. Revenue is disaggregated by product and service sales, no further disaggregation of revenue information is provided.
The Company has elected to use the ASC 606 practical expedients, pursuant to which it has excluded disclosures of transaction prices allocated to remaining performance obligations and when it expects to recognize such revenue. The remaining performance obligations are primarily comprised of unfulfilled contracts to deliver product, most of which hold a remaining duration of less than one year, and of which ultimate transaction prices will be allocated entirely to the unfulfilled contracts. The Company’s transaction prices under these contracts may be impacted by market conditions and potential contract negotiations, which have not yet been determined, and are therefore variable in nature.
Revenue from make-whole provisions in customer contracts is recognized as other revenue at the end of the defined period when collectability is certain. Customer prepayments in excess of customer obligations remaining on account upon the expiration or termination of a contract are recognized as other operating income during the period in which the expiration or termination occurs.
Deferred Revenues
The Company occasionally receives prepayments from customers for future deliveries of product. These prepayments represent consideration that is unconditional for which the Company has yet to transfer title to the product. Amounts received from customers in advance of product deliveries are recorded as contract liabilities referred to as deferred revenues and are recognized as revenue upon delivery of the product. In connection with the Hi-Crush Transaction, the Company acquired customer prepayments and recognized $
Changes in the deferred revenues balance are as follows (in thousands):
12
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For The Three Months Ended |
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March 31, 2024 |
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Beginning Balance |
$ |
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Customer prepayment acquired in Hi-Crush acquisition |
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Revenue recognized |
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Ending Balance |
$ |
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The current portion of deferred revenue, $
Stock-Based Compensation
We account for stock-based compensation, including grants of incentive units, restricted stock awards, time-based restricted stock units and performance share units, under the measurement and recognition provisions of ASC 718, Compensation – Stock Compensation (“ASC 718”). We account for stock-based compensation by amortizing the fair value of the stock, which is determined at the grant date, on a straight-line basis unless the tranche method is required.
We account for forfeitures as they occur and reverse any previously recognized stock-based compensation expense for the unvested portion of the awards that were forfeited. The number of forfeited shares will be available for purposes of awards under the LTIP. Stock-based compensation expense is recognized as selling, general and administrative expense on the Company’s condensed consolidated statements of operations.
Earnings Per Share
We use the treasury stock method to determine the potential dilutive effect of outstanding restricted stock units and performance share units. We evaluated the potential dilutive effect of Old Atlas Class B Common Stock using the “if-converted” method, noting conversion of Old Atlas Class B Common Stock to Old Atlas Class A Common Stock would not have a dilutive impact to earnings per share. Each share of Old Atlas Class B Common Stock was issued in conjunction with and only as a consequence of the issuance by Atlas Operating of an Operating Unit to a securityholder other than Old Atlas. Old Atlas was a holding company the only assets of which were equity interests in Atlas Operating. Prior to the Up-C Simplification, the earnings of Atlas Operating per unit were attributable to Old Atlas and the other Legacy Owners, as the holders of the outstanding Operating Units. Because each holder of Operating Units other than Old Atlas also held one share of Old Atlas Class B Common Stock, and because Old Atlas consolidated the results of operations of Atlas Operating, the earnings per Operating Unit attributable to the Legacy Owners for the period prior to the Up-C Simplification were derivatively attributable to the corresponding shares of Old Atlas Class B Common Stock held by such Legacy Owners. For that reason, when a Legacy Owner determined to exercise its redemption right and exchange an Operating Unit (and corresponding share of Old Atlas Class B Common Stock), for a share of Old Atlas Class A Common Stock, there was not a dilutive impact to the earnings per share of the Old Atlas Class A Common Stock.
In connection with the Up-C Simplification, each Operating Unit issued and outstanding immediately prior to the effective time of the Mergers (the “Effective Time”), other than Operating Units held by Old Atlas, was exchanged for one share of New Atlas Common Stock, the holders of such Operating Units became stockholders of New Atlas, and all of the Old Atlas Class B Common Stock issued and outstanding immediately prior to the Effective Time was surrendered and cancelled for no consideration. See Note 12 –Earnings Per Share for additional information.
Income Taxes
For the purposes of this discussion, references to “Atlas Inc.” are to Old Atlas for reporting periods prior to the completion of the Up-C Simplification (the “Closing”), and to New Atlas following the Closing. Atlas Inc. is a corporation and it is subject to U.S. federal, state and local income taxes. The financial statement implications related to deferred tax liabilities of the Reorganization and Up-C Simplification referenced in Note 1 - Business and Organization and the tax impact of the Company’s status as a taxable corporation subject to U.S. federal, state and local income taxes have been reflected in the accompanying Financial Statements.
The Company uses the asset and liability method for accounting for income taxes and updates its annual effective income tax rate on a quarterly basis. Under this method an estimated annual effective rate is applied to the Company’s year-to-date income excluding discrete items which are recorded when settled. Our effective tax rate may vary quarterly because of the timing of our actual quarterly earnings compared to annual projections which may affect periodic comparisons.
Atlas LLC, the predecessor of Old Atlas, was organized as a limited liability company. As a limited liability company, Atlas LLC has either been treated as a disregarded entity or a partnership for income tax purposes and, therefore, is not subject to U.S. federal income tax. Rather, the U.S. federal income tax liability with respect to the taxable income of Atlas LLC was passed through to its owners.
13
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company evaluates the uncertainty in tax positions taken or expected to be taken in the course of preparing the Financial Statements to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. However, the conclusions regarding the evaluation are subject to review and may change based on factors including, but not limited to, ongoing analysis of tax laws, regulations, and interpretations thereof. As of March 31, 2024 and December 31, 2023, the Company did
Recently Issued Accounting Pronouncements Not Yet Effective
Income Taxes- In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of the Financial Statements and related disclosures.
Segments- In November 2023, the Financial Accounting Standard Board, or FASB, issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023 on a retrospective basis, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its Financial Statements and related disclosures.
Disclosure Improvements- In October 2023, the FASB issued ASU 2023-06: Disclosure Improvements- Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which amends U.S. GAAP to reflect updates and simplifications to certain disclosure requirements referred to FASB by the SEC. The targeted amendments incorporate 14 of the 27 disclosures referred by the SEC into Codification. Some of the amendments represent clarifications to, or technical corrections of, the current requirements. ASU 2023-06 could move certain disclosures from the nonfinancial portions of SEC filings to the financial statement notes. Each amendment in ASU 2023-06 will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulation by June 30, 2027. No amendments were effective at December 31, 2023. The Company is currently evaluating the impact of the Financial Statements and related disclosures.
Note 3 – Hi-Crush Transaction
On March 5, 2024, the Company completed the Hi-Crush Transaction and acquired
The acquisition-date fair value of the consideration was comprised of the following (in thousands):
Cash to sellers at close |
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Company Transaction Expenses (sellers' transaction expenses) (1) |
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Stock consideration (2) |
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Deferred Cash Consideration Note (1) |
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Stockholders’ Representative Expense Fund (1) |
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Adjustment Holdback Amount (1) (3) |
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Total |
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(1)
(2)
(3) Represents a cash holdback subject to changes from estimated to actual net working capital amounts that is payable the later of (i) seventy-five days after the closing of the Hi-Crush Transaction and (ii) thirty days after the date that the required Hi-Crush financial statements have been provided to the Company.
The Company has applied the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” and recognized assets acquired and liabilities assumed at their fair values as of the date of acquisition, with the excess purchase consideration recorded to goodwill. The measurements of some assets acquired and liabilities assumed, such as intangible assets were based on inputs that are not observable in the market and thus represent Level 3 inputs, where market data was not readily available. The fair value of acquired property and equipment were based on both available market data and a cost approach. As the Company finalizes the estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months from the acquisition date).
14
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed (in thousands):
|
|
Fair Value |
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
Accounts receivable |
|
|
|
|
|
Inventories |
|
|
|
|
|
Spare parts inventories |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Finance lease right-of-use assets |
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
Other long-term assets |
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
Accrued liabilities |
|
|
( |
) |
|
Current portion of long-term debt |
|
|
( |
) |
|
Other current liabilities |
|
|
( |
) |
|
Long-term debt, net of discount and deferred financing costs |
|
|
( |
) |
|
Deferred tax liabilities |
|
|
( |
) |
|
Other long-term liabilities |
|
|
( |
) |
|
Goodwill |
|
|
|
|
|
Net Assets Acquired |
|
$ |
|
|
The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The Company retained an independent appraiser to determine the fair value of assets acquired and liabilities assumed. In accordance with the acquisition method of accounting, the purchase price of Hi-Crush has been allocated to the acquired assets and assumed liabilities based on their preliminary estimated acquisition date fair values. The fair value estimates were based on income, market and cost valuation methods. The excess of the total consideration over the estimated fair value of the amounts initially assigned to the identifiable assets acquired and liabilities assumed has been recorded as goodwill. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows and other future events that are based on the Company's best judgment from the information available. The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information becomes available but no later than one year from the acquisition date.
The Company’s condensed consolidated statement of operations for the three months ended March 31, 2024 includes revenue of $
The following transactions were recognized separately from the acquisition of assets and assumptions of liabilities in the Hi-Crush Transaction.
Identifiable Intangible Assets Acquired
The following table summarizes key information underlying identifiable intangible assets related to the Hi-Crush Transaction:
|
|
Useful Life (In years) |
|
|
Fair Value |
|
||