Atlas Energy Solutions Inc.

to a run rate of just over 11 million tons per year. We were highly contracted in the first quarter and remain highly contracted for the remainder of 2023. We expect to renew and to add incremental contract going for 2024 and beyond as we move through the year and expect that as we grow our logistics fleet and get closer to the Dent Express end service day, that our contract position will continue to grow on the logistics front as well. For the first quarter, we generated record sales of $153 million, representing a 2% sequential increase. On product sales, our volumes grew by approximately 91,000 tons, representing a 3% sequential increase. Mindgate pricing in the first quarter of 2023 was $0.76 per ton higher than it was in the fourth quarter of 2022. For our service sales, which is revenue generated by our logistics business, we saw a sequential decrease of $2.7 million, which was associated with lower than expected freight pricing experience during the quarter. As a reminder, prior to the start of 2023, our service sales were limited to our asset-light, low-margin, well-site coordination services business. Profit logistics is an area of significant focus, growth, and margin potential for us as we build out our fleet and ultimately transition to a logistics model in the Delaware Basin that includes shortened halls off the Dune Express. Cost of sales, excluding DD&A, decreased by $4.7 million quarter over quarter to $63 million. This decrease in COGS was primarily associated with a meaningful reduction in our contract labor and last mile logistics costs. As we continue to transition our dredge mining operations fully in-house, we expect our mining costs to continue to moderate in subsequent quarters as our electric judges exhibit improving utilization rates over the course of 2023. As electric dredging increases, our mining costs and associated emissions will decrease considerably on a per-ton basis, and this is a significant component of our overall cost of goods sold. So, by extension, we see COGS moderating it as we move through the year. SG&A expense for the quarter was $8.5 million, representing a sequential increase of 7.6%. This increase was largely associated with an increase in stock and unit-based compensation. Interest expense net came in at $3.4 million for the quarter. Most of this was associated with our term loan, which bears interest at 8.47% and has a 2027 maturity. DD&A expense for the quarter increased to $8.5 million, representing a sequential increase of 9.3%. This increase was due to higher depletion expense associated with higher sales volumes and additional depreciable assets placed in the service as compared to the prior period. We generated net income of $63 million for the first quarter, representing an impressive net income margin of 41%. Given that our IPO occurred in the middle of the quarter, our diluted earnings per share for the first quarter only included income allocated to the Class A shareholders for the last three weeks of the period. So you'll see diluted earnings per share of $0.03 presented on our income statement. Of course, we generate $63 million net income for the period as a company, and we have 100 million shares outstanding across our Class A and B share classes, which works out to be $0.63 per share. Net cash provided by operating activities for the quarter was $54 million despite a $22 million increase in accounts receivable. This increase was due to timing and we have seen our accounts receivable balance normalized since the end of the quarter. Adjusted EBITDA for the period was $84 million, representing a sequential increase of 12% and adjusted EBITDA margin of 55%. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance capex, was $77 million, representing a sequential increase of 15% and adjusted free cash flow margin of 50%. During the first quarter, we converted 92% of our adjusted EBITDA to adjusted free cash flow, given our low levels of required maintenance capital expenditures. And we are primarily investing that cash flow back into the business today. Results were strong across the board and are highlighted by our strong margin profile. Capital expenditures for the quarter were $68 million. This includes $61 million spent on growth projects, which is primarily the Kermit expansion, and $7 million spent on maintenance capital projects. We expect our capital spending on growth projects to increase through the year now that the Dune Express project has commenced. We expect capital expenditures for maintenance to grow modestly over the course of the year. Note that, as previously mentioned, we are funding the 2023 CapEx associated with the build-out of our logistics fleet with capital leases, so you won't see those expenditures hitting the investing section of our cash flow statement. And instead, you will see us making payments in the financing section of the statement of cash flows over the course of the four to seven-year lease terms. As Bud mentioned earlier, we've been distributing 15 million per quarter and are doing so again this quarter. That's a 15 cent per share dividend for our Class A shareholders and a corresponding 15 cent per unit distribution for our B unit holders. For now, I'll reiterate this is a variable dividend and we'll continue to evaluate our plans as we work with the board to develop and communicate a formal return of capital framework. Turning to the balance sheet, we ended the quarter with a cash balance of $353 million. After the IPO, we took steps to de-risk our liquidity position by investing our cash into insured bank accounts and T-bills. As of March 31, 2023, our total liquidity was $427 million. This was comprised of $353 million in cash and equivalent and $74 million of availability underneath our ABL facility, under which we had no borrowings outstanding. The principal balance of our term loan sits at $141 million, and our current capital lease balance is $27 million. So the total amount of debt outstanding is currently $168 million, leaving us in a net cash position of $185 million at the end of the year, which translates to a total debt to latest 12-month EBITDA multiple of 0.5 times. Our outstanding share count at the end of the quarter, inclusive of both our Class A and B shares, was 100 million shares. That concludes our prepared remarks for the first quarter of 2023. I will now turn the call back over to the operator to open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Chase Malthill with Bank of America. Please participate with your question.

Hey, good morning, everybody. I hope everybody's doing well. I guess I just wanted to kick it off with a question, you know, about, you know, Permian-Fraxan fundamentals. Obviously, you provided some nice color in the presentation, you know, on the supply and the demand side and kind of your outlook there. But can you talk about what you're seeing out in the market today? You know, is pricing momentum continuing to, you know, out in the market in the Permian? You know, are fundamentals, you know, continuing to tighten? And just kind of your thoughts around the ability to, for the market to absorb kind of any incremental capacity that's coming into the market.