Atlas Energy Solutions Begins U.S. IPO Plan (Pending:AESI)

A Quick Take On Atlas Energy Solutions Inc.

Atlas Energy Solutions Inc. (AESI) has filed to raise $100 million in an IPO of its Class A common stock, according to an S-1 registration statement.

The firm provides proppant [sand] and related services for use in fracking in the Permian Basin.

When we learn more about AESI’s IPO pricing and valuation assumptions, I’ll provide an update.

Atlas Energy Overview

Austin, Texas-based Atlas Energy Solutions Inc. was founded to develop service capabilities to provide proppant to E&P companies in unconventional oil & gas fields in the Permian Basin.

Management is headed by founder, Executive Chairman and CEO Ben M. “Bud” Brigham, who has been with the firm since inception in 2017 and was previously the founder of Brigham Resources and Brigham Minerals.

Management also intends to create its ‘Dune Express’, a ‘long-haul overland conveyor system to deliver proppant’ from its facilities into the Northern Delaware Basin, thereby reducing truck traffic on public roadways and increasing its delivery efficiencies.

As of September 30, 2022, Atlas Energy has booked fair market value investment of $407 million from investors including Permian Dunes Holding Company, Gregory M. Shepard and BlackGold SPV I LP.

Atlas Energy – Customer Acquisition

The firm sells its services to exploration & production companies operating in the Permian Basin area.

The company controls more than ‘14,500 acres on the giant open dunes [Winkler Sand Trend], which represents more than 70% of the total giant open dune acreage available for mining.’

Selling, G&A expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Selling, G&A	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended September 30, 2022	4.9%
2021	9.9%
2020	15.9%

Click to enlarge

(Source – SEC)

The Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose to 13.0x in the most recent reporting period, as shown in the table below:

Selling, G&A	Efficiency Rate
Period	Multiple
Nine Mos. Ended September 30, 2022	13.0
2021	3.6

Click to enlarge

(Source – SEC)

Atlas Energy’s Market & Competition

As a proxy for the firm’s end market, according to a 2017 market research report by Global Market Insights, the global market for hydraulic fracturing was an estimated $24 billion in 2015 and is expected to exceed $65 billion by 2024.

This represents a forecast CAGR of 12% from 2016 to 2024.

The main drivers for this expected growth are growing energy usage in the commercial and industrial sectors and the development of unconventional oil & gas resources in various regions worldwide.

Also, declining production from existing legacy wells will drive the need for additional exploration and production along with continued advancement of drilling technologies.

Major competitive or other industry participants include:

• Covia

• High Roller Sand

• Black Mountain Sand

• Freedom Proppants

• H-Crush

• U.S. Silica (SLCA)

• Signal Peak Silica

• Alpine Silica

• Badger Mining Corporation

• Vista Proppants and Logistics

• Capital Sand Company

• Others

Atlas Energy Solutions Inc. Financial Performance

The company’s recent financial results can be summarized as follows:

• Sharply growing top line revenue

• Increasing gross profit and gross margin

• Strong growth in operating profit

• Substantially higher cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 332,859,000	178.4%
2021	$ 172,404,000	54.2%
2020	$ 111,772,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Nine Mos. Ended September 30, 2022	$ 201,226,000	234.3%
2021	$ 87,748,000	127.0%
2020	$ 38,654,000
Gross Margin
Period	Gross Margin
Nine Mos. Ended September 30, 2022	60.45%
2021	50.90%
2020	34.58%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended September 30, 2022	$ 165,105,000	49.6%
2021	$ 46,996,000	27.3%
2020	$ (1,226,000)	-1.1%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended September 30, 2022	$ 154,423,000	46.4%
2021	$ 4,258,000	1.3%
2020	$ (34,442,000)	-10.3%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended September 30, 2022	$ 156,000,000
2021	$ 21,356,000
2020	$ 12,486,000
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

As of September 30, 2022, Atlas Energy had $90.7 million in cash and $243.1 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2022, was $84.9 million.

Atlas Energy Solutions Inc. IPO Details

Atlas Energy intends to raise $100 million in gross proceeds from an IPO of its Class A common stock, although the final figure may vary.

Class A common stock

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

to fund the construction of the Dune Express; and

to fund general corporate purposes.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said the company is not currently subject to any legal proceedings that would have an adverse effect on its financial condition or operations.

The listed bookrunners of the IPO are Goldman Sachs (GS), BofA Securities (BAC), Piper Sandler (PIPR) and other investment banks.

Commentary About Atlas Energy’s IPO

AESI is seeking public investment to fund the development of its Dune Express and for general corporate purposes.

The company’s financials have shown strong growth in top line revenue, increasing gross profit and gross margin, significantly higher operating profit and sharply increased cash flow from operations.

Free cash flow for the twelve months ended September 30, 2022, was $84.9 million.

Selling, G&A expenses as a percentage of total revenue have dropped as revenue has grown; its Selling, G&A efficiency multiple rose to 13.0x in the most recent reporting period.

The firm currently plans to pay “We commenced paying cash distributions in December 2021 and have paid $70.0 million in aggregate distributions to our unitholders since that time. We intend to continue to recommend to our board of directors that we regularly return capital to our stockholders in the future through a dividend framework that will be communicated to stockholders in the future.”

AESI’s CapEx Ratio indicates it has spent heavily on capital expenditures as a percentage of its operating cash flow.

The market opportunity for providing proppant to the fracking industry in the Permian Basin is quite large and will likely stay elevated in the years to come.

Goldman Sachs is the lead underwriter and the only IPO led by the firm over the last 12-month period has generated a return of 107% since its IPO.

Risks to the company’s outlook as a public company include the recently volatile pricing action in the oil & gas markets as a result of the Ukraine war, the global pandemic and related economic changes.

Additionally, the fracking industry is a cyclical business that experiences significant volatility in its revenues, although major E&P firms have moved into the industry and have tended to be more disciplined in their approach to increasing production.

When we learn more information about the IPO’s pricing and valuation expectations, I will provide a final opinion.

Expected IPO Pricing Date: To be announced.