Atlas Energy Solutions - Q1 2024

Executive Summary

• Q1 2024 delivered strong top-line growth post Hi-Crush acquisition: total sales rose 37% q/q to $192.7M; Adjusted EBITDA was $75.5M (39% margin) while net income was $26.8M (14% margin).
• Mix shifted to services (logistics) and non-recurring costs elevated SG&A ($10.6M transaction costs, $4.2M stock comp), compressing margins versus prior periods; management flagged near-term margin pressure before improving in 2025 with Dune Express.
• The Board increased the quarterly dividend 5% to $0.22/share (base $0.16, variable $0.06), payable May 23, 2024; management emphasized ongoing return of capital and confidence in 2024/2025 execution.
• Kermit facility fire (April 14) was rapidly mitigated; plant reopened within 11 days and expected fully restored by end of Q2; management guided a Q2 EBITDA impact of $20–$40M but asserted no impact to Dune Express timeline (Q4 2024).
• Stock catalysts: execution on Kermit rebuild and containment of Q2 impact, continued contracting at mid-20s $/ton, commissioning milestones for dredges in Q2/Q3, and visible Dune Express progress toward Q4 start-up.

What Went Well and What Went Wrong

What Went Well

• Scale benefits and integration momentum: service sales surged 93% q/q to $79.2M, aided by increased active jobs and the 27-day contribution from Hi-Crush; volumes rose to 3.9M tons (+54% q/q).
• Operational resilience at Kermit: facility reopened 11 days post-incident via temporary loadout; management expects full restoration by end of Q2; no impact to Dune Express timing.
• Strategic initiatives advancing: two new dredges floated and commissioning slated by end of June; Dune Express construction “on time and on budget,” with commissioning planned late Q3/early Q4.

Notable quote: “We are already realizing benefits from the [Hi-Crush] transaction through increased scale… Our response to the recent mechanical fire at our Kermit facility was swift and decisive… We expect to continue servicing our customers while we finish up the repairs” — John Turner, CEO.

What Went Wrong

• Margin compression and cost inflation: cost of sales (ex DDA) rose 60% q/q to $106.7M, primarily Hi-Crush contribution; SG&A jumped 114% q/q to $29.1M on $10.6M non-recurring transaction costs and $4.2M stock comp.
• Pricing headwind: average sales price ~$29/ton in Q1, below Q4 and indicative of lower contracted/spot pricing; management is signing 2024 contracts “mid-20s” $/ton.
• Near-term EBITDA impact: guidance for a $20–$40M Q2 EBITDA headwind due to Kermit (third-party volumes, lost spot sales, higher temporary loadout OpEx), though insurance expected to cover rebuild costs (minus $250k deductible).

Transcript

Operator (participant)

Greetings. Welcome to Atlas Energy Solutions Incorporated Q1 2024 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Kyle Turlington, Vice President, Investor Relations. Thank you. You may begin.

Kyle Turlington (VP of Investor Relations)

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the Q1 of 2024. With us today are Bud Brigham, Executive Chairman, and John Turner, CEO, President, and Chief Financial Officer. Bud and John will be sharing their comments on the company's operational and financial performance for the Q1 of 2024, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that the 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 outcome and results could differ materially.

You can learn more about these risks in the annual report on Form 10-K we filed with the SEC on February 27, 2024, our quarterly reports on Form 10-Q, and our other SEC filings. You should not place undue reliance on forward, 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 the morning's press release. With that said, I will turn the call over to Bud Brigham.

Bud Brigham (Executive Chairman)

Thank you, Kyle, and thanks to everyone for joining us today for our Q1 conference call. In addition to reviewing our Q1 results, we'll spend some time this morning providing an update on the great progress we are making integrating Hi-Crush and Atlas since the closing of that acquisition in early March. Additionally, we also need to discuss the recent fire at the Kermit facility and, perhaps more importantly, the impressive response from our team to maintain both safety on site and reliable supply of sand to our customers throughout the disruptive event. I will go ahead and state that no other proppant producer could have possibly continued delivering proppant to their customers the way Atlas has.

Our differentiated scale, recently enhanced by our acquisition of Hi-Crush and their, and their great people, our associated production redundancies, and our geographically distributed production assets uniquely position Atlas to continue reliably serving our customers, even through rare, unexpected disruptions. Whether it's a fire, severe weather, or traffic accidents, disruptions do occur. Atlas makes the Permian supply chain more reliable and sustainable. Briefly reviewing the events. Around noon on Sunday, April fourteenth, a fire broke out at our Atlas Kermit facility, damaging equipment involved in our feed system, which takes sand from the separation and drying process to our silos. Due to the quick actions of our employees and quick response from the West Odessa, Kermit, Monahans, and Andrews fire departments, the rest of the plant, including all production centers, was unscathed.

This incident was limited to affecting our ability to load trucks at Kermit and did not impact our ability to produce sand. Thankfully, and most importantly, we quickly ascertained that all of our employees and vendors were safe and accounted for. I want to again thank the first responders and our team of wonderful employees here at Atlas for keeping everyone safe and limiting the damage to the plant. Within hours of the incident, our sales and supply chain teams began notifying our customers of the event and also began taking the steps to ensure their supply needs would continue to be met, resulting in uninterrupted service and 0 sand-related non-productive time at customer well sites through the incident. Again, I think it's obvious that no other company could have accomplished this.

In under 48 hours, mobile load-out equipment and mobile silos began showing up at our Kermit plant to lay the groundwork for a temporary load-out solution while we began conducting repairs. Within 11 days from the fire, we reopened the Kermit facility and began loading trucks with sand. Today, the Kermit facility is loading close to 6,000 tons of sand, which is about a third of our throughput prior to the incident. By the end of this month, we expect to receive all of the necessary equipment to completely rebuild the damaged feed system, and we expect the damaged portion of the Kermit plant to be fully restored by the end of June. This quick turnaround is another clear demonstration of Atlas's unique culture. Our exceptional team collaborated across our entire platform of distributed assets almost instantaneously. The pace at which they moved was almost shocking.

To think that we reopened the Kermit facility within just 11 days of the fire still seems unbelievable, but knowing the quality of our people, I know at this point that I shouldn't be surprised. When you partner with Atlas, you can count on quality and reliability, even under extreme circumstances.... Again, it's thanks to our great people, our innovative culture, our unmatched scale, our relationships, and our diverse distributed assets that we are uniquely able to perform through these disruptions. I could not be prouder of how we have responded to this unexpected setback. With respect to the incident at Kermit, we wanted to provide more information about what happened and the improvements we are making to address the risk of a repeat event in the future. We see these events as opportunities to make Atlas better.

First, now that we have completed a root cause analysis, there are a number of contributing factors that combined to result in the fire starting in the feed system between the plant and the silos. These factors included mechanical and process failures. We are responding by taking a number of actions to improve our systems and processes to protect us from the risk of reoccurrence. For example, in the near term, we have enhanced and increased inspections and preventative maintenance procedures. In addition, some of the technological enhancements in the design and construction of the Dune Express, specifically the multilayered belt detection system and more advanced auto-lubricating systems, will be installed in our feed systems at the plants. This is important to spend a moment on.

The 5 years of design and the significant investments in technology we've made in planning the Dune Express, particularly in automation around preventative maintenance events, addresses the risk of an incident like this occurring on the Dune Express. For example, in addition to the Smart Idlers we've been discussing previously, we will have dual monitors on the pulley bearings for two separate systems, one for preventative maintenance and the other for real-time monitoring and prevention of catastrophic failures, as well as dual monitors for belt detection and slippage, with interlocks to stop the conveyor if the belt is loose or slipping. The system will be hardwired to shut down the conveyor if a fault is detected. Further, all pulley bearings will be auto-lubricated, which will mitigate the risk of incidents. Lastly, on the Dune Express, monitors, sensors, and cameras will provide real-time data and security along the 42-mile conveyor route.

I believe the Dune Express is likely the most technologically advanced bulk material conveyor ever built. Wrapping up my section, subsequent to the closing of the Hi-Crush acquisition, the board of directors named John Turner as Chief Executive Officer, effective March 6, 2024. As Executive Chairman, I will remain very active in the company's operations, continuing to provide leadership, ideas, and vision to the company's management team. And I will continue to focus on identifying innovative strategic opportunities. John and I were founders of Atlas back in 2017, and as a proven oil and gas entrepreneur, John has been and will continue to lead our outstanding management team to successfully manage day-to-day operations while building Atlas into the premier proppant and logistics company in our highly competitive industry.

Atlas has a big future, and I believe John's leadership and executive experience, working with the rest of our outstanding management team, will result in continued innovation and growth to continue creating shareholder value. In addition to the much-deserved promotion of John Turner, effective May thirteenth, Atlas is pleased to announce the appointment of Blake McCarthy as Chief Financial Officer of Atlas. Blake most recently served as President of NOV Grant Prideco. We welcome Blake aboard and are excited to have his leadership and expertise to help guide Atlas into the future. With that, I will now pass the call over to John.

John Turner (CEO and President)

Thank you, Bud, for those kind words, and I echo your comments regarding the addition of Blake. I look forward to working side by side with Blake as we navigate the road ahead for Atlas. Blake's expertise in integration and acquisitions, along with his deep understanding of financial markets and the oil service industry, will be a welcome addition as we have just started our journey as a public company. The Q1 was an exciting period for Atlas, with the closure of the Hi-Crush acquisition, the completion of the Kermit expansion, and commissioning of the first of two new state-of-the-art dredges. The acquisition of Hi-Crush is already off to a great start. In March, Hi-Crush set a monthly volume record for their Kermit plants, and Pronghorn, along with Atlas's Last Mile, set a monthly record for total loads.

We successfully floated our first new dredge in February and recently floated our second in late April. We expect the commissioning process for both dredges to be completed by the end of June, and we are well on our way to a Q4, 2024 commercial in-service date for the Dune Express. Atlas continues to evolve into a more integrated provider of diverse solutions for our customers, as emphasized by our addition of Pronghorn's logistics footprint, which amplifies Atlas's offerings of the Dune Express and expanded payload capacity logistics assets. It has been a remarkable first year as a public company. Our team has a lot to be proud of, and I'm sure proud of them....

Regarding the Hi-Crush acquisition, we are off to the races with our integration, and it is exciting to think about what the combination of these very talented and innovative workforces will be able to accomplish as we share resources and best practices. We are working through the identification of additional potential synergies beyond the $20 million that we initially announced at the time of the acquisition. The tie-in of Hi-Crush's Kermit operation to the Dune Express, the potential for dredge mining to be brought to Hi-Crush Kermit, and the combination of our utilities infrastructure and procurement programs are among some of the potentially impactful initiatives that we are currently working through. We have received positive feedback from our customers on the acquisition and look forward to better serving our customers through the combined offering of the Dune Express, the OnCore Mines, and the Last Mile solutions.

The addition of Hi-Crush truly provides Atlas with an unparalleled portfolio of proppant and logistics assets. Regarding logistics, Atlas remains the market leader in Last Mile, with 28 crews, of which 24 are in the Permian. We now deliver over 50% of our total sand volumes using our Last Mile crews. Not only is Atlas leading with fully integrated solutions, we are also leading with technology. Building on our digital platform's capability to monitor proppant inventory at our customers' well sites, we released our automatic ordering feature, a seamless technology-assisted sand offering feature based on live inventory and operational data feeds. Our OptiOrder feature provides the foresight to keep our sand production optimized, while also giving our customers confidence in meeting their operational targets.

On the heels of OptiOrder, we also released Gen 1 of our OptiDispatch feature, a first of its kind digital functionality to autonomously schedule, optimize, and dispatch sand delivery without human intervention. Combined, OptiOrder and OptiDispatch set the Atlas's digital platform well ahead of the competition. Our automation, efficiency, scale, and innovation continue to drive market differentiation while advancing the digital transformation of the Permian Basin. Operation of OnCore number eight is currently underway, and we expect that unit to commence sales later this month under a long-term contract with an existing customer in the Midland Basin. This is the third OnCore unit deployed with this customer, further validating the value proposition the OnCore solution delivers to operators and the leadership position the OnCore team has established within the in-field mobile mining market.

Of note, number eight is a larger unit, with a production capacity roughly double that of our 7 other units that are currently deployed in the Permian. Regarding future OnCore deployments beyond 8, we have placed orders with our vendors for the equipment that will comprise unit 9. We expect to take delivery of this equipment in the Q3 and have multiple mine sites secured under option agreements. We're in advanced discussions with a number of potential customers about the deployment of this unit. The construction of the Dune Express remains on time and on budget and was not impacted by the events last month at our Kermit facility. We have more than 200 personnel on the ground daily working on construction, and we continue to make great strides and remain confident on our Q4 delivery timeline.

Notable construction milestones include, as of the end of April, we have substantially completed both of our major highway crossings, 16 of our 20 lease road crossings, and nine of our 19 cattle and wildlife crossings. The installation of the sand feed system for the Dune Express, which we have described as the pant leg design, commenced in April and will run through June. The installation of the concrete sleepers will be completed by the end of this month. At the end of April, more than 60% of the conveyor modules were completed, and we expect to be 95% complete by the end of this month. As of today, 95% of the belt has been flighted and is ready for installation.

Thanks to our strong Q1 results, the heavily contracted and low-cost nature of our business, and the quick turnaround at the Kermit facility, we're going to increase our dividend by 5 percent to $0.22 per share, up a penny when compared to our dividend last quarter. Based on this dividend and our closing price on May 3, we now have a current annualized dividend yield of 4%. Pro forma maintenance CapEx beyond 2024 is expected to be around $60 million annually, providing Atlas with multiple avenues to further increase shareholder returns once the remaining growth CapEx associated with the Dune Express subsides. The overall sand market remains steady.

Recent improvements in oil prices have not led to a pickup in activity yet, but it has changed the conversation from how low the rig count can go, which was the dialogue in the fall, to today's topic of when will the recovery occur? Frac efficiency remains a nice tailwind for Atlas and our peers. One of the main benefits of consolidation in the Permian is the increased mix of simul-fracs and trimul-fracs, which today represents more than 20% of the Permian's completions market. Furthermore, we see continued year-over-year growth in drilling and completion efficiencies, which amplifies the effect of fleet additions, resulting in increased levels of proppant consumption.

Atlas remains highly contracted for 2024, de-risking much of the sand price volatility for this year. For the Q1 of 2024, which includes a 27-day contribution from Hi-Crush, we reported total sales of $193 million. Our revenue from proppant sales was $113 million on volumes of 3.9 million tons. As expected, we saw the Q1 get off to a slow start in January from an activity standpoint, but returned to a more normal cadence for February and March. Our average sales price for the Q1 was approximately $29 per ton. Moving to service sales, which is revenue generated by our logistics operation, we reported $79 million in revenues for the quarter.

In total, cost of sales, excluding DD&A for the quarter, was $107 million, which consists of plant operating costs of $40 million and logistics operating costs of $67 million. For the Q1, our per ton plant operating costs were $10.88, which was negatively impacted by less dredge fee as we were commissioning the new dredge in March, and thus we were more dependent on traditional mining throughout the quarter. We expect the commencement of both of our new dredges to provide incremental improvements in operational performance and further reductions in our mining costs once the rebuild of the Kermit facility is complete. Royalty expense for the quarter was $3 million. SG&A expense for the quarter was $29 million, which includes $11 million of nonrecurring transaction costs and $4 million of non-cash stock-based compensation.

Cash interest expense for the quarter was $6 million, which was offset by $2 million of interest income generated during the period. We expect our interest income to decline in future quarters as we draw on our cash reserves to fund our growth projects. DD&A for the quarter was $17 million, and we generated net income of $27 million, representing a net income margin of 14% and an earnings per share of $0.26. Net cash provided by operating activities was $42 million. Adjusted EBITDA for the period was $76 million, representing an adjusted EBITDA margin of 39%. We expect our adjusted EBITDA margins to decline in subsequent quarters as we ramp up revenue from our lower margin logistics segment and incorporate the lower margin profile from the Hi-Crush acquisition.

Adjusted EBITDA margins should improve in 2025 with the commencement of the Dune Express. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx for the quarter, was $71 million, yielding an adjusted free cash flow margin of 37%. Lastly, we spent a total of $88 million on growth projects in the Q1. $75 million of this spend was for the Dune Express, with the majority of the remaining $13 million going towards the completion of the Kermit plant expansion and our new on-port facilities. Cash and equivalents at the end of the quarter stood at $187 million, with total debt of $481 million.

For the Q2, we expect a $20 million-$40 million EBITDA impact from the fire that occurred on April 14 and subsequent 11-day plant closure, which implies our Q2 financial results will be in line with the results of our Q1. The EBITDA impacts from having to source meaningful amounts of lower margin third-party volumes, the loss of some spot sand sales, and higher OpEx costs associated with a more manual, less efficient, temporary load-out implementation, which will be in place until the feed system is rebuilt, which is expected to occur in late June. As mentioned earlier, the fire had no impact on the plant's production centers, and once the rebuild of the feed system is complete, we expect the plant to resume normal operations in the Q3 after a normal ramp up.

We expect the rebuild costs to be fully covered by our insurance policies, minus a $250,000 deductible. Once again, we do not expect the event to have any impact on the timing of the construction of the Dune Express or cause any NPT for our customers. Although a modest financial impact, I could not be more proud of the quick collaboration, teamwork, and resourcefulness of our employees to limit the impact and quickly reopen our facility so we can reliably serve our great customers. To the extent the fire has any additional lingering impacts to our financials, we will update guidance when appropriate. That concludes our prepared remarks, and we will now let the operator open the line for questions. Thank you all for joining in on our Q1 call.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue, and for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Sean Mitchell with Daniel Energy Partners. Please proceed.

Sean Mitchell (Managing Partner)

Hey, good morning, guys. John, Bud, congrats on the hire. I think you are very lucky to have Blake McCarthy join the team and it's a great hire. But moving on to kind of business: You guys were able to reopen the plant pretty quickly after the fire, which was quite impressive. Can you walk us through the steps taken and the collaboration you talked about required to kind of reopen so quickly?

John Turner (CEO and President)

Yeah, sure. I'm gonna-- I'll just start, and then I'll let Chris kind of walk into the details. But obviously, you know, very, very, very proud of the team and the way they performed there. I mean, it was a collaboration that came across, you know, with both, Atlas and Hi-Crush employees coming together. You know, Chris, Chris Scholer led those-- has, has led those efforts out there. And, you know, obviously, to get the, to get the operation back up. But I'll let him run into-- Doug, go through what, what exactly we did.

Chris Scholla (COO)

Yeah, thanks, John. So first, we really had to take a step back to understand our post-event process capabilities of the plant. So after that evaluation, we saw, look, our wet plants, dryers, screening tower, and load-out equipment were essentially unaffected. So we can produce sand, but the challenge was finding a creative way to load sand into the trucks. We were able to modify the conveyors under our screening tower to enable a redundant flow of sand to our new temporary load-out stations. These conveyors are bidirectional. One direction, feeding haul trucks that transport sand to our temporary load-out, and the other direction, feeding a ground-level zipper conveyor that transports sand to the load-out. In the last week, our zipper conveyor has proven capability to handle the main feed, with the haul trucks becoming a pure bleed backup solution.

It was incredible to watch all the different teams come together across our newly combined organizations. This was an absolute combined effort involving leadership and functions from both companies, including manufacturing, Last Mile, load out, OnCore, construction, and safety functions. Look, no formal integration process was required here. It just occurred organically. Our teams and leadership naturally came together to develop a creative solution to get our current facility back online and serving our customers. The fact that within two weeks, our current facility was loading trucks, was an accomplishment, nothing short of incredible, and hats off to the entire team. I think this highlights our combined company's strength, scale, and adaptability, as well as our deep relationships across the industry that will continue to differentiate Atlas in the future.

Bud Brigham (Executive Chairman)

Hey, Sean, and just last thing on that, as I mentioned on the call, I think this validates our view on scale and the culture that Hi-Crush obviously had, and we had innovation and collaboration makes us more reliable. No other company could work the way Atlas has through this disruption, and it makes us, it's making the Permian better.

Sean Mitchell (Managing Partner)

Got it. Thanks, guys. That's a great response. Appreciate it.

Operator (participant)

Our next question is from Jim Rollyson with Raymond James. Please proceed.

Jim Rollyson (Analyst)

Hey, good morning, everyone. And obviously, again, great job on running the fire drill of what you guys had to do. John, maybe for you, just a couple of questions around the dredges. You know, everything seems to be on time from commissioning. Maybe, A, just a reminder of the cost impact on OpEx, once those things are fully set up and running, starting in the Q3. And I noticed in the slides you mentioned the trial of using one of the older dredges up at the Hi-Crush's Kermit facility. Just how are you guys, you know, as you've had time to look at that, maybe how are you thinking about that opportunity and odds of success up there?

John Turner (CEO and President)

Yeah, as far as the dredges go, you know, we're looking at, you know, obviously, you know, once we get these two dredges commissioned up and running, working together, you know, we're looking at, you know, potentially at probably around a $3 decrease in cost per ton out there on a mining basis. That would just be at Kermit. So, you know, back in 2021, when we were, you know, feeding all of our mining feed through our dredges, you know, we were running it, I think, around $6.50 a ton on the OpEx basis.

But obviously, we have, you probably won't see that in-- that entire number hit our entire, OpEx base because, you know, obviously we have, a lot more assets in the system now as it relates to, you got Monahans, and you've also got all the, you've also got all the OnCore mines as well. You know, as far as what's gonna happen, with the Kermit dredge, yeah, we're gonna decommission a dredge or take a dredge out. We're gonna run that dredge over to, over to Hi-Crush. They have a pond over there, that, you know, we're gonna go out and we're gonna put this-- we're gonna put this rental dredge out there and see if it works. That's probably not gonna happen till later this year.

We just wanna make sure that we want the team focused on getting these two new dredges up and running and commissioned and running together. You know, the likely. I don't really know what the likelihood of success is. We do know they have a pond that they can float that dredge in. You know, I think the part of that is, you know, I don't think that they were willing to sign a long-term contract to bring a dredge down to see if it would work. But given that we still have one on lease, you know, we're gonna run over there and see how this works out. If it, you know, if it doesn't work out, is there any other ways that we could utilize that dredge feed at the other Kermit mines? If we're not able to, you know, dredge mine over there, I still think there's an opportunity to, you know, utilize dredge mining across the entire Kermit facility up there, which would be both the Hi-Crush and the Atlas mine. So we're still in the early stages of figuring that out, Jim, so.

Jim Rollyson (Analyst)

Got it. That's helpful. And, and maybe one for Bud. Bud, you had one of your largest competitors recently get taken out by private equity. Just kind of curious your view on that from both a valuation and strategic perspective, and, and how you think that might impact the market?

Bud Brigham (Executive Chairman)

Yeah. Thank you. You know, obviously, it's good to see a very sophisticated investor like Apollo recognize that U.S. Silica was trading at a really depressed value and pay a premium for a good business with excellent free cash flow. And so, I mean, I would encourage investors to look at slide 17 in our deck. It just, you know, that's obviously a very objective confirmation of what's shown on that slide, that this company, Atlas, is really special in terms of our margins and our cash generation and our growth profile. And those attributes certainly merit a much, much higher multiple than what we're seeing, probably more in line with the midstream or production and field services type enterprise. And so there's a lot of opportunity here for to see our multiple expand, particularly as our distributions expand with the growing cash flows in the Dune Express in 2025.

Jim Rollyson (Analyst)

Thanks for that. Thanks, guys.

John Turner (CEO and President)

Thank you.

Operator (participant)

Our next question is from Scott Gruber with Citigroup. Please proceed.

Scott Gruber (Director and Senior Analyst)

Yes, good morning.

John Turner (CEO and President)

Morning.

Scott Gruber (Director and Senior Analyst)

And congrats to you, John, on the motion, and to Blake, who I'm sure is listening. I want to come back to the OpEx question. You guys have, you know, long discussed the benefits of these dredges. Just curious, you know, just in terms of putting it all together, you know, with the new Hi-Crush assets as well, you know, as you get these dredges up and running and you kind of move into 2025, should we still be thinking around a $9 per ton OpEx figure for next year? Is that the bogey?

John Turner (CEO and President)

Yeah, I think a $9... Yeah, that's what we're kind of shooting for. Obviously, hoping that we get some additional benefits from the integration and from the, you know, some synergies in there. But I think the $9 range is probably a good number to look at.

Scott Gruber (Director and Senior Analyst)

Okay.

John Turner (CEO and President)

For you.

Scott Gruber (Director and Senior Analyst)

And I did... Great. No, I appreciate it. And then coming back to the Dune Express, just wanted to get, you know, some updated color on, on contracting the associated loads. I mean, we're just now, you know, six months out or so from startup. So what are you hearing from customers, you know, around, around the system? And, you know, any additional color you can provide on, especially longer-term, contracts associated with the system? Yeah, you know, we don't necessarily have Dune Express contracts, but what we do have are contracts that will be taking sand off the Dune Express. So it's basically sand and logistics contracts with a number of operators that are operating in the Delaware Basin. Yeah, a lot of our customers that are gonna be taking sand off the Dune Express are very excited about it because they're obviously wanting to get trucks off the road and make it safer. They also see the efficiencies that are gonna come up with the Dune Express. They see, you know, the wellsite efficiencies, the ability to, you know, utilize proppant assets to deliver more sand to the wellsite.

So look, I feel very good about where our contracting sits as it relates to the sand supply and logistics contracts for Delaware Basin customers. And we're also right now currently working with some customers, getting them signed up, some folks that we don't currently work with, getting them signed up with contracts to take sand off the Dune Express. And then, you know, one of the thing is right now is we are running 13 Delaware Basin crews right now. And, you know, Chris, you may want to talk about that. I mean, that's something that, you know, we've been working hard on to increase our exposure there, but go ahead.

Chris Scholla (COO)

Yeah, from a, you know, we know the Dune Express is coming on, and continuing that build to be able to seamlessly integrate those customers on Dune Express. I think, you know, years ago, we approached this as going after pure Dune Express type of contracts. And I think, you know, what we've seen, through that transition work the best is just leveraging our current customer agreements, right? Running those 13 crews and having them naturally come in and take all the mileage off the public roads, see the efficiency of the Dune Express and the multi-trailer operations. We expect our current customers in the Delaware, that customer set continue to grow, with current customers flowing seamlessly right into the Dune Express upon commissioning.

Scott Gruber (Director and Senior Analyst)

Great. I appreciate all the color. I'll turn it back. Thank you.

Operator (participant)

Our next question is from Derek Podhaizer with Barclays. Please proceed.

Derek Podhaizer (VP of Equity Research)

Hey, good morning, guys. I was wondering if you could provide us an update on how you're looking at pricing moving through this year. I know it's come down quite a bit. So pricing, volumes obviously have an impact on the current mine. The volumes are on the sideline. And then just the amount of your volumes that are contract. Just an update around those three items would be helpful for the rest of the year.

John Turner (CEO and President)

Yeah. So first off, I'll talk about pricing and some contracting that we are, you know, recently been. You know, we're still signing contracts probably somewhere in the mid-20s. And those are obviously, a lot of that also includes logistics, which is different. So you know, that's just the price of sand. You know, right now, we have around 80% of our contract, our volumes for this year contracted. You know, there are still a number of contracts that we're currently working on. The contracting season really runs from, probably just say the Q4, all the way into the end of the, probably middle to end of the Q3. I mean, probably, you know, probably say August timeframe.

That's kind of the time that we are contracted. That's when we're really contracting volumes. You know, we do have, we did lose some spot volumes with the events that happened at Kermit. Those spot volumes, you know, we let those go. You know, obviously, those, we think those volumes will be coming back. And then there's also opportunity in some of our OnCore mines, too, to increase with, say, OnCore. One of our OnCore mines is just coming on. You know, we'll be able to. There's gonna be a lot of demand out there for taking additional volumes. We've got some spare capacity in some in that mine that's coming on out there. So look, you know, I think that going through the year, I mean, there's still a number of contracts out there to be had. And, you know, obviously, we're looking at both sand and logistics contracts here, not just sand contracts. So, you know, I don't know if you, anybody, Chris, you want to come on that?

Bud Brigham (Executive Chairman)

I want to talk a little bit about the efficiencies. I mean, we certainly have a tailwind with the continued improvement in efficiencies for the frac crews out there, with more simul-fracs and trimul-fracs, et cetera. And so that's a tailwind for us. And we'll see, you know, I personally am optimistic about, you know, the fundamentals of oil prices. And the sense is nobody knows, but the sense is that the private operators are probably gonna pick it up a little bit in the second half of the year, and that should be constructive.

John Turner (CEO and President)

You know, I think we're internally, I mean, I think we're seeing sand demand up probably 10%-15% year-over-year. I mean, that's. There are some other forecasts that we've seen out there that are higher than that, but obviously, I think the frac efficiencies, even though you hadn't seen a significant increase in the number of crews running, but you are seeing with the simul-fracs and trimul-fracs, you're starting to see more sand pumps per, say, per crew, and per monthly so.

Blake McCarthy (CFO)

And, Derek, one more thing to add real quick. The increased adoption of electric fleets is certainly helpful for that rise in completion efficiency. So those are a lot more efficient than, you know, and regular diesel fleets. So that, that's certainly helping drive that demand.

Derek Podhaizer (VP of Equity Research)

Right. No, that's all very helpful. I appreciate the color. Just wanted to think about 2025 CapEx. I know you mentioned in the opening comments about $60 million being toward that maintenance, but could you help us with what potential growth projects that you'll see in 2025? Obviously, small versus 2024, but thinking about additional OnCore units or additional logistics Promcore units. Obviously, we're gonna have a big step down in CapEx. Free cash flow increases. You're raising the dividend. I'm sure you will have a more structured capital allocation return program in 2025. But just to help us think about 2025 CapEx, any other moving pieces aside from that $60 million of maintenance would be helpful.

John Turner (CEO and President)

You know, we haven't laid that out. I mean, obviously, there's gonna be some run over from the Dune Express. I mean, the Dune Express will be commissioned by the end of the Q4, but, you know, there's still gonna be some CapEx next year, probably. I don't know how much that's gonna be, but there's other things we'll be looking at, is we are looking at potentially deploying some additional OnCore units. You know, the autonomous trucking obviously is. We'll be hearing more about that here soon, as we proceed down the path of delivering sand autonomously. There's gonna be some, probably some CapEx related with probably some mobile load outs and things like that off the Dune Express. There's gonna be. But I don't-- we don't have any big projects, what I would say, currently, like, in our plans. That could change but-

Bud Brigham (Executive Chairman)

Yeah, in general, as you know, we've been through a period of very heavy CapEx when you look at the expansion that we had in the Dune Express and we're ramping down on that. So it's pretty remarkable in my view, the fact that we've had these healthy distributions even through that high level of investment in CapEx. But it does, it's ramping down here in the second half of the year, and particularly as you point out, in 2025. So we're gonna be in a very, I think, a relatively luxurious position, given our margins and our cash generation, to be able to ramp up the distributions, but also to invest in some CapEx, some more high rate of return projects to drive efficiencies for the industry and drive up reliability. And, of course, the Dune Express is a big part of that, the high capacity trucking and eventually, autonomous delivery. So 2025 is looking really exciting in that regard.

Derek Podhaizer (VP of Equity Research)

Great. Good stuff. Thank you, guys. I'll turn it back.

Bud Brigham (Executive Chairman)

Thank you.

Operator (participant)

Our next question is from Keith Mackey with RBC Capital Markets. Please proceed.

Keith Mackey (VP of Global Equity Research)

Hi, good morning. First to start it, I wanted to ask about your appetite for acquisitions from here. I know you certainly just closed on a sizable one, and there's lots of organic growth opportunities within the company, but also the experience you've added to your C-suite today might suggest that inorganic opportunities are still a potential priority for you. Can you just sort of lay out how you think about acquisitions going forward?

John Turner (CEO and President)

You know, you want to go?

Bud Brigham (Executive Chairman)

No, go ahead.

John Turner (CEO and President)

Okay. Sorry. You know, as far as acquisitions go, obviously, the Hi-Crush acquisition has been a big one. The integration has really kicked off, and it's... We're in full, you know, we're working on that integration. Obviously, things are going very well. They're bringing these two teams together. You know, we don't have anything identified future, as the future goes, as far as acquisitions go. But I will tell you that, you know, that is something that we will continue to evaluate. We've got, you know, we kind of look at acquisitions from the same tack, same way as we look at, you know, any sort of project here, any sort of large project.

You know, we've got return goals, we've got, you know, what does it do to, you know, help us, you know, enhance our story with our, with our, with our, with our cash flow return story? So we're looking for high margin businesses. Does it meet our internal rate of return project hurdles? There's a, yeah, obviously, a number of things that we look at, when we're making these, making these investments. But you know, we do, like I said, as we, you know, we just, like I said, we just took this Hi-Crush acquisition down, you know, but we're gonna get that integrated. But yeah, we are gonna continue looking at opportunities to grow our, you know, and create value for our investors through acquisition.

Bud Brigham (Executive Chairman)

Yeah, and I'll just add a general comment. Obviously, given the great return on our projects such as the Dune Express and the high capacity trucking and our margins and our cash generation, it is a high bar. But as you can see from the Hi-Crush acquisition, that was an extremely accretive acquisition. And I am optimistic that we will have more acquisitions in the future. It's just, we don't have anything we can point to right now.

Keith Mackey (VP of Global Equity Research)

Okay, appreciate that. And maybe if we just think about it a little bit from the customer standpoint, lots of customer consolidation happening in the Permian right now. Can you just talk about what that means for you know, oilfield services in general and your position within the market as well?

Bud Brigham (Executive Chairman)

Yeah, thank you. I'll start, and these guys may want to add to it. Scale matters, and you know, as a former operator, you know, we've appreciated that and recognized that, and you're seeing that execution by operators to grow their scale, that enables them to drive down costs and drive up their margins. And there's a lot of leverage associated with that. And there's the same thing is true on the oilfield service side, and particularly for Atlas, as the largest proppant producer, the largest logistics provider. We saw it through this recent disruption that our scale and our culture, our innovative collaborative culture and our great people enable us, despite disruptions, to be able to perform and deliver for our customers. So, I think, you know, we're benefiting from that, and it's important that we continue to operate as efficiently as we can to reliably service our customers. So, I think Atlas is in a unique position. Nobody, nobody could have performed the way that we have through that disruption, and we're gonna continue to perform that way. I don't know if y'all want to add to that.

Chris Scholla (COO)

I mean, yeah, I mean, I think it's, you know, a lot of, a lot of customers are looking for diversification strategy, and I mean, Atlas is a diversification strategy. I mean, we have four dry mine locations. We got eight wet sand locations going to nine. Obviously, with the large logistics offering, I mean, you know, there's not, there's no other company out there that can provide that. And, you know, we're gonna continue to build on that, to, to be a, you know, to continue to serve our great customers.

Bud Brigham (Executive Chairman)

Yeah, well done. Let's say, nobody can match that.

Keith Mackey (VP of Global Equity Research)

Perfect. Thanks very much. That's it for me.

Bud Brigham (Executive Chairman)

Thank you.

Operator (participant)

Our next question is from David Smith with Pickering Energy Partners. Please proceed.

David Smith (Director)

Hey, good morning, and thank you.

Bud Brigham (Executive Chairman)

Good morning.

David Smith (Director)

I want to reiterate the congratulations on the incredible response to the fire, as well as the hiring of Blake McCarthy. I thought it was really impressive that over half of your Q1 volumes were delivered with your own logistics. Sorry if I missed this detail. Have you talked about what you're seeing for your average delivery volumes and the areas to be served by Dune Express? You know, and if you're seeing a greater mix of, you know, double and triple trailer deliveries. But really, you know, how do average volumes per delivery compare to where you would expect them to be once Dune Express is fully online?

Blake McCarthy (CFO)

Yeah. I think from a total volumes perspective, you know, the Dune Express capacity with current, you know, average volume, monthly volumes per crew today, you know, we'll need to be up around that 20-21 crews is what we're looking at. As you've seen us, right, our business, looking at the Last Mile side of things, specifically in the Delaware, I mean, we've grown somewhere in that 8-10 times range in the last 24 months. So, you know, our ability to achieve an additional 7-8 crews out there, you know, we see as highly probable, as we continue down that pathway.

David Smith (Director)

Yeah, I absolutely appreciate it, and maybe I asked the question the wrong way. But, you know, when thinking about, you know, you've got the 120 trucks, right? And, you know, total delivery capability is really gonna be a function of, you know, turns per day and average, you know, volumes per trip to the well site. So I was, you know, more thinking about that average, you know, volumes per trip to the well site. If customers are taking, you know, real advantage of the ability to deliver, you know, two or three trailers at a time.

Chris Scholla (COO)

I guess you're asking the multi-trailer success?

David Smith (Director)

Yeah.

Chris Scholla (COO)

Yeah. So from a multi-trailer side of this, we've recently opened up our an additional depot up in Polygon 6, which will be the end, where the end of the Dune Express lies, opening up pretty significant volume for us there. We've now run double and triple trailers with 5 customers out there. And we continue to see our average payloads go up. You know, I believe, you know, with our first triple trailer starting out April fifth of last year to where we are today with now 2 depots, looking to open a third one here shortly. I think our customers that are utilizing them. We've even had customers look and modify their completions program to optimize the use of double and triple trailers.

So you know, while two years ago, people thought this was a very creative but would never happen idea, it was the same thing with the Dune Express, right? And once our customers see the efficiencies that they gain on location, minimizing the trucks and also getting those trucks off the public road, you know, we've had nothing but success in there and also in recent conversations with folks to even optimize the pad layout and sizings around double trailer. So I think those type of actions and conversations for our customers really show, you know, where this is heading with the multi-trailer operations.

David Smith (Director)

Great color. Thank you for the update.

Operator (participant)

Our next question is from Neil Mehta with Goldman Sachs. Please proceed.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Yes, thanks for this, and Bud, thanks for your comments. John, congrats on your promotion, and Blake, you as well. My first question is just around the Dune Express. As we think about construction, we're getting really close to coming into service. So what are the last kind of gating items, and can you give us a sense of your confidence interval around executing some of the last bottlenecks that might exist?

John Turner (CEO and President)

You know, I mean, obviously the Dune Express construction has been moving along. We have 200-- over 200 people out there working on the construction of that. You know, the fire itself is not gonna impact the Dune Express construction at all. In fact, I think it's gonna enable our crews to install the tie-in to the plant more quickly. You know, I, as far as the next bottlenecks, I mean, I think the next milestones for us is gonna be starting to commission this-- commission the, start commissioning the pro-- the commissioning process, which is supposed to start at the end of the Q3, early Q4. Then we'll be, you know, obviously, won't be selling any sand off the Dune Express for a while, but the commissioning of that process is gonna take, you know, another, you know, another three up until the end of the Q4 to get this-

Bud Brigham (Executive Chairman)

Can you talk a little bit, John, about what that commissioning is? It will be running,

John Turner (CEO and President)

Yeah, I mean, it's just with the commissioning process is just getting up the sand. You're not really running any sand down the belts, but what you're doing is you're running those belts to make sure that they, you know, the belts tracking, to make sure that they're working in order, making sure that you've got all the, all the bugs worked out. But as far as the, you know, kind of the gaining items, you know, we've ordered all the equipment. We've got all the folks out there working on the construction. We've already done our two major overhead road crossings, some major overhead crossings. We still have some cattle and wildlife crossings to go and some lease road crossings to go, but, you know, everything is moving along as expected on the Dune Express.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Thanks, John. And then you alluded to this free cash flow inflection, which we see in 2025 as well, and the potential to return more capital to shareholders. Do you have a preference in terms of doing it through the dividend versus buybacks, or is it price dependent? Just talk about the framework of how the board is thinking about the return of capital.

John Turner (CEO and President)

You know, right now, we're really focused on returning cash to our investors. You know, we think that paying that dividend is obviously something that, you know, that we're really focused on as an organization. You know, I would say stock buybacks is not something that we've really discussed. That's something that we will, you know, likely be putting into a formal plan here in the next, before we get to the end of this year. But right now, you know, what we're focused is really at returning cash to our shareholders.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Thanks, John.

Operator (participant)

Our next question is from Saurabh Pant with Bank of America. Please proceed.

Saurabh Pant (Director and Equity Research Analyst)

Hi, good morning, Bud and John. If I can just go back to the Hi-Crush integration. I know there were a couple of questions early on. But if we come back to that, and as you move through the integration process, as you're going out and talking to the customers, looking at the assets, not just Kermit, but the OnCore assets. Can you share some feedback you have heard from the customers, from the ops teams out there, both positive, negative, just that you have owned those assets for I think just around two months right now?

Bud Brigham (Executive Chairman)

Hey, maybe I'll just make a real quick general comment, and then you guys may want to add to it. This is Bud. I mean, you know, obviously, Atlas, prior to the Hi-Crush acquisition, we have a really strong customer base on the Delaware Basin. And, you know, our giant open dunes and our high capacity trucking and logistical business has been serving. And the excitement over the Dune Express has attracted a really strong customer base for Atlas in the Delaware Basin, as the largest proppant producer in the basin, even prior to Hi-Crush. And clearly, Hi-Crush did a great job with the OnCore mines. The proximity of those mines to the operator in the Midland Basin was. It gave them a very strong customer base in the Midland Basin. So, you know, it's obvious that the customers are really excited about that. Now we provide, we're logistically advantaged to both the Midland and the Delaware basins, and they get the benefit of Atlas' scale and reliability and quality. And so it's been very positive. I don't know if you want to add to that.

John Turner (CEO and President)

Yeah, no, and I mean, I think Bud just boiled it down. I mean, it's about locating, you know, our mines, our sand, you know, proximal to every well site out there. You know, and a lot of concerns that customers had about going with a, you know, a single sand provider, they couldn't, if they were in the Delaware Basin, then, you know, they need to sand in the Midland Basin, you know, that we weren't gonna be able to provide that. But today, you know, we're delivering sands, obviously, to the back of the blender, you know, to all of our customers across, whether a Midland Basin player, Delaware Basin player, or both. And just you know, adding to that scale, to be a better partner for our customers, so.

Saurabh Pant (Director and Equity Research Analyst)

Okay, awesome. Awesome. Just one more for me. Maybe just talk a little bit about your pricing strategy. I'm thinking pricing strategy more broad, more broadly from a Kermit versus OnCore perspective, right? Because OnCore is a very different kind of asset. I'm assuming you would continue to have slightly lower price, but longer duration contracts on those assets. But maybe you can talk to that a little bit, and just maybe remind us that if the $26-$28 per ton pricing guidance that you gave for the full year, is that still the right place to be?

John Turner (CEO and President)

You know, we're not really talking about what our pricing strategy is out there. Obviously, that's something that we've, you know, obviously internally work on here. You know, what I will say is we have a low cost to produce sand, and we're gonna bring those costs down. And so we are very competitive when it comes to, you know, obviously, sand delivery. Obviously, both sand price and delivery costs. I mean, it's really about lowest cost to the well site, and so that's really kind of where we focus there, Saurabh.

Saurabh Pant (Director and Equity Research Analyst)

Okay, perfect. Okay, John, thanks for that. I'll turn it back.

John Turner (CEO and President)

Thanks.

Bud Brigham (Executive Chairman)

Thank you.

Operator (participant)

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

John Turner (CEO and President)

All right. We, yeah, we'd like to thank everybody for joining us for our Q1 call, and we look forward to reporting our Q2 results on our next call. Thank you very much.

Bud Brigham (Executive Chairman)

Thank you. Thank you, everybody.

John Turner (CEO and President)

Bye.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.