Atlas Energy Solutions - Earnings Call - Q1 2025

Transcript

Operator (participant)

Greetings and welcome to the Atlas Energy Solutions First Quarter 2025 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Turlington, Investor Relations. Please go ahead, sir.

Kyle Turlington (VP of Investor Relations)

Hello and welcome to the Atlas Energy Solutions Conference Call and webcast for the first quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Chris Scholla, COO; and Bud Brigham, Executive Chair. John, Blake, Chris, and Bud will be sharing their comments on the company's operational and financial performance for the first quarter of 2025, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks and uncertainties and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially.

You can learn more about these risks in the annual report on Form 10-K we filed with the SEC on February 25, 2025, our quarterly reports on Form 10-Q, and current reports on Form 8-K and other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to John Turner.

John Turner (President and CEO)

Thank you, Kyle. For the first quarter of 2025, Atlas delivered revenues of $297.6 million and adjusted EBITDA of $74.3 million, representing a margin of 25%. While results were modestly impacted by a few discrete items, primarily higher-than-expected commissioning costs related to the Dune Express, our core performance remained strong. Blake will speak to those items in more detail here shortly. Overall, Q1 was a milestone quarter for Atlas. We completed the acquisition of Moser Energy Systems, executed a successful equity raise, refinanced our debt, set production records at our four facilities, and launched commercial operations for the Dune Express. Before diving into those accomplishments, I want to directly address the uncertainty currently facing the oilfield sector and how Atlas is uniquely positioned to navigate this environment with confidence. Recent volatility, largely driven by global trade concerns and macroeconomic uncertainty, has pressured commodity prices.

WTI's forward shift has declined approximately 20% since early April. These dynamics are influencing customer spending behavior and deferring some near-term activity. That said, what management teams and markets dislike most is uncertainty, and we've structured Atlas from the outset to perform through both up cycles and downturns. We are not reacting from a position of weakness; we are executing from a position of strength. Atlas was built to lead through cycles, not follow them. In times like these, companies that control costs, prioritize capital discipline, and innovate with purpose will be the ones that emerge stronger. On the sand and logistics side, our Kermit and Monahans operations, in combination with our OnCore network and now the Dune Express, position Atlas as the absolute low end of the Permian sand cost curve.

On the power side, Moser Energy's integrated manufacturing and field op service platform allows us to offer lower cost, higher uptime solutions that create meaningful value for our customers. Moreover, our business model is designed for resilience. We operate with low sustaining capital requirements. Our annual maintenance CapEx is approximately $45 million-$50 million, and we maintain the flexibility to scale this spending up or down in response to market conditions. Our recent refinancing consolidates our debt into a single facility with Eldridge, reducing our annual amortization to under $20 million and enhancing liquidity and optionality. Unlike many oilfield service peers who struggle to break even in downturns, Atlas's structural advantages enable us to generate healthy free cash flow in weak markets while capturing outsized returns when conditions tighten. We're already seeing some customers pause growth plans and adopt a flat until further clarity stance.

While this has delayed some second quarter volumes into the back half of the year, we entered 2025 with a strong allocation base of approximately 22 million tons and continue to bid on meaningful new tenders. This pause is not a reset; it is a recalibration, and we expect activity to resume as visibility improves. Turning to what gives us confidence, the Dune Express, while contributing minimally to Q1's financials, is entering a critical phase. Volumes are stabilizing, and we have begun routing deliveries through our end-of-line facility, optimizing last-mile execution. We continue to expect Q2 to be the first period where the economic benefits of the Dune Express are reflected in our logistics margins. This is a long-term infrastructure advantage, and its early traction is already validating the strategy. Similarly, the integration of Moser Energy Systems is progressing exceptionally well.

The cultural alignment has been seamless, and customer feedback has been overwhelmingly positive. Just as we disrupted the status quo in the sand and logistics business, we are taking a fresh approach in distributed power, exploring new business models and strategic partnerships to increase efficiency and lower customer costs. Moser's spirit of innovation is evident, with next-generation offerings already in development that will further differentiate our power platform. In closing, while short-term uncertainty remains, our long-term outlook is grounded in strategic clarity, operational discipline, and structural advantage across our portfolio. We are confident in the platform we've built and in the teams executing our vision every day. With that, I'll turn the call over to Chris Scholla.

Chris Scholla (COO)

Thanks, John. At Atlas, we made a commitment to the communities of West Texas and New Mexico to enhance public safety by reducing truck traffic through the deployment of the Dune Express. Since its first delivery on January 12, the Dune Express has already eliminated an estimated 1.8 million truck miles from our roads, and we're just getting started. The system continues to ramp steadily, setting new shipment records each month. This progress reflects the strength of our strategic execution and the long-term vision that guides our business. The Dune Express is a powerful validation of our disruptive logistics model, one that simultaneously delivers cost savings to our customers, margin expansion for Atlas, and meaningful improvements in public road safety. These achievements are rooted in our recommitment to the fundamentals of operational excellence.

Over the past year, we've gone back to the basics and built around three core pillars: people, processes, and technology, each reinforcing our long-term ambition to create resilient, scalable, and high-performing operations. We've invested in people by strengthening leadership, restructuring teams for accountability, and fostering a culture of ownership and cross-functional collaboration. This alignment around common goals is driving operational discipline across the organization. We've optimized our processes through standardized workflows, improved visibility, and the removal of bottlenecks. These efforts are translating directly into improved execution and cost efficiencies across the business. On the technology front, we're enabling smarter, data-driven operations. From implementing reliability-based maintenance strategies to leveraging sensor data for predictive analytics, we're using technology to drive performance. Our autonomous trucking program has already completed over 500 deliveries to date, and we're poised to scale this significantly in the quarters ahead.

In March, we set new monthly production records at our Kermit facility and achieved a last-mile volume record of 1.8 million tons delivered. OnCore continues to perform exceptionally well, maintaining strong volumes and demand. This operational momentum is the result of a focused transformation effort and a return to fundamentals. Before I hand the call over to Blake, I want to recognize and thank all of our teams across Atlas. It's your execution, dedication, and teamwork that are delivering results today while positioning Atlas for long-term sustainable success.

Blake McCarthy (CFO)

Thanks, Chris. In Q1 2025, Atlas generated revenues of $297.6 million and adjusted EBITDA of $74.3 million, a 25% margin. EBITDA fell slightly below our guidance due to elevated costs from commissioning the Dune Express and incremental third-party trucking bonuses to ensure deliveries during challenging winter road conditions. These factors reduced Q1 EBITDA by approximately $4 million, impacting service margins early in the quarter. January service margins dipped to the mid-single digits, well below our historical 10%-15% range, but rebounded by 1,100 basis points by March. We expect this recovery to accelerate in Q2, with service margins surpassing 20% as the Dune Express's benefits begin to materialize, though still below its full potential. Breaking down revenue, proppant sales totaled $139.7 million, logistics operations contributed $150.6 million, and power rentals added $7.3 million. Proppant volumes reached 5.7 million tons, up sequentially despite weather-related disruptions.

Encore volumes, more sensitive to freezing conditions, were 1.7 million tons, slightly down from Q4. Average revenue per ton was $24.71, boosted by shortfall revenue from unmet customer pickups. Excluding this, the average price was $22.51 per ton. Total cost of sales, excluding DD&A, was $206.1 million, comprised of $65.2 million in plant operating costs, $133.5 million in service costs, $2.3 million in rental costs, and $5.1 million in royalties. Per ton plant operating costs fell to $11.53, excluding royalties, down from Q4, with further normalization expected in Q2 due to improved efficiencies. Cash SG&A was $26.6 million, including $8.2 million in transaction costs tied to the Moser acquisition and the subsequent financing activities. Excluding these, SG&A was $18.5 million, up 6% from Q4. We anticipate SG&A rising above $20 million per quarter starting in Q2 due to Moser's integration. DD&A was $37.0 million.

Net income was $1.2 million, and earnings per share was $0.01. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $58.8 million, or 19.7% of revenue. Total incurred CapEx was $38.9 million, including $23.4 million in growth CapEx and $2.1 million for power, and $15.5 million in maintenance CapEx. Q1 CapEx included Dune Express commissioning costs, and we expect a sequential decline in Q2. For 2025, we're budgeting $115 million in total CapEx, with flexibility to adjust based on market conditions. As John noted, economic and commodity price uncertainty is prompting caution amongst our customers, with several Q2 development plans deferred to the second half of 2025. Rather than play the game of death by a thousand cuts, let's focus on what we know for Atlas in 2025. First, we have strong visibility on 22 million tons, with 3 million tons of potential upside pending.

Nearly all allocated volumes are tied to dedicated crews, minimizing exposure to volatile spot crews. Second, the Dune Express and our mobile mine network provide unmatched logistical cost advantages, facilitating high utilization even in softer markets. Assuming no additional opportunistic volumes this year and thus lower Dune Express throughput than previously forecast, we are currently projecting a quarterly adjusted EBITDA run rate of $70 million-$80 million. If deferred projects proceed, this could rise to $80 million-$100 million. In either scenario, our financial obligations, including the current dividend, are fully covered, even without tapping our CapEx flexibility. Atlas's robust financial position allows us to keep investing for long-term growth. Based on current market conditions and activity trends, we expect Q2 volumes and EBITDA to be flat to up from Q1. Before we open the call for Q&A, a few remarks from our Chairman, Bud Brigham.

Bud Brigham (Executive Chairman)

Thank you, Blake. I will be brief and general, given that the team has updated very well the current operational and financial aspects of our business. With over 35 years of experience in the oil and gas industry, starting my first company in 1990 and now having managed three public companies, we've learned to not only navigate but thrive in the industry's cyclical nature. The ability to transform challenges into opportunities has been a key driver of long-term success. This approach defines Atlas, where our low-cost structure and unique operational and logistical advantages, including the Dune Express, autonomous trucking, and our distributed power systems, set us distinctly apart. These strengths position us to build lasting value during market downturns, as we did during the pandemic. As prices and activity improve, I'm confident Atlas will emerge even stronger, solidifying our commanding leadership in the industry. That concludes our call.

We would be happy to answer any questions.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. 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 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 pull for questions. Thank you. Our first question is from Derek Podhaizer with Piper Sandler.

Derek Podhaizer (Director and Senior Research Analyst)

Hey, good morning, guys. I just wanted to ask if you can give us some additional color on what your guidance of flat to up sequentially is assuming, thinking about the Dune Express ramping up, full contribution from your power business. What are you seeing on activity, pricing, and cost per ton as we move through the year?

John Turner (President and CEO)

Thanks, Derek. This is John, and I'll probably provide some preliminary comments, and then Blake and Chris will follow up. Currently, we don't see any near-term upside in this market. You can see that by what you've been hearing, especially like last night. I mean, you look at Travis's letter to his shareholders. I said it in my comments, what we've seen is kind of a wait-and-see attitude on what's happening. No additions. There were some additions that were planned that have been postponed. However, now you're starting to see the news come out where some operators are cutting activity, cutting crews because of what's going on in the markets. Right now, we don't necessarily see any near-term upside, but obviously, on the other side of that, we see there's a response.

You're already starting to see production's probably going to—we're starting to have a supply response out of the Permian Basin, and obviously, that near-term could turn into a positive on the other side. Blake, do you want to go ahead?

Blake McCarthy (CFO)

Yeah. I mean, Derek, Blake, for the second quarter, we're taking a conservative approach on volumes as we're not assuming any incremental uptake versus what customers have already spoken for. We would typically see customers begin to accelerate their development plans this time of year as they work through their CapEx budgets before a seasonal drop-off at the end of the year. With the move in commodity prices, certainly that urgency has evaporated. We are seeing larger volumes taken off the end of the Dune Express, which is beginning to positively impact our logistics margins, which are expected to be in the 20% range this quarter. That is still a far cry from what we ultimately generate with the Dune Express.

With respect to the rest of the year, I think it's anyone's guess, but if commodity prices remain around current levels, I'd expect activity to wane throughout the course of the year, beginning particularly with the smaller players. Fortunately for Atlas, we're leveraging the operators with the highest return assets in the Permian Basin, and our whole business model is built around saving that money through both efficiencies and as a low-cost supply, which is going to become increasingly important as they look to cut well AFEs. As they look to reduce well costs, we're going to look to gain incremental market share and enhance utilization just as we have in prior downturns.

Derek Podhaizer (Director and Senior Research Analyst)

Great. No, that's helpful. Maybe just to kind of dovetail off of that, obviously, we've mentioned entering a period of softer activity, and we hear it all over the place. Maybe I know you touched upon it in your opening comments, but further expand on the 22 million tons you have committed this year, confidence around those volumes for the remainder of the year. I know last call we talked about potentially getting to north of 25 million tons. Just maybe some additional color and comments as far as hitting those 22 million and what we need to see to get up to that 25 million tons number.

Chris Scholla (COO)

Yeah. Good morning. This is Chris Scholla. I'll take that one. We remain confident in the demand for that 22 million tons we have allocated for the remainder of the year. I think this is really supported by strong fundamentals. I'll share some stats with you just to try to help put this in perspective, right? Approximately 75% of our allocated volumes are tied to Simul or Trimul completions, which are really the most efficient and cost-effective frac methods out there, right? Making those completions much less likely to be impacted by any slowdown in activity. Over 70% of our volumes are committed to large-cap operators, and that number raises up to 85% when you add in those mid-cap operators. We view this as really providing that stability through the larger long-term products. You look at it from a fully delivered low-cost basis, right?

The sand volumes off the Dune Express and Mobile Mini, it's really unlikely that we see those customers have a pullback from those most cost-effective supply options out there. With that said, we still recognize the market's exposed to many macroeconomic and geopolitical uncertainties. The market appears stable for now, and we're in this kind of wait-and-see Goldilocks holding zone where really a $10 move in oil price either way could provide significant risk downward or significant opportunity upward in the back half of the year.

Derek Podhaizer (Director and Senior Research Analyst)

Great. Very helpful. I appreciate all the color, guys. I'll turn it back.

Operator (participant)

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

Saurabh Pant (Director and Equity Research Analyst)

Hi. Good morning, John, Blake, and Chris.

Chris Scholla (COO)

Morning, Saurabh.

John Turner (President and CEO)

Morning.

Saurabh Pant (Director and Equity Research Analyst)

John, Chris, maybe I want to start up more as a follow-up to what Derek was asking in terms of the guide, right? I want to specifically focus on the Dune Express. Maybe spend a little time talking about the ramp-up, what you're seeing thus far, both on the operational and the commercial side of things, and then just maybe help us think through the cost inefficiencies because I think, Blake, you were talking about how lower volumes are impacting your cost structure on the Dune Express, right? Maybe just spend a little time on that and just help us think through the near-term earnings power of the Dune Express.

John Turner (President and CEO)

Yeah. I'll just start off, Saurabh, and then I'll hand it over to Chris. The first and second quarters, I mean, when you start looking at the sand that's going down the Dune Express, I mean, we still have a cost associated with the Dune Express operating, full operating, probably even higher cost because we're in a commissioning phase. Yet you're not really necessarily sending a whole lot of volume down the Dune Express. Until we reach that maximum capacity of selling sand off the Dune Express is where you're going to obviously see the full impact to our margins. I think if you look at the million tons that have been sent down the Dune Express to date, I think a majority of that has happened in the second quarter. Our plan is to continue to ramp this up.

I mean, we're very excited about what we are seeing off the Dune Express. Obviously, more activity in the areas where the Dune Express is located is going to, and operations and as operators utilize it more, you're going to start seeing the full impact to our margins. Chris, you want to go ahead and talk about that?

Chris Scholla (COO)

Yeah. I think just from a high-level macro perspective, right? The Dune Express, just a reminder, delivers to the most prolific region in North America. You look at the last downturn, and that's really where all these rigs contracted to. I think we are in a well-positioned area on the Dune from a demand basis. Just an update on commissioning of the Dune Express, right? We continue to progress well. We've addressed the most significant initial technical challenges with really the focus on the motor uptime and overall power performance. It's already led to much more stable operations and more consistent throughput. We're kind of in that typical phase of the commissioning process, working through control system refinements and supplier programming adjustments to really further optimize the operations.

These types of refinements are really expected of a project of this scale and complexity, but we're confident in our team's ability to address those effectively. In late March, we completed our first scheduled maintenance cycle on time, no issues there. We completed those mechanical improvements, right, like the belt shortening and the transfer station optimizations. They're already contributing to the overall consistency of the Dune. Just some numbers here, right? Since the launch, the Dune Express has shipped over 1 million tons and eliminated roughly 1.8 million truck miles from public roads. That, to us, is really tangible proof of the system's growing impact out there. You talk about the financial contribution of it along with that ramp, right? Q1 was a bit modest, I think, due to that upfront commissioning cost and volumes being on the front end of that commissioning ramp.

As operations normalize and the system efficiencies continue to build up, we expect those margins to expand meaningfully as we move towards that back half of our ramp in Q2. As well, kind of some data points out there, right? Over the last 30 days, our shipments down the Dune Express, they've been running at a clip around 6 million ton a year run rate, and we continue to push that upwards every month. Really, from our perspective, the Dune Express, in summary, kind of remains that cornerstone of our long-term strategy, and we believe it'll be that key driver of margin expansion as well as lasting competitive advantage moving forward with the market.

Blake McCarthy (CFO)

Yeah. And Saurabh, Blake here, piggybacking off Chris here, just to give you a little inside baseball on the numbers there.

In the prepared remarks, we talked about the logistics margins in January were compressed by severe weather, but by March, with the ramp in volumes down the Dune Express, we saw 1,100 basis points of margin expansion in the logistics business. With volumes continuing to ramp off the Dune Express, our expectations for logistics margins to reach a two-handle in the second quarter, which is still below what we ultimately can achieve with the system. Let me be clear, every incremental ton we deliver off the Dune Express is highly accretive to Atlas's consolidated margin. They are flowing through an incremental margin of over 50% right now. We are just continuing to focus on pushing more and more volume there.

Saurabh Pant (Director and Equity Research Analyst)

Okay. No, that's fantastic, color. And Blake, maybe I'll stick with you. A follow-up question I had was on the free cash flow side of things. Free cash flow, the way we define it, CFFO-less CapEx, was weaker than I was thinking at least, right? Lots of things going on, I know, working capital, CapEx. Maybe just help us think through the free cash flow profile. Maybe just walk us through what happened in 1Q, and then what should we expect the remainder of the year from a moving pieces standpoint. Working capital, CapEx, you touched on in your prepared remarks, right? Maybe a little bit on cash interest, tax expenses, right? Just the moving pieces for free cash, the remainder of the year, Blake?

Blake McCarthy (CFO)

Yeah. Yeah. There were a few moving pieces of cash flow in Q1 that are going to change moving forward. First, Q1 was going to be our largest spending quarter this year in terms of CapEx with the commissioning of the Dune Express. Total CapEx incurred was $38.9 million, and that is currently expected to decline to approximately $25 million per quarter, stay aligned with our budget of $115 million. Additionally, we had a really big build in working capital during the quarter. Net working capital expanded from $18 million at the end of the year to $109 million at the end of March, with almost the entirety of that build coming into accounts receivable. The reason for that build is twofold. First, we had some large customers hold payments at the end of the quarter, likely to make their own working capital metrics look better.

We have already seen that begin to reverse at the start of this quarter with some big collection weeks. Second, we have a receivable with a pressure pumping customer that has been building due to shortfalls on a take-or-pay contract. We have an enforceable contract there and expect to collect this receivable. Moving forward, we expect to see improved working capital efficiency and do not expect working capital to be a headwind to cash flow generation as we move through the year. With respect to cash taxes, we expect that to be a minimal impact this year. Right now, estimates are anywhere from $6 million-$10 million. All in all, we expect cash flow to improve moving forward as we head through the year.

Saurabh Pant (Director and Equity Research Analyst)

Okay. Perfect. A very quick follow-up on what you just said, Blake, on the contract shortfall. How should we think about that if a customer, let's say, of that 22 million tons for whatever reason does not pick up the contracted volume? How enforceable are these contracts, and how much do you think shortfall payments could be?

Blake McCarthy (CFO)

We are very confident in the language in that contract and believe it is an enforceable contract and have every intention of collecting on that receivable.

Saurabh Pant (Director and Equity Research Analyst)

Okay. Perfect. Okay. I'll turn it back. Thank you.

Operator (participant)

Our next question is from Jim Rollyson with Raymond James.

Jim Rollyson (Director and Equity Research Analyst)

Hey, good morning, guys. If I could maybe switch gears for a second here. Obviously, you got the challenges going on in the oil and gas markets, but the peers you're kind of competing with to some degree on the power side of things have kind of been singing the praises and actually ramping up their CapEx based on outlooks, opportunity, etc. Maybe I know it's early days because you've only had the business for a couple of months now, but maybe just expand a little bit on what you guys are seeing in terms of opportunity and maybe future growth upside to the $60 million CapEx you guys talked about in the past.

John Turner (President and CEO)

Yeah. Thanks, Jim. The year we've had on this business for it's over 60 days now. Obviously, the integration is going well. Very excited about what we're seeing on the Moser side and the Moser team. The response that we've received from our customer base has been pretty overwhelming. We're still working through what all that means for Atlas as an organization. I mean, we're very, very excited about the opportunity with power. When we bought Moser, we did buy a well-established power company that's providing cash flow from the start. It is a cash-flowing business. There's obviously some big opportunities out there for us, and we're still trying to work. We're still working through those opportunities. I think one thing is that the market is very inefficient when it comes to on the power side of the business.

I think coming from the standpoint of what we did in the sand business and disruptive, I mean, that's the reason why we got in the business is because we thought there was an opportunity for us to operate efficiently and help our customers save money. We're very excited about what we're seeing. We'll have more about that to say. Probably the reason we're still working through some things, we don't have a lot of comments on it because it's just that we haven't owned it that long. Needless to say, it's a very exciting opportunity, and we'll have more about that to say in the future.

Jim Rollyson (Director and Equity Research Analyst)

Appreciate that. Maybe as a follow-up, one of the things over the last few quarters, obviously, you guys and the whole industry have endured some pretty soft sand pricing. Historically, after some period of time, that soft sand pricing at or in some cases below where other people's OpEx is, you tend to start seeing some supply impacts, and you've had some consolidation in the space here recently. Just curious what y'all are seeing on the sand supply side if we're kind of headed towards some of your competitors dialing back output or closing mines or what have you like we saw through the last downturn.

Chris Scholla (COO)

Yeah. Maybe I'll start by addressing a little bit of thoughts on the supply side, and then we can kind of walk into a little bit of the pricing side of it, right? We look on the supply side, I think you hit the nail on the head. We believe that those capacity additions have really peaked out. Some customers that we've seen just driving by, right, have started to reduce shifts or idle those production, excuse me, competitors have been idling production, particularly with those high-cost mines and disadvantaged operations that we've seen. It's approximately, call it, 100 million tons a year of main plate capacity in the Permian and spot prices in that mid-teen, mid-to-high teens area. We do see additional rationalization really being forced into the market, right?

You see the recent competitor consolidations that have gone out there with pricing at or below that break-even pricing of their manufacturing price. We see this though as long-term, very constructive for the industry. I think we're really well positioned there. I mean, look, we've been through this down cycle before, right? We know the playbook. We came out of the last downturn in a position of strength in the market, and we don't think this market's any different than that. Except you look at now, we have significant structural advantages on a total delivered cost basis by the additions of the mobile mini mines and the Dune Express as part of our ammo box there. From the pricing side of things, right, we all know it.

I mean, current low price environment, the operators are under increased pressure to reduce costs all the way across their value chain, right? They're focused on sand pricing and overall completion costs. I think the Dune Express really and the OnCore plants, we got to take a step back and look at that FOB pricing versus a total delivered cost pricing. I think you've heard us for a while now stress those total delivered cost solutions, which accounts for the logistics, the transportation, infrastructure integration. I think people are really looking for more than competitive pricing at the mine from an FOB perspective. They're looking for that comprehensive cost-effective solution that delivers it all the way to the well site at the total lowest possible cost.

That is really where, again, right, Dune Express and OnCore come into play here with integrated logistics solutions that really provide that efficiency and total lowest delivery cost to our customers. From a value proposition basis, we have really stopped looking at FOB sand pricing and looked at that total delivered cost and efficiencies are the top priorities for the operators out there today.

Jim Rollyson (Director and Equity Research Analyst)

Thanks for the color, Chris.

Operator (participant)

Our next question is from Ati Modak with Goldman Sachs.

Ati Modak (VP of Equity Research)

Hi, good morning, team. I guess on the deferred volumes, it sounds like it's on the non-contracted volumes. Can you give us any more color on what the nature of the conversation there is? It sounds like there might be some flexibility on ramping that up. Anything around that? Could you divert these volumes to some other producers? How should we think about it?

John Turner (President and CEO)

Yeah. I mean, really the project referrals were mainly driven by macro uncertainties. Some of those new jobs have seen their startup dates pushed out to the second half of the year from this quarter, at least that's the indication as of now. Operators just aren't willing to commit to more volumes until they have a better grasp of where their plans are going forward. Again, existing projects are moving along as planned. It's a consistent theme that we've heard throughout this earnings season, but new incremental work is on hold. What's unfortunate is that the incremental EBITDA from the sand and logistics job utilizing the Dune Express is rather significant. That's what's changing that is causing us to change guidance.

There are opportunities out there, and we expect as people get their feet under them, figure out the lay of the land, we do expect new opportunities to surface. As Chris alluded to, Atlas is in a position of competitive advantage with our total delivered cost of sand, in that we are in the catbird seat when it comes from a competitive positioning standpoint. We expect to go out there and get those as they come around. For the time being, I think everybody's just trying to figure out the new lay of the land.

Blake McCarthy (CFO)

Yeah. I think just to add on, right? Our focus really there is to secure those long-term commitments that align with our logistics infrastructure and structural advantages from those mobile mini and express.

Ati Modak (VP of Equity Research)

Got it. Appreciate that. Apologies if I missed this earlier, but Blake, could you talk about where the price is on the contracted volumes and what your perspective is on what happens to those price levels in the second half of the year in terms of the FOB price you were talking about?

Blake McCarthy (CFO)

On the allocated tons, the 22 million of allocated tons, those are that low 20s that we've been at over the last two quarters' shortfall revenues. We'll continue to be at those levels with slight declines as just legacy contracts roll off. The spot price of sand right now is in the mid to high teens. If any incremental volumes that we do book would be diluted to that average sales price, but would be very accretive to the overall consolidated margin. Just point out our variable cost in our legacy mines is $4-$5 a ton. Anything that we can add on in terms of incremental volumes is going to be juiced to our financials. You add on top of that the margins that we get off of our logistics.

I would expect that price to continue to decline just with the current environment, but that's not necessarily negative from a financial standpoint.

John Turner (President and CEO)

I mean, I think it's real important to remember, I mean, we're talking about total delivered cost here, and that's what our customers are looking at. They're not necessarily looking at a sand price or a logistics price. They're looking at a combined price. When you compare that to what our OpEx and delivery cost is, that's where you start really seeing you're going to start seeing the benefits of the Dune Express once we start seeing more activity come off the Dune Express, which we expect to happen as we go through the year.

Ati Modak (VP of Equity Research)

That's very helpful, guys. Thank you.

Operator (participant)

Our next question is from Eddie Kim with Barclays.

Eddie Kim (VP of Equity Research)

Hi, good morning. Just wanted to ask about some more color on the deferrals of the development projects. Were these concentrated to a few large customers, or was this more kind of a broad-based deferral of activity across your customer base? I know you mentioned that these are being deferred into the latter half of this year. What's your confidence level at this point in that second-half target and not potentially being deferred further out into 2026?

Blake McCarthy (CFO)

Yeah. I think it'd be quite a bit of hubris to say that I know exactly what's going to happen in the market right now. I think it's really customers are in the same boat that we're in right now where the ground is shifting underneath them. Really, they're pulling back the reins on deploying incremental CapEx until they get a little bit more clarity on where things are headed from here. It wasn't just one customer. There were several projects there that both on the mobile mine side and then on the Dune Express side. We're just in kind of a general pause in the market. I think that that's been pretty clear in the commentary you've seen from the public E&Ps recently where a lot of the news that came out last night wasn't news to us.

We've been having those conversations with customers for a while. It's something that we're aware of, but we're having active dialogue with them where they're looking to save on their AFEs and Atlas's way that they can start to harvest some of those savings. We're continuing to push there and show them the math. I think that it's starting to catch some attention.

Eddie Kim (VP of Equity Research)

Got it. Thanks, Blake. Apologies if I missed this, but it sounds like your expectation for total volumes this year is now 22 million tons, which represents that committed or contracted capacity. Just given current market conditions, is it possible that some of that 22 million tons slips into 2026? Or how confident are you that that 22 million tons will be delivered this year?

Blake McCarthy (CFO)

That $22 million is what we have allocated currently. We did say in the remarks there's about 3 million tons of pending opportunities, so just depending.

John Turner (President and CEO)

Right. About that.

Blake McCarthy (CFO)

Yeah. So yeah, about more than 3 million tons. There is a path to get back to that 25 million tons. We wanted to be transparent with the market where, hey, the realities of the market are that oil prices have come off. It is a giant circular reference where operators are going to pull back on CapEx. It just seemed a little foolhardy to say, "Hey, we're going to be able to go out there and generate volumes when people aren't spending money." I think we have a fair bit of confidence in that 22 million tons and we are optimistic about some of those incremental volumes, but wanted to be very, very transparent with our investor base that that's really where sand's sitting right now.

John Turner (President and CEO)

I think it's important because we're listening to what our customers are telling us, and that's why we're more conservative on our forecast for the second quarter. We said we don't really see any near-term upside in this market. However, obviously, if things change, you start to see an uptick in commodity prices. You get more clarity on what's happening with the tariffs. I think there's obviously some potential upside there for additional volumes to come on. This is just what we're hearing from our customers, and we sell to most of the operators in the Permian. We're not, I mean, those 3 million tons, they could come, and it'd be great if they did. At this point in time, we just don't have any clarity on that because we're just repeating what we've been told.

Bud Brigham (Executive Chairman)

I might just add just briefly to John Blake's comments. I mean, right now, we happen to have this call during peak uncertainty. I mean, and uncertainty is the biggest issue for our industry right now, not knowing where oil prices are going to be. That directly drives their activity. Once we get beyond this and wherever we get beyond the tariffs and all this uncertainty in the market, I think that's when we'll start to see the benefits of this cycle. Atlas tends to benefit from this as a low-cost producer that's logistically advantaged to more of the wellheads in the Permian. We're going to benefit on the other side of this because we're able to produce through the cycles, and we're going to have more of the market share on the other side of this and more pricing power.

Eddie Kim (VP of Equity Research)

Understood. Understood. Appreciate that clarification and all that color. I'll turn it back.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to hand the floor back over to John Turner, CEO, for any closing comments.

John Turner (President and CEO)

All right. Thank you, guys. Thank you, everybody, for joining. Obviously, very excited about what's going on with the company and the Dune Express. Obviously, there's a lot of uncertainty in the market, but Atlas is built, like we said in our prepared remarks, Atlas is a company that was built to withstand and go through these ups and downs and these down cycles and to come through stronger. We look forward to reporting our second quarter numbers in August. Thanks.