Atlas Energy Solutions Inc.

Greetings and welcome to the second quarter 2023 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, Vice President, Investor Relations. Thank you, Kyle. You may begin.

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the second quarter of 2023. With us today are Bud Brigham, Chairman and CEO, John Turner, President, CFO, and Chris Shola, Chief Supply Chain Officer. Bud, John, and Chris will be sharing their comments on the company's operational and financial performance for the second quarter of 2023, 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, 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 our Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on January 31, 2023. In connection with our initial public offering, our quarterly reports on Form 10-Q, the Registration Statement on Form S-4 will be filing in connection with our Upseas Simplification Transaction 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'll turn the call over to Bud Brigham.

Thank you, Kyle, and thanks to everyone for joining us today for our second quarter conference call. We're very pleased with our second quarter operational and financial results. In spite of the volatile market conditions, our team delivered another record quarter across a range of operational and profitability metrics, including total sales, sales volumes, net income, and adjusted EBITDA, to name a few. We've made good progress reducing our operating costs on a per ton basis, in my view, with more to come. Our capital projects to grow our business are progressing as planned, on time and on budget. These capital investments are being made in three different areas of our business, including first, profit mining and production, where the expansion will increase our production by approximately 50%. We believe we are already the largest profit producer in the Permian, and our growth will further enhance our scale, which is beneficial in order to reliably match the scale and efficiencies of our large-scale customers. Our existing scale and associated reliability, even prior to this expansion, is one of the reasons we enjoy better pricing stability than many of our peers. Looking forward in this regard, we've already secured commitments for over 6 million tons of our production for 2024, which is well ahead of the less than 4 million tons we had under contract for the 2023 fiscal year at this time last year. Given that our expansion increases our capacity by about 50 percent for 2024 to around 15 million tons, that's about 40 percent of our anticipated production capacity next year that is spoken for. Again, our anticipated production capacity for 2024 is up close to 50 percent from our current capacity of approximately 11 million tons. We aim to have approximately 80 percent of our 2024 capacity committed by year end. As a reminder, we had that same goal entering 2023, and due to intense demand, we ended up more than 90% contracted. The second area of expansion and associated capital investment is our logistics offering, which includes our innovative high capacity trucking and delivery systems. Our logistics and delivery systems enhance efficiencies for the industry, And as a result, we are growing our market share, as Chris will discuss in a bit. This logistics offering is important, as these trucking and delivery systems will seamlessly interface with our Dune Express conveyor system, which is expected to come online late in 2024. And that brings me to the third area of capital investment in our business, our Dune Express, which is really more similar to a midstream enterprise. Like the other capital investments, the Dune Express is on time and on budget with expected commencement in the fourth quarter of 2024. Whereas the planned expansion increases our production capacity by approximately 50% in 2024, we expect the Dune Express to further increase our revenues and cash flows in 2025. These major capital investment initiatives will begin winding down late this year with the completion of our plant expansion to the benefit of our discretionary cash flow in 2024, particularly given that the expansion should increase our production capacity by approximately 50%. And, of course, our current capital investment commitments are expected to decline further late in 2024 with the completion of our Dune Express construction. As a result, during 2024, we expect to experience a major revenue and cash flow increase, and given the declining capex, also an increase of our discretionary cash flow. This should continue in Q4 2024 and into 2025 with the anticipated completion and commencement of our Dune Express conveyor system. Again, the Dune Express is really more similar to a midstream-type enterprise, which should further drive growth in our margins distributions, and cash flows during 2025 while significantly enhancing reliability and efficiencies. Importantly, our high-capacity trucking in the Dune Express will also provide substantial environmental and societal benefits, particularly given the fact that we will be taking thousands of trucks off these dangerous commercial roads while reducing emissions and potentially saving lives. Speaking of this, We just released a new video about the Dune Express and our other initiatives, which is linked in our earnings release in our website. It's quite informative, so I encourage you to take a look at it. Regarding the macro environment that we're operating in, the Permian profit market remains very healthy. Although the downdraft in oil prices during the second quarter combined with economic uncertainty to delay the increase in the frack count that we expected, We continue to see FRAC fleets gain efficiencies, which are driving up sand consumption. For the third quarter, our production remains sold out, and particularly given how heavily contracted we are, we expect to remain busy throughout 2023. One thing investors should recognize is that there is stratification in the profit and logistics markets, just as there is with operators. which is based both on the quality of their reserves and their operational capability, including scale, which is very important for driving reliability and efficiencies. The fact that we control the largest and highest quality propent reserves and that we produce more propent than anyone in the Permian provides us with important advantages and makes our results less volatile. The unmatched scale and quality of our reserves combined with our unique dredging operations, lowers our per-unit cost structure while enhancing our consistency and reliability to the benefit of our Permian customers. These are among the reasons we are so heavily contracted and that we don't always see price softness when other smaller and lower-tier prop and producers do. But we remain encouraged by the overall market fundamentals and believe that we remain on a path to another record year for Permian sand consumption. Assuming commodity prices remain attractive, this will continue to put pressure on Permian sand suppliers to keep up with the demands of Permian operators. Given our level of contracted volumes, which continues to grow, our exceptional margins and cash flows, we are comfortable putting forward a second quarter dividend at 20 cents per share. which as of Friday's close equates to an annualized dividend yield of 4.1 percent and is 33 percent higher than our first quarter dividend in related distributions. The dividend is comprised of a 15-cent per share base dividend with a 5-cent per share variable dividend. As our CapEx investments wind down late this year and during the course of 2024, we expect our cash generation to increase, potentially providing more flexibility for our board to grow the dividend, particularly during 2024 and beyond. As we continue to work with the Board to clearly define our dividend framework, the installation of a base dividend is a major step forward, providing enhanced visibility to our investors of our plans around a return of capital program. A quick summary note on our financial performance. As shown on slide 12 in our deck, I'm proud of the fact that our margins are industry-leading, even above that of the big three and the midstream peers, while our growth has and should continue to also lead the industry. In addition, our first two quarters as a public company should provide evidence to the stability and health of our business, which does not blow in the wind with oil prices like some in the oilfield service space, largely due to our scale and reliability which matches up with our skilled, high-quality customer base. Over time, our exceptional and steady financial performance should be reflected in our stock price performance. And we have a positive development with regard to our corporate structure. As announced today, the Board unanimously approved an up-sea simplification transaction, and we're looking forward to getting that completed soon, hopefully by the end of the third quarter. In connection with the simplification transaction, all outstanding shares of Class A common stock and all outstanding common units of our operating subsidiary will be exchanged on a one-to-one basis for shares of common stock of a newly formed public holding company. And all outstanding shares of our Class B common stock will be canceled. The transaction is expected to simplify our current corporate structure into a single class of shares. And we believe the simplicity and transparency of this new structure will be beneficial to our shareholders. Finally, I would like to address the recent news that the Department of Interior is seeking to advance a listing of the Dunes sagebrush lizard under the Endangered Species Act. We want to be very clear that we are prepared in the event that the Department of Interior eventually lists the lizard. We have done many things proactively with regard to DSL conservation and to protect our business. Most importantly, by becoming a participant in the 2021 CCAA, which will allow us to operate just as we are today in the event of an ESA listing. Many of our customers are also participants in the 2021 CCAA as well. As a result, in stating again, We believe we're very well positioned to continue to operate at full capacity, even in the event of a listing. With that, I will turn the call over to Chris, our Chief Supply Chain Officer, to provide you with an update regarding our trucking and logistics business.