Atlas Energy Solutions Inc.

Greetings and welcome to the Atlas Energy Solutions third 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 Turnington, Vice President of Investor Relations. Thank you, sir. You may begin.

Hello, and welcome to the Atlas Energy Solutions Conference call and webcast for the third quarter of 2023. With us today are Bud Brigham, Chairman and Chief Executive Officer, John Turner, President and CFO, and Chris Jolla, Chief Supply Chain Officer. Bud, John, and Chris will be sharing their comments on the company's operational and financial performance for the third 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. It's 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 the perspectives we filed with the Securities and Exchange Commission on September 12, 2023, in connection with our up-to-date simplification, our quarterly reports on Form 10-Q, and our 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 Bud Brigham.

Thank you, Kyle, and thanks to everyone for joining us today for our third quarter conference call. Despite a 10% drop in the Permian rig count since the beginning of the year, demand for Atlas profit remains resolute, and we are rapidly growing our logistics platform. We are pleased with our third quarter operational and financial results as our team continues to deliver across a range of operational and profitability metrics, including total sales, sales volumes, net income, and adjusted EBITDA. Importantly to investors, Atlas continues to generate industry-leading margins, which in my view are underappreciated, benefiting from our exceptionally low cost structure. And we continue to work to drive costs down even lower. Over the course of 2023, we reduced our operating costs on a per-ton basis, And we expect to achieve further reductions in the middle of next year when our two new fit-for-purpose dredges come online and achieve their planned utilization levels, all of which should benefit our industry-leading margins. Our three major capital projects to grow our business, the Dune Express conveyor system, the new Kermit facility addition, and the build-out of our trucking fleet, are progressing as planned, on time, and on budget. Now I will briefly review our growth initiatives, but I'll also encourage you to watch the video update summarizing these initiatives, which is linked on page three of our updated presentation. Starting with our production expansion, our new facility at the Kermit location is now in the commissioning process, with commercial in-service expected late in the fourth quarter. As a reminder, this new facility will increase our Permian leading production by approximately 50% to over 15 million tons, further enhancing our scale, which is crucial in order to reliably match the scale, demand, and efficiencies of our large scale customers. The second area is our logistics offering, which includes our innovative high capacity trucking and delivery assets. Our logistics and delivery assets enhance efficiencies and reliability for the industry. And as a result, our market share is growing, as Chris will discuss in a bit. Our logistics offering is also important given that these trucking and delivery assets will seamlessly interface with the Dune Express, which is expected to come online late in 2024. As a reminder, We rolled out our innovative high-capacity trucking and delivery assets to prepare the market for the Dune Express and facilitate a more seamless transition to that infrastructure-based solution. This brings me to our third major growth initiative, our Dune Express conveyor, which is really more similar to a midstream asset. Like the other capital investments, the Dune Express remains on time and on budget, with an expected commencement in the fourth quarter of 2024. We have ordered approximately 90% of the equipment and materials for the project and have also contracted approximately 80% of the installation and labor, which significantly reduces budget risk. Today, we have taken delivery of more than 57 miles of conveyor belts and over 100 miles of fiber optic cable. We believe that Dune Express and our logistics offering will provide substantial environmental and societal benefits as we aim to vastly reduce the number of trucks on commercial roads in the Permian, which is expected to reduce emissions and save lives. Furthermore, our logistics offering has the potential to enable our customers to realize efficiency gains by increasing the throughput potential of profit to serve frack crews that continue to find ways to pump faster and consume sand at increasingly impressive rates. In terms of sales, despite an estimated 10% reduction in completion activity in Q3, Atlas cell volumes remained sold out in Q3 and were flat sequentially, demonstrating correct alignment with prominent Permian Basin customers. For 2024, we currently have 6.2 million tons of production contracted, which represents 40% of our anticipated production capacity of 15.5 million tons for next year. It is worth reminding investors that oil and gas companies have been working on their 2024 budgets and are just now entering the early stages of contracting their sand and logistics needs for 2024. These negotiations will run from now through the first and into the second quarter of 2024. As expected, there was very little contracting in August and September with our existing customers and potential new customers. Our second leading margins benefiting from our low cost structure, which should only get lower with the fit for purpose dredges around mid-year 2024, and lower again in 2025 with our Dune Express, combined with our expanding revenue streams, provides us with confidence that we will be able to layer on the additional contracts and accomplish our financial goals, which includes growing distributable cash flow into next year and the years to come. Of note, Atlas has adjusted its overall portfolio over the last two years to ensure contractual continuity through staggered terms with regards to both contract duration and timing of renewals. Our goal remains to have 80-plus percent of our capacity committed in 2024, and we remain confident in that goal for several reasons. We're currently in negotiations for several million annualized tons of sand and logistics in rolling contracts with existing customers, where historically we have had very high retention rates. Current contract discussions include not only sand and logistics supply agreements, but also some more complex and long-term conversations about a revolutionary infrastructure-based solution for the Permian. In addition, we have a number of meaningful opportunities to add volumes with new customers, including large customers that stand to benefit from the Dune Express. Our growth in the logistics business and our progress on the Dune Express, combined with our unmatched reliability and scale, uniquely positioned Atlas to meet the growing demand, but to also grow our market share in the Permian. While operators generally control the timing of the initiation of these contracts, we control the access to future volumes that would go down the Dune Express. For these reasons, we remain assured that we will exit contract season with not only a strong contract backlog, but alignment with the most efficient and highest quality customers. Regarding sand pricing, investors should recognize that there is stratification and differentiation in the profit and logistics markets. Some of the factors in profit marketability and thus pricing include the company's ability to scale up to reliably meet the needs of increasingly large operators in the Permian, particularly given the increase in pad development drilling and cymafrac activity. In this regard, Atlas is unmatched in our ability to deliver profit with the scale and reliability required for these projects in order to effectively de-bottleneck sand in these massive completion operations. Associated with that are our innovative logistics offerings and the associated incremental dependability and reliability which they provide to our customers. Our expanded logistics offerings differentiate Atlas in the market. further enhancing our industry-leading dependability and reliability. In my view, as a former operator, I can state unequivocally that dependability and reliability are of major importance to our customers, and they are absolutely mission critical in the value proposition we offer. Given our unmatched scale, our historical delivery execution, and our ongoing logistical innovations, we feel confident in our ability to deliver the step-changing performance that our large-scale operators need. Another point on sand pricing is the fact that there are numerous variables involved. For example, are you selling wet or dry sand? Atlas currently sells only dry sand, and we've been sold out all year, while others have had to sell meaningful sand volumes on the spot market. All of that to simply say that investors should not read too much into discussions of spot pricing. While lower spot pricing can directly be indicative of pricing trends, there are reasons that some products fly off the shelf and are even contracted before other products are sold. And there are reasons that some products on the shelf have to be discounted. And of course, the distance to the wellhead and associated delivery cost plays an important role in sand processing and the all-in cost for the operators. Importantly, the Dune Express will eliminate the distance-related benefits of some of the wet sand options in the Delaware Basin. Further, when you add in the advantage Atlas has in inventory, security of supply, quality and throughput potential, our customers' ability to pursue operational excellence on a scaled basis will only be enhanced. As the largest profit producer in the Permian with the largest and highest quality reserves, our differentiated advantage also makes our results less volatile as evidenced by our quarter-to-quarter performance. While that benefits and is of significant value to our customers, those attributes, including our unique dredging operations, also benefit us by lowering our cost structure. Regarding the macro environment we're operating in, despite the drop off in activity, the Permian profit market remains healthy, driven in part by the continuing advancements in efficiencies. Fract crews are continuing to pump more profit on a per day basis. On the supply side, Permian profit producers have been disciplined, with modest supply additions recently coming in response to a long period of significant undersupply in the Permian. bringing the market into a more balanced position as we enter 2024. Optimism surrounding the recent movement in oil prices and early signals from customers leads us to believe that a strong recovery in frack activity is around the corner. An expected ramp in activity next year, combined with continued increases in profit per frack crew per day, against a supply side that is much more patient in making growth investments than we've seen historically, leads us to believe that the sand market will tighten again next year. Again, we remain sold out in Q3 and expect to remain very busy in Q4, particularly given how heavily contracted we are. With the current geopolitical uncertainty, the call for more Permian barrels has never been greater and more crucial for energy security in the United States. In addition, the previously announced corporate reorganization transaction or up-sea simplification closed on October 2nd. We now trade under a single class of common stock with the previous dual class stock structure now eliminated. We are optimistic that our simpler, more efficient corporate structure will enable us to broaden our investor base. Finally, given our strong margins in quarter end liquidity, we're excited to put forward another quarterly dividend of $0.20 per share. Similar to the previous quarter, the dividend is comprised of a $0.15 per share base dividend with a $0.05 per share variable dividend. Last, I want to point investors to slide 12 in our investor presentation. As previously mentioned, Atlas leads all the other public companies in the oilfield service sector in both margins and growth. This is truly a remarkable enterprise, and we've now demonstrated that performance on a consistent quarter-to-quarter basis without the volatility experienced by others in our space. Given those margins and the growth we expect to achieve in 2024 and 2025, while our major CapEx initiatives are winding down, we expect to enjoy exceptional cash generation flexibility, which should increasingly be recognized in the market. With that, I will turn the call over to our Chief Supply Chain Officer, Chris Sciola, to provide you with an update regarding our trucking and logistics business.