Atlas Energy Solutions Inc.

Greetings. Welcome to Atlas Energy Solutions Incorporated first quarter 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.

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the first quarter 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 financial performance for the first quarter 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 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-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.

Thank you, Kyle, and thanks to everyone for joining us today for our first quarter conference call. In addition to reviewing our first quarter results, we'll spend some time this morning providing an update on the great progress we are making integrating High Crushing 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 profit producer could have possibly continued delivering profit to their customers the way Atlas has. Our differentiated scale, recently enhanced by our acquisition of High Crush 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. and 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 14th, 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 zero 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 loadout equipment and mobile silos began showing up at our Kermit plant to lay the groundwork for a temporary loadout solution while we began conducting repairs. Within 11 days from the fire, we reopened the Kremit facility and began loading trucks with sand. Today, the Kremit 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 Kremit 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 a current 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 multi-layered 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 five 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 High 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 profit 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 13th, 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 Pratico. 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.

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 first quarter was an exciting period for Atlas, with the closure of the High Crush acquisition, the completion of the Kermit expansion, and commissioning of the first of two new state-of-the-art dredges. The acquisition of High Crush is already off to a great start. In March, High Crush set a monthly volume record for their Kermit plants, and Pronghorn, along with Atlas' 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 fourth quarter 2024 commercial end 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, There's a lot to be proud of, and I'm sure proud of them. Regarding the high-pressure 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 High Crush's Kermit operation to the Dune Express, the potential for dredge mining to be brought to High 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 Encore Mines, and the Last Mile Solutions. The addition of Hycrush truly provides Atlas with an unparalleled portfolio of profit 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 profit inventory at our customers' websites, we released our automatic ordering feature, a seamless technology-assisted SAN offering feature based on live inventory and operational data feeds. Our off-the-order feature provides the foresight to keep our SAN 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 OptiOrdering and OptiDispatch set the Atlas' 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 Encore No. 8 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 Encore unit deployed with this customer further validating the value proposition the Encore solution delivers to operators and the leadership position the Encore team has established within the infield mobile mining market. Of note, number eight is a larger unit with the production capacity roughly double that of our seven other units that are currently deployed in the Permian. Regarding future Encore deployments beyond eight, we have placed orders with our vendors for the equipment that will compromise Unit 9. We expect to take delivery of this equipment in the third quarter and have multiple mine sites secured under option agreements. We are 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 fourth quarter 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, commits 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. And as of today, 95% of the belt has been flaked and is ready for installation. Thanks to our strong first quarter 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 5% to 22 cents per share, up a penny when compared to our dividend last quarter. Based on this dividend and our closing price on May 3rd, we now have a current annualized dividend yield of 4%. Proforma 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 and trimal fracs, which today represents more than 20% of the Permian's completions market. Furthermore, we see continued year-over-year growth in drilling completion efficiencies, which amplifies the effect of fleet additions resulting in increased levels of profit consumption. Atlas remains highly contracted for 2024, de-risking much of the sand price volatility for this year. For the first quarter of 2024, which includes a 27-day contribution from High Crush, we reported total sales of $193 million. Our revenue from profit sales was $113 million on volumes of 3.9 million tons. As expected, we saw the first quarter get off to a slow start in January from an activity standpoint, but return to a more normal cadence for February and March. Our average sales price for the first quarter 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 first quarter, our per-ton plant operating costs were $10.88, which was negatively impacted by less dredge feed 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 non-recurring 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 26 cents. Net cash provided by operated 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 high 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 first quarter. $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 Encore facilities. Cash and equivalents at the end of the quarter stood at $187 million, with total debt of $481 million. For the second quarter, we expect a $20 to $40 million EBITDA impact from the fire that occurred on April 14th in subsequent 11-day plant closure, which implies our second quarter financial results will be in line with the results of our first quarter. 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 loadout 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 third quarter after a normal ramp-up. We expect the rebuild cost 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 unit express or cause any MPT 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 first quarter call.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 Shawn Mitchell with Daniel Energy Partners. Please proceed.

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?

Yeah, sure. I'll just start, and then I'll let Chris kind of walk into the details. But obviously, you know, 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 High Crush employees coming together. You know, Chris Shola has led those efforts out there, and, you know, obviously, you know, to get the operation back up, but I'll let him run into it, Doug, go through what exactly we did.

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 loadout stations. These conveyors are bidirectional, one direction feeding haul trucks that transport sand to our temporary loadout and the other direction feeding a ground level zipper conveyor that transports sand to the loadout. 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, loadout, encore, 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.

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 High Crush obviously had and we had of innovation and collaboration. It makes us more reliable. No other company could have done, could work the way Atlas has through this disruption, and it makes us, it's making the Permian better.

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

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

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 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 third quarter. And I noticed in the slides you mentioned the trial of using one of the older dredges up at the High Crushes 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?

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 money basis. That would just be a Kermit. So, you know, back in 2021 when we were you know, feeding all of our, our, our mining, mining feed through the, through our dredges, you know, we were running it, I think it's about 650 a ton on OpEx basis. But obviously we have, you know, probably won't see that in that entire number hit our entire OpEx space 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 Alcor mines as well. You know, as far as, What's going to happen with the Kermit dredge? Yeah, we're going to decommission a dredge or take a dredge out. We're going to run that dredge over to High Crush. They have a pond over there that we're going to go out and we're going to put this rental dredge out there and see if it works. That's probably not going to happen until later this year. We just want to make sure that We want the team focused on getting these two new dredges up and running and commission and running together. You know, 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 and bring a dredge down to see if it would work. But given that we still have one on lease, you know, we're going to run over there and see how this works out. 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 dredge mine over there? I still think there's an opportunity to utilize dredge mining across the entire Kermit facility up there, which would be both the High Crush and the Atlas mines. We're still in the early stages of figuring that out, Jim.

Got it. That's helpful. 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 how you think that might impact the market.

Yeah, thank you. You know, obviously it's good to see a very sophisticated investor like Apollo recognize that US silica was trading at a really depressed value and pay a premium for a good business with excellent free cash flow. I would encourage investors to look at slide 17 in our deck. That's obviously a very objective confirmation of what's shown on that slide, but 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 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 to see our multiple expand, particularly as our distributions expand with the growing cash flows in the Dune Express in 2025. Thanks for that. Thanks, guys. Thank you.

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

Yes, good morning. Good morning. 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 long discussed the benefits of these dredges. Just curious, you know, just in terms of putting it all together, you know, with the new high crush assets as well, you know, as you get these dredges up and running and kind of move into 2025, should we still be thinking around a $9 per ton OpEx figure for next year? Is that the bogey?

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 a $9 range is probably a good number to look at.

Okay. Great. No, I appreciate it. And then coming back to the Dune Express, just wanted to get, you know, some updated color on contracting the associated loads. I mean, we're, We're just now six months out or so from startup. So what are you hearing from customers around the system and any additional call 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. There'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 going to be taking sand off the Dune Express are very excited about it because they're obviously wanting to take trucks off the road. and make it safer. They also see the efficiencies that are going to come up with the Dent Express. They see, you know, the well site efficiencies, the ability to, you know, utilize, you know, pure assets to deliver more sand to the well site. So, look, I feel very good about where our contracting sits as it relates to the sand supply and logistics contracts for Delaware and 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 Dent Express. And then, you know, one of the things 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. Yeah, from a – you know, we know that Dune Express is coming on and continuing that build to be able to seamlessly integrate those customers in Dune Express, I think – Years ago, we approached this as going after pure Dune Express type of contracts. And I think 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.

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

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

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 contracted. Just an update around those three items would be helpful for the rest of the year.

Yeah, so first off is I'll talk about pricing and some contracting that we are, you know, recently been, you know, we're still signing contracts. We're 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 fourth quarter all the way into the end of the – probably middle of the end of the third quarter. I mean, probably, you know, probably, say, August timeframe. That's kind of our – that's kind of the time that we are contracting. 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. The spot volumes, you know, we let those go. You know, obviously we think those volumes will be coming back. And then there's also opportunity in some of our encore mines, too, to increase with, say, encore. One of our encore mines is just coming on. You know, we'll be able to see there's going to be a lot of demand out there for taking additional volumes. We've got some spare capacity and stuff 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. Obviously, we're looking at both sand and logistics contracts here, not just sand contracts. I'm going to talk a little bit about the efficiencies.

We certainly have a tailwind with the continued improvement in efficiencies for the fat crews out there with more cymafracts and tri-fracts, etc. 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 going to pick it up a little bit in the second half of the year. And that should be constructive.

And, you know, I think we're internally, I mean, I think we're seeing sand demand up probably 10 to 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 efficiency, even though you haven't seen a significant increase in the number of crews running, but you are seeing with the simul fracture and trammel fracture, you're starting to see more sand pumped per crew per year. I hate it for a month like so.

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, dual fuel and where you have a diesel fleet. So that's certainly helping drive that demand.

Right. That's all very helpful. I appreciate the color. I just wanted to think about 2025 CapEx. I know you mentioned in the opening comments about $60 million. being towards that maintenance, but could you help us with what potential growth projects that you'll see in 25, obviously small versus 24, but thinking about additional encore units or additional logistics pro encore units, obviously we're going to 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 25, but just to help us think about 2025 CapEx, any other moving pieces aside from that 60 million of maintenance would be helpful.

You know, we haven't laid that out. I mean, obviously there's going to be some runover from the Dune Express. I mean, the Dune Express will be commissioned by the end of the fourth quarter, but, you know, there's still going to be some CapEx next year probably. I don't know how much that's going to be, but we can – but the other things we'll be looking at is we are looking at potentially deploying some additional on-core units. You know, the autonomous trucking obviously is – we'll be hearing more about that here soon. Um, as we, as we proceed, um, down the path of, you know, delivering sand autonomously, there's going to be some, probably some CapEx related with probably some mobile loadouts and things like that off the Dent Express. Um, there's going to be, um, but I don't, we don't have any big projects, um, what I would say, um, in, in currently in, in, in like in our, in our plans that could change, but.

Yeah. In general, as you know, um, 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. And 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's ramping down here in the second half of the year, and particularly, as you point out, in 2025. So we're going to 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-rated return projects to drive efficiencies for the industry and drive up reliability. 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.

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

Thank you.

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

Hi. Good morning. First started, 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? You know, you want to go?

No, okay. Sorry. You know, as far as acquisition go, obviously, that the high cross acquisition has been a big one, the integration has really kicked off. And it's it we're in full, you know, we're working on 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 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 cash flow return story. So we're looking for high margin businesses. Does it meet our internal rate of return project hurdles? There's obviously a number of things that we look at when we're making these investments. But, you know, we do, like I said, as we, you know, Like I said, we just took this high-cash acquisition down. We're going to get that integrated. But, yeah, we are going to continue looking at opportunities to grow and create value for our investors through acquisition.

Yeah, and I'll just add just a general comment. Obviously, given the rate of 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 high-cash 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.

Okay, I 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 oilfield services in general and your position within the market as well?

Yeah, thank you, Oscar, and these guys may want to add to it. Scale matters, and as a former operator, we've appreciated that and recognized that, and you're seeing that execution by operators to grow their scale. enables them to drive down costs and drive up their margins. And there's a lot of leverage associated with that. And the same thing is true on the oilfield service side. And particularly for Atlas, it's the largest profit producer, the largest logistic 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. I think we're benefiting from that and it's important that we continue to operate as efficiently as we can to reliably service our customers. I think Atlas is in a unique position. perform the way that we have through that disruption. And we're going to continue to perform that way. I don't know if you want to add to that.

I mean, yeah, I mean, I think it's, you know, a lot of customers are looking for diversification strategy. I mean, Atlas is a diversification strategy. I mean, we have four dry mine locations. We've got eight wet sand locations going to nine. Obviously, with the large logistics offering, I mean, you know, there's no other company out there that can provide that. And, you know, we're going to continue to build on that to be, you know, to continue to serve our great customers.

Yeah, we're done. Nobody can ask that.

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

Thank you.

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

Hey, good morning, and thank you. I want to reiterate the congratulations on the incredible response to the fire, as well as the hiring of Blake McCarthy. That was really impressive that over half of your Q1 volumes were delivered with your own logistics. And sorry if I missed this detail, have you talked about what you're seeing for your average delivery volumes in the areas to be served by Dunexpress? And if you're seeing a greater mix of double and triple trailer deliveries, but really, how do you average volumes per delivery compared to where you would expect them to be once Dunexpress is fully online?

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 um you know we'll need to be up around that that 20 to 21 cruise is what we're looking at um 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 eight to ten times range in the last 24 months so you know our ability to uh to achieve an additional seven, eight crews out there, we see as highly probable as we continue down that pathway.

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

I guess you're asking the multi-trailer success? Yeah. From a multi-trailer side of this, we've recently opened up an additional depot up in Polygon 6, which will 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 five customers out there, and we continue to see our average payloads go up. I believe with our first triple trailer starting out April 5th of last year to where we are today with now Two 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. 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, Stephen, optimize the pad layout and sizings around double trailers. 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. Thank you for the update.

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

Yeah, 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?

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

Can you talk a little bit, John, about what that commissioning is that we'll be running?

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 are tracking to make sure that they're working in order, making sure that you've got all the bugs worked out. But as far as the, I mean, 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 leash road crossings to go, but everything is moving along as expected on the Dune Express.

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.

Right now, we're really focused on returning cash to our investors. We think that paying that dividend is 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 returning cash to our shareholders.

Thanks, Jeff.

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

Hi, good morning, Bud and John. If I can just go back to the Hikers 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 Comet, but the Encore assets, Can you share some feedback you have heard from the customers from the ops teams out there, both positive and negative, just that you have owned those assets for, I think, just around two months right now?

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 High Cross acquisition, we had a really strong customer base in the Delaware Basin, and 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 prop and producer in the basin, even prior to High Crush. Clearly, High Crush did a great job with the Encore mines. The proximity of those mines to the operators in the Midland Basin 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.

Yeah, no, I mean, I think if I just boil 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, you know, a single sand provider. They couldn't – if they were in the Delaware Basin, then, you know, they'd need to sand in the Midland Basin. You know, we weren't going to be able to provide that. But today, you know, we're delivering sands, obviously, to the back of the blender, you you know, to all of our customers across whether they're in the mid, whether a midland basin player, Delaware basin player, or both. And just, you know, adding to that scale to be a better, better partner for our customers.

Okay. Awesome. Awesome. Just one more for me. Maybe just talk a little bit about your pricing strategy. I'm thinking pricing strategy more broadly from a Kermit versus Encore perspective, right? Because Encore 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 to $28 per ton pricing guidance that you gave for the full year, is that still the right place to be?

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 going to bring those costs down. And so we are very competitive when it comes to, you know, obviously sand delivery. It's obviously both sand price and delivery costs. I mean, it's really, it's about lowest cost to the well site. And so that's really kind of where we focus there, Sean.

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

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.

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

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