Atlas Energy Solutions Inc.

Greetings and welcome to the Atlas Energy Solutions third 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 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 your host, Kyle Turlington. Please go ahead.

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the third quarter of 2025. With us today are John Turner, President and CEO, Blake McCarthy, Executive Vice President and CFO, and Bud Brigham, Executive Chair. We will be sharing their comments on the company's operational financial performance for the third 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. security laws. Such statements are based on the current information and management's expectations as of this statement and are not guaranteed 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 annual report on Form 10-K we filed with the SEC on February 25, 2025, our quarterly reports on Form 10-Q for the first quarter and second quarter, our other quarterly reports on Form 10-Q, and current reports on Form 8-K 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 John Turner.

Thank you, Kyle. Before we begin our prepared remarks, I'd like to extend our deepest condolences to David Smith's family and our friends at Pickering Energy Partners. Dave was more than a respected analyst. He was a true friend. His kindness, humor, and generosity fetched everyone fortunate enough to know him. We're deeply saddened by his loss. Godspeed, David. For the quarter, Atlas generated $40.2 million of adjusted EBITDA on $260 million of revenue, delivering a 15% adjusted EBITDA margin. Despite an exceptionally weak West Texas completions market, we generated meaningful adjusted free cash flow, a clear statement to the strength of our competitive mode with our cost-advantaged minds and integrated logistics network. Our third quarter volumes came in at 5.25 million tons, a slight sequential decline to the second quarter, but a significant deviation from our expectations, which were based on completion schedules communicated to us by our customers. As more of our customers shift to fixed percentage contracts, were increasingly dependent on tight alignment and transparency with their plans. During the quarter, several key customers made the tough but prudent call to slow or pause completion activity into 2026 to preserve 2025 capital budgets. We expect fourth quarter volumes to step down again sequentially due to typical seasonality and a continuation of customer intentions to slow capital spend on completions, thus pushing those expected volumes into 2026. However, encouragingly, we have seen some customers that pause all completions activity earlier in the year resume operations in October. Our current estimate for our fourth quarter sand volumes is approximately 4.8 million tons, which we forecast to be our low point during the cycle. Customers have already begun communicating their early 2026 plans, which imply improving volumes early in the calendar. OpEx per ton, including royalties, rose to $13.52, driven primarily by challenges with the dredge fee and what shed at Kermit. These issues triggered elevated third-party service costs and downtime that inflated Kermit's operating costs, particularly in September. While we continue to deal with these issues in October, the plan is returning to a more normal state of operations, and we expect these cost pressures to ease as the quarter progresses. Importantly, we remain on track to take delivery and commission two new dredges early in the second quarter of 2026, which we expect to unlock significant cost capacity and cost efficiencies. A logistics business delivered 5.3 million tons, a modest decline from the second quarter. The well-documented slowdown in Permian completions activity has driven trucking rates to below even COVID-era levels. We're actively optimizing costs and efficiencies, but we're also intentionally carrying some extra capacity into the fourth quarter to ensure that we're ready to meet anticipated 2026 demand. The Permian frac crew count, which averaged more than 90 in 2024 and peaked at approximately 95 in March of this year, dropped to around 80 crews entering the third quarter and has likely declined further in the fourth quarter. With WTI prices trading around $60, and little incentive for operators to ramp activity, we remain cautious about a broad recovery in early 2026. But we are increasingly optimistic about our progress gaining market share through this downturn. That's why owning the lowest cost to produce sand reserves, pairing them with an extensive logistics network, and amplifying it with the Dune Express was central to the strategy. Downturns are where you grind out the hard yards. Upcycles are where you reap the rewards. That's the oil and gas business, and specifically oil to the services for you. So we're focused on what we can control. We have launched a company-wide initiative to maximize efficiencies with an initial target of $20 million in annual cost savings. Using our scale and cost advantage, we're attacking the market while competitors pull back. While we will have a more concrete graph of total volumes in the coming weeks, we are well positioned for our core plants to be highly utilized in 2026. And we are growing more confident by the day that the Dune Express will exceed 10 million tons next year, a major rent for 2025. Atlas has now achieved scale in the sand and logistics business, where additional investments currently yield more risk due to the inherent cyclicality of the oil and gas industry. has been a tough oil and gas market in the permian and incremental growth investments in sand and logistics are not currently justified by the returns available in this pricing environment nine months ago we entered the power business on the thesis that the tailwinds were very broad deep and durable today that thesis has proven true well beyond our original expectations the world turns to the oil and gas industry to solve complex energy problems in times of turmoil. Now, it's turning into firms with oil-filled DNA that close the massive gap in power generation. Electrification, the resurgence of domestic manufacturing, and now the explosive power demands of AI and computing have turned a capacity-constrained grid into a crisis. For years, power was a line item, often an afterthought. It's the most critical assumption in any growth model. Relying on the grid now carries unacceptable risk of delays, cost escalation, or outright failure. For large capital projects, dedicated behind-the-meter power is quickly becoming a must-have. When we entered the power space, we saw this trend coming. Our legacy business generates strong through-cycle cash flows, but it's volatile. Power offers decades-plus contracts uncorrelated to oilfield swings, delivering a level of stability and sustainability that fundamentally changes Atlas' cash flow profile. The Moser acquisition wasn't about additional EBITDA. It was about the addition of a base platform on which to build and grow this business. We've since added significant industry talent and expertise from outside oil and gas, and it's paying off fast. Our opportunity pipeline is now approaching two gigawatts in potential projects, and we're in active commercial dialogue for large-load, long-term power solutions. These are customers looking for fully integrated permanent power solutions to power their own significant investments, which are otherwise at risk due to the lack of access to reliable grid power. Atlas is ready to be their solution. We are targeting having more than 400 megawatts deployed across our power business by early 2027, with the majority under long-term contracts. In order to achieve this target and indicative of our growing confidence in the pace of negotiations, we have placed an order for more than 240 megawatts of new, more power-dense generation assets with a blue chip equipment provider. Meanwhile, our legacy Mosher fleet, while not high density, excels at delivering flexible near-term bridge power. In a market starving for generation assets, this capability opens doors. It lets us solve immediate pain points, builds trust, and pivots the conversations to permanent contracted power, exactly what the market demands and what we're built to deliver. We have been relatively quiet about the evolution of our power platform for the past several quarters. But the combination of the Mosier platform, the talent we have brought into the organization, the strong macro tailwinds, and our opportunity set becoming more concrete has made it apparent this transformation is changing the complexion of Atlas at a pace that is gaining speed faster than we imagined. This brings me to the subject of the dividend. As announced last night, we have made the difficult but necessary decision to temporarily suspend the dividend. Returning capital to shareholders has always been a core part of Atlas' DNA. Management is fully aligned with investors. But our mandate is to maximize long-term value creation for Atlas shareholders. That means protecting our balance sheet and optimizing growth above all else. While Atlas' base business continues to generate cash in what we believe is our cyclical low for our sand and logistics business, our current level of profitability does not cover the entirety of the dividends. Additionally, and importantly, the opportunities being presented in the power market are potentially game-changing for Atlas, but they do require capital. The size of the dividend represents a potential roadblock to our ability to pursue these opportunities and secure optimal financing. The project should bring stable, financeable cash flows and high-quality counterparties, enhancing our ability to resume and sustain shareholder returns. and maximizing long-term value creation for our shareholders is management's core mission. Importantly, we chose the word suspension deliberately. We expect this pause in return of capital to be temporary. Steps we are taking today are making Atlas stronger, not just to survive through the cycles, but to power through them. I'll turn the call over to our CFO, Blake McCarthy. Thanks, John.