Atlas Energy Solutions Inc (AESI) 2024 Q3 法說會逐字稿

Greetings and welcome to the Atlas Energy Solutions third quarter, 2024 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.

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As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Kyle Turlington VP Investor Relations.

Thank you.

You may begin.

Hello and welcome to the Isis Energy Solutions conference call and webcast for the third quarter of 2024.

With us today are Ben M. Bud Brigham, executive Chairman, John Turner, CEO and Blake McCarthy CFO.

But John and Blake will be sharing their comments on the company's operational and financial performance for the third quarter of 2024.

After which 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 defined under the US security laws.

Such statements are based on 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 annual report on form 10-K we filed with the SEC on February 27 2024 our quarterly reports on form 10-Q 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 refer to certain nongaap financial measures such as adjusted, adjusted free cash flow and other operating metrics and statistics.

You will find the GAAP reconciliation comments and calculations in the press release we issued yesterday afternoon with that said, I will now turn the call over to Bud Brigham.

Thank you, Carl and thanks to everyone for joining us today for our third quarter conference call before I let John and Blake run through the quarter and our outlook.

I want to take a quick moment to take a step back and reflect on where Atlas as an organization stands.

When we founded Atlas back in 2017, we believed there was a huge opportunity to drive improvements across the property value value chain with regard to both how the Santas mine and how it's delivered to customer wealth sites.

Our stated goal is to do our part as we are uniquely positioned in this regard to help transform the premium into a more efficient factory on the ground.

We have already succeeded in becoming a low cost provider of reliable profit for per for permanent operators and are now on the cusp of a step change relative to traditional delivery systems by implementing the Dune Express to take thousands of trucks off the public roads.

By doing so, we will both enhance efficiencies and reliability while also reducing emissions.

Most importantly, the Dune Express will take make the roads and our communities in the Permian safer.

Today, we are just weeks away from realizing that vision, the Boone Express continues to be on track and on budget.

All the major highway and lease road crossings are now complete and more than 95% of the bill has been placed on the conveyor from the outset.

We knew the electrical infrastructure had the potential to be one of the big gating items for the project.

But with the factory testing complete for the four electric houses now either being currently installed or en route to West Texas.

This piece has also been de risked.

All the credit goes to our wonderful construction team, our employees and our trusted suppliers who have turned what seemed like a pipe dream to many into what will become a revolutionary piece of infrastructure in the Delaware Basin.

Thanks to them and our customers who are stepping forward for the benefit of the communities and the environment.

The Permian Basin will be further differentiated as the premier domestic oil and gas basin in the country and as a much safer, cleaner and better place to live and work with that.

Let me hand the call over to John Turner.

Thanks Bud.

2024 has been an eventful year for Atlas at the outset.

We knew that we needed to work hard this year to ready our organization for the start of the Dude Express, ensuring that our mining operations could consistently provide the increased volumes we hope to gain in the Delaware Basin while continuing to supply our key customers elsewhere in the permian.

With the completion of the Kermit plant expansion and the integration of the high crush personnel and assets into our organization.

We added both productive capacity and asset diversity to strengthen our mining operations after the fire in our current facility in April, we took a long hard look at where we stood from an operational excellence standpoint.

We felt it was necessary to make some hard decisions around our operational leadership.

And once the rebuild process was completed, we began a full review of our plant systems and processes.

This almost immediately began bearing fruit as it revealed multiple opportunities for improvement and standardization.

But the implementation of these improvements required some costs as Blake will detail in a moment.

Additionally, during the quarter, one of our new dredges at the Kermit facility was severely damaged during the commissioning process resulting in a total loss of that asset while the second dredge is currently operating and feeding the plant, we have made the decision to pivot to a well known domestic dredge manufacturer in pursuit of better real time support and improved lead times on spare parts.

We have a long track record of success with this Oem's equipment and are excited about working with them to drive down our mining costs back to our normalized levels.

We have placed an order for two new dredges from this manufacturer and expect to receive the equipment in early 2026.

In the meantime, we're using our existing dredges in combination with traditional mining to feed the Kermit plant while this is delaying the next step change in our pursuit of lower mining costs, we still expect to see improvement in our overall OpEx expert to metrics moving forward.

The combination of lingering expenses from the fire related temporary loadout operations at Kermit are operational improvement initiatives and the delays in DRSS commissioning resulted in higher than anticipated operational expenses for the quarter.

This was almost entirely driven by higher op exit our current facility as mining operations at all.

Our other facilities performed very well throughout the quarter at Kermit.

It's important to note that July experienced the highest per ton with each subsequent month showing sequential improvement.

A trend we expect to continue through year end when we expect to be closer to our normalized levels just as important the work we have undertaken at our current facility has enhanced our confidence in our ability to produce the volumes required by the New Express.

Further enhancing this confidence this fall, we started construction of a road and offload system that connects the B Express to our adjacent 115 and a 74 plants that we acquired with Prh.

Upon completion of this tie in project in late all2,024 four of our Kermit facilities will have the capability to feed the Dune Express, creating a reinforced sand supply to ensure a sufficient volume B to the Dune Express.

And that's imperative as we are highly encouraged by conversations we are having with our customers.

This RFP season, we are currently committed on more than 60% of our nameplate capacity for 2025 with more than $10 million of those tons slated to be delivered in the Delaware Basin.

This is the first RFP season where Atlas is not only selling the advantages of the Dune Express with our high quality sand, but our entire suite of logistical offerings that was enhanced by the acquisition of hi crush.

While atlas' differentiated position is always valuable, it is in markets like today where we really shine with the decline in recount continued capital discipline and the recent large scale consolidation we have witnessed amongst the operators, the overall domestic oilfield service market is experiencing a challenging pricing environment.

And while sand demand has performed better than other verticals, it's always been one of the more volatile pieces of the value chain from a price perspective and has not been immune in this market.

Spot prices for West Texas sand are now trading at levels where much of the supply stack is operating at breakeven gross margin and negative cash flows at today's prices.

We anticipate much of our competition will be forced to elect to defer necessary maintenance and reinvestment in their plants.

And we are increasingly hearing anecdotes of shift reductions in potential mine closures.

All of this points to current prices being at unsustainable levels and just the same prices move fast to the downside.

They have also historically moved to the upside sooner and harder than we expect.

However, Alice's unique combination advantage, reserves and distinct logistical advantages position us to significantly outperform our peers in today's market.

Our customers are smart and know that market conditions like today can result in distressed suppliers that become significantly less reliable.

It is significantly more expensive to have sand, you were depending on not show up than it is to pay for reliability and peace of mind.

This has been a key differentiator for Atlas in our recent customer conversations and we expect it to only grow in importance over the coming months, particularly with large operators who are making the Permian Basin a key part of their global development plans.

Before I hand the call over to Blake a quick update on our autonomous trucking initiative.

Early next year, we plan to begin a small commercial rollout of our partnership with Kodiak Robotics with the initial fleet of two driverless trucks with the hope of continuing to grow that partnership throughout the year, we remain excited about applying autonomous driving technology into large swaths of private lease roads that are prevalent in the Delaware Basin of the Dead Express where traffic is light and speed limits are under 20 MPH.

With that, I'll now turn the call over to our Chief Financial Officer Blake McCarthy to discuss our third quarter financial performance outlook.

Thanks, John, for the third quarter of 2024.

Atlas reported revenues of $ 304 million up 6% sequentially from second quarter levels adjusted EBITDA was relatively flat.

Sequentially to $71.1 million or 23% of revenue and net income was $ 3.9 million or 1% of revenue revenues from product sales were approximately $ 145.3 million on volumes of $ 6.0 million tons yielding an average sales price of approximately $24.34 per ton.

For the third quarter.

Service revenues were approximately $ 159.1 million during the quarter.

We had a high water mark of 28 crews and delivered roughly 75% of our volumes via our own assets.

Looking ahead to the fourth quarter, we expect E&P budget exhaustion to result in a longer holiday.

Slowdown than typically seen which will negatively impact both sales volume and last mile crew counts.

We expect our last mile crew count to remain in the 26 to 28 range through November after which we expect to see a few crews drops during December as operators take a break before initiating the 2025 drilling and completion plans, service margins are expected to hover around our historical average levels.

Also sales excluding DD and A were approximately $ 225 million plant operating expenses excluding D DNA.

But including royalties were approximately 88.8 million or $14.87 per ton.

Significantly above our normalized levels higher than anticipated rental equipment expenses, repair and maintenance expenses, dredge expenses and a greater mix of traditional mining than anticipated all contributed to the elevated production expenses.

As John stated earlier, we expect the combination of improved production and Kermit and the implementation of our operational process improvements to result in OpEx per ton metrics reaching normalized levels by year end setting the stage for improved operational and financial performance.

In 2025 average OpEx per ton for the fourth quarter is expected to be improved sequentially but still above our normalized levels.

Q3 SG and A was approximately $ 25.5 million.

A figure that was inflated by approximately $ 2.4 million of acquisition related costs and approximately $ 6.3 million of stock based compensation.

Moving forward.

Cast GN A is expected to be approximately 15 to $16 million per quarter.

Royalty expense was approximately $ 5.7 million cash interest expense was approximately 10.7 million operating cash flow for the third quarter was $ 85.2 million and adjusted free cash flow which we define as adjusted EBITDA less maintenance CapEx was $ 58.7 million yielding an adjusted free cash flow margin of 19% capital expenditures during the quarter totaled approximately $ 86.3 million, 68.5 towards growth.

With the remainder to maintenance.

Our growth CapEx consisted of $ 50.1 million spent on the construction of the Dune Express with $ 15.1 million associated with encore expenditures maintenance CapEx for the quarter was approximately $ 12.4 million cash equivalents stood at $ 78.6 million against total debt of 475.3 million.

Looking ahead to the fourth quarter, we expect operator capital budget exhaustion to result in a prolonged holiday, slowdown and completion activity.

While we do expect improvements in our abid do X per ton to partially offset some of the impact to our margins.

We expect Q4 ebida levels to be flat to down relative to Q3 levels.

Due to the strong cash flow profile of our business, we are increasing our dividend to 24¢ per share, which represents a 5% increase over the prior period of 1¢ per share based on our closing share price on October 27th.

Our annualized dividend yield is approximately 4.8%.

In addition, I am pleased to announce that our board of directors has authorized a share repurchase program under which the company may repurchase up to $200 million of outstanding stock over the next 24 months.

It is our belief that atlas' advantages in both resource based and logistical infrastructure position it to be a differentiated vehicle for return of capital shareholders within the Os universe.

And we are excited to expand our optionality of means by which we can distribute this capital that concludes our prepared remarks.

We'll now let the operator open the line for questions.

Thank you all for joining in our third quarter call.

Thank you.

We will now be conducting a question and answer session.

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While we pull for questions.

The first question is from James Rollyson from Raymond James.

Please go ahead.

Hey, good morning guys and congrats, I guess on getting to the finish line on the Express.

John or you know, maybe you, you talk a little bit about some of the issues that Kermit and kind of what you're, you're focused on, maybe just expand a little bit on what some of the key issues that you're trying to address or improve as you roll into next year and volumes pick up and maybe kind of the, the timeline and confidence in getting to the finish line on those things.

Yeah, Jim, thanks.

I'll, you know, I'll, I'll start it off and then I'm going to, I'm going to let Chris take that to, to walk through the, to walk through some of the other parts of the, you know, some of the parts of the parts of your question.

But I, you know that obviously it's a great question and, you know, you know, it would be easy to point to these things and say we've just had a, you know, run of bad luck, but, you know, we're in the business of making our own luck.

You know, 2024 has obviously been a rough year with respect to our operations and, you know, we're 100 comit percent committed to getting it right from the ground up.

You know, you know, we put some new operational leadership in place at the plants that have been applying, you know, fresh out to the entire system and while, you know, the conclusions they draw can sometimes be painful to hear, you know, the steps we are now taking are setting Atlas up for long term success.

We have the right assets both in, you know, both in our reserves and our logistics and it's, you know, it's imperative that we maximize the value by developing and deploying them as efficiently as possible.

So I'm going to go ahead and let Chris kind of walk through the things that we're doing.

And so Chris.

Yeah, thanks John.

So in my experience, large operational failures, right?

They're often the result of smaller underlying issues that compound over time and those issues eventually bubble up into something that really no one saw coming.

The post mortem spotlight often exposes deeper operational problems that require immediate attention but catalyzes profound long term change within an organization for all intents and purposes.

The fire was that for us, it was the catalyst that kicked off a comprehensive assessment of our current operations.

We rapidly addressed those items that needed immediate response.

But concurrently, we've been identifying and eliminating those efficiencies, inefficiencies, bottlenecks and areas of underperformance in our operation.

Our communications have been streamlined and structured in a way that facilitates the sharing of information across both teams and departments.

This leads to faster problem solving and a more cohesive approach to organizational strategic initiatives.

We've also made procedural and structural changes to enable almost real time visibility into revenue costs and profitability through all of this.

Though the bottom line is that our team has stepped up and executed, we are already seeing results from the hard work we've been able to meet and exceed commitments to our customers.

We have increased our delivery percentage.

If you look at as of now, 75% of our produced sand is delivered to the blender.

We are now setting new volume records for both total sand production and sand delivered to the blender.

More specifically for Kermit in October, our Kermit plant beat our historical wet plant production record by almost 40% and three of our top four Kermit dry sand production months on record have been August, September and October.

While operations will inherently always have issues overcoming these challenges in the way we did has not only made our organization stronger, but it helped shape our multiyear operational excellence road map that will continue to differentiate Atlas from our competition.

Appreciate all that.

And then maybe as a follow up Blake, you mentioned OpEx obviously high this quarter and you also mentioned that it's been improving steadily and you'll kind of start getting back to something more normalized.

But with the dredge orders that don't come till 26 you maybe don't take that final step down until further down the road, maybe a little bit of timeline of kind of how you see OpEx trending over the next, you know, 456 quarters.

Yeah, Jim, that's a that's pretty much dead on you kind of walk through that pretty well.

So, you know, generating the lowest cost experts on across all across the industry is pretty core to that strategy.

You know, as John mentioned, we we have the best resources.

But a key part of our company culture is developing those in the most efficient manner.

Constantly seeking for a better process to use more standardization.

That's why that Q3 figure of 1,487 per time that really sticks to our crawl.

You know, one thing that is misleading about that number is that it was entirely driven by the elevated expenses at our permit plant.

The other plants were humming along pretty efficiently during the quarter or quite efficiently during the quarter.

And the leadership of crews of those plants actually should be very proud of their, of their results.

So Q3, the issue was primarily our large government plant, but as it's by far our largest facility, it really, it really drives the ship.

So that our operations leadership, they've been part of work in the plant back on track.

And even in Q3, we saw meaningful improvement from the beginning of the quarter through the end of September.

So it was pretty steady line of improvement there.

We expect the optimization efforts to begin to bear more fruit during Q4, at a pretty steady level.

The the primary issue for Q4 though is that we, we do expect to see that decline in throughput related to reduced demand driven by the operator budget exhaustion we talked about and that of course, negatively impacts fixed cost absorption across the complex.

So while we do expect average ICS per 10 to decline, sequentially, the improvement won't completely reflect the entirety of the underlying improvements.

So you really won't see that until 2025.

However, as we mentioned in the prepared remarks several times, we are increasingly optimistic about our outlet for volumes in 2025.

So we'll get that improved plant throughput and we should see the average OpEx per ton trend towards the low double digit range in relatively short order.

However, as you mentioned, you know, due to the issues we experienced commissioning the new dredges in the lead times on getting those, our hands on those new domestic dredges.

We won't fully reach our target levels in 2025.

So we'll still be the low cost producer of sand in the market next year, but we won't really be satisfied until we ride that GAAP to to its full extent, which is, you know, part of our long term strategy.

Got it.

That's helpful.

Appreciate it guys.

The next question is from Kurt Khalid from benchmark.

Please go ahead.

Hey, good morning, everybody.

The more card.

Hey, thanks for the thanks for the incremental color.

Just want to maybe take a, take another step to that as well, right?

You know, maybe he is if you can talk about the the bridge here between where we were in the third quarter, through the fourth quarter and into the first part of next year.

I guess the first element of what I'm curious about is, you know, what kind of magnitude of volume decline are you expecting to see?

And, and maybe the same kind of context of what kind of magnitude of, of pricing, either you're seeing through the fourth quarter or, you know, how your discussions on pricing are evolving for 2025 deliveries.

Yeah.

No, it's a, it's a really good question.

And you know, from where I, I wish we had a, a better answer for you right now.

But the truth of the matter is is that we're a little bit in the dark right now as it is.

So the real variable that's still open right now is sales volume.

So, you know, we've, we've got a good line of sight on what our costs are going to be.

And we've got a good base of contracted volumes for Q4.

So we entered the quarter with a really strong, strong contracted volume backlog, but I think the prospect of that prolonged holiday slowdown in the oil field is a very real prospect this year.

Of course, you're not not, you're not hearing that just from us.

I think that's a pretty common refrain across the space.

And so there's just from what we know now, you know, it's pointing to your volumes being, you know, down slightly.

But I think that there's just going to be continue to be some horse trading with customers where they come to us asking for a little Q4 relief in exchange for significant volume commitments in 2025.

And so fair to say most of the time, we're happy to help our customers out in those scenarios is those trades ultimately end up being greatly to our advantage.

At, at this point in the quarter, I can't confidently say that we won't have more conversations of that nature.

You know, ultimately, we're looking to maximize at this cash flow shareholders.

And if that entails giving some grace to key customers in the near term for some long term gain, I'm, I'm going to take that trade every day.

So, you know, I, I'd like to give you, you know, say like, hey, it's going to be right here.

But, you know, a lot of those conversations can sometimes happen, you know, the week after Thanksgiving, they're like, hey, you know, 10 days out.

So we're going to shut down for the last two weeks of the year and it just feels that that's a very real risk this year.

That being said, the tone of the conversations around 2025 is the flip side of that where it's, it's very positive.

You know, I think that the Atlas, the Atlas story is really resonating with a lot of the, the ideal customers that we designed this co company for.

That's great, appreciate that color. 2nd, 2nd 1 would be so I think we all everybody's aware here that there's been a significant reduction in in trucking rates, right?

And one of the the key dynamics around the Dune Express was the ability to deliver all the things you said it would deliver in your prepared commentary.

So maybe you can give us some, some insights here as to, you know, how if at all the margin profile for Do Express has changed, you know, since inception versus where we are now given the given the dynamics of the market.

And again, in the context of you referenced that your cost per time are going to be, you know, coming down a little bit in, in 2025 but not to the full extent of what you do experience.

So maybe you could package that all together and, and give us some context on how much of that is doing Express versus not doing Express.

You know, I'll Kurk.

I'll start on that and then I gather, feel free to chime in, you know, obviously, you know, when we originally modeled, you know, the returns on the D Express, you know, we, we, we modeled historically low trucking rates.

And, you know, we still, you feel like those rates that we're currently seeing are above what we had, what we had, the, the, the conservatism that we put into that, that forecast.

And yes, you know, depressed trucking rates do, obviously trucking rates do compress the margin opportunity.

They do and express some.

But, you know, like I said, I think it's important to remember a few things, you know, obviously these, we don't think these trucking rates can simply maintain at these current levels much longer, you know, at these current levels.

These trucking operators are barely able to cover their cost of fuel and the driver and much less maintenance expenditures and unforeseen issues.

You know, they quickly go into red, the red if, if, if, they take an extended break at the truck stop for a breakfast taco or, and you know, for coffee, or if that's, you know, a flat tire or an engine issue.

So, you know, we've mentioned that we've been hearing anecdotes of our mining competitors starting to institute shift reductions.

Well, I think it's significantly worse than the third party trucking.

I mean, Chris may be able to talk, maybe Chris can talk a little bit about that.

But, you know, there's multiple local operators have been closing their doors.

So, so, so the long story short of these types of rates are cutting the industry muscle.

This is going to have some blowback, blowback and at some point here in the future.

And so, so, you know, and like I said, is when we, when we were forecasting this off the Dune Express.

When we're doing this underwriting, this, the D Express itself, I mean, we were, we were, we were, we were underwriting to those rates that were lower than what we're currently to see.

So what we're currently seeing.

So, you know, the advantages of the Express are going to last significantly longer than the next six months.

You know, this is obviously a long life asset that's going to make Atlas margins for years to come through the up and down cycles.

And all that being said, we remain very excited about the impact that the express will have on, you know, atlas' margin profile free cash flow in 25 2025 and going forward.

I mean, do you want to say something Chris about the Yeah.

I mean, look from a logistics and trucking perspective.

You know, this is, this is nothing new, right?

Very cyclical.

We've seen this over the last couple of quarters and the associated margin compression.

But, you know, as John said, at the end of the day, you know, as as that as those costs compress, you know, so do our costs compressed at the end of line.

But that structural logistics advantage you know, of being 68 to 72 miles closer than any of our competition.

That that doesn't go away no matter no matter how low the prices go.

But I do think that, you know, we are at a point right now where you know, the the amount that it will fall moving forward is incrementally almost zero.

So I think we are at the low point and we're looking, looking forward to getting into that in 2025.

Thank you.

Appreciate.

That.

The next question is from Keith Mackey from RBC Capital Markets.

Please go ahead.

Hi, good morning.

Just first curious on, on CapEx, namely for next year, you should see a bit of a ramp down in CapEx spending with the completion of Dune Express.

Just how should we be thinking about the main pieces of CapEx?

And then as a second part to that, what should we be thinking for buyback utilization given, you know, potentially a a ramp in free cash flow?

Yeah.

Well, there's a lot in that question, Keith, but it's a great question.

So, you know, H1stly, it's we're still working through our budgeting cycle.

So it's a bit early to give hard guidance on 2025 CapEx.

We certainly don't have anything in the hopper with the scale of the, the current expansion or Dude Express by any means.

So it will be so it will be down meaningfully year over year.

We're always going to make sure that we're investing enough in in maintenance CapEx to preserve our core assets.

Additionally, we have a number of exciting growth initiatives in the incubator that are aching for some CapEx, but all of those have to be weighed against further growth to the dividend and now buying back our own stock as you mentioned.

So, thus to get through the budgeting process, these projects are going to need to display very concrete path covering a very high return threshold that we have the opinion that Atlas is at a pretty attractive levels currently.

So on top of that, we do continue to have frequent customer inquiries around future Encore mines.

We continue to state that we aren't going to speculate, we build more mines.

But if there's concrete customer demand, the Encore model remains a very attractive growth avenue.

I'll obviously have more detail on CapEx for you on the next on next quarter's call with respect to buyback authorization that we now have in place and how we're thinking about capital allocation going forward.

You know, from the start atlas' Management Board have felt the company provides a unique platform for, you know, differentiated returns both on and of capital shareholders, particularly relative to the rest of the ofs space, which historically, you know, hasn't displayed the relative scores on those metrics.

The the best relative scores on those metrics against the broader market.

But we have a unique position.

So we, we have the right assets in the right locations.

And then we're in the finishing stages of completing what in our opinion is an irreplicable infrastructure advantage that's going widen that return GAAP even further.

So, you know, you take a step back and if we think about capital allocation, you know, just, you know, forgive me for the trite analogy.

But you know, I think it's about the balance sheet of the foundation of capital allocation particularly in a cyclical industry like ours.

So, you know, leverage is always really enticing when you layer it layer it up with a with an up cycle in an Excel model.

But down cycles in this industry are always deeper and often times longer than we expect.

And we have enough collective time in the oil field and the and the scars to go with it to know that, you know, maintaining a fortress balance sheet is essential.

So we're currently in great leverage position which is only going to improve next year.

However, we do have approximately 148 million due on the note related to the high crush acquisition next year, which is a pretty large use of cash.

After the balance sheet, you know, you do have to continue to invest in the core business.

Maintain those as we talked about maintaining those assets to enable our spirit returns is that, that remains imperative.

On average, we think that that's approximately about 60 million per annum.

But that can go up or down depending on the type of project work required.

So those two are your foundation.

And after that, it's balancing the demands between growth CapEx and organic growth and incremental return of capital shareholders.

Typically, the growth CapEx are operations and commercial teams put in front of us are the highest, highest returns of cash where we see with returns often well, in excess of 20%.

However, those projects are infinite.

And we run through them, we run them through a pretty strenuous justification process that sees more fall off and get through, you know, with respect to inorganic growth.

You know, we continue to look for ways to accelerate the growth of atlas' cash flows, but we're going to be very disciplined in that process.

So, you know, we have a great core business and absolutely don't need to do anything that dilutes our current portfolio.

So any acquisition we pursue is going, you know, bring with it further competitive differentiation and an attractive valuation that will accelerate the growth of our cash flows.

And ultimately, you know, our ability to grow the dividend and buybacks, which brings me what you're really asking about, which is, you know, how we think about incremental return of capital.

You know, we've steadily grown our common dividend.

So it's now sitting at 24¢ per share, which represents about 4.8% annualized yield, which I believe is the second highest among the entire ofs universe.

So we're, we're sitting pretty well there.

We think about the common dividend.

It's like, you know, that's a sum of money that we hope we can, that we know we can return to our shareholders on the rainiest to rainy days.

So as our business grows and hopefully achieve even greater levels of cash flow stability, we will you know, we're constantly evaluate growing that number, but we also want to make sure that's at a level where investors know they can bank on receiving that check every quarter.

So, however, we, we sell a very cyclical commodity.

And while today's same pricing is at depressed levels, you know, it's going to snap back up just as violent as it goes down.

So in those markets, our business model generates significantly more cash and required by our other capital needs.

And we wanted to make sure with the buyback that we had another means of accelerating returns to our shareholder base at our disposal when the market begins to turn.

So ultimately, our purpose is to reward the shareholders for going, going on this ride with us.

And we're going to, we're going to do with all the tools we've got at our disposal with respect to how we're thinking about deploying the the buyback.

You know, we, we're, we're going to be constantly, you know, watching the market, but we're, we're certainly not going to do anything that's going to stress the balance sheet.

You know, we have this step change free cash flow coming with the Dune Express.

And so, you know, once we get that online, it's, I think that is something that we're constantly evaluating as management team and at the board level.

Okay.

Now that's, that's super helpful.

Thanks Blake, maybe just, just stepping back and thinking about the sand market a little bit.

Certainly is.

In, you know, in your presentation, I see a long tail of smaller sand providers and prepared remarks you talked about break even gross margins for, for a lot of the market and negative free cash flow as you think about 2025 go in and where we are.

Now, do you think that it's more a matter of, you know, supply has to drop out of the market to, to make the market a little bit more healthy or, or, or do prices really just have to come up because of because of, you know, increased demand?

Like how do you think about the sand market heading into 2025?

Is there, is there more softness that you can see or do you think that we'll see some of that, that rational behavior and, and some maybe some capacity drops out that supports prices and, and how do you see that playing out?

Yeah, I think, I think from my.

Perspective, this is Chris.

From my perspective here.

You know, as we come into our FD season, we got a few different factors going on, right.

The first is a number of the contracts that were historically signed are going to be rolling off here at the end of the year or into, into first quarter.

I think we do have some depressed sand pricing out there that, that, that is low and bumping up against our competitions.

OpEx.

Right.

So they're going to have to make some really hard, hard decisions here.

I think what you also have is a little bit of a, of a hope and dream for our competition coming into RFP season, right?

They're going to hang in there through Q4 through the low prices and really, really bank on if you will getting those volumes from the RFP.

And then I think you're going to see, you know, typically we have a nice pop in Q1 with refreshed budgets and activity.

I really think what you'll see from that is, is our competition, either one reducing reducing shifts and therefore, you know, capacity or two dropping out of the, the market overall.

But I don't think you're going to see that in Q4 just because, you know, that that's what everyone's waiting for is that that RFP volume.

You know, but as we progress into Q1 of Q2 or, or late Q2 of next year, I think you'll really start to see the fallout from the market which really, you know, provides fundamentals if you will for where you're going is those, those higher sand prices on a long term basis.

Thanks very much, really.

Appreciate it.

The next question is from David Smith from Pickering Energy Partners.

Please go ahead.

Hey, good morning, good morning.

Thank you for taking my questions.

It's more that one wanted to ask.

How are you thinking about the cadence of commercial deliveries ranking up on, on June Express into next year?

Maybe, you know, when, when you think you could get to that annualized 11 to $12 million to random run rate.

Yeah, I'll, I'll start off and Chris can, Chris can, can follow up on that.

You look obviously excited about the, the, the launch of the Express in the fourth quarter.

There is going to be a ramp up period for that, you know, getting income operators, you know, working through the, the, you know, the, when I say all the the the ramp up and, and, and commissioning phase for us getting the operators to, to fully utilize San coming off the Student Express, obviously, I think what, what you're going to find Chris to say is that, you know, I wouldn't expect that to be fully ramped up until sometime, you know, mid next year on those volumes.

But I do think we have a lot of operator buying on the on the new Express.

I think a lot of our customers and, and actually new customers are very excited about taking volumes out there taking volumes off the New Express and doing their part and taking trucks off the road.

But here I'll turn over to Chris, you can elaborate more on that.

Yeah.

I mean, so as we've approached this from a commercial perspective, it, it's always been, you know, go, go get the work, prove our liability to the customers and simply roll them into the Dune Express, right from a customer perspective.

Whether sand comes off the DN Express or doesn't come off the DN Express, it really, it really, they really shouldn't see any operational difference out there.

Now, you know, looking at, looking at at our customers, you can look back a few years and it was, you know, this is never going to happen, you know Dune Express, you know, is this real and, and what we've come to is now that you're seeing across public roads, you're seeing the completion, almost there.

Those number of, of customer visits out to the Dune Express have gone up substantially.

And I think what you're seeing take place over the last quarter is really that realization from our customer base that yes, this is real.

This is coming and we'll take, take trucks off the road and not only take trucks off the road but provide solutions to deliver more sand to the blender, right, more and more, that's what we're hearing is we want, we want to move to 24 7 operations and combining the Dune Express closer deliveries with multi trailer operations, that's what delivers, you know, sand to the blender 24 7 and removes those constraints that are existing today and allows our customers to become more and more efficient.

And I appreciate that color.

I wanted to follow up with that on maybe how we should think about the margin progression for the exterior to ramp up, presumably some under absorption cost until you get to the full run rate.

But maybe there's an element of, of introductory pricing proving out the concept just kind of compared to, you know, how you think about the, the, the Dinner Express margins, you know, when it's, when it's fully, you know, running in two years from now, how should we think about that?

Maybe for the first half of 25?

Well, the one thing is we, we don't sell like Dune Express specific like contracts where it's like, okay, like there's like a discount to the standard Dune Express price.

It's, it's a logistics price of like delivered sand.

And so, there's no, you know, introductory pricing to the Dune Express or anything like that.

Now, there are every, every contract is specific with, with large customers.

And yeah, we, we keep a pretty tight lid on that price, but we're, and we're, we're looking to move towards more of a, you know, fully delivered price over time.

You know, where it's, it's not, you're not breaking out, you know, the price of sand versus the price of delivery.

And so as we know, as the industry matures and as we mature in our, in our business model, we, we, we'll continue to move in that direction.

No real change to our, our previous guide, we'll give more clearer guidance and we're still working through the 2025 budget process and we'll give clearer guidance on on the next call on, you know, the exactly how, how to, how to, how to model going through next year on the margin standpoint as we, as we iron that out ourselves, had to.

Try.

I appreciate it.

Thank you.

Got it.

The next question is from Sean Mitchell from Daniel Energy Partners.

Please go ahead.

Hey guys, thanks for taking the question.

Just curious, you guys see obviously and talk to a lot of customers that are using your product.

Is there any change in the mix in terms of?

And what I mean by that?

Is there any change in mix for wet sand versus dry sand?

And as people kind of move to these, we hear a lot on these conference calls.

Guys moving to Simo Frac, Triel Frac.

Are, are guys moving?

Are you seeing that in your business at all?

Just this kind of move to wet sand more and more.

I, I'll, I'll start off on that one, Sean and then maybe Chris would like to follow up.

Look, I I think it's more about getting sand locating sand that the assets closer to the well site.

I think you, once you like, if you look at the, if you look at some of the most sand pumped out there by our customers, you look at them, look at those who those customers are and it's actually the, the Encore mines out there in, in, in the Midland Basin where, you know, the, the, the, the sand is located, you know, 1,015 miles, maybe less from the, from the well site where they can more efficiently utilize the trucking assets more efficiently utilize the storage and location.

And it's just, it's just more efficient.

You can disturb the, the well site better, you know, with your assets.

And I mean, it's kind of like when you look at on the Dune Express, you look at what the Dune Express is going to do.

It's going to take that, you know, the, the best asset, best sand mine, set of sand mines in the basin, dry sand mines and it's going to take those sand mines that's going to place them right in the middle.

That's one of the things Chris talked about is, you know, a lot of our operators, a lot of our customers are looking at how to increase the amount of time that they, that they can pump.

And a lot of that, you know, a lot of that bottleneck is, is it is sand and its distance from, from the well side.

So I think it really depends upon what, what an, I think it really, it depends upon where the assets are.

And so Chris, you.

Want, you know, John, I think you summed it up really well, right?

As.

Logistics at this point where sandd pricing is, has eclipsed sand in terms of, you know, that percentage of the total delivered cost, right, a much larger portion than it than it had been historically.

You know, location, location, location, that's the name of the game and in reducing those total delivered.

Cost to our customers.

Got it.

Thanks.

The next question is from Neil Metze from Goldman Sachs Asset Management.

Please go ahead.

Yes, thank you, Neil Mehta from Goldman Sachs Research.

Mike.

First question is just on operating expenses per ton on the mining side and just your perspective on how you see that evolving as we make our way through 2025 and into 2026 potentially as well.

What are the moving pieces and what's inside your control and what's not in your control?

Yeah, sure.

You know, I think we, we touched on this earlier but you know, we expect like a lot of a lot of the issues in that 1,487 per ton number for Q3.

That that was a result of, you know, incremental inefficiencies in the system that were basically as coming out of the rebuild process, you know, that the month of July was our highest, experts on quarter.

We saw sequential improvements as a lot of the, you know, operational improvement plans were put in place.

You know, just as that process continues to mature and, and, and move along, we'll see that continue to drive the expert ton down that would like, you know, we expect it would be in the, you know, low double digit range by the end of the year.

And, and then expect it to kind of run, you know, remain in that range through the process of the, through the course of 2025.

You know, we're a very high fixed cost leverage business and so the more tonnage we can push through the plant, the better that average expert ton gets.

So we will, you know, and next year, we expect to be a big volume here for Alice.

You know, the next step change though really would be when we get our hands on those incremental dredges.

And that's not going to be until early 2026.

But that's really only for the Kermit plant, which only represents about a third of the OpEx of, of our overall complex.

So, you know, what we've always talked about publicly is that represents about, you know, I think, you know, a dollar to $2 at the top of incremental OpEx improvement.

But, you know, you think of that only being about a third of that, of the complex that, you know, obviously split that amongst the, the average of the portfolio.

It's, it's less of an impact, but that's really probably the next step change.

We're never going to get like Atlas, if you think about the pretty high crush acquisition, you know, we, we were at these very, very low OpEx per ton levels, we're never going to get back there just because we have a different asset base now.

Particularly with like the mobile minds, which bring their own advantages on the OpEx side, but more of the logistical end.

So we're going to constantly be looking for ways to drive that average OpEx per ton down.

That's, you know, we've got a a new operational excellence team in place.

You know, they are coming up with ideas every day that we, we never solved.

Again, it's fresh eyes on the system.

You know, you bring in talented people and they they, they start to pay dividends very early.

That's, that's really helpful color and then just your perspective on return of capital as do express comes online as the free cash will reflect.

And hopefully the commodity starts to normalize here, you're going to be in a position to to return a lot to shareholders.

So just anything about buybacks versus dividends.

And, you know, you know, when you talk to your investors, do you see there's a preference.

Yeah.

You know, target investors.

You know, they like it all which, you know, big surprise there, right?

They, they, the more cash and the more value you can return to them, the happier they are and we are happy to you know, serve them lots of different courses.

You know, again, like as I mentioned before, you know, we think about that, that common dividend being a, a number that we feel very confident that we can, we can pay out in the the worst of the downcycles.

We, we don't want to get that to a level where at any point it would start to stress like we'd be, you know, using the balance sheet to pay it.

You know, if that's a, we want to remain at a, you know, a very, you know, not conservative level but a, you know, a, a significant amount of money that we know that we could pay out every quarter.

And we want, we want our shareholders to be able to put a, you know, to count on that to come into their pocket every quarter, the buyback.

You know, that's one of the reasons that we wanted to put that buyback authorization in our back pocket is that we know that this business is going to generate significantly more cash than that common dividend requires.

And that, that is required by the amortization of our debt that we see coming over the coming year or so.

You know, Atlas is going to continue to delever we're going to continue to, to pay out that common dividend.

And on top of that, we'll look to to, to use that excess cash flow to return that through the buyback.

You know, this is something that we talk about every quarter with our board too is that we're constantly discussing incremental means of returning capital shareholders.

So just because this is what we currently have on the table doesn't mean this is where we're going to be our end point either.

That's a great guess.

Thanks for the time.

Thanks Bill.

This concludes the question and answer session.

I would like to turn the floor back over to John Turner for closing comments.

I'd like to thank everybody for joining and participating in everybody's call.

Obviously, the four quarters is going to be very exciting.

We're going to be talking about the Dune Express.

You know, the Dune Express, you know, makes operators more efficient, which makes the Permian Basin more efficient and efficiency is the name of the game.

When it comes to manufacturing and the, the Permian Basin is the largest and most important in manufacturing process in America.

So, you know, we look forward to, to, to reporting to you guys here coming in on the fourth quarter.

And if you guys have any questions, please don't hesitate to call Kyle.

Thank you.

This concludes today's teleconference.

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Thank you for your participation.