Atlas Energy Solutions Inc. Q1 2023 Earnings Call

Operator: Greetings. Welcome to the Atlas Energy Solutions Q1 2023 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, Vice President of Investor Relations. Thank you, Kyle. You may begin.

Greetings and welcome to the Atlas Energy solutions first quarter 2023 financial and operational results conference call. At this time all participants are in a listen only mode. A brief question and Asterix session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now.

Now my pleasure to introduce your host Altair Ellington, Vice President of Investor Relations. Thank you Kyle you may begin.

Kyle Turlington: Hello, welcome everyone to the Atlas Energy Solutions conference call and webcast for Q1 2023. With us today are Bud Brigham, Chairman and Chief Executive Officer, and John Turner, President and CFO. Both Bud and John will be sharing some comments, after which we will open the call up 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 US securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially.

Hello, and welcome everyone to the Atlas Energy Solutions conference call and webcast for the first quarter of 2023 with US today are Bud Brigham Chairman and Chief Executive Officer, and John Turner, President and CFO , both Brad and John will be sharing some comments after which we will open the call up 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 current information and management's expectations as of this statement and are not guarantees of future performance.

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 it.

Kyle Turlington: You can learn more about these risks in our registration statements on Form S-1 filed with the US Securities and Exchange Commission on 31 January 2023, in connection with our initial public offering, our quarterly report 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 publicly 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 now turn the call over to Bud Brigham.

These risks and a registration statement on form S. One filed with the U S Securities and Exchange Commission on January 31, 2023, and connection with our initial public offering our quarterly report 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 publicly update these four.

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 now turn the call over to Bud Brigham.

Bud Brigham: Thanks, Kyle. Hello, and welcome to the Atlas Energy Solutions Earnings Call and Webcast for Q1 2023. This is our very first earnings call as a public company, and I want to welcome our new investors. Thank you for believing in us and supporting our mission. I also want to congratulate our early existing investors. What you have helped us create is very special, and we're only just beginning. I would like to start this call with some preliminary remarks about who we are and the Atlas mission before getting into the normal course operational and financial commentary. I've said it before, but I really did not expect to take a third company public.

Thanks, Kyle Hello, and welcome to the Atlas Energy solutions earnings call and webcast for the first quarter of 2023. This is our very first earnings call as a public company and I want to welcome our new investors think.

Thank you for believing in us and supporting our mission.

I also want to congratulate our early existing investors.

Once you have helped US create is very special and we're only just beginning.

I would like to start this call with some preliminary remarks about who we are and the outlets mission before getting into the normal course operational and financial commentary.

I've said, it before but I really do not expect to take a third company public.

Bud Brigham: We're here because this is a very special company with a lot of opportunity ahead of it, and we're excited to be taking the next major steps forward, in my view, to accelerate the Permian's maturation from a world-class oil field to an even more differentiated world-class energy manufacturing center. The oil field in general, and the Permian particularly, have been evolving. I believe that Atlas is uniquely positioned given, one, that we have the scale that is necessary and sustainable to match the growing scale of Permian operators. Two, our E&P experience, including with infrastructure and right of ways, and three, our track record in the basin to deliver the next constructive disruption to accelerate the Permian's transformation. The prior constructive disruption, sourcing local sand, was extremely beneficial to the Permian and further differentiated it relative to other basins.

We're here because this is a very special company with a lot of opportunity ahead of it and we're excited to be taking the next major steps forward in my view to accelerate the Permian maturation from our world class oilfield to an even more differentiated world class Energy manufacturing Center.

The oilfield in general and the Permian, particularly has been evolving.

And I believe that Atlas is uniquely positioned given one that we have the scale that is necessary and sustainable to match the growing scale of Permian operators to our E&P experience, including with the infrastructure and right of ways and three.

Our track record in the basin.

To deliver the next constructive disruption to accelerate the Permian is transformation.

The prior constructive disruption sourcing local sand.

It was extremely beneficial to the Permian and further differentiate it relative to other basins.

Bud Brigham: By securing what I call the Ghawar of sand reserves and building state-of-the-art plants with redundancy, Atlas emerged from that disruption in an advantaged position as a premier proppant producer in the Permian. In addition, Atlas has delivered industry-leading environmental benefits by reducing energy consumption, emissions, and the aerial footprint of our mining operations, benefiting from our giant open dune deposits and our unique dredging operations, with more to come. Atlas has been sold out of proppant, and our customers continue to sign new contracts of increasing term. We think that excitement over the Dune Express and its societal and environmental benefits are part of this. The market, as evidenced by the demand for our product, has been telling us it needs more Atlas proppant. Our expansion project has been underway since last year.

By securing what I call the war of sand reserves and building steadily our plants with redundancy.

Atlas emerge from that disruption.

Vantage position as a premier proppant producer in the Permian.

In addition.

This has delivered industry, leading environmental benefits by reducing energy consumption and emissions.

And the aerial footprint up our mining operations benefiting.

Benefiting from our giant open dune deposits and our unique dredging operations with more to come.

Atlas has been sold out of proppant and.

And our customers continued to sign new contracts of increasing term.

We think that excitement over the don't express and its societal and environmental benefits are part of this.

But the market as evidenced by the demand for our product has been telling us it needs more at less proppant.

Our expansion project has been underway since last year.

Bud Brigham: It is on time and on budget, and we expect it to grow our production capacity by roughly 50% as we exit the year. With all that said about our proppant production, Atlas has commenced the next constructive disruption in logistics and delivery systems. As everyone in the region knows all too well, the Permian road infrastructure and communities are intensely pressured and negatively impacted by heavy hauling, particularly of mission-critical proppant on our commercial roadways, which are shared with the residents and workers in the community. Given our differentiated scale of production of this mission-critical element that must be delivered to every Permian horizontal well, as well as our E&P and infrastructure experience, Atlas is uniquely positioned to deliver a step change advancement in delivery systems, thereby enhancing reliability, dependability, and efficiencies with major environmental and societal benefits. These initiatives are very much underway.

It is on time and on budget.

And we expect it to grow our production capacity by roughly 50% as we exit the year.

So with all that said about our proppant production.

Outlets has commenced the next constructive disruption and logistics and delivery systems.

As everyone in the region knows all too well the Permian Road infrastructure and communities are intensely pressured and negatively impacted by heavy hauling, particularly mission critical proppant at our commercial roadways, which are shared with the residents and workers in the community.

Okay.

Given our differentiated scale up production of this mission critical element that must be delivered to every Permian horizontal well.

As well as our E&P and infrastructure experience.

<unk> is uniquely positioned to deliver.

That change advancement in delivery systems.

By enhancing reliability, dependability, and efficiencies with major environmental and societal benefits.

These initiatives are very much underway.

Bud Brigham: They will enable Atlas to reduce emissions and save lives while making the Permian Basin a better place to live and work. I call this sustainable, environmental, and social progress, or SESP. It's also what I term the harmony of capitalism. It's the reason our country enjoys among the cleanest and safest air and water of any major country. By responsibly focusing on our fiduciary obligation to create value for shareholders, all the legitimate stakeholders, including our employees, our communities, and the environment, also benefit. It's virtuous and it's sustainable, compounding constructively for all our stakeholders. As a result of our intense focus on our fiduciary obligation to our shareholders, I would put our company's environmental and societal accomplishments up against any peer.

Will enable atlas to reduce emissions and save lives.

While making our Permian basin, a better place to live and work.

I call this sustainable environmental and social progress or CSP.

It's also what I term the harmony of capitalism.

And our country enjoys among the cleanest insight that the air and water of any major country.

By responsibly, focusing on our fiduciary obligation to create value for shareholders.

The legitimate stakeholders, including our employees our communities and the environment also benefit.

Its purchase and it's sustainable compounding constructively for all our stakeholders.

As a result of our intense focus on our fiduciary obligation to our shareholders.

Our company's environmental and societal accomplishments up against any peer.

Bud Brigham: As you can see in our presentation, our innovative and unique logistics platform has been delivering proppant from our state-of-the-art production facilities, utilizing our fit-for-purpose logistics assets all the way to the blender. This asset base continues to grow as deliveries of equipment progress and as we obtain new logistics work around the basin. We've successfully completed jobs with payloads close to 100 tons per truck, which is roughly four times the industry standard, which illustrates the potential of our logistics offering to drive efficiencies for our customers, even prior to the Dune Express in-service date. Of course, this is being implemented to ultimately integrate with our Dune Express, which will compound to further advance logistics in the Permian. The Dune Express was the use of proceeds in our offering.

As you can see in our presentation, our innovative and unique logistics platform has been delivering proppant from our state of the art production facilities utilizing our fit for purpose logistics assets all the way to the blender.

This asset base continues to grow as deliveries of equipment progress.

And as we obtained new logistics work around the basin.

We've successfully completed jobs with payloads close to 100 tons per truck, which is roughly four times the industry standard.

And which illustrates the potential of our logistics offering to drive efficiencies for our customers even prior to the <unk> Express in service date.

And of course, this is being implemented to ultimately integrate with our <unk> Express, which will compound to further advance logistics in the Permian.

They don't express what's the use of proceeds and our offering.

Bud Brigham: It's an innovative and state-of-the-art 42-mile conveyor system to transport proppant into the heart of the Permian, its construction is very much underway. I should also point out that these logistical initiatives, particularly the Dune Express, are very personal to me, given that I grew up in Midland. The current situation in the region is unacceptable, we intend to change it. We estimate that for deliveries fulfilled using the Dune Express, we'll be able to cut out, on average, 70% of the miles driven on public roads as compared to deliveries performed from competitor plants in the Winkler trend. We think that's going to be powerful in terms of avoiding traffic accidents and protecting human lives. Again, the reason we started looking at this project was to drive returns to shareholders.

It's an innovative instead of the 42 miles conveyor system to transport proppant into the heart of the Permian.

And its construction is very much underway.

I should also point out that these logistical initiatives, particularly the <unk> Express.

Personal to me given that I grew up in Midland.

The current situation in the region is unacceptable and we intend to change it.

We estimate that for deliveries fulfilled using the <unk> Express.

We will be able to cut out on average 70% of the miles driven on public roads as compared to deliveries performed from competitor plants and the weaker trend.

We think thats going to be powerful in terms of avoiding traffic accidents and protecting human lives again. The reason we started looking at this project was to drive returns to shareholders.

Bud Brigham: It's such a wonderful thing to deliver high-impact infrastructure that provides major safety benefits to the Permian Basin community. It's also very rewarding for me personally, given that it will be located right there in the community I grew up in. Now to get into the update on the business and industry, we're pleased with our Q1 results. We remain very bullish about the company's prospects and have an optimistic outlook for the industry. Briefly regarding the outlook for our industry, in my view, the macro headlines, which were created by excessive government spending and associated subsequent monetary disruptions, may mask but does not change the underlying major structural problems that we have with energy.

As such a wonderful thing to deliver high impact infrastructure there.

It provides major safety benefits to the Permian Basin community.

It's also very rewarding for me personally given that it will be located right. There in the community grew up in.

Now to get into the update on the business in the industry. We're pleased with our first quarter results.

We remain very bullish about the company's prospects and have an.

Domestic outlook for the industry.

Briefly regarding the outlook for our industry and.

In my view, the macro headlines, which were created by excess of government spending and associated subsequent monetary disruptions.

Mask that does not change the underlying major structural problems that we have with energy.

Bud Brigham: Given the lack of capital invested in energy over the last 7 years, I am very concerned about our ability to meet the demand growth that is coming, particularly in the developing world, over the next 1, 3, and even 5 or 10 years. In my view, a lot of responsibility and opportunity will fall to the Permian as the premier oil-producing basin in the US. Regarding our performance, we are proud of the operational execution that underpins this quarter for Atlas as the company set new quarterly operational and financial records on sales volumes, sales, adjusted EBITDA, and adjusted free cash flow. The margins generated by this enterprise are better than any company I've been associated with. Thus, our financial metrics, as illustrated in our presentation on slide 13, compare very favorably with the best performers in the oil and gas industry.

Given the lack of capital invested in energy over the last seven years.

I am very concerned about our ability to meet the demand growth that is coming.

Particularly in the developing world over the next one three and even five or 10 years.

In my view, a lot of responsibility and opportunity will fall to the Permian as a premier oil producing basin in the U S.

Regarding our performance.

We are proud of the operational execution that underpins this quarter for Atlas.

As the company set new quarterly operational and financial records on sales volumes.

Sales adjusted EBITDA and adjusted free cash flow.

The margins generated by this enterprise or better than any company I've been associated with.

Thus our financial metrics as illustrated in our presentation on slide 13.

Compare very favorably with the best performers in the oil and gas industry.

Bud Brigham: Atlas has generated meaningful value for its equity holders. Over time, our exceptional margins, cash generation, and growth should be recognized in the market. The company is well-capitalized on the heels of our recent IPO. As will be discussed further, we are progressing nicely on the execution of our growth initiatives, including the Kermit facility expansion and construction of the Dune Express. Briefly regarding the dividend, this will be our sixth distribution over the last 20 months. The last four distributions have been $15 million per quarter, and we're distributing $15 million again this quarter. At our current run rate, that's approximately 19% of our adjusted free cash flow of approximately $77 million in Q1 2023. For the time being, this should be considered a variable distribution.

Alex has generated meaningful value for its equity holders.

Over time, our exceptional margins cash generation.

And growth should be recognized in the market.

The company is well capitalized on the heels of our recent IPO.

And as will be discussed further we are progressing nicely on the execution of our growth initiatives, including the covenant facility expansion and construction of the <unk> Express.

Briefly regarding the dividend this will be our sixth distribution over the last 20 months.

The last four distributions have been $15 million per quarter and.

And we are distributing $50 million again this quarter.

At our current run rate that is approximately 19% of our adjusted free cash flow of approximately $77 million in the first quarter of 2023.

Yeah.

But at the time being this should be considered a variable distribution.

Bud Brigham: During the course of this year and next, we will look forward at our forecast on a quarterly basis to be sure that we retain plenty of flexibility to fund and complete our growth CapEx projects. The fact that we enjoy such exceptional margins, that we're over 90% contracted this year, and that we expect to be about 80% contracted for 2024 by year-end, should provide us a good deal of flexibility in this regard. If conditions change and our forecast change as well, we can retain more of our free cash flow in subsequent quarters for our high rate of return growth CapEx projects. During the course of this year and possibly next, our board will be deliberating, developing and implementing a longer-term dividend policy.

During the course of this year and next we will look forward at our forecasts on a quarterly basis.

To be sure that we retain plenty of flexibility to fund and complete our growth Capex projects.

The fact that we enjoy such exceptional margins.

We're over 90% contracted this year.

We expect to be about 80% contracted for 2024 by year end.

<unk> provide us a good deal of flexibility in this regard.

However, if conditions change and our forecast changes well.

We can retain more of our free cash flow in subsequent quarters for our high rate of return growth Capex projects.

Also.

During the course of this year and possibly next our board will be deliberating, developing and implementing our longer term dividend policy.

Bud Brigham: Though we are in a window of substantial CapEx investment with both our Kermit plant expansion and the Dune Express, they will both be completed over the course of the next 18 months to generate a material expansion of our production, revenue, and cash flow capability. We expect, given our strong margins, that in the process of winding down these substantial capital investments, Atlas will become an even more powerful distributing enterprise. With regard to the broader industry outlook, activity levels across the Permian drilling and completions market remained robust during Q1, with the Permian adding 33 new rigs year-over-year. The Permian is very important to the global oil supply picture, as it contains some of the most economic rock in North America, with low oil price breakevens.

So we are in a window of substantial capex investment with both our comment plant expansion and the <unk> Express.

They will both be completed over the course of the next 18 months to generate a material expansion of our production revenue and cash flow capability.

We expect given our strong margins.

They are in the process of winding down the substantial capital investments.

Will become an even more powerful distributing enterprise.

With regard to the broader industry outlook.

Activity levels across the Permian drilling and completions market remained robust during the first quarter.

With the Permian, adding 33, new rigs year over year.

The Permian is very important to the global oil supply picture as it contains some of the most economic rock in North America with low oil price breakeven.

Bud Brigham: Importantly today, given the higher oil cut that is exhibited by most Permian wells, the Permian economics are not particularly sensitive to natural gas pricing. That's important to keep in mind for us as we're selling 100% into the Permian. We're not exposed to the negative dynamics affecting service providers with a footprint in the gas basins. In fact, we potentially stand to benefit from the relocation of equipment from gas basins. For every incremental frac crew that relocates from gas basins to the Permian, there is incremental Permian sand demand associated with that crew. That incremental sand increases the total sand demand in the Permian and provides market tailwinds. Regarding the sand market in the Permian, given our highly contracted position, we were not a large participant in the spot market during Q1. Our contracting strategy allows us to have stable, consistent, and forecastable pricing.

Importantly, today, given the higher oil cut that is exhibited by most Permian wells the Permian economics are not particularly sensitive to natural gas pricing.

That's important to keep in mind for us as we're selling 100% into the Permian.

So we're not exposed to the negative dynamics affecting service providers with a footprint in the gas basins.

In fact, we potentially stand to benefit from the relocation of equipment from gas basins.

For every incremental crew that relocates from gas basins to the Permian.

Incremental Permian sand demand associated with that.

That incremental sand increases the total sand demand in the Permian and provides market tailwind.

Regarding the sand market in the Permian.

Given our highly contracted position.

We're not a large participant in the spot market during the first quarter.

Our contracting strategy allows us to have stable consistent and forecastable pricing.

Bud Brigham: Our expectations for Q2 average pricing have us landing in the mid to low 40s range for mine gate pricing, with continued light and selective participation in the spot market. We are expecting proppant consumption to continue to increase as long as oil prices remain in the current range, which I view as likely prior to eventually heading higher. We also expect completions efficiencies to continue to drive proppant consumption upwards across a range of oil prices as completion cycle times continue to improve with increased simulfrac adoption, which we see as currently only about 10% to 15% of the market. This is expected to drive growing demand in future periods.

Our expectations for the second quarter average pricing have is landing in the mid to low $40 range for mine gate pricing.

Continued light and selective participation in the spot market.

Yeah.

We are expecting proppant consumption to continue to increase as long as oil prices remain in the current range.

Which I view as likely prior to eventually heading higher.

Yeah.

We also expect completions efficiencies to continue to drive proppant consumption profile upwards.

Across a range of oil prices as.

As completion cycle times continue to improve with increased Simon <unk> adoption.

Which we see is currently only about 10% to 15% of the market.

This is expected to drive growing demand in future periods.

Bud Brigham: Restating and summarizing on our capital projects, and John will cover the numbers, we are progressing nicely on our Kermit facility expansion, which we still expect to come online in Q4 this year on time and on budget. In fact, the new silos for the expansion are going vertical right now. As I mentioned earlier, we officially kicked off the process of building the Dune Express during the last quarter. We broke ground on 21 March. Just a reminder, we have previously secured the necessary right of ways, obtained all required federal and state permitting, and previously secured two anchor contracts to take delivery of sand from the Dune Express. We have ordered more than 50% of the equipment and materials required for the project, which are generally contracted, providing for greater budget visibility.

Restating and summarizing on our capital projects and John will cover the numbers.

We are progressing nicely on our Kermit facility expansion, which we still expect to come online in Q4 this year on time and on budget.

In fact, the new silos for the expansion of going vertical right now.

And as I mentioned earlier, we officially kicked off the process of building that <unk> expressed during the last quarter.

We broke ground on March 21.

Just a reminder, we had previously secured the necessary right of ways obtained all required federal and state permitting and previously secured two anchor contracts to take delivery of sand from the doing express.

We have ordered more than 50% of the equipment and materials required for the project.

So generally contracted.

<unk> for greater budget visibility.

Bud Brigham: We've also ordered more than 40% of the services related to installation and labor, which again, means we're de-risking the project's overall cost by agreeing to pricing with many of our vendors. We've cleared about 15 miles of the route, of which five miles has been graded, and we've laid about 15 acres of caliche pads for our transfer stations, laydown yards, and overhead crossings. While we're still early in the construction, all of this activity gives us increased comfort in our planned timeline for commercial in-service, which we anticipate will occur in Q4 2024. In summary, and then I will turn it over to John, we're very pleased with the performance of the company and we're optimistic in our outlook for the remainder of the year. We view the macro setup as compelling and are extremely excited about our transformational logistical initiatives.

We've also ordered more than 40% of the services related to installation and labor, which again means we're de risking the project's overall costs by agreeing to pricing with many of our vendors.

We've cleared about 15 miles of the route of which five miles has been graded and we've laid about 15 acres of caliche pads for our transfer stations lay down yards and overhead crossings.

While we're still early in the construction all of this activity gives us increased comfort and our planned timeline for commercial in service, which we anticipate will occur in the fourth quarter of 2024.

Yeah.

In summary, and then I'll turn it over to John We're very pleased with the performance of the company and we are optimistic in our outlook for the remainder of the year.

We view the macro setup is compelling.

And we are extremely excited about our transformational logistical initiatives.

Bud Brigham: We appreciate your support as stockholders, and we're working hard to create value. With that, I'd like to turn the call over to John Turner, our President and Chief Financial Officer, to discuss our financial results in more detail.

We appreciate your support as stockholders and we're working hard to create value.

With that I'd like to turn the call over to John Turner, Our President and Chief Financial Officer.

To discuss our financial results in more detail.

John Turner: Thank you, Bud. Today, I'll review our Q1 2023 operating results and comment on our financial position. We had a strong quarter from a revenue standpoint and generated a quarterly reported adjusted EBITDA of $84 million, representing a strong margin of 55%. As we'll get into, this was an excellent quarter despite elevated plant operating costs, which will moderate going forward for the rest of 2023. In Q1 2023, we set a company record for quarterly sales volumes at 2.8 million tons. This annualizes to a run rate of just over 11 million tons per year. We were highly contracted in Q1 and remain highly contracted for the remainder of 2023.

Thank you, but today our review our first quarter 2023 operating results and comment on our financial position, we had a strong quarter from a revenue standpoint and generated a quarterly reported adjusted EBITDA of $84 million.

Representing a strong margin of 55%.

As we will get into this was an excellent quarter. Despite elevated plant operating costs, which will moderate going forward for the rest of 2023.

In the first quarter of 2023, we set a company record for quarterly sales volumes of $2 8 million tonnes. This annualize to a run rate of just over 11 million tons per year, we were highly contracted in the first quarter and remained highly contracted for the remainder of 2023, we expect to renew and to add incremental contract.

John Turner: We expect to renew and to add incremental contract volumes for 2024 and beyond as we move through the year, expect that as we grow our logistics fleet and get closer to the Dune Express in-service date, that our contract position will continue to grow on the logistics front as well. For Q1, we generated record sales of $153 million, representing a 2% sequential increase. On product sales, our volumes grew by approximately 91,000 tons, representing a 3% sequential increase. Mine gate pricing in Q1 2023 was $0.76 per ton higher than it was in Q4 2022. For our service sales, which is revenue generated by our logistics business, we saw a sequential decrease of $2.7 million, which was associated with lower than expected freight pricing experienced during the quarter.

Volumes for 2024 and beyond as we move through the year and expect that as we grow our logistics fleet and get closer to the didn't express in service date that our contract position will continue to grow on the logistics front as well.

For the first quarter, we generated record sales of $153 million, representing a 2% sequential increase on product sales. Our volumes grew by approximately 91000 tons, representing a 3% sequential increase mine gate pricing in the first quarter of 2023 was 76 cents per ton higher than it.

Wasn't the fourth quarter of 22.

For our service sales, which is revenue generated by our logistics business. We saw a sequential decrease of $2 7 million, which was associated with lower than expected freight pricing experienced during the quarter.

John Turner: As a reminder, prior to the start of 2023, our service sales were limited to our asset light, low margin, well site coordination services business. Profit logistics is an area of significant focus, growth, and margin potential for us as we build out our fleet and ultimately transition to a logistics model in the Delaware Basin that includes shortened hauls off the Dune Express. Cost of sales, excluding DD&A, decreased by $4.7 million quarter over quarter to $63 million. This decrease in COGS was primarily associated with a meaningful reduction in our contract labor and last-mile logistics costs. As we continue to transition our dredge mining operations fully in-house, we expect our mining costs to continue to moderate in subsequent quarters as our electric dredges exhibit improving utilization rates over the course of 2023.

As a reminder, prior to the start of 2023, our service sales were limited to our asset light low margin well site coordination services business profit logistics as an area of significant focus growth and margin potential for us as we build out our fleet and ultimately transition to a logistics model in the Delaware Basin that includes <unk>.

Short hauls off the <unk> Express.

Cost of sales, excluding D&A decreased by $4 $7 million quarter over quarter to $63 million.

This decrease in Cogs was primarily associated with a meaningful reduction in our contract labor and last mile logistics costs as we continue to transition our dredge mining operations fully in house, we expect our mining cost to continue to moderate in subsequent quarters as our electric judges exhibit improving utilization rates.

Over the course of 2023.

John Turner: As electric dredging increases, our mining costs and associated emissions will decrease considerably on a per-ton basis. This is a significant component of our overall cost of goods sold. By extension, we see COGS moderated as we move through the year. SG&A expense for the quarter was $8.5 million, representing a sequential increase of 7.6%. This increase was largely associated with an increase in stock and unit-based compensation. Interest expense net came in at $3.4 million for the quarter. Most of this was associated with our term loan, which bears interest at 8.47% and has a 2027 maturity. DD&A expense for the quarter increased to $8.5 million, representing a sequential increase of 9.3%. This increase was due to higher depletion expense associated with higher sales volumes and additional depreciable assets placed in the service as compared to the prior period.

As electric dredging increases our mining costs and associated emissions will decrease considerably on a per ton basis and this is a significant component of our overall cost of goods sold so by extension, we see Cogs moderated as we moved through the year.

SG&A expense for the quarter was $8 5 million, representing a sequential increase of seven 6%. This increase was largely associated with an increase in stock in unit based compensation.

<unk> expense net came in at $3 4 million for the quarter. Most of this was associated with our term loan, which bears interest at 847% and has a 2027 maturity.

DD&A expense for the quarter increased to $8 5 million, representing a sequential increase of nine 3%. This increase was due to higher depletion expense associated with higher sales volumes and additional depreciable assets placed into service as compared to the prior period.

John Turner: We generated net income of $63 million for Q1, representing an impressive net income margin of 41%. Given that our IPO occurred in the middle of the quarter, our diluted earnings per share for Q1 only included income allocated to the Class A shareholders for the last three weeks of the period. You'll see diluted earnings per share of $0.03 presented on our income statement. Of course, we generated $63 million in net income for the period as a company, and we have 100 million shares outstanding across our Class A and B share classes, which works out to be $0.63 per share. Net cash provided by operating activities for Q1 was $54 million, despite a $22 million increase in accounts receivable.

We generated net income of $63 million for the first quarter represented an impressive net income margin of 41% given that our IPO occurred in the middle of the quarter, our diluted earnings per share for the first quarter. Only included income allocated to the class a shareholders for the last three weeks of the period. So youll see diluted earnings per share of <unk>.

<unk> presented on our income statement of course, we generated $63 million net income for the period as a company and we have 100 million of shares outstanding across our class, a and b share classes, which works out to be 63 per share net.

Net cash provided by operating activities for the quarter was $54 million, despite a $22 million increase in accounts receivable.

John Turner: This increase was due to timing, and we have seen our accounts receivable balance normalize since the end of the quarter. Adjusted EBITDA for the period was $84 million, representing a sequential increase of 12% and adjusted EBITDA margin of 55%. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $77 million, representing a sequential increase of 15% and adjusted free cash flow margin of 50%. During Q1, we converted 92% of our adjusted EBITDA to adjusted free cash flow, given our low levels of required maintenance capital expenditures, and we are primarily investing that cash flow back into the business today. Results were strong across the board and are highlighted by our strong margin profile. Capital expenditures for the quarter were $68 million.

This increase was due to timing and we have seen our accounts receivable balance normalized since the end of the quarter adjusted EBITDA for the period was $84 million, representing a sequential increase of 12% and adjusted EBITDA margin of 55% adjusted free cash flow, which we defined as adjusted EBITDA less maintenance Capex was 77.

Representing a sequential increase of 15% and adjusted free cash flow margin of 50%.

During the first quarter, we converted 92% of our adjusted EBITDA to adjusted free cash flow given our low levels of required maintenance capital expenditures and we're primarily investing that cash flow back into the business. Today results were strong across the board and are highlighted by our strong margin profile.

Capital expenditures for the quarter were $68 million. This includes $61 million spent on growth projects, which is primarily the carbon expansion and $7 million spent on maintenance capital projects, we expect our capital spending on growth projects to increase through the year now that the data Express project has commenced we.

John Turner: This includes $61 million spent on growth projects, which is primarily the Kermit expansion, and $7 million spent on maintenance capital projects. We expect our capital spending on growth projects to increase through the year now that the Dune Express project has commenced. We expect capital expenditures for maintenance to grow modestly over the course of the year. Note that as previously mentioned, we are funding the 2023 CapEx associated with the build-out of our logistics fleet with capital leases, so you won't see those expenditures hitting the investing section of our cash flow statement. Instead, you will see us making payments in the financing section of the statement of cash flows over the course of the four to seven-year lease terms. As Bud mentioned earlier, we've been distributing $15 million per quarter and are doing so again this quarter.

Capital expenditures for maintenance to grow modestly over the course of the year note that as previously mentioned we are funding the 2023 capex associated with the build out of our logistics fleet with capital leases. So you won't see those expenditures hitting the investing section of our cash flow statement and instead, you will see us making payments in the financing section of the statement of cash flows.

Over the course of the four to seven year lease terms.

As Bud mentioned earlier, we've been distributing $15 million per quarter and are doing so again this quarter. That's a <unk> 15 per share dividend for our class a shareholders and a corresponding 15 cent per unit distribution for the unit holders for now I'll reiterate this is a variable dividend and we'll continue to evaluate our plans as we work with the <unk>.

John Turner: That's a $0.15 per share dividend for our Class A shareholders and a corresponding $0.15 per unit distribution for our B unit holders. For now, I'll reiterate, this is a variable dividend, and we'll continue to evaluate our plans as we work with the board to develop and communicate a formal return of capital framework. Turning to the balance sheet, we ended the quarter with a cash balance of $353 million. After the IPO, we took steps to de-risk our liquidity position by investing our cash into insured bank accounts and T-bills. As of 31 March 2023, our total liquidity was $427 million. This was comprised of $353 million in cash and equivalents and $74 million of availability underneath our ABL facility, under which we had no borrowings outstanding.

<unk> to develop it.

And communicate a formal return of capital framework.

Turning to the balance sheet, we ended the quarter with a cash balance of $353 million.

After the IPO, we took steps to de risk our liquidity position by invest our cash into.

<unk> insured bank accounts and T bills as of March 31, 2023, our total liquidity was $427 million. This was.

Priced at $353 million in cash and equivalents and $74 million.

The availability underneath our ABL facility under which we had no borrowings outstanding principal balance of our term loan sits at $141 million and our current capital lease balance was $27 million. So the total amount of debt outstanding is currently $168 million, leaving us in a net cash position of $185 million at the end of the year.

John Turner: The principal balance of our term loan sits at $141 million, and our current capital lease balance is $27 million. The total amount of debt outstanding is currently $168 million, leaving us in a net cash position of $185 million at the end of the year, which translates to a total debt to latest 12-month EBITDA multiple of 0.5 times. Our outstanding share count at the end of Q1, inclusive of both our Class A and Class B shares, was 100 million shares. That concludes our prepared remarks for Q1 2023. I will now turn the call back over to the operator to open the line for questions.

<unk>, which translates to a total debt to latest 12 month EBITDA multiple of five times.

Our outstanding share count at the end of the quarter inclusive of both our class a and B shares was 100 million shares.

That concludes our prepared remarks for the first quarter of 2023, I will now turn the call back over to the operator to open the line for questions.

Operator: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we call for questions. Thank you. Our first question is from Chase Mulvehill with Bank of America. Please proceed with your question.

Thank you we will now be conducting a question and answer session.

Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Thank you. Our first question is from case volatile with Bank of America. Please proceed with your question.

Chase Mulvehill: Hey, good morning, everybody. Hope everybody's doing well.

Hey, good morning, everybody.

<unk> is doing well.

John Turner: Good morning, Chase.

Our gross.

Chase Mulvehill: Morning. Just wanted to kick it off with a question about Permian frac sand fundamentals. Obviously, you provided some nice color in the presentation on the supply and the demand side and your outlook there. Can you talk about what you're seeing out in the market today? Is pricing momentum continuing out in the market in the Permian? Are fundamentals continuing to tighten? Just your thoughts around the ability for the market to absorb any incremental capacity that's coming into the market.

Good morning, guys.

Just wanted to kick it off with a question about your Permian Frac sand fundamentals.

You provided some nice color in the presentation, when the supply and the demand side and kind of your outlook there.

But can you talk about what youre seeing out in the market today.

As pricing momentum continuing.

Out in the market in the Permian.

Our fundamentals continuing to tighten.

Just kind of your thoughts around the ability to the market to absorb.

Incremental capacity, that's coming into the market.

Bud Brigham: Yeah. Thank you. This is Bud, and I'll start with the general comments, and these guys may want to add to it, John or Jeff. As we stated on the call, we are sold out of sand. We've been over 90% contracted, which in our view is an uncomfortable level of contracted volumes. Of course, we want to keep our customers happy. We'd like to have more flexibility to participate in the spot market. It seems pretty steady right now. Jeff was talking about the fact that Halliburton stated in their call that since 2019, fleets have seen a 60% improvement in efficiency. We see demand continues to be up into the right, and we're continuing to add contracts and add term on our contracts. John or Jeff, I don't know if y'all want to add anything to that.

Yes, yes, thank you Bob and.

I'll start.

As a general comment some of these guys may want to add to it John or Jeff.

Sure.

As we stated on the call we are sold out of sand.

We've been over 90% contracted which in our view is.

Comfortable level of contracting.

Contracted volumes, but of course, we want to keep our customers happy we'd.

We'd like to have more flexibility to participate in the spot market it seems pretty steady right now.

Yes.

Jeff was talking about the fact that Halliburton stated in their call that since 2019.

<unk> seen a 60% improvement in efficiency so.

We see demand continues to be up into the right.

And we're continuing to add contracts and time on our contracts John or Jeff I don't know if you want to add anything to that.

Jeff Ellis: Yeah. This is Jeff Ellis, Executive Vice President of Sales and Marketing. I'll just add to the fact that with the product offerings that we have historically had, with a good product, large inventory, and many, many years of running room with us, coupled with our new offerings on the logistics side, on the trucking, as well as the Dune Express, there's a definite bifurcation here that we're exhibiting within the sand and logistics market. The customers are recognizing that. As a result, we went on a quest last year to strategically target customers that are aligned with our long-term goals. We are very successful at that. As Bud said, over 90% contracted.

Yes. This is Jeff <unk> executive Vice President sales and marketing I will just add to the fact that.

With the product offerings that we have historically had.

We've.

A good product large inventory.

And many many years of running room with this coupled with our new offerings on the logistics side on the trucking as well as the <unk> Express there is a definite bifurcation here that we're exhibiting within the sand and logistics market and our customers are recognizing that.

As a result.

We went on a quest last year or two to strategically target.

Customers.

That were aligned with our long term goals and we are very successful that is bloodshed over 90% contracted and we're.

Jeff Ellis: As we move forward and the tangibility of our Dune Express and our logistics line come on, we're seeing a very large attraction into added contracts with these current customers as well as new contracts. Last year, we brought on contracts three to five years in duration. We still see a strong market and a strong demand for our products and services.

And as we as we move forward in the Tangibilitate Theyre doing expression of our logistics line come on we're seeing a very large attraction.

Added contracts with these current customers as well as new contracts and last year, we brought on contracts three to five years in duration. So we still see a strong market and a strong demand for our products and services.

Chase Mulvehill: Okay. Also, Oops, sorry, go ahead.

Okay, just one other.

Bud Brigham: Yeah. I might just add one thing on that is, we were talking about the fact that our current expectations are that as we exit the summer for 2024 to be about 50% contracted, and we exit the year, we expect to be about 80% contracted in 2024. Hopefully that helps with the visibility.

Yes.

Oh, sorry, yes, I might just add one thing on that is we were talking about the fact that our current expectations are that as we exit the summer.

For 2024 to be about 50% contracted and we exit the year, we expect to be about 80% contracted in 2024.

So hopefully that helps with the visibility.

Chase Mulvehill: Absolutely. Good color. Appreciate that. Just kind of related follow-up. Obviously it sounds like things are staying tight on the frac sand side. You've got continued growth on the logistics side. Directionally, how should we think about Q2 EBITDA? Should we think about it growing flat? How should we think about Q2 directionally versus Q1?

Absolutely absolutely good color I appreciate that.

Kind of related follow up.

Obviously, it sounds like things are staying tight.

On the Frac sand side.

Continued growth on the logistics side so.

Directionally, how should we think about <unk> EBITDA should we think about it.

Rowing flat, how should we think about <unk> directionally versus <unk>.

John Turner: This is John Turner, Chase. As far as the Q2 EBITDA, look, we're going to have similar sales that we did in the Q1. I think we're going to have some additional, obviously, logistics sales coming on. Our real opportunity there is, and we talked about it, and we'll talk about it again a little bit later, I'm sure someone's going to ask a question about our OpEx. Our operating margins are going to improve as we continue to improve our operating costs. Obviously we think that something that's a little north of what we're doing today as far as EBITDA goes, but looking like it's going to be a pretty similar quarter.

Yes. This is John Turner Chase.

As far as the second quarter EBITDA look I mean, we're going to have similar sales that we did in the first quarter.

I think we're going to have some additional obviously logistics sales coming on but our real opportunity there and we talked about it and we'll talk about it again, a little bit later I'm sure somebody asked a question about our opex or.

Our operating margins are going to are going to are.

We're going to improve as we continue to improve our.

Our operating costs. So obviously, we think that.

Something thats, a little north of what we're doing today.

As far as EBITDA goes, but looking like looking like it's going to be a pretty similar quarter, yes.

Bud Brigham: Yeah. As you know, Chase, the dredging is a unique advantage that we have, and we're in a transition to in-house, to our own dredging operations, which is going to drive down our costs. That'll show up in subsequent quarters and really improve our cost of mine and enhance our margins. Obviously, it's also very environmentally beneficial as well.

I mean as you know Joe the dredging is a unique advantage that we have and we're in a transition to two.

In house.

To our own dredging operations, which is going to drive down our costs and so that will show up in subsequent quarters.

And really improve our cost of mine and enhance our margins.

It's also very environmentally beneficial as well.

Chase Mulvehill: Yep. All makes sense. I appreciate the color. It was great seeing everybody at the Watt the other week.

Yep, all makes sense I appreciate the color that was great to see everybody.

The other week.

Bud Brigham: Yep.

Yep.

John Turner: Thanks, Chase.

Chase Mulvehill: Thank you.

Bud Brigham: Thank you.

Thanks, Josh. Thank you. Thank you.

Operator: Our next question is from Derek Podhaizer with Barclays. Please proceed with your question.

Our next question is from Derek <unk> with Barclays. Please proceed with your question.

Derek Podhaizer: Hey, good morning, guys. I know you already talked on your prepared remarks about your insulation from the natural gas activity weakness that we're seeing across a lot of these basins, primarily Haynesville, Eagle Ford, MidCon, a little bit in the Northeast. Maybe, can you talk about any threats that we should be thinking about? I don't know if there's any scenario where outside mines, whether they're regional or other local basin mines and other basins, could come in and disrupt the Permian supply-demand dynamics that we're seeing. Maybe just expand a little bit more on your level of insulation from that natural gas weakness that we're seeing.

Hey, good morning, guys I know you've already talked about in your prepared remarks about your installation from the natural gas activity weakness that were seeing across a lot of these basins, primarily haynesville Eagle Ford mid con and a little bit in the northeast, but maybe can you talk about any threats that we should be thinking about I don't know if theres any scenario where outside minds, whether they are regional other local.

And mind in other basins could come in and disrupt the Permian supply demand dynamics that we're seeing maybe just expand a little bit more on your level of insulation from that natural gas weakness that we're seeing.

Bud Brigham: Yeah. Maybe, this is Bud. I'll start, and these guys may want to add to it. Obviously, the disruption occurred back in 2017 and 2018 because the cost to transport sand from, whether it was Illinois and Wisconsin or from Central Texas, was just so high relative to local sand. It is kind of interesting that we tend to get grouped with the other oilfield service providers in the Permian given there has been cost inflation and the concern that operators have about that cost inflation and pushing back. As frac crews and other equipment that's on wheels moves into the Permian, there's more supply of services relative to the demand, which could provide the potential to reduce the cost of those services. The irony is that it goes the other way for us.

Yes, maybe this Budd I'll start and these guys might want to add to it.

Obviously, the disruption occurred back in 2002 thousand excuse me 2017, and 18, because the cost to transport sand from whether it was Illinois and Wisconsin are from Central Texas was was just so high relative to.

Local sand and so.

<unk>.

It is kind of interesting.

Tend to get grouped with what the other oilfield service providers in the Permian.

Given there has been cost inflation and the concern.

That operators have about about that cost inflation and pushing back in and as Frac crews and other equipment. That's on wheels moves into the Permian, there's more supply of services relative to the demand, which which could provide the potential to reduce the cost of those services and R&D is that it goes the other way for us the more frac.

Bud Brigham: The more frac crews that come into the Permian, the more sand demand there is, which is a tailwind for us. It means more demand for our sand because sand from outside the basin, when you're talking $100 delivered sand from Illinois and Wisconsin with Northern White, it's just not competitive with what Atlas provides here in the basin. It actually plays to our benefit, the softness in natural gas and equipment moving into the Permian. One thing as you know as well is that the Permian is the highest rate of return drilling in the country. It's therefore a bit insulated even when oil prices do get a little bit soft. Operators tend to migrate their activity to the Permian, particularly to the Delaware Basin, where the Dune Express is located because that's the one area where they can generate a return on capital.

Crews have come into the Permian.

Sand demand.

Is which is a tailwind for us.

It means more demand for our sand because.

Sure.

The sand from outside the basin. When you were talking $100 delivered sand from from Illinois, and Wisconsin with Northern White.

Just not competitive.

With what Atlas provides here in the basin. So so it actually plays to our benefit.

The softness in natural gas and equipment move it into the Permian and one thing as you know as well.

The Permian has the highest rate of return drilling in the country.

So it's therefore, a bit insulated even when oil prices do get a little a little bit soft.

Operators tend to migrate their activity to the Permian, particularly to the Delaware Basin, where theyre doing expresses is located and because thats. The one area, where they can generate a return on capital.

Bud Brigham: Today, the half cycle returns are extremely attractive. John, I don't know if you want to add anything to that.

And today the half cycle returns are extremely attractive so John I don't know if you want to add anything to that no I mean, I think thats just like.

John Turner: No, I think that's just, like Bud said, also we exited 2022 or I guess entered 2023 with 60 million tons of production capacity last year. We're estimating that we're going to see around 10 million tons come on this year. That includes the 5 million tons that we're bringing on. When you look at that brings you to around 70 million tons of production capacity, and that's still below the estimates out there for 2023 sand of, I think Rystad has 77 million tons out there per year.

That said and then also we entered we exited 22 rguest enter 'twenty three with 60 million tons of production capacity last year.

We're estimating we'll see we're going to see around 10 million tons come on this year.

And that includes the 5 million tons that we're bringing on I mean that when you look at that that brings you to around 70 million tons of production capacity, that's still below the estimates out there for 2023 standard I think right at 77 million tons out there per year.

Derek Podhaizer: Great. Appreciate all that color. Just as a follow-up, we're hearing a lot of talk from the E&Ps just on the public stage and their earnings call talking about proppant as an area of service price relief in the back half of the year. Hearing from you and hearing from your largest peer, it doesn't really seem to be the case. I'm hoping that you could just help us reconcile those comments from what we're hearing from the E&Ps as far as proppant prices coming down. From what we're hearing from you and your peers as far as contracted volumes, pricing remaining elevated, sold-out markets, just help us reconcile that for us would be great.

Great I appreciate all that color.

As a follow up I mean, we're hearing a lot of talk from the E&ps just on the public stage in their earnings call talked about proppant as an area of.

Service price relief in the back half of the year.

Hearing from you and hearing from your largest peer it doesn't really seem to be the case. So I'm, hoping that you could just help us reconcile those comments from what we're hearing from the E&ps as far as proppant prices coming down but from what we're hearing from you and your peers as far as contracted volumes pricing remaining elevated so that market is just help us reconcile that for us would be great.

Bud Brigham: Well, it's a matter of supply and demand. As John pointed out, the supply of sand locally is south of current demand, and that's why roughly 10% of the demand is being met by Northern White, which tells you there's not enough supply to meet the demand because that is just not cost competitive with the local sand. Now, that said, the land rush for sand, of course, happened in 2017 and 2018, and the best reserves were tied up then. It's a little bit like oil and gas and what happened with shale. Now you do have some tier 3, tier 4, some lower tier deposits that are being mined locally, which is beneficial for those local operators because the transportation cost is lower. It's lower quality reserves, and it's like a small oil field that it goes on decline faster.

Well I mean.

It's a matter of supply and demand and as John pointed out the supply of sand locally is south of current demand and that's why roughly 10% of the demand is being met by northern White.

Which tell you theres not enough supply to meet the demand because that is just not cost competitive with the local sand now that said.

The land rush for sand of course happened in 2017, and 18 and we tied up.

The best reserves were tied up there and thats, a little bit like oil and gas what happened with shale and now you do have.

Tier three tier four some lower tier deposits that are being mined locally which is beneficial for those local operators because the transportation cost is lower but it's a lower quality reserves and thats like a small oil field that it goes on decline faster, it's just not sustainable over the long term. So so those.

Bud Brigham: It's just not sustainable over the long term. Those volumes that are out there do help on the margins. As these guys talked about, that's 10 million tons that's added in the course of this year, 5 million largely from those smaller deposits, which helps on the margin. In terms of the total supply stack, it's just not that material.

Volumes that are out there.

To help on the margins, but as these guys talked about.

That's 10 million tons, that's added in the course of this year.

5 million largely from those smaller deposits, which helps on the margin, but in terms of the total supply stack is just not that material.

Derek Podhaizer: Great. Appreciate the color, guys. I'll turn it back.

Great appreciate the color guys I'll turn it back.

Yeah.

Operator: Thank you. Our next question is from Jim Rollyson with Raymond James. Please proceed with your question.

Yeah.

Thank you. Our next question is from Jim Rollyson with Raymond James. Please proceed with your question.

Jim Rollyson: Good morning, Bud and John. Good morning, Jim. Bud, you talked a little bit about Dune Express, just obviously kicked off construction, ordered a bunch of your long lead time items. Maybe spend a minute just on how pricing, availability, delivery times, things like that for the Dune Express. I mean, at the end of the day, I think you summed it up that you still feel like you're on time for a Q4 2024 operating date. Just kind of curious some of the sausage-making on how available the equipment is and pricing meeting your expectations, delivery times, et cetera.

Good morning, Budd and John .

Good morning, Jeff.

But you talked a little bit about <unk> Express obviously kicked off.

Struction ordered a bunch of your long lead time items, maybe spend a minute just on kind of how.

Pricing availability delivery times things like that for the <unk> Express me at the end of the day I think you summed it up that you still feel like you're on time for a <unk> 24.

Operating date, but just kind of curious some of the sausage, making on how available equipment is in pricing meeting your expectations delivery times et cetera.

Bud Brigham: Well, yeah. Thank you for the question. Maybe I'll start and John can really get into more of the detail on it. We have a history of building our own projects. We built both plants. We're doing our expansion and of course, the Dune Express, and we're very good at it. Our team is really good at it. Having control of all the processes helps us control the budget and also the timing. We've been able to deliver as we are with the current expansion on time and on budget. We're off to a really good start on the Dune Express, which frankly is not as complex a project as building our plants and the current expansion. Very optimistic about our delivering. We've worked hard to under promise and over deliver. John, do you want to talk more about the specifics on that?

Well.

Yes. Thank you for the question, maybe I'll start and John can really get into more of the more of the detail on it but.

I have a history of building our own projects, we built both plants.

Were doing our expansion and of course, the <unk> Express.

<unk>.

We're very good at it our team is really good at having control of all the <unk>.

The process is it helps us control the budget and also at the time again, so we've been able to deliver as we are with the current expansion on time and on budget and we're off to a really good start on the two new express, which frankly is not as complex a project that's building our plants and the current expansion.

No.

Very optimistic about.

Our deliberate.

Hard to.

The promise and over deliver John do you want to talk more about the specifics on that yes. So.

John Turner: Yeah. As we said on the call, we'd ordered more than 50% of our equipment and materials. We expect this number to continue to go up, probably be close to 70% plus or minus by the end of June. When we put this project together, like Bud said, we built all of our projects. When we were planning, where we saw supply chain pressures come in and we built that into our timetable. We feel real good about obviously the equipment that we've ordered and about the cost and the plans coming online at the end of 2024. Everything as we see it right now is still on time and on budget. We got a pretty good start out of the gate here. We've broken ground on the Texas side. We've cleared right away.

As we said on the call, we'd ordered more than 50% of our equipment and materials and we expect this number to be continue to go up probably be close to 70% by the end of 70, plus or minus percent by the end of June .

When we put this project together, but said we built all of our projects.

Where we saw it when we're planning where we saw supply chain pressures come and we built that into our timetable we feel real good about.

About obviously.

The equipment that we've ordered and about the cost in the plants coming online at the end of at the end of 'twenty for everything.

Everything that we see it right now still on time and on budget and we got we got a pretty good start out of the gate here.

We broken ground on the Texas side.

We've been we've cleared right away.

John Turner: We plan to start on the New Mexico side probably in the next couple of months. As far as supply chain goes, we haven't seen anything that we did not anticipate. We did factor the long lead time items into the original forecast. Overall, we feel really good about where we stand on the project right now.

Plan to start on the new Mexico side, probably the next couple of months.

As far as supply chain goes we.

I haven't seen anything that we did not anticipate and we did factor the long lead time items into the into the into the into the original forecast. So overall, we feel really good about where we stand on the project right now.

Bud Brigham: This is Bud. I might remind everybody that doesn't know, we built 5 miles worth of conveyor in our 2 plants, which have worked very well. We've had no problems with them over the 5 years plus of their operation. Anyway, that's helpful to folks to know that we built conveyors and they're very efficient and reliable.

But I'm not remind everybody that doesn't know we built five months' worth of conveyor and our two plants, which have worked very very well we've had no problems with them.

Over the five years plus of their operation so so.

<unk> antibody.

That's helpful to folks that know that.

We built conveyor, so they're very efficient and reliable.

Jim Rollyson: Great. That's good color and helpful. Just one other question, Bud, for you. Seeing couple of the larger operators in the Permian, like Pioneer, and just yesterday, Devon, now working, the guys that are acreage-blessed that can do this, but working on 3-mile laterals, and I'm just curious how you view that as an opportunity for you guys, because that's obviously when you start going out that far, that's a lot of sand that has to be delivered in a fairly short period of time for that type of completion. Curious if those moves are helping you on the demand side of things as you think about delivering capacity on the Dune Express down the road.

Great. That's good color and helpful. And then just one other question, but for you.

Being a couple of the larger operators in the Permian like like pioneer and just yesterday Devin.

Now working the guys that are acreage blessed that can do this but working on three mile laterals and I'm just curious kind of how you view that as an opportunity for you guys. Because thats. Obviously when you start going out that far there is a lot of sand that has to be delivered in a fairly short period of time for those that type of completion. So I'm curious if those move.

<unk> are helping you on the demand side of things as you think about delivering capacity on the <unk> Express down the road.

Bud Brigham: No, thank you. No, it's a real good point. Just one of a number of trends that are going to play out that are going to increase the demand for proppant. Obviously, the longer laterals are just another example of efficiencies that our industry continues to drive, whether it's drilling wells or completing wells, that all drive up demand for proppant. I mean, the longer laterals mean every rig out there working and every frac crew out there working is going to be pumping and needing more sand. The other thing is operators get into more of the tier 2 and tier 3 rocks. We think that's going to require, for the tight rocks, a higher proppant loading.

No. Thank you.

A real good point than just one.

A number of trends that are going to play out.

Are going to increase the demand for proppant.

Obviously the longer laterals.

Another example of efficiency you said our industry continues to drive whether it's drilling wells and completing wells that all drive up demand for proppant.

Longer laterals mean every rig out there working every frac crew out there working is going to be pumping and needing more sand.

The other thing as operators get into more of a tier two and tier three rocks.

We think that's going to go to.

Require for the tight rock so higher proppant loading in fact.

Bud Brigham: In fact, in our non-op business, we're still seeing when operators experiment with higher loading as they step into new areas, in most cases, not all, but in most cases, they're seeing better economics. I think particularly as you move down the road and you get further into the simul-fracs. We're going to see more of this development drilling and more simul-fracs. All of these things are going to compound together and increase the sand demand as we go forward. Thank you for the question.

Our non op business, where we're seeing we're still seeing when operators to experiment with higher loading and as I.

Step into new areas in most cases, not all but in most cases, they're seeing better economics. So so.

And I think particularly as you move down the road and you get into further into the Sima fraction.

We're going to see.

More of this development drilling of more semi fracs, that's kind of the all of these things aren't going to compound together and increase the sand demand as we go forward. So thank you for the question.

Jim Rollyson: Yeah. Appreciate your answer. Thanks.

Yes, I appreciate your answer thanks.

Operator: Thank you. Our next question is from David Smith with Pickering Energy Partners. Please proceed with your question.

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

David Smith: Hey, good morning, and congratulations on a strong Q1.

Hey, good morning, and congratulations on a strong first quarter.

Bud Brigham: Thank you.

John Turner: Thank you, Dave.

Thank you thank you Dave.

David Smith: I was hoping to circle back to the comment about production costs. If I'm triangulating correctly, I'm guessing your average production cost per ton came down around $0.50 or so sequentially. Wanted to check if that's in the ballpark, if that's fully due to progress on bringing your mining operations, the dredge mining operations fully in-house, and how you see production costs per ton trending this year relative to Q1. If there's any range of cost per ton improvement that you might be comfortable providing?

I was hoping to circle back to the comments about production costs.

If im triangulating correctly I'm guessing your average production cost per ton came down around 50, or so sequentially wanted to check if that's in the ballpark it got fully due to progress on <unk>.

I mean your mining operations.

Dredge mining operations fully in house, and how you see production cost per ton trending this year relative to Q1, if there is any range of cost per ton improvement.

You might be comfortable providing.

John Turner: Yeah. This is John Turner. In the first quarter our plant OpEx was around $1,077 a ton before royalties, I believe is what the number was. You look at that was down from a high of just around $13 a ton in Q4 2022. The biggest decline down from that was due to contract mining and third-party labor costs, which are really associated with bringing the dredge mining in-house. In 2021, our plant OpEx was around $650 a ton. When you compare that with our cost today, the biggest difference is cost associated with bringing that dredge mining operation in-house. Yes, as we continue to bring that process fully in-house, we expect our cost to continue to go down and continue to decrease down to those lower levels that we've achieved in the past.

Yes. This is John Turner.

First quarter.

Our off plan Opex was around $2 77, a ton before royalties I believe is what the number was and you look at that was down from a high of around just around $13 a ton in Q4 22.

The biggest decline.

Down from that was due to contract mining and third party labor costs, which are are really associated with bringing the <unk>, bringing the draw.

Dredge mining in house.

In 2021, our plan Opex is around $6 50, a ton and when you compare that with our cost today, the biggest differences cost associated with bringing that dredge mining operation in house. So yes, as we as we continue to bring that process fully in house.

We expect our cost to continue to go down and continue to decrease.

Down to those lower levels that we've achieved in the past so yes, that's a good observation and.

John Turner: Yes, that's a good observation, and our OpEx is trending in the right direction. We've already seen it happen here early in Q2 as well.

Our opex is trending in the right direction, we've already seen it happen here or latest court early in the second quarter as well so.

David Smith: Sounds great, Tyler. Appreciate it. If I could ask one more. Congratulations on the approximately 200 payloads in Q1 delivered with over 70 tons per truckload. Am I correct that those deliveries started sometime in March? More importantly, how should we think about those volumes progressing through the year?

That's great color I appreciate it if I could ask one more.

<unk>.

Congratulations on the approximately 200 payloads in Q1 delivered with over 70 times per truckload.

Am I correct with those delivery started sometime in March I think more importantly.

How should we think about those volumes progressing through the year.

Chris Scholla: This is Chris Scholla, Chief Supply Chain Officer. Just to give you some color of our delivery timeline and our intense evolution of our logistics operations. On 3 January, we started our logistics operation with our first single trailer deliveries utilizing Atlas drivers and assets. On 20 March, we delivered our first double trailer to the well site with a 70-plus tons payload. On 5 April, we delivered our first triple trailer to the well site with almost 100 tons payload. To put that in perspective, as we talked about earlier, that is about four times the standard payload that you see delivered to location today. I think a big part of your future look question is, look, seeing is believing, right? We have had major operators and service companies out to see our logistics operation running in the field in person.

Yes. This is Chris Shaw Chief supply chain officer.

Just give you some color of our delivery timeline and our intense evolution of our logistics operations.

January 3rd we started our logistics operation with our first single trailer deliveries utilizing Atlas drivers and assets on.

On March 20th we delivered our first double trailer to the well site with a 70 plus ton payload.

And then April 5th we delivered our first triple trailer to the well site with almost 100 ton payload and to put that in perspective, as we talked about earlier, that's about four times. The standard payload that you see delivered to location today.

I think a big part of of your future future look question is look seeing is believing right.

We've had major operators and service companies out to see our logistics operation running in the field in person seeing the fit for purpose double and triple trailers being delivered to the well sites. It really brings reality to the transformational logistics solutions that will be delivering in the Permian.

Chris Scholla: Seeing the fit for purpose double and triple trailers being delivered to the well sites, it really brings reality to the transformational logistics solutions that we'll be delivering in the Permian. We've seen a high level of interest and expect additional customers to transition to Atlas logistics solutions throughout Q2 and the rest of the year. From that perspective, look, there just aren't a lot of customers that don't want to be a part of a 70% reduction of associated traffic on public roads. That's what we see as our progression on logistics.

<unk> seen a high level of interest and expect additional customers to transition to Atlas logistics solutions throughout Q2, and the rest of the year.

From that perspective look there just arent a lot of customers that don't want to be a part of a 70% reduction of associated traffic on public roads.

That's that's what we see as our as our progression on logistics.

David Smith: You just answered my follow-up question, so thank you. That's all I got.

You just answered my follow up questions. Thank you that's all I got.

Bud Brigham: Great. Thank you.

Alright, thank you.

Operator: Thank you. Our next question is from Doug Becker with Capital One. Please proceed with your question.

Yeah.

Thank you. Our next question is from Doug Becker with capital. One. Please proceed with your question.

Doug Becker: Thank you. Curious how conversations are going around signing up additional customers for the Dune Express? How important do you view signing up contracts in advance, and is it reasonable to expect some more news on this front over the next, say, six months?

Thank you.

How conversations are going around signing up additional customers do in express.

<unk>.

Contracts in advancing is it reasonable to expect some some more news on this front over the next say six months.

Bud Brigham: Yeah. I think for some in the market, the Dune Express sounded like an ambitious concept, and now it's very real. I think the level of discussion, and Jeff can speak more specifically to it, has increased. It's really unusual for companies to contract out as far ahead as those two majors did for deliveries on the Dune Express. As you know, we have a history as operators, and typically, you only contract out your next budget year. Unusually, at times, and it would be unusual, you might go out a couple of years. For those two majors to step out like they did was really unusual. Now, I do think now that the Dune Express is here, it's real in their minds, and it's happening.

Yes.

Sure.

I think now that.

Thanks for some of the market. It was it was.

That Didnt express sounded like got ambitious concept and now it's very real.

So I think the level of discussion and Jeff can speak more specifically to it.

Has increased.

It's really unusual for <unk>.

Companies.

Contract out as far ahead as those two major stood for deliveries on the <unk> Xpress I mean.

As you know we have a history as operators typically only contract out next budget year.

Unusually.

Thompson It would be unusual you might go out a couple of years and so for those two major step out like they did was really unusual now I do think now that the <unk> expressed this year is real and their mindset and thats happening.

Bud Brigham: Jeff can speak to the fact that the discussions have increased, but a lot of them are just trying to bridge their way forward to be there and be in the front of the line to be on the Dune Express deliveries once it's up and running. Jeff, do you want to add to that?

Jeff can speak to the fact that the discussions have increased but.

Lot of them are just trying to bridge their way forward to be there and be in the front of the line to be on that do not express deliveries.

Once it's up and running Jeff do you want to add to that yes. Thanks, but in this kind of follows on to the question that was asked earlier about we're seeing more some will frac activity three mile laterals, meaning more proppant.

Jeff Ellis: Yeah. Thanks, Bud. This kind of follows on to the question that was asked earlier about we're seeing more simul-frac activity, 3-mile laterals, meaning more profit and more efficient logistic solutions. This plays right in to Atlas Energy Solutions' strength as we move forward. What we're seeing is, what we have coupled with that right now is we have tangible assurity to these customers that this project is in fact going forward. We got construction beginning. We've had several tours on our locations demonstrating this, that the trucks are running, the heavy payloads are running. This assurity, coupled with the tangibility of what our solutions offer, and as Chris Scholla mentioned earlier with regard to the sustainable benefits from the environmental social safety perspective, is acting as a very large attractant to these things in terms of long-term commitment.

A more efficient logistics solutions.

Plays right in.

To Atlas energy solutions strength as we move forward.

And what we're seeing is what we have coupled that with that right. Now is we have tangible.

A surety to these customers that this project is in fact going forward. We've got construction beginning we've had several tours on our locations demonstrating that the trucks are running the heavy payloads that run in.

And there is security, which coupled with the Tangibilitate about our solutions offers and as <unk> mentioned earlier with regard to the sustainable benefits from.

From the environmental social safety perspective is just.

Is acting as a very large attracted to these thing in terms of long term commitments. So Bud mentioned earlier on in the conversation, we expect based on a quarter by quarter basis to grow.

John Turner: Bud mentioned earlier on in the conversation, we expect these on a quarter-by-quarter basis to grow our contract volume commitments to grow in couple with some of their roll-offs that are expected as well. Look for a real favorable contract accession moving forward in the next six months.

Our contract volume commitments to grow.

Coupled with some of their their roll offs that are expected as well. So we'll look for a real favorable contracting session moving forward six months.

Doug Becker: That certainly sounds encouraging. Just everything you've been talking about today, the outlook for Permian frac sand supply, demand looks very favorable. What are your thoughts on just formally moving forward with phase II of the Kermit expansion?

Yeah.

Well, that's certainly sounds encouraging.

And just everything you've been talking about today.

Outlook for Permian, Frac sand supply demand looks very favorable.

Your thoughts on just formal we're moving forward with phase two of the Kermit expansion.

Bud Brigham: Yeah. A couple of comments on that. We are going to have material growth in our production as we exit the year with this first expansion coming online. Let me just say that I think that we're very optimistic about our ability to grow production very efficiently. When you look back at the original plant design, the production expectations from those plants was 3 million tons a plant, 3 to 4, and we're producing 5.5 million tons from each plant. I think a potential phase two expansion would come next year. I think I'm very optimistic that we're going to be able to maybe exceed expectations in terms of CapEx relative to production growth in the foreseeable future. John, you can probably be more specific.

Yeah.

I mean, a couple of comments on that.

We are going to have material growth in our production.

We exited the year with its first expansion coming online.

Let me just say that I think we.

We're very optimistic about our ability to grow production.

Very efficiently when.

When you look back at.

Our original plant design.

<unk> expectations from those plants was 3 million tons of plant three to four and were producing $5 5 million tonnes from each plant. So.

So.

I think a potential phase two expansion would come.

Next year, but.

Thanks.

I am very optimistic that we're going to be able to to.

Two.

I have some.

It might be exceed expectations in terms of capex relative to production growth in the foreseeable future. John you can talk a bit more specific.

John Turner: Really what we're looking at is, like Bud said, originally our plants were designed to produce 6 million tons total. We're on a run rate right now of 11 million tons. We're going to evaluate the situation as we move into the end of this year and into early next. The Dune Express itself is 13 million tons. We're going to look at all the different options and see what kind of efficiencies we get out of the current operations. We've been very efficient in the past. It's not taking the plant expansion off the table. It's just looking at what's the best way to achieve those additional volumes for the Dune Express.

But really what we're looking at is like but said originally our plants were designed to produce 6 million tons total.

We're going to we're on a run rate right now 11 million tonnes.

Going to evaluate the situation as we move into the end of this year and early next.

Express itself 13 million tonnes, and we're going to see.

We're going to look at all the different options to see what kind of efficiencies we get out of out of the current operations. We have been very efficient in the past and it's not taken that the plant expansion off the table. It's just it's just looking at what's the best way to achieve those those those additional volumes for the New Express yes, what's the most productive capital.

Bud Brigham: Yeah. What's the most productive capital to put to work to grow our production? We're very encouraged by our opportunities in front of us to grow production very efficiently, just to put it in summary form.

To put to work to grow our production and we think we have some.

We're very encouraged by.

Our.

To do this in front of us to grow production very efficiently just to put it in summary form.

Doug Becker: Makes sense. Thank you.

Makes sense. Thank you.

Bud Brigham: You bet.

You bet.

Operator: Thank you. Our next question is from Michael Scialla with Stephens. Please proceed with your question.

Thank you. Our next question is from Michael <unk> with.

Stephens. Please proceed with your question.

Michael Scialla: Good morning, everybody. Just was a little surprised on your decision to pay a variable dividend while you're in the growth mode here. Just want to see if you could give us any indication of the things the board will be considering as it looks to implement a longer-term shareholder return program.

Hey, good morning, everybody.

This was a little surprised on your decision to pay a variable dividend. While you are in the growth mode here.

Wanted to see if you could give us any indication of things the board will be considering as it looks to implement on a longer term shareholder return program.

Bud Brigham: Maybe I'll start. Then John will add. This company has really remarkable margins. In fact, it's very hard to find companies that have margins and generate cash the way that this company does. I also think there are some fundamental reasons that our industry has transitioned to distributing capital back to investors. Personally, I think it's really important because it just demonstrates the transparency of your business and your ability to generate cash and return that capital to investors and transparency with regard to your value creation. In the case of this company, while we do have significant CapEx in front of us, we raised $300 million in the offering, and we're generating very substantial cash flows. We are 90% contracted this year, over 90%. We think we're going to exit the year over 80% contracted next year.

Yes.

Yes, maybe I'll start and then John will add.

This company has really remarkable margins in fact.

Very hard to find companies that have margins and generate cash the way that this company does.

I also think there is.

There is some fundamental reasons that our industry has.

Transition to.

So.

Distributing capital back to investors personally I think it's really important because it just demonstrates.

The transparency of your business.

And your ability to generate cash and return that capital to investors in transparency with regard to your value creation.

In the case of this company, while we do have significant capex in front of us.

$300 million and the operating and we're generating very substantial cash flows. We are 90% contracted this year over 90%. We think we're going to exit the year over 80% contracted next year. We just feel like we've got great visibility on the cash generation from this enterprise to to to accomplish both to <unk>.

Bud Brigham: We just feel like we've got great visibility on the cash generation from this enterprise to accomplish both, to fund these high growth CapEx projects, high rate of return CapEx projects, and to continue to distribute capital back to investors. I do think as those CapEx investments wind down during the course of next year, it will become an even more powerful distributing enterprise. I think to me, it's an important message to send to our investors that you are very important to us. John, do you want to add anything?

These high growth.

Opex projects high rate of return Capex projects and to continue to distribute that capital back to investors and I do think as those those capex investments wind down during.

During the course of next year.

Becoming even more powerful distributing enterprise. So I think it's to me, it's an important message to send to our investors that you are very important to us.

John Turner: I think that as we move through the year with the board, I think it's going to be, hey, look, guys, what's the highest return on investment for our investors? Obviously, I think there's multiple ways to get return back to investors, either through returning cash, investing in growing the stock price through additional growth projects. We have that.

John do you want to add I.

I think that as we move through the year with the board I mean, I think it's going to be yeah look as you know.

What is the what's the highest return on investment for our investors and obviously I think there's multiple ways to get returned back to investors either through returning cash investing and.

In growing the stock price to additional growth projects that we have that so and so.

Bud Brigham: Potentially buying shares.

John Turner: and potentially buying shares at some point. They will be considering all those different factors when we announce that.

Don Chery and potentially buying shares at some point, so I mean.

They will be considering all of those all of those different factors.

Bud Brigham: Yeah.

John Turner: We want to get closer to the launch of the Dune Express, when we say the launch, the finishing, the completion of Dune Express, so we can build in a fixed dividend. The plan would be just to build in a fixed dividend, and then grow that fixed dividend over time.

When we when we when we announced that but we want to we want to get closer to the to the to the.

Closer to the launch of the <unk> Express when you say velocity the finishing the completion of that express so that we can get so we can get so we can build in a fixed dividend plan would be to build on a fixed dividend.

And then and then grow that fixed dividend overtime.

Michael Scialla: I appreciate all the color. That's great. I guess with the Kermit plan expansion on time and on budget, you said you are at a kind of a run rate of 11 million tons per year. Can you give us any sense on what you would expect in Q4, given where you are contracted, maybe both in terms of production and how the CapEx cadence will look over the course of the year?

Yes.

I appreciate all the color Thats great.

With the permit.

Plant expansion on time and on budget.

You said, you're at a kind of a run rate of 11 million tonnes per year can you give us any sense on what you would expect in the fourth quarter.

Given where your contracted maybe both in terms of production and how the.

Capex cadence will look over the course of the year.

John Turner: There was two questions there.

Bud Brigham: Q4.

John Turner: as far as where we'd be in the Q4 production and on CapEx cadence?

So there was two questions. There one was the as far as we're going to probably be in the fourth quarter production and on Capex cadence.

Michael Scialla: You're right. Sorry. Blended two questions together there. Sorry about that.

Alright, sorry, 1% to two questions together, there sorry about that.

John Turner: Well, obviously I think that as far as capital expenditures go, we'll be completing the Dune Express.

Well.

Obviously I think that.

As far as as far as capital expenditures go will be into the into will be completing the <unk> express, but we will be in the fourth quarter. This year will be completing the expansion that will be completed in the expansion, sorry and will be and we'll be.

Bud Brigham: Well, in Q4 of this year, we'll be completing the expansion.

John Turner: We'll be completing the expansion, sorry, and we'll be right in the middle of the Dune Express forecast. I don't think we've provided guidance on the exact what the timing of that CapEx will be.

Right in the middle of that don't Express <unk>.

Forecast.

We've provided guidance on the exact what that what the timing of that of that of that capex will be but.

Bud Brigham: Generally, we're comfortable with the analyst numbers that we've seen out there.

Generally we are comfortable with what the analyst numbers that we've seen out there yet.

John Turner: Yeah. That's right.

Right so.

Bud Brigham: I do, I probably should restate that color that this company has had a history of delivering more production relative to CapEx in the past. We're always innovating and we're always updating our modeling and analysis and so we are optimistic that we can meet expectations as we go forward, as we have in the past. We will also, in addition to working on a dividend policy with the board, over time, we'll also be working on a policy regarding forward guidance. At this point in time, we're comfortable with what the analysts have out there in general.

And then on the prop.

We should restate that color there.

This company has had a history.

Delivering more production relative to capex in the past so.

We're always we're always innovating and we're always updating our modeling and analysis.

So we are optimistic that debt.

Yes.

Therefore that we can that we can.

The expectations as we go forward as we have in the past, but we will also in addition to working on a dividend policy with the board.

Tom will also be working on.

Our policy regarding forward guidance, but at this point in time, we're comfortable with what the analysts have out there in general.

Michael Scialla: Gotcha. Appreciate it, guys.

Got you I appreciate it guys.

Bud Brigham: Yeah. Thank you.

Yes. Thank you.

Operator: Thank you. Our next question is from Keith Mackey with RBC Capital Markets. Please proceed with your question.

Thank you. Our next question is from Keith Mackey with RBC capital markets. Please proceed with your question.

Keith Mackey: Good morning, thanks for taking my questions. Just wanted to start off with your sand contracting really approach. You're highly contracted currently, but we do consistently hear E&P commentary in the market about getting costs down. Just how do you think about looking forward whether to contract the next ton of sand or letting it float in the market? Is there a specific price where you'll be agnostic to taking on the risk of where the forward market may go, or is there other factors that really drive it?

Hey, good morning, and thanks for taking my questions.

I wanted to start off with.

Your contract and your sand contracting.

Really approach so.

You're highly contracted currently.

We do consistently here E&P commentary in the market about.

Getting getting costs down so just how do you think about.

Looking forward whether to contracted next ton of sand or letting it float in the market is there a specific price, where you where you'll be agnostic to taking on the risk of where forward forward market may go or is there other factors that really drive it.

Bud Brigham: Well, this, Bud, I'll start. Jeff, he's definitely on the front lines on the market. I'll just say that again, there's a real bifurcation. When you look at pressure pumpers and others, the supply-demand dynamic there is very different from sand. We still have 10% of the supply in the basin being provided by Northern White. It's just a completely different environment for us, and market for us relative to some of the other oilfield service providers. We have a non-op company. We do have real-time data on the cost inflation that has occurred. Though, I'll just say that the rate of return on drilling projects at the current oil prices is very attractive. The Tier 1 rock is around 100%, plus or minus, and even in the Tier 2 rock, it's 40% to 60% IRR.

Well this is Matt I'll start, but then Jeff will probably.

Definitely.

On the front lines on the market, but but I'll just say that.

Again.

There is a real bifurcation when you look at pressure pumper.

The supply demand dynamic there is very different from sand.

We still have 10% of the supply in the basin being provided by northern White So.

We're not.

It's just a completely different environment for us end market for us relative to some of the other oilfield service providers. We are a non op company. So we do have.

Real time data on on the cost inflation that has occurred.

And.

But so.

And I'll, just say that the rate of return on drilling projects at the current oil process is very attractive the tier one rock, it's around 100% plus or minus and EBIT in the tier two rock, it's 40% to 60% IRR. So so.

Bud Brigham: I think, the rate of return on projects for operators is very attractive at these levels. Jeff, do you want to answer more specifically on how the market's shaping up?

The rate of return on projects for operators is very attractive at these levels.

Jeff do you want to answer more specifically on how the market shaping up from yes, yes, I'll answer it's really really.

Jeff Ellis: Yeah. I'll answer in that it's really up. We manage our contracts, and our clients on a portfolio basis, which means that we approach each one case by case. What goes into consideration of that is obviously strategic value pricing, and how they align with our strategic goals as well, and we're finding that here in most cases, the high-quality customers in the basin do in fact align with that. Again, case by case basis.

We manage our contracts.

And our clients on a portfolio basis.

Which means that we approach each one case by case.

And.

What goes into consideration of that obviously strategic value pricing.

They are aligned with.

<unk>.

Our strategic goals as well and we're finding that in most cases of high quality customers in the basin do in fact aligned with that so again case by case basis.

Keith Mackey: Got it. That's helpful. Just on the Dune Express, good to hear that you've got a bunch of the materials ordered. As you've made those orders relative to any agreements you would've had before or anything you would've done before, during the spring perhaps, or in the winter, what inflation or deflation, if any, have you seen on the actual materials you've ordered relative to the pre-order phase?

Got it that's helpful and just on the <unk> Express good to hear that you have.

<unk> got a bunch of the materials ordered.

As as you've made those orders relative to any agreements you would've had before or continental.

Any any anything you would've done before during the spring, perhaps or in the winter.

What.

What inflation or deflation if any have you seen on the actual materials, you've ordered relative to the pre order phase.

John Turner: I'd say it's come in right where we thought it was. We've been in the market prior coming up to this project with our current expansion. Things like steel costs, belts, drives, we had a pretty good handle on where the costs were going or where we thought they would be. We haven't seen any surprises on that front yet. We did have a number of POs prepared, that were written, that we were working on before we decided to launch. Like we said earlier, is we've done these projects before. We forecast in long lead time items and also in part of that, used our current market information to forecast. We factored that into the forecast when we were putting this together, we hadn't really seen any surprises on that side.

I'd say, it's coming in right, where we thought it was.

We've been in the market prior coming up to this or this.

Projects with our Kermit expansion, so things like steel costs belts drives.

We had a pretty good handle on where the costs were going are we thought they would be.

Haven't seen any surprises on that front yet.

And then we did have a number of post prepared that were written that we were working on prior to that prior to that until before we before we decided to launch so.

But we haven't I mean like I said earlier is we've done these projects poor.

We forecast in long lead time items and also in part of that.

Our current market information to forecast.

Factored that into the forecast and when we were putting this together so we haven't really seen any surprises on that side.

Keith Mackey: Got it. That's it for me. Thanks very much.

Got it that's it for me thanks very much.

Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Bud Brigham for any closing comments.

Okay.

Thank you there are no further questions at this time I'd like to hand, the floor back over to Bud Brigham for any closing comments.

Bud Brigham: Thank you, operator. Thank you all for joining our call. We really appreciate your participation and look forward to reporting on our Q2 results.

Thank you operator, thank you all for joining our call. We really appreciate your participation and look forward to reporting on our second quarter results.

Yeah.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.