Q3 2024 Atlas Energy Solutions Inc Earnings Call
Speaker Change: Greetings and welcome to the Atlas Energy Solutions 3rd quarter 2024 financial and operational results conference call.
Speaker Change: At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: should anyone 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 VP Investor Relations. Thank you, you may begin.
Kyle Turlington: Hello and welcome to the Atlas Energy Solutions Conference Call and Webcast for the third quarter 2020. With us today our Bud Brigham Executive Chairman, John Turner, CEO and Blake McCarthy, CFO.
Kyle Turlington: 5 John and Blake will be sharing their comments on the company's operational financial performance for the third quarter of 2024, after which after which we will open the call for Q&A.
Kyle Turlington: Before we begin our prepare remarks, I would like to remind everyone that this call will include forward looking statements to find them as a U.S. security law. Such statements are based on current information and demands as management's expectations as if this statement and are not guaranteed a future performance.
Kyle Turlington: Board-looking statement involves certain risk and certain teasing assumptions that are difficult to predict. S-S-I-T-R-A-Actual Alcum's results could differ materially.
Kyle Turlington: You can learn more about these risks in the annual report on Form 10K we filed with a SEC on February 27, 2024, our quarterly reports on Form 10Q and other SEC filings.
Kyle Turlington: You should not place undue reliance on forward-looking statements, and you can undertake no obligation to update these forward-looking statements.
Kyle Turlington: will also refer to certain non-gap financial measures such as adjusted ebaga, adjusted free cash low, and other operating metrics and benefits.
Speaker Change: You will find a gap we can say in the comments and calculations in the press release we issued yesterday afternoon. With that said, I will now turn the call over to Bud Brigham.
Bud Brigham: Thank you, Powell, and thanks to everyone for joining us today for our third quarter of conference call.
Bud Brigham: Before I let John and Blake run through the corridor and are out look, I want to take a quick moment to take a step back and reflect on where Atlas has an organization stands.
Bud Brigham: When we found it out, we're back in 2017. We believe there was a huge opportunity to drive improvements across the public, value chain. With regard to both how the sand is monged and how it's delivered to customer oil files.
Bud Brigham: Our stated goal is to do our part as we are uniquely positioned in this regard to help transform the premium into a more efficient factory on the ground.
Bud Brigham: We have already succeeded in becoming the low cost provider of the lab of profit for Permanent Operators.
Bud Brigham: and are now on the test of a step change relative to traditional delivery systems by implementing the do-and-express to take thousands of crooks off the public roads.
Bud Brigham: By doing so, we will both enhance the patient's and reliability while also reducing emissions.
Bud Brigham: Most importantly, the Dean Express will take make the roads and our communities in the permeance safer.
Bud Brigham: Today we are just weeks away from realizing that vision.
Bud Brigham: The Boon Express continues to be on track and on budget.
Bud Brigham: All the major highway and lease roads crossings are now complete, and more than 95% of the bell has been placed on the conveyor.
Bud Brigham: from the outset, we knew the electrical infrastructure had the potential to be one of the big gating items for the project. But with the factory testing complete for the four electric houses, now be either being currently installed or in route to West Texas.
Bud Brigham: This piece has also been de-wrest.
Bud Brigham: All the credit goes to our wonderful construction team, our employees, and our trusted suppliers.
Bud Brigham: who have turned what seemed like a pipe dream to many, and what will become a revolutionary piece of infrastructure in the Delaware Basin.
Bud Brigham: Thanks to them and our customers who are stepping forward for the benefit of the communities and the environment. The permeant base will be further differentiated as a premier domestic oil and gas base in the country, and as a much safer, cleaner and better place to live in work.
Speaker Change: with that, let me hand the call over to John Turner.
Speaker Change: Thanks for watching.
Speaker Change: 24 has been an invincible year for Atlas.
John Turner: At the outset, we knew that we needed to work hard this year to ready our organization for the start of the due to express, ensuring that our mining operations could consistently provide the increased volumes we hoped to gain into Delaware Basin, and to continue to supply our keycuffs for the Army and...
John Turner: With the completion of the current plant expansion in the integration of the high-crossed personnel and assets into our organization, we had as both productive capacity and assets diversity to strengthen our mining operations.
John Turner: After the fire at our current facility in April, we took a long hard look at where we stood from an operational external standpoint.
John Turner: We talked it with net deterrence to make some heart of decisions around our operational leadership. And once the repo process was completed, we began a full review of our plant systems and processes.
John Turner: This almost immediately began bearing fruit as it revealed multiple opportunities for improvement as standard donation, but the implementation of these improvements required some costs as Blake will decal in a moment.
John Turner: Additionally, during the quarter, one of our new directors at the Carment Facility was severely damaged during the commissioning process resulting in a total loss of that asset. While the second judge is currently operating and beating the plant, we have made the decision to pivot to a well-known domestic judge manufacturer in pursuit of better real-time support and improved lead times on spare parts.
John Turner: We have a long track record of success with this OEM's equipment.
John Turner: and are excited about working with them to drive down our mining costs back to our normalized levels.
John Turner: We have placed in order for two new judges from the manufacture and expect to receive the equipment in early 2026.
John Turner: In the meantime, we're using our existing dresses and combination with traditional mightings that feed the permit plan. While this is the lane and next step change in our pursuit of law mining costs, we still expect the same preliminary overall off-expertone metrics moving forward.
John Turner: The combination of lingering expenses from the fire related temporary load out operation to permit our operational improvement initiatives and the ladies and dredds committing resulted in higher than anticipated operational expenses for the quarter.
John Turner: This was almost entirely driven by higher off-exit, our current facility has mining operations at all our other facilities performed very well throughout the quarter.
John Turner: At Kermit, it's important to note that July experience the highest off-backs per ton, but each subsequent month showing sequential improvement. A trend we expect to continue through year-end when we expect to be closer-turned-the-allized levels.
John Turner: Just as important, the work we have undertaken at our current facility as enhanced our confidence, our ability to produce the volumes required by the data expressed.
John Turner: Further enhancing this confidence, this fall we started construction of a road and offload system that connects the Dittics for F to our adjacent 115 and 874 plants that we acquired with high crush.
John Turner: The bond completion of this tie-in project at late 2024, all four of our current facilities will have the capability to feed the dead express, creating a reinforced, sand supply to ensure a sufficient volume B to the dead express.
John Turner: And that's imperative as we are highly encouraged by conversations we're having with our customers as our feet season. We're currently committed on more than 60% of our NAFSA capacity for 2025, with more than 10 million of those tons played to be delivered in the Delaware basin.
John Turner: This is the first R&P season where Alice is not only selling the advantages of the Dynics Press with our high quality sand, but our entire suite of the Ligisco offerings that was enhanced by the acquisition of high-brush.
John Turner: While Atlas does differentiate it position as always valuable, it is in market flight today where we really shine.
John Turner: with an acquired rig count, continued MP capital discipline, and the recent large scale consolidation we have witnessed the month of the operators. The overall domestic oil-filled service market is experiencing a challenging pricing environment, and while fans of the man is performed better than other verticals.
John Turner: It's always been one of the more volatile pieces of the value chain from a price perspective and has not met a mute in this market. Spot prices for West Texas fans are now trading at levels where much of the supply stack is operated by even gross margin in negative cash flows.
John Turner: At today's prices, we anticipate much of our competition, but we force to elect a furnace survey miss and reinvestment in their plants. And we are increasingly here in anecdote of ship reductions and potential mine closures.
John Turner: All of this points to current prices being at unsustainable levels. And just as fan prices move fast to the downside, they have also a sort of a move to the upside singer and harder than we expect.
John Turner: However, Alice's unique combination of bandit reserves and distinct widgets of co-evanges positioned up to significantly outperform our peers in today's market.
John Turner: Our customers are smart and know that market conditions like today can result in the stress suppliers that becomes significantly less reliable.
John Turner: It is significantly more expensive to have sand you were depending on, not show up than it is to pay for reliability in peace of mind.
John Turner: This has been a key differentiator for Atlas in our recent customer conversations and we expect it to only grow an importance over the coming months. Particularly with large operators who are making the Permian Basin a key part of our global development plans.
John Turner: Before I hand the call over to Blake, a quick update on our Autonomous Trucking Initiative. Early next year, we plan to begin a small commercial rollout of our partnership with Kodiak and LeBotic. With initially the two driverless trucks with the hope of continuing to grow that partnership throughout the year.
John Turner: We are a main excited about a flying autonomous driving technology into large spots and private leach roads that are prevalent in the Delaware basin, off the data express. We're trapping with light and speed limits around the 21st-brower.
Speaker Change: with that. I'll now turn the call over to our chief financial officer, Blake McCarthy, to discuss our third quarter financial performance outlet.
Blake Mccarthy: Thanks John for the third quarter of 2024. Atlas reported revenues of 34 million, up 6% to the next quarter of 2020.
Blake Mccarthy: A Justice Eavodile was relatively flat sequentially to 71.1 million for 23% of revenue, and that income was 3.9 million, or 1% of revenue.
Blake Mccarthy: Revenue is from Price Sales, we're approximately 145.3 million on volumes of 6.0 million tons. Yielding an average sales price of approximately $24.34 per ton for the third quarter.
Blake Mccarthy: Service Roughness reproximately 159.1 million. During the quarter we had a high water market at 28th hrs in the Miverd Roughly 75% of our volumes, the RO-NASS.
Blake Mccarthy: Looking ahead to the fourth quarter, we expect in-peapudge exhaustion to result in a longer holiday slowdown, than typically seen, which will negatively impact the sales volume and last mile per counts.
Blake Mccarthy: We expect our last mile crew down to remain in the 26-28 range. Through November, after we've expected to see if you could drop to our December, an operator sick of Brigham before initiating the 25-year completion plans.
Blake Mccarthy: Service margins are expected to hover around our historical average numbers.
Blake Mccarthy: Cost of sales excluding the DNA or approximately 225 million. Plant operating expenses excluding the DNA, but including royalties or approximately 88.8 million or $14.87 per ton, significantly above our normalized levels.
Blake Mccarthy: Harsan and his spated rental equipment expenses, Meparen maintenance expenses, for a great expenses, and a greater mix of traditional mining than anticipated, all contributed to the elevated production expenses.
Speaker Change: and John stated earlier, we expect the combination of improved production and improvement and the implementation of our operational process improvements through Sulton Opex for time metrics reaching on the lives levels by year end. Setting the stage for improved operational financial performance in 2025.
Speaker Change: Average optics per time for the fourth quarter is affected to be improved sequentially, but still above our normalized levels.
Speaker Change: Q3 SGNA was approximately 25.5 million. A figure that was inflated by approximately 2.4 million of acquisition related calls, approximately 6.3 million of stock base compensation.
Speaker Change: Moving forward, Cast GNA is expected to be approximately 15 to 16 million per quarter. World D expense was approximately 5.7 million. Cast Inter-6 expense was approximately 10.7 million.
Speaker Change: Horried in Castle over in the third quarter was 85.2 million, and adjusted free cash flow, which we do find is adjusted even though, let's maintain its cap X, with 58.7 million, using an adjusted free cash flow margin of 19%.
Speaker Change: Catholic Spendisher's during the quarter total of approximately 86.3 million. 68.5 towards growth with a remainder to maintenance.
Speaker Change: A road cat fix consists of 5.1 million spent on the construction of the Dune Express with 5.1 million associated with encore expenditures.
Speaker Change: Maynets Gapx for the quarter was approximately 12.4 million. Cash at a equivalent of the 78.6 million against total debt, a 475.3 million.
Speaker Change: Looking ahead to the fourth quarter, we expect the operator capital budget exhaustion to result in a prolonged college flow down in completion activity.
Speaker Change: Well, would you expect improvements that are avidopics per ton to partially offset some of the impact to our margins? We expect Q4 to be a doll level to be flat to down relative to Q3 levels.
Speaker Change: Due to the strong cash flow for a bottle of our business, we are increasing our dividend to 24 cents per share, which will have represented a 5% increase over the prior period for once in per share.
Speaker Change: Hey, son, our closing share price on October 27th, our annualized dividend yield is approximately 4.8%. In addition, I'm pleased to announce that our border directors have authorized a share-reported program under which the company may repurchase up to 200 million about standing stock of the next 24 months.
Speaker Change: It is our belief that Atlas is a advantages in both resource-based and logistical infrastructure, positioned to be a differentiated vehicle for turn-of-capable shareholders within the OSU immerse.
Speaker Change: and we are excited to expand our optionality of means by which we can distribute this capital.
Speaker Change: That concludes our prepare remarks. We will now let the operator of the lunch question. Thank you all for joining in our third quarter call.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: for participants using speaker equipment and maybe necessary to pick up your hands at the four pressing the star keys. One moment please, Molly, pull for questions.
Speaker Change: i
Speaker Change: The first question is from Jim Rowlandson from Raymond James. Please go ahead.
Jim Rowlandson: Hey, good morning guys and congrats, I guess, on getting to the finish line on Dune Express.
Jim Rowlandson: John, maybe you talked a little bit about some of the issues at Kermit and kind of what you're focusing on. Maybe just expand a little bit on what some of the key issues that you're trying to address or improve as you roll into next year and volumes pick up and maybe kind of the timeline and confidence in getting to the finish line on those things.
John Turner: Yeah, Jim, thanks. I'll, you know, I'll start it off and then I'm going to, I'm going to let Chris take a, to walk through the, to walk through some of the
John Turner: Other parts of the you know, some of the parts of the parts of your question, but you know, yeah, obviously it's a great question and you know
Speaker Change: It would be easy to point to these things and say we've just had a run of bad luck, but we're in the business of making our own luck. 2024, it's obviously been a rough year with respect to our operations.
Speaker Change: You know, we're 100% committed to getting it right from the ground up. You know, we've put some new operational leadership in place at the plant that has been applying, you know, fresh eyes to the entire system. And while, you know, the conclusions they draw can sometimes be painful to hear, you know, the steps we are now taking are setting Atlas up for long-term success.
Speaker Change: We have the right assets both in, you know, both in our reserves and our logistics.
John Turner: And it's imperative that we maximize their value by developing and deploying them as efficiently as possible. So I'm going to go ahead and let Chris kind of walk through the things that we're doing. And so Chris, you want to take it away? Yeah, thanks, John. So in my experience, large operational failures
Chris: right, they're often the result of smaller underlying issues that compound over time. And those issues eventually bubble up into something that really no one saw coming.
Chris: The post-mortem spotlight often exposes deeper operational problems that require immediate attention, but catalyzes profound long-term change within an organization.
Chris: Thank you for watching. We'll see you next time.
Speaker Change: For all intents and purposes, the fire was that for us. It was the catalyst that kicked off a comprehensive assessment of our current operations.
Speaker Change: We rapidly addressed those items that needed immediate response, but concurrently we've been identifying and eliminating those efficiencies, inefficiencies, bottlenecks, and areas of underperformance in our operation.
Speaker Change: Our communications have been streamlined and structured in a way that facilitates the sharing of information across both teams and departments.
Speaker Change: This leads to faster problem-solving and a more cohesive approach to organizational strategic initiatives.
Speaker Change: We've also made procedural and structural changes to enable almost real-time visibility into revenue, costs, and profitability.
Speaker Change: Through all of this though, the bottom line is that our team has stepped up and executed.
Speaker Change: We are already seeing results from the hard work. We've been able to meet and exceed commitments to our customers. We have increased our delivery percentage. If you look at as of now, 75% of our produced sand is delivered to the blender.
Speaker Change: We are now setting new volume records for both total sand production and sand delivered to the blender.
Speaker Change: More specifically, for Kermit, in October, our Kermit plant beat our historical wet plant production record by almost 40%. And three of our top four Kermit dry sand production months on record have been August, September, and October.
Speaker Change: While operations will inherently always have issues, overcoming these challenges in the way we did has not only made our organization stronger, but it helped shape our multi-year operational excellence roadmap that will continue to differentiate Atlas from our competition.
Speaker Change: Appreciate all that. And then maybe as a follow-up, Blake, you mentioned OPEX, obviously high this quarter.
Speaker Change: And you also mentioned that it's been improving steadily and you'll kind of start getting back to something more normalized But with the dredge orders that don't come till 26
Speaker Change: you maybe don't take that final step down till further down the road, maybe a little bit of timeline of kind of how you see OPEX trending over the next four, five, six quarters.
Speaker Change: Yeah, Jim, that's pretty much dead on. You kind of walked through that pretty well. So, you know, generating the lowest cost.
Speaker Change: OpEx per ton across the industry is pretty core to the Atlas strategy.
Speaker Change: As John mentioned, we have the best resources, but a key part of our company culture is developing those in the most efficient manner, constantly seeking for better processes, more standardization.
Speaker Change: That's why that Q3 figure of 1487 per time that really sticks our crawl. You know, one thing that is misleading about that number is that it was entirely driven by the elevated expenses at a permit plant. [inaudible]
Speaker Change: The other plants were humming along pretty efficiently during the quarter, or quite efficiently during the quarter. And the leadership and crews of those plants actually should be very proud of their results. So Q3, the issue was primarily our large kermit plant, but as it's by far our largest facility, it really drives the ship.
Speaker Change: so that our operations leadership they've been part of working to plant back on track and even in Q3 we saw meaningful improvement from the beginning of the quarter through the end of September so it was pretty steady line of improvement there.
Speaker Change: Thank you. Thank you.
Speaker Change: We expect the optimization efforts to begin to bear more fruit during Q4.
Speaker Change: at a pretty steady level. The primary issue for Q4, though, is that we do expect to see that decline in throughput related to reduced demand driven by the operator budget exhaustion we talked about. And that, of course, negatively impacts fixed cost absorption across the complex.
Speaker Change: So, while we do expect average OPEX per ton to decline sequentially, the improvement won't completely reflect the entirety of the underlying improvements. So, you really won't see that until 2025.
Speaker Change: However, as we mentioned in a prepared remark several times, we are increasingly optimistic about our outlet fruit volumes in 2025. So we'll get that improved plant throughput, and we should see the average opex per ton trend towards the low double-digit range in relatively short order.
Speaker Change: However, as you mentioned, due to the issues we experienced in commissioning the new dredges...
Speaker Change: in the lead times on getting our hands on those new domestic dredges.
Speaker Change: We won't fully reach our target levels in 2025.
Speaker Change: So we'll still be the low-cost producer of sand in the market next year, but we won't really be satisfied until we widen that gap to its full extent, which is part of our long-term strategy.
Speaker Change: Got it. That's helpful. Appreciate it, guys.
Speaker Change: The next question is from Kurt Halid from Benchmark. Please go ahead.
Kurt Halid: Hey, good morning, everybody.
Speaker Change: Good morning, Clark.
Kurt Halid: Hey, thanks for the incremental color. I just want to maybe take another step to that as well, right? You know, maybe he is going to talk about the bridge here between where we were in the third quarter.
Kurt Halid: through the fourth quarter and into the first part of next year. I guess the first element of what I'm curious about is, you know, what kind of magnitude of volume decline
Kurt Halid: are you expecting to see and maybe the same kind of context of what kind of magnitude of Pricing either you're seeing through the fourth quarter or you know how your discussions on pricing are evolving for 2025 deliveries
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: Yeah, no, it's a really good question and, you know, from where, I wish we had a, a...
Speaker Change: Thank you. Thank you.
Speaker Change: better answer for you right now but the truth of the matter is is that we're a little bit in the dark right now as it is
Speaker Change: So, the real variable...
Speaker Change: that's still open right now is sales volume. So, you know, we've got a good line of sight on what our costs are gonna be. And we've got a good base of contracted volumes for Q4.
Speaker Change: So we entered the quarter with a really strong, strong contractor volume backlog. But I think the prospect of that prolonged holiday slowdown in the oil field is a very real prospect this year. Of course, you're not not you're not hearing that just from us. I think that's a pretty common refrain across the space. And so there's just
Speaker Change: From what we know now, you know, it's pointing to your volumes being, you know, down slightly, but I think that there's just going to be continue to be some horse trading with customers where they come to us asking for a little Q4 relief in exchange for significant volume commitments in 2025.
Speaker Change: It's so fair to say most of the time we're happy to help our customers out in those scenarios as those trades ultimately end up being greatly to our advantage.
Speaker Change: At this point in the quarter, I can't confidently say that we won't have more conversations of that nature. Ultimately, we're looking to maximize Atlas' cash flow to shareholders, and if that entails giving some grace to key customers in the near term for some long-term gain, I'm going to take that trade every day.
Speaker Change: so you know I'd like to give you you know say like hey it's going to be right here
Speaker Change: But, you know, a lot of those conversations can sometimes happen, you know, the week after Thanksgiving, like, hey, you know, 10 days out and suddenly we're going to shut down for the last two weeks of the year. And it just feels that that's a very real risk this year.
Speaker Change: That being said, the tone of the conversations around 2025 is the flip side of that, where it's very positive. I think that the Atlas story is really resonating with a lot of the ideal customers that we designed this company for.
Speaker Change: That's great, appreciate that color. Second one would be...
Speaker Change: I think everybody's aware here that there's been a significant reduction in trucking rates.
Speaker Change: Right, and one of the key dynamics around the Dune Express was the ability to
Speaker Change: deliver all the things you said it would deliver in your prepared commentary, so maybe you can give us some some insights here as to you know, how if at all the margin profile for Dune Express has changed.
Speaker Change: you know since inception versus where we are now given the given the dynamics of the market and again in the context of you reference that You're up odds for time are going to be you know coming down a little bit in in 2025 but not to the full extent of what you see experience so
Speaker Change: Maybe you could package that all together and give us some context on how much of that is Student Express versus non-Student Express.
Speaker Change: Kurt, I'll start on that, and then others feel free to chime in. Obviously, when we originally modeled the returns on the Dent Express, we modeled historically low trucking rates, and we still feel like those
Speaker Change: rates that we're currently seeing are above what we had, what we had, the conservatism that we put into that that forecast. Um, yes, you know, depressed trucking rates do. Obviously, trucking rates do compress the margin opportunity that didn't express some.
Speaker Change: Thank you. Bye bye.
Speaker Change: But, you know, like I said, I think it's important to remember a few things. You know, obviously these, we don't think these trucking rates can simply maintain at these current levels much longer. You know, at these current levels, these trucking operators are barely able to cover their cost of fuel, and the driver much less maintenance expenditures and unforeseen issues, you know, they quickly go into the red if, if, if.
Speaker Change: They take an extended break at the truck stop for a breakfast taco and, you know, for coffee.
Speaker Change: or if that's, you know, a flat tire or an engine issue. So, you know, we've mentioned that we've been hearing anecdotes of our mining competitors starting to institute ship reductions.
Speaker Change: Well, I think it's significantly worse than the third-party checking specimen. Chris may be able to talk, maybe Chris can talk a little bit about that. But, you know, there's multiple local operators that have been closing their doors. So, long story short, if these types of rates are cutting into industry muscle, this is going to have some blowback. It's going to be a bad blowback.
Speaker Change: at some point here in the future.
Speaker Change: And so, like I said, when we were forecasting this off the Dane Express, when we were doing this, underwriting this.
Speaker Change: The Dune Express itself, I mean, we were underwriting to those rates that were lower than what we're currently seeing. So, the advantages of the Dune Express are going to last significantly longer than the next six months. You know, it's obviously a long-lived asset that's going to make Atlas.
Speaker Change: margins for years to come through the up-and-down cycles and all that being said we remain very excited about the impact the Express will have on you know Atlas's margin profile precast flow in 2025 and going forward I mean you want to say something Chris about this? Yeah I mean look from a logistics and trucking perspective you know this is this is nothing new right very cyclical
Speaker Change: We've seen this over the last couple quarters in the associated margin compression.
Chris: But, you know, as John said, at the end of the day, you know, as those costs compress, you know, so do our costs compress at the end of line.
Chris: But that structural logistics advantage, you know, of being 68 to 72 miles closer than any of our competition, that doesn't go away no matter how low the prices go. But I do think that, you know, we are at a point right now where, you know, the...
Chris: The amount that it will fall moving forward is incrementally almost zero, so I think we are at the low point and we're looking forward to getting into that in 2025.
Speaker Change: Thank you. Appreciate that.
Speaker Change: David Smith, Neil Mehta, Chris Scholla, Chris Scholla, Chris Scholla,
Speaker Change: The next question is from Keith Mackey from RBC Capital Markets. Please go ahead.
Keith Mackey: Hi, good morning. Just first curious on on CapEx namely for next year, you should see a bit of a ramp down in CapEx spending with the completion of Dune Express. Just how should we be thinking about the main pieces of CapEx? And then as a second part to that, what should we be thinking for buyback utilization given, you know, potentially a ramp in free cash flow?
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Yeah, there's a lot in that question, Keith, but it's a great question. So, you know, honestly, we're still working through our budgeting cycle, so it's a bit early to give hard guidance on 2025 CapEx.
Speaker Change: We certainly don't have anything in the hopper with the scale of the current expansion or the Dude Express by any means. So it will be down meaningfully year over year. We're always going to make sure that we're investing enough in maintenance capex to preserve our core assets.
Speaker Change: Additionally, we have a number of exciting growth initiatives in the incubator that are aching for some capex.
Speaker Change: But all of those have to be weighed against further growth to the dividend and now buying back our own stock as you mentioned so That's to get through the budgeting process. These products are going to need to display very concrete path
Speaker Change: covering a very high return threshold. It's a weird opinion that Atlas is at pretty attractive levels currently.
Speaker Change: So, on top of that, we do continue to have frequent customer inquiries around future Encore mines. We continue to state that we aren't going to speculate and maybe build more mines.
Speaker Change: But if there's concrete customer demand, the Encore model remains a very attractive growth avenue. I'll obviously have more detail on CapEx for you on next quarter's call.
Speaker Change: Thank you.
Speaker Change: With respect to buyback authorization that we now have in place and how we're thinking about cap allocation going forward, you know, from the start Atlas's management and board have felt the company provides a unique platform for differentiated returns both on and of capital and shareholders, particularly relative to the rest of the OFS space.
Speaker Change: which historically, you know, hasn't displayed the relative scores on those metrics, the best relative scores on those metrics against the broader market.
Speaker Change: but we have a unique position so we've got the right assets in the right locations and then we're in the finishing stages of completing what in our opinion is an irreplicable infrastructure advantage that's going to widen that return gap even further.
Speaker Change: So, you know, you take a step back and if we think about cap allocation, you know, just, you know.
Speaker Change: Forgive me for the trite analogy, but I think it's about the balance sheet as the foundation of capital allocation, particularly in a cyclical industry like ours.
Speaker Change: So, you know, leverage is always really enticing when you layer it up with an upcycle and an Excel model. But downcycles in this industry are always deeper and oftentimes longer than we expect.
Speaker Change: And we have enough collective time in the oil field and the scars to go with it to know that maintaining a fortress balance sheet is essential.
Speaker Change: So, we're currently in a great leverage position.
Speaker Change: which is only going to return to improve next year however we do have approximately 148 million due on note related to the high crush acquisition next year
Speaker Change: which is a pretty large piece of cash after the balance sheet.
Speaker Change: You know, you do have to continue to invest in the core business, as we talked about, maintain those assets to enable our superior returns. That remains imperative.
Speaker Change: On average, we think that that's approximately about 60 million per annum, but that can go up or down depending on the type of project work required.
Speaker Change: So those two are your foundation and after that it's balancing the demands between growth capex and organic growth.
Speaker Change: and incremental return of capital to shareholders. Typically, the growth capex our operations and commercial teams put in front of us are the highest returns of cash, where we see with returns often well in excess of 20%.
Speaker Change: However, those projects aren't infinite and we run through them we run them through a pretty strenuous justification process that sees more fall off and get through.
Speaker Change: With respect to inorganic growth, we continue to look for ways to accelerate the growth of Atlas' cash flows, but we're going to be very disciplined in that process.
Speaker Change: So, you know, we have a great core business and absolutely don't need to do anything that dilutes our current portfolio. So, any acquisition we pursue is going to, you know, bring with it further competitive differentiation and an attractive valuation that will accelerate the growth of our cash flows and ultimately, you know, our ability to grow the dividend and buybacks.
Speaker Change: Which brings me to what you're really asking about, which is, you know, how are we thinking about incremental return of capital? You know, we've steadily grown our common dividend, so it's now sitting at $0.24 per share, which represents about 4.8% annualized yield.
Speaker Change: which I believe is the second highest amongst the entire OFS universe, so we're sitting pretty well there. We think about the common dividend, it's like, you know, that's a sum of money that we hope we can, that we know we can return to our shareholders on the rainiest of rainy days.
Speaker Change: So as our business grows and hopefully achieves even greater levels of cash flow stability, we will you know, we're going to constantly evaluate growing that number
Speaker Change: But we also want to make sure that it's at a level where investors know they can bank on receiving that check every quarter.
Speaker Change: So, however, we sell a very cyclical commodity, and while today's sand pricing is at depressed levels, you know, it's going to snap back up just as violently as it goes down. So in those markets, our business model generates significantly more cash.
Speaker Change: been required by our other capital needs and we wanted to make sure with the buyback that we had another means of accelerating returns to our shareholder base at our disposal when the market begins to turn. So ultimately our purpose is to reward Atlas shareholders for going on this ride with us and we're going to...
Speaker Change: We're going to do it with all the tools we've got at our disposal. With respect to how we're thinking about deploying the buyback, you know, we...
Speaker Change: We're going to be constantly watching the market, but we're certainly not going to do anything that's going to stress the balance sheet. We have this step change in free cash flow coming with the Dune Express, and so once we get that online, I think that is something that we're constantly evaluating as a management team and at the board level.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Okay, now that's super helpful. Thanks, Blake.
Speaker Change: Maybe just stepping back and thinking about the sand market a little bit.
Speaker Change: certainly is in, you know, in your presentation to see a long tail of smaller SAN providers and prepared remarks. You talked about breakeven gross margins for a lot of the market and negative free cash flow. As you think about 2025 and where we are now,
Speaker Change: Do you think that it's more a matter of, you know, supply has to drop out of the market?
Speaker Change: or do prices really just have to come up because of increased demand? How do you think about the sand market heading into 2025? Is there more softness that you can see or do you think that we'll see some of that?
Speaker Change: that rational behavior and some maybe some capacity drops out that supports prices and and how do you see that playing out?
Speaker Change: Yeah, I think from my perspective, this is Chris, from my perspective here, you know, as we come into RFP season we got a few different factors going on, right?
Speaker Change: The first is a number of the contracts that were historically signed are going to be rolling off here at the end of the year or into first quarter.
Speaker Change: I think we do have some depressed sand pricing out there that is low and bumping up against our competitions.
Speaker Change: OPEX, right? So they're going to have to make some really hard decisions here.
Speaker Change: I think what you also have is a little bit of a hope and dream for our competition coming into RFP season, right? They're going to hang in there through Q4, through the low prices, and really, really
Speaker Change: bank on, if you will, getting those volumes from the RFP.
Speaker Change: And then I think you're going to see, you know, typically we have a nice pop in Q1 with refreshed budgets and activity.
Speaker Change: I really think what you'll see from that is our competition, either one, reducing shifts and therefore capacity or two, dropping out of the market overall, but I don't think you're going to see that in Q4 just because that's what everyone's waiting for is that RFP volume.
Speaker Change: But as we progress into Q1 of Q2 or late Q2 of next year, I think you'll really start to see the fallout from the market, which really provides fundamentals, if you will, for where you're going is those higher sand prices on a long-term basis.
Speaker Change: Thank you very much.
Speaker Change: David Smith, David Smith, David Smith, David Smith,
Speaker Change: Thanks very much. We appreciate it.
Speaker Change: Thank you very much. Thank you, sir.
Speaker Change: The next question is from David Smith from Pickering Energy Partners. Please go ahead.
David Smith: Hey, good morning. Good morning. Thank you for taking my questions.
David Smith: Thank you very much.
David Smith: More of that one, I think.
David Smith: I wanted to ask, how are you thinking about the cadence of commercial deliveries ramping up on on Dune Express into next year? Maybe, you know, when when you think you could get to that annualized 11 to 12 million tons per annum run rate?
Speaker Change: Yeah, I'll start off and Chris can follow up on that. Look, obviously, excited about the launch of the Express in the fourth quarter.
Speaker Change: There is going to be a ramp-up period for that, you know, getting comp operators, you know, working through the, you know, what I say, all the ramp-up and commissioning phase for us, getting
Speaker Change: the operators to fully utilize.
Speaker Change: Ben Brigham, Ben Brigham, Blake McCarthy, John Turner, Kyle Turlington, Ben Brigham,
Speaker Change: I wouldn't expect us to be fully ramped up until sometime, you know, mid-next year on those volumes. But I do think we have a lot of operator buy-in on the Dune Express. I think a lot of our customers, and actually new customers, are very excited about taking...
Speaker Change: prove our reliability to the customers and simply roll them into the Dune Express, right? From a customer perspective, whether sand comes off the Dune Express or doesn't come off the Dune Express, it really, they really shouldn't see any operational difference out there.
Speaker Change: Now, you know, looking at, looking at, um, at our customers.
Speaker Change: You can look back a few years, and it was, you know, this is never going to happen, you know, the Dune Express, you know, this real, and what we've come to is now that you're seeing it cross public roads, you're seeing the completion almost there, those number of customer visits.
Speaker Change: out to the Nunexpress have gone up substantially. And I think what you're seeing take place over the last quarter is really that realization from our customer base that, yes, this is real, this is coming, and we'll take trucks off the road.
Speaker Change: and not only take trucks off the road but provide solutions to deliver more sand to the blender, right? More and more that's what we're hearing is...
Speaker Change: We want to move to 24-7 operations.
Speaker Change: and combining the Dune Express closer deliveries with multi-trailer operations, that's what delivers, you know, Santa the Blunder 24-7 and removes those constraints that are existing today and allows our customers to become more and more efficient.
Speaker Change: I appreciate that call, Art.
Speaker Change: I wanted to follow up with that on maybe how we should think about the margin progression for DX during the ramp-up, presumably some under-absorption costs.
Speaker Change: until we get to the full run rate, right?
Speaker Change: Thank you.
Speaker Change: Maybe there's an element of introductory pricing proving out the concept.
Speaker Change: just kind of compared to, you know, how you think about the DynExpress margins, you know, when it's fully, you know, running in two years from now. How should we think about that maybe for the first half of 25?
Speaker Change: Also, Dave, the one thing is we don't sell like.
Speaker Change: David Smith, Neil Mehta, Chris Scholla, Chris Scholla, Chris Scholla, Chris Scholla, Chris Scholla,
Speaker Change: Dune Express specific.
Speaker Change: contracts where it's like, okay, like there's like a discount to the standard Dune Express price. It's a logistics price of like delivered sand. And so there's no, you know, introductory pricing to the Dune Express or anything like that. Now there are, every contract is specific with the large customers. And yeah, we keep a pretty tight lid on that price, but we're,
Speaker Change: And we're looking to move towards more of a, you know, fully delivered price over time. You know, where it's, it's not, you're not breaking out, you know, price of sand versus the price of delivery.
Speaker Change: And so as the industry matures and as we mature in our business model, we'll continue to move in that direction. No real change to our previous guide. We'll give more clear guidance. We're still working through the 2025 budget process, and we'll give clear guidance.
Speaker Change: on the next call on exactly how to model going through next year's on the margin standpoint as we iron that out ourselves.
Speaker Change: Thank you.
Speaker Change: had a try. I appreciate it. Thank you.
Speaker Change: Yeah.
Speaker Change: The next question is from Sean Mitchell from Daniel Energy Partners. Please go ahead.
Speaker Change: Thank you for watching. Please subscribe to my channel. I'm your host, Bill Shklovsky.
Sean Mitchell: Hey guys, thanks for taking the question. Just curious, you guys see, obviously, and talk to a lot of customers that are using your product. Is there any change in the mix in terms of, and what I mean by that, is there any change in mix for wet sand versus dry sand? And as people kind of move to these, we hear a lot on these conference calls, guys moving to Simulfrac, Trimulfrac. Are guys moving...
Sean Mitchell: Are you seeing that in your business at all, just this kind of move to wet sand more and more?
Speaker Change: I'll start off on that one, Sean, and then maybe Chris or Blake to follow up. Look, I think it's more about getting SIN, locating SIN, the assets cluster, the well type. I think once you...
Speaker Change: Like, if you look at the, if you look at some of the most sand pumped out there by our customers, you look at them, look at those, who those customers are, and it's actually the, the encore mines out there in the Midland Basin where, you know, the, the, the, the sand is located.
Speaker Change: 10, 15 miles, maybe less from the well site where they can more efficiently utilize.
Speaker Change: The trucking assets more efficiently utilize the storage on location. It's just it's just more efficient. You can just serve the well site better, you know, with your assets. And I mean, it's kind of like when you look at.
Speaker Change: on the Dune Express, you look at what the Dune Express is going to do, it's going to take that, you know, the...
Speaker Change: The best asset, best sand mine, or set of sand mines, the basin, dry sand mines, is going to take those sand mines and it's going to place them right in the middle. That's one of the things Chris talked about is
Speaker Change: you know, a lot of our operators, a lot of our customers are looking at how to increase the amount of time that they can pump and a lot of that, you know, a lot of that bottleneck is saying that it's...
Speaker Change: distance from from the well side. So I think it really depends upon what what an off I think it really depends upon where the assets are. And so Chris, you want to yeah, no, john, I think you summed it up really well, right? As logistics at this point, where sand pricing is has eclipsed sand in terms of
Chris: you know, that percentage of the total delivered cost, right, a much larger portion than it had been historically. You know, location, location, location, that's the name of the game in reducing those total delivered costs to our customers.
Speaker Change: Got it. Thanks.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from Neil Mehta from Goldman Sachs Asset Management. Please go ahead.
Speaker Change: Yes, thank you. Neil Madoff from Goldman Sachs Research. My first question is just on operating expenses per ton on the mining side and just your perspective on how you see that evolving as we make our way through 2025 and into 2026 potentially as well. What are the moving pieces and what's inside your control and and what's not in your control?
Speaker Change: Thank you.
Speaker Change: Thank you for watching. See you next time.
Speaker Change: Yeah, sure, you know, I think we touched on this earlier, but, you know, we expect like a lot of
Speaker Change: A lot of the issues in that 1487 per ton number for 2-3, that was a result of...
Speaker Change: You know incremental inefficiencies in the system that were basically as coming out of the rebuild process You know that the month of July was our highest Opex per ton quarter. We saw sequential improvements as a lot of the you know Operational improvement plans were put in place
Speaker Change: Just as that process continues to mature and move along, we'll see that continue to drive the op-ex per ton down. We expect it to be in the low double-digit range by the end of the year, and then expect it to kind of run.
Speaker Change: remain in that range through the course of 2025. We're a very high-fixed-cost leveraged business, and so the more tonnage we can push through the plant, the better that average OPEX per ton gets.
Speaker Change: Thank you. Bye-bye.
Speaker Change: So we will continue, and next year we expect to be a big volume year for Atlas.
Speaker Change: The next step change, though, really would be when we get our hands on those incremental dredges, and that's not going to be until early 2026.
Speaker Change: But that's really only for the Kermit plant, which only represents about a third.
Speaker Change: of the OPEX, of our overall complex, so, you know, what we've always talked about publicly is that it represents about, you know, a dollar to two dollars at the top of incremental OPEX improvement.
Speaker Change: But, you know, you think of that only being about a third of the complex that, you know, obviously split that amongst the average of the portfolio. It's less of an impact, but that's probably the next step change. We're never going to get, like Atlas, if you think about his pretty high crush.
Speaker Change: acquisition, you know, we were at these very, very low OPEX per ton levels.
Speaker Change: We're never going to get back there just because we have a different asset base now, particularly with the mobile mines which bring their own advantages on the OPEX side but more on the logistical end. So we're going to constantly be looking for ways to drive that average OPEX per ton down. We've got a new operational excellence team in place.
Speaker Change: you know they are coming up with ideas every day that we never saw so again it's fresh eyes on the system you know you bring in talented people and they they start to pay dividends very early
Speaker Change: Thank you for joining us. Thank you.
Speaker Change: That's really helpful, Culler. And then just your perspective on return of capital as Dune Express comes online, as the free cash will inflect, and hopefully the commodity.
Speaker Change: starts to normalize here, you're going to be in a position to return a lot to shareholders. So just, how do you think about buybacks versus dividends and, you know, when you talk to your investors, do you see there's a preference?
Speaker Change: Yeah, you know, talking to investors, you know,
Speaker Change: Thank you for watching. This is a production of the Center for Autism and Related Disorders, located at the Center for Autism and Related Disorders, in the City of New York.
Speaker Change: They like it all.
Speaker Change: which you know big surprise there right the more cash and the more value you can return to them
Speaker Change: the happier they are. And we are happy to, you know, serve them lots of different courses.
Speaker Change: Again, like I mentioned before, we think about that common dividend being a number that we feel very confident that we can pay out in the worst of the down cycles. We don't want to get that to a level where at any point it would start to stress us, like we'd be using the balance sheet to pay it.
Speaker Change: you know if that's a we want to remain at a you know a very not conservative level but a you know a significant amount of money that we know that we could pay out every quarter and we want to win our shareholders to be able to put a you know to count on that to come into their pocket every quarter
Speaker Change: The buyback, you know, that's one of the reasons that we wanted to put that buyback authorization in our back pocket is that we know that this business is going to generate significantly more cash than that common dividend requires, and that that is required by the amortization of our debt that we see coming out of the coming year.
Speaker Change: you know, Atlas is going to continue to de-lever, we're going to continue to pay out that common dividend, and on top of that we'll look to use that excess cash flow to return that through the buyback.
Speaker Change: You know, this is something that we talk about every quarter with our board too, is that we are constantly discussing incremental means of returning capital to shareholders. So just because this is what we currently have on the table doesn't mean this is gonna be our end point either.
Speaker Change: That's a great guest. Thanks for the time. Thanks, Bill.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session. I would like to turn the floor back over to John Turner for closing comments.
John Turner: I'd like to thank everybody for joining and participating in everybody's call. Obviously, the fourth quarter is going to be very exciting. We're going to be talking about the Dune Express, you know, the Dune Express.
John Turner: You know, makes operators more efficient, which makes the Permian Basin more efficient, and efficiency is the name of the game.
John Turner: when it comes to manufacturing. And the Permian Basin is the largest and most important in manufacturing process in America. So, you know, we look forward to reporting to you guys here coming up on the fourth quarter. And if you guys have any questions, please don't hesitate to call Kyle.
John Turner: Thank you.
John Turner: Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [music]