Greetings, and welcome to the Atlas Energy Solutions Third Quarter 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. 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, sir. You may begin.

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the third quarter of 2023. With us today are Bud Brigham, Chairman and Chief Executive Officer; John Turner, President and CFO; and Chris Scholla, Chief Supply Chain Officer. Bud, John and Chris will be sharing their comments on the company's operational and financial performance for the third quarter of 2023. After which, we will open the call for Q&A. Before we begin our preparatory remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. 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. You can learn more about these risks in the prospectus we filed with the Securities and Exchange Commission on September 12, 2023 in connection with our Up-C simplification; our quarterly reports on Form 10-Q; and our other SEC filings. You should not place undue reliance on forward-looking statements and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures, such as adjusted EBITDA, adjusted free cash flow and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to Bud Brigham.

Thank you, Kyle, and thanks to everyone for joining us today for our third quarter conference call. Despite a 10% drop in the Permian rig count since the beginning of the year, demand for Atlas proppants remains resolute and we are rapidly growing our logistics platform. We are pleased with our third-quarter operational and financial results, as our team continues to deliver across a range of operational and profitability metrics including total sales, sales volumes, net income and adjusted EBITDA. Importantly for investors, Atlas continues to generate industry-leading margins, which in my view are underappreciated, benefiting from our exceptionally low-cost structure. We continue to work to drive costs down even lower. Over the course of 2023, we reduced our operating costs on a per-ton basis, and we expect to achieve further reductions in the middle of next year when our two new fit-for-purpose dredges come online and achieve their planned utilization levels, all of which should benefit our industry-leading margins. Our three major capital projects to grow our business the Dune Express conveyor system, the new Kermit facility addition and the build-out of our trucking fleet are progressing as planned on time and on budget. Now I will briefly review our growth initiatives. But I'll also encourage you to watch the video update summarizing these initiatives, which is linked on Page 3 of our updated presentation. Starting with our production expansion, our new facility at the Kermit location is now in the process with commercial in service expected late in the fourth quarter. As a reminder, this new facility will increase our Permian-leading production by approximately 50% to over 15 million tons further enhancing our scale, which is crucial to reliably match the scale demand and efficiencies of our large-scale customers. The second area is our logistics offering, which includes our innovative high-capacity trucking and delivery assets. Our logistics and delivery assets enhance efficiencies and reliability for the industry. As a result, our market share is growing, as Chris will discuss in a bit. Our logistics offering is also important given that these trucking and delivery assets will seamlessly interface with the Dune Express, which is expected to come online late in 2024. As a reminder, we rolled out our innovative high-capacity trucking and delivery assets to prepare the market for the Dune Express and facilitate a more seamless transition to that infrastructure-based solution. This brings me to our third major growth initiative our Dune Express conveyor, which is really more similar to a midstream asset. Like the other capital investments, the Dune Express remains on-time and on-budget with an expected commencement in the fourth quarter of 2024. We have ordered approximately 90% of the equipment and materials for the project and have also contracted approximately 80% of the installation and labor, which significantly reduces budget risk. Today, we have taken delivery of more than 57 miles of conveyor belts and over 100 miles of fiber optic cable. We believe the Dune Express and our logistics offering will provide substantial environmental and societal benefits as we aim to vastly reduce the number of trucks on commercial roads in the Permian, which is expected to reduce emissions and save lives. Furthermore, our logistics offering has the potential to enable our customers to realize efficiency gains by increasing the throughput potential of proppant to serve frac crews that continue to find ways to pump faster and consume sand at increasingly impressive rates. In terms of sales, despite an estimated 10% reduction in completion activity in Q3, Atlas' sales volumes remained sold out in Q3 and were flat sequentially, demonstrating correct alignment with prominent Permian Basin customers. For 2024, we currently have 6.2 million tons of production contracted, which represents 40% of our anticipated production capacity of 15.5 million tons for next year. It is worth reminding investors that oil and gas companies have been working on their 2024 budgets and are just now entering the early stages of contracting their sand and logistics needs for 2024. These negotiations will run from now through the first and into the second quarter of 2024. As expected, there was very little contracting in August and September with our existing customers and potential new customers. Our second-leading margins, benefiting from our low-cost structure, should only get lower with the fit-for-purpose dredges around mid-year 2024 and lower again in 2025 with our Dune Express, combined with our expanding revenue streams, provides us with confidence that we will be able to layer on additional contracts and accomplish our financial goals, which includes growing distributable cash flow into next year and the years to come. Of note, Atlas has adjusted its overall portfolio over the last two years to ensure contractual continuity through staggered terms regarding both contract duration and timing of renewals. Our goal remains to have over 80% of our capacity committed in 2024. And we remain confident in that goal for several reasons. First, we're currently in negotiations for several million annualized tons of sand and logistics in rolling contracts with existing customers, where historically we have had very high retention rates. Current contract discussions include not only sand and logistics supply agreements, but also some more complex and long-term conversations about a revolutionary infrastructure-based solution for the Permian. In addition, we have a number of meaningful opportunities to add volumes with new customers, including large customers that stand to benefit from the Dune Express. Our growth in the logistics business and our progress on the Dune Express combined with our unmatched reliability and scale uniquely positioned Atlas to meet the growing demand but to also grow our market share in the Permian. While operators generally control the timing of the initiation of these contracts, we control the access to future volumes that will go down the Dune Express. For these reasons, we remain assured that we will exit contract season with not only a strong contract backlog but alignment with the most efficient and highest quality customers. Regarding sand pricing, investors should recognize that there is stratification and differentiation in the proppant and logistics markets. Some of the factors in proppant marketability and thus pricing include the company's ability to scale up to reliably meet the needs of increasingly large operators in the Permian, particularly given the increase in pad development drilling and simul-frac activity. In this regard, Atlas is unmatched in our ability to deliver profit with the scale and reliability required for these projects in order to effectively de-bottleneck sand in these massive completion operations. Associated with that are our innovative logistics offerings and associated incremental dependability and reliability, which they provide to our customers. Our expanded logistics offerings differentiate Atlas in the market further enhancing our industry-leading dependability and reliability. In my view, as a former operator, I can state unequivocally that dependability and reliability are of major importance to our customers, and they are absolutely mission-critical in the value proposition we offer. Given our unmatched scale, our historical delivery execution, and our ongoing logistical innovations, we feel confident in our ability to deliver the step-changing performance that our large-scale operators need. Another point on sand pricing is the fact that there are numerous variables involved. For example, are you selling wet or dry sand? Atlas currently sells only dry sand, and we've been sold out all year while others have had to sell meaningful sand volumes on the spot market. All of that to simply say that investors should not read too much into discussions of spot pricing. While lower spot pricing can directly be indicative of pricing trends, there are reasons that some products fly off the shelf and are even contracted before other products are sold. There are reasons that some products on the shelf have to be discounted. And of course, the distance to the wellhead and associated delivery cost play an important role in sand pricing and the all-in costs for the operators. Importantly, the Dune Express will eliminate the distance-related benefits of some of the wet sand options in the Delaware Basin. Further, when you add in the advantage Atlas has in inventory, security of supply, quality, and throughput potential, our customer's ability to pursue operational excellence on a scaled basis will only be enhanced. As the largest proppant producer in the Permian, with the largest and highest quality reserves, our differentiated advantage also makes our results less volatile as evidenced by our quarter-to-quarter performance. While that benefits and is of significant value to our customers, those attributes, including our unique dredging operations, also benefit us by lowering our cost structure. Regarding the macro environment we're operating in, despite the drop-off in activity, the Permian proppant market remains healthy driven in part by the continuing advancements in efficiencies. Frac crews are continuing to pump more proppant on a per day basis. On the supply side, Permian proppant producers have been disciplined, with modest supply additions recently coming in response to a long period of significant undersupply in the Permian, bringing the market into a more balanced position as we enter 2024. Optimism surrounding the recent movement in oil prices and early signals from customers leads us to believe that a strong recovery in frac activity is around the corner. An expected ramp in activity next year, combined with continued increases in proppant per frac crew per day against a supply side that is much more patient in making growth investments than we've seen historically, leads us to believe that the sand market will tighten again next year. Again, we remain sold out in Q3 and expect to remain very busy in Q4, particularly given how heavily contracted we are. With the current geopolitical uncertainty, the call for more Permian barrels has never been greater and more crucial for energy security in the United States. In addition, the previously announced corporate reorganization transaction or Up-C simplification closed on October 2. We now trade under a single class of common stock with the previous dual-class stock structure now eliminated. We are optimistic that our simpler, more efficient corporate structure will enable us to broaden our investor base. Finally, given our strong margins in quarter-end liquidity, we're excited to put forward another quarterly dividend of $0.20 per share. Similar to the previous quarter, the dividend is comprised of a $0.15 per share base dividend with a $0.05 per share variable dividend. Last, I want to point investors to slide 12 in our investor presentation. As previously mentioned, Atlas leads all the other public companies in the oil field service sector in both margins and growth. This is truly a remarkable enterprise and we've now demonstrated that performance on a consistent quarter-to-quarter basis, without the volatility experienced by others in our space. Given those margins and the growth we expect to achieve in 2024 and 2025, while our major CapEx initiatives are winding down, we expect to enjoy exceptional cash generation flexibility, which should increasingly be recognized in the market. With that, I will turn the call over to our Chief Supply Chain Officer, Chris Scholla to provide you with an update regarding our trucking and logistics business.

Thank you, Bud. We continue to build out our fleet of high-capacity logistics assets and provide seamless delivery of double and triple trailers to our customer well sites, with payloads that exceed the industry standard tonnage by three to four times respectively. Our customer base and multi-trailer operations continue to grow, evidenced by an over 100% increase in multi-trailer jobs and adoption by some of the largest operators in the Permian since the beginning of this year. As shown in our investor presentation, we added an additional drop depot facility during the quarter, which almost doubles our existing heat zone, multi-trailer delivery areas to over 1,000 square miles. We expect to commission our third drop depot facility during Q4 of this year, which will expand our multi-trailer delivery area to over 1,500 square miles in the Delaware basin. We also commissioned our remote in-field command center, which is presently located 18 miles west of our current facility. This command center was designed to be completely remote and mobile. We will eventually be placed in the heart of the Delaware basin near our end-of-line loadout facility upon completion of the Dune Express. Our new in-field command center puts our logistics base of operations significantly closer to customers' well sites, ultimately supporting superior in-field customer service. With that I will turn the call over to our President and CFO, John Turner.

Thank you, Chris. Today, I will review our third-quarter 2023 financial and operating results and comment on our financial position. For the third quarter, we reported total sales of $158 million. Our profit sales revenues were $115 million. Our profit sales volumes were relatively flat over the period while our average mine gate price declined moderately. The sequential price decline is a function of higher-priced, shorter-duration contracts rolling off and being replaced by new contracts at lower rates, as well as quarterly pricing resets on certain contracts. Moving to service sales, which is revenue generated by our logistics operations, we reported a quarterly record of $43 million in revenues for the quarter, representing a 17% increase when compared to our prior period. This increase in service sales is related to an increase in the number of active jobs during the period enabled by an increase in the number of trucks deployed and continued customer adoptions of our single and multi-trailer logistics offerings. As of October 31, we had taken delivery of 97 trucks, which is an addition of 35 trucks since the last quarter and expect to take ownership of a total of 120 trucks by year-end. In total, cost of sales excluding DD&A for the quarter increased by $4 million to $68 million. This increase was primarily driven by higher trucking and last mile logistics costs resulting from the increase in the size of our fleet and increase in number of active jobs. For the third quarter, our per-ton plant operating costs were $9.66, which is in line with that of the prior period. Further, we expect the delivery of our new specialized dredging equipment in early 2024 to provide for incremental improvements in operational performance and further reductions in our mining costs once those assets are fully commissioned by the middle of next year. Royalty expenses for the quarter were down 16% to $3.6 million due to lower realized mining prices. SG&A expense for the quarter was $14 million, representing a sequential increase of 17%. The increase was driven primarily by increases in consulting and professional fees which include $3 million in non-recurring transaction costs related to the Up-C simplification and the refinancing of our terminal. Interest expense for the quarter was $5 million, which was offset by $3 million of interest income generated during the period. We expect our interest income to decline in future quarters as we draw down on our cash reserves to fund our growth projects. Depreciation, depletion and accretion expense for the quarter increased 8.4% to $10 million. This increase was due to additional depreciable assets placed into service as compared to the prior period. We generated net income of $56 million for the quarter representing a strong net income margin of 36% and earnings per share of $0.51 per share. Net cash provided by operating activities for the quarter was $55 million compared to $104 million during the second quarter. $38 million of this decrease was associated with changes in operating assets and liabilities, that were largely associated with an increase in accounts receivable during the quarter combined with lower net income. We have seen the accounts receivable balance normalizing into the quarter. Adjusted EBITDA for the period was $84 million representing a sequential decrease of 9.4% and an adjusted EBITDA margin of 53%. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx for the quarter was $69 million representing a sequential decrease of 21% and an adjusted free cash flow margin of 43%. Looking to the fourth quarter of this year, we expect our EBITDA to be flat just down slightly when compared to the third quarter depending on the degree of seasonal and holiday impacts we see this year. During the third quarter, given our low levels of required maintenance capital expenditures, we converted just over 81% of our adjusted EBITDA to adjusted free cash flow. Capital expenditures for the quarter were $139 million. This includes $124 million spent on growth projects which include our new Kermit facility and express our well site delivery assets and production enhancements at our existing facilities. We incurred $16 million of maintenance CapEx during the quarter. We expect growth capital expenditures to continue to increase as we progress on Dune Express construction, which will be partially offset by declining new Kermit facility expenditures as construction activities taper off as we approach the commercial in-service of that additional capacity before the end of this year. As of September 30, we have spent $132 million out of our budgeted $400 million on the Dune Express. For our new Kermit facility, we have spent $180 million with an additional $25 million remaining. The new Kermit facility is currently being commissioned and is expected to be fully online by the end of this year. As of September 30, 2023, our total liquidity was $439 million. This was comprised of $265 million in cash and equivalents; $74 million of availability under our ABL facility under which we had no borrowings outstanding; and $100 million of availability under our delayed draw term loan facility. We streamlined our capital structure during the period, with a new $180 million term loan that refinanced our previous term loan and finance leases. The principal balance of our new term loan sits at $180 million and our current finance lease balance is $0.5 million. So our total debt outstanding currently is $181 million, and we ended the quarter with a debt to LTM adjusted EBITDA ratio of 0.5 times. That concludes our preparatory remarks, and we will now let the operator open the line for questions. Thank you all for joining our third-quarter call.

At this time, we will be conducting a question-and-answer session. Our first question comes from Luke Lemoine with Piper Samar. Please proceed with your question.

Hi. Good morning.

Good morning Luke.

Bud, you talked about 6.2 million tons already contracted for 2024, and then you talked about in negotiations of several million tons with existing customers which would pretty much take you to your 2023 production levels. I guess within that 6.2 million tons you've already contracted, can you talk roughly about new versus existing customer mix? And then on the incremental production volumes you're adding, is the goal to try to place as much as possible with operators that can offload from the Dune Express? Or is there a wet versus dry consideration as well, or just kind of some of the variables there?

Yes, hi Luke, this is John. In terms of our contracting, we typically don’t discuss specific projects we are currently engaged in. However, to give you an update, we have contracted 40% of our 2024 volumes at competitive prices. We are in negotiations with both current and new clients regarding additional volumes. We anticipate that these discussions will continue throughout this quarter and will likely conclude by the end of this quarter or early next quarter. Additionally, we have several contract renewals approaching in the first and second quarters of next year. Many of those conversations have not yet begun, as we expect to initiate them closer to the renewal dates. Furthermore, we are exploring several new opportunities to determine if we can meet the demand for these additional contracts. Just to remind you, our run rate for this year is 11 million tons, and we plan to sell 15 million tons next year. We are actively working on contracts that could significantly exceed these figures. Our goal for next year is to have 80% of the 15 million tons contracted. It's important to note that achieving 80% on our 2024 volumes by the end of this year is not a requirement due to the renewals scheduled for the first and second quarters. We are not rushing to contract as much of our 2024 volumes as quickly as possible; there are ample opportunities for us to be fully contracted. Our main focus is on securing contracts with reputable operators and pressure pumpers who are reliable and timely in their payments. Would anyone like to add anything to this?

Hopefully that helps you, Luke.

Yeah, yeah definitely. Appreciate the comments on working on deals for over 15 million tons. That's definitely helpful and paints the picture. It's appreciated.

You bet.

Our next question comes from Derek Podhaizer with Barclays. Please proceed with your question.

Hey. I just want to ask about fourth-quarter seasonality in particular. So you said in your opening comments you're going to be very busy in the fourth quarter. The guide was EBITDA to be flat to down slightly compared to the third quarter. We have to think about the Kermit expansion online by the end of the year. You talked about the wet plant coming online. Could you help quantify for us how you're thinking about volumes, pricing and activity as we go in the fourth quarter?

Yes, I'll begin, and then John and the team may want to add more. According to our release, we were sold out in the third quarter. We have also remained very busy through October. However, it is the holiday season, which brings certain challenges related to the winter weather and the holidays. Despite that, we are currently in a strong position regarding our activity levels and being sold out. If you'd like, John and the team can provide additional insights.

Yeah. I mean, we always expect to slow down in the fourth quarter. In December, you see the holidays like Bud said, and then there's the weather that's always very unpredictable. So we do use this time for some needed maintenance. Like Bud said, October is one of our busiest months. It's a concession from a volume and service perspective. Based on what we know right now for the fourth quarter, volumes will likely be flattish. We had a busy October. And as of right now, we see activities slowing in November to December. And if the weather is worse than expected, then those numbers may go down some. On the logistics side, we see activity as flattish as well. As far as activity in the fourth quarter, we hear both sides of the coin. Some companies are taking breaks, and some are continuing to potentially picking up activities. Recently, we have a couple of companies indicate they plan on extending some activity in the fourth quarter. As of right now, we really don't know if that's going to happen. If it does, there could be some upside in the fourth quarter. We really expect a real pick-up in activity to begin in the first quarter of 2024.

Yeah, I might add. I think John makes an important point there as a former operator. No, we would be thinking about recognizing that activity is going to pick up in 2024 that we want to be at the front of the line. Generally, we wanted to be at the front of the line on that. So that's the question here. It's how many operators can pick up a little bit earlier here in the fourth quarter as opposed to the first quarter of 2024? I'm highly, highly confident, there is going to be a meaningful uptick in activity in 2024. It's just a question of how much. And we are getting some positive signals, but it's a question of how many of the operators do pull forward a little bit into Q4.

Got it. Okay. That's all helpful. So fair to say if you think volumes should be likely flat-ish, you don't know how November-December are going to shake out. It seems like that EBITDA guide of flat to down is more of the similar pricing reset. I might write that down more so pricing than volume?

I’ll start, and others may want to add. In the third quarter, our selling prices were just over $40 a ton. The market is fairly balanced as we proceed through the fourth quarter, so we'll see how it goes. We’re currently discussing plans for next year and expect an increase in activity. We’re having those conversations now, and we'll see how they unfold for next year. John, do you want to add anything?

Got it. Okay.

No, the guidance is provided. We may encounter some maintenance expenses. We mentioned a flat trend. There is certainly potential for weather to impact things, but that’s our current outlook.

Got it. Okay, that's helpful. And then a follow-up on operator M&A. Obviously, we're seeing a lot of deals going on Exxon Pioneer. Chevron has a lot of publics buying up privates. This tends to lead to potentially more risk around customer concentration around pricing and volumes. I guess how are you guys approaching and attacking this M&A wave that we're seeing? And how do you win this type of environment?

I’ll begin with that. M&A is certainly going to keep happening. There is significant leverage in scale. We have the chance to reduce our unit costs and benefit from that scale along with increased automation, which sets us apart in that aspect. We are the largest producer of proppant with expanding logistics services that no one else can replicate. This aligns with our long-term strengths. No one else can deliver large quantities of proppant as timely and reliably as Atlas. With our expanding logistics services and the solutions we’re offering, particularly to Dune Express, the situation will only improve. Therefore, the M&A activity plays to our strengths and will continue to do so over time. Would you like to add anything, Jeff or John?

Yeah. I'll just say that one example. The recent M&A has created an overall market share increase opportunity within the independent entities of the M&A, our proven reliability that we demonstrated internally; and three our new industry-leading scope scale and offerings. This is all translating into an Atlas advantage for the independent entities moving forward. So overall creating an accretive union.

Yeah. I mean just in the big picture. When I think back to several decades ago, the Permian was probably dominated to a degree by smaller operators, mom-and-pops. I think that day has gone past. And now it's all about scale and the leverage associated with that. And so these operators need to have scale proppant and logistic solutions provider. That's what Atlas is positioned to provide.

Great. Appreciate the color. I'll turn it back.

Our next question comes from Jim Rollyson with Raymond James. Please proceed with your question.

Good morning. Bud, you mentioned when we discussed pricing and the differing market dynamics between wet sand and dry scale, especially regarding those who must rely on the spot market versus those with contracts. Your team has done an excellent job historically of scaling up and maintaining reliability. I'm interested in your perspective on the value of that scale and reliability in relation to the pricing premium over the spot market figures that are currently being reported, especially in a market that seems to have softened recently. It appears we might be reaching a bottom and beginning to recover. Could you provide some insights on the pricing premiums based on what you offer?

Thank you. First, I want to make some general comments. The reason some companies, like Atlas, are fully contracted while others have proppant available in the spot market is largely due to reliability and dependability. As an operator, having the right proppant when needed, and ensuring its quality, is crucial to maintaining your quarterly performance, project returns, production, and overall goals. This is essential for us and distinguishes us in the market. Smaller proppant providers and alternative wet sand sources have their own challenges and are simply not as effective for large-scale operators who rely heavily on that consistency and the additional infrastructure solutions we offer. I see a significant division in the market. While spot pricing can somewhat indicate pricing trends, I believe there has been too much focus on it, potentially leading to an overestimation of what it represents in terms of sand.

We've been informed by several customers that they chose Atlas due to our reliability and service. They also mentioned that they pay more at Atlas compared to other sand and logistics companies. I can't provide specific figures since our customers don't share what they are paying competitors for sand and service. However, I believe our quality is reflected in the high level of contracting and activity we've maintained over the past few quarters. Despite a 20% decrease in the frac market over the past six months, we've continued to sustain very high activity levels during that period.

Yes, I'll add that this is not a new situation. We are aware of the competitors who come in with very low prices. We've experienced this over our five years in operation and through various market cycles. Currently, there are no public companies that solely focus on Permian sand and logistics that we can use to compare pricing. However, I can say that we set our prices based on the value we provide to our customers, and we have been very successful in pricing our products and services appropriately.

I didn't expect you to provide an exact number, so the additional context is very helpful. John, as a follow-up, when we consider costs, you had to increase expenses late last year while transitioning from third-party operations to in-house dredging. Those costs have since decreased and seemingly stabilized. As we look ahead to the next four quarters, should we anticipate operating expenses remaining relatively stable until the new dredges are operational in the middle of next year? Additionally, could you provide some insight into how much cost improvements we might see, possibly in percentage terms?

We have reached a plateau. However, we are currently working on several initiatives that could have an impact. The most significant change will occur when the dredges are fully operational, which is anticipated by the middle of next year. Previously, our lowest operational expenditure per ton was approximately $6.50 when we were entirely focused on dredge mining. This method gives us a cost advantage of about $2 to $3 compared to traditional mining, which we still utilize significantly. Next year, you can expect to see our costs trend downward closer to that $6.50 mark, likely in the $7 to $7.50 range. This is where we are directing our efforts.

That's helpful. Thank you.

Our next question comes from Ati Modak with Goldman Sachs. Please proceed with your question.

Hi. Good morning team. You noted some progress on the Dune Express. Obviously, it stays on track. But maybe help us understand the steps that you're looking at until it gets commenced in the fourth quarter of next year and any factors that you are keeping an eye on?

Yes, I'll begin. The team may add to this. We have developed both of our plans and completed the expansion ourselves, which is nearing completion in the fourth quarter. Our team is highly skilled and has successfully handled these more complex projects compared to the Dune Express, which follows a more straightforward, repetitive process along the line. I'm not sure if you can provide an answer, but given that we've ordered most of the materials and secured the labor, as I mentioned in my earlier call, this significantly reduces the budget risk.

Yeah.

It's not a very complex project in terms of the construction of the Dune Express.

There is an opportunity to ensure that the equipment arrives on time and meets our specifications. We are currently reaching out to many of our vendors and conducting vendor audits periodically to confirm that the equipment we've ordered will arrive as expected. We have already taken delivery of several pieces of equipment and have begun receiving a significant amount of fiber optic cable. There are several initiatives we are actively working on. As we continue with the construction, our focus in the meantime is to ensure that the Dune Express is completed on schedule and within budget.

Got it.

Did that answer your question?

Yeah. Thank you so much. Appreciate the answer. Just on a follow-up. You mentioned in the press release that there were some quarterly price resets on certain contracts. Maybe help us understand that a little better. Like what does that exposure look like on your overall contracted volumes? And how does that actually work?

Jeff, do you want to take that?

Certainly. Depending on market conditions, quarterly resets have been integral to our pricing strategies and portfolios for quite some time. Some of our current pricing agreements include quarterly resets, which you can observe in our third quarter results and expectations for the fourth quarter. Historically, about 25% to 30% of our pricing has been tied to quarterly resets, and we anticipate that this figure will increase to around 50% as we approach 2024. These quarterly resets are designed to align with market pricing both numerically and in terms of trends. We believe that the increase in activity expected in the latter half of the year should lead to positive outcomes for us.

Our perspective is that we have moved past a low point in both the rig count and the frac spreads. It seems that many in the industry are also expecting an increase in activity for 2024. The quarterly resets provide reassurance for both our customers and us. We have strong relationships with our clients that will allow us to adapt to changing market conditions. Overall, I believe this sets a positive foundation for 2024.

Thanks. I'll turn it over.

Our next question comes from Saurabh Pant with Bank of America. Please proceed with your question.

Hi. Good morning Bud and John. Maybe I'll just start with a quick one on the Dune Express. Clearly you're making a lot of good progress on that, including on the ground. Just want to ask in terms of how customers look at it and they see that progress. Are you seeing more interest customers coming to you asking on the project getting familiarized with that and showing interest in contracting volume through that? Just talk to how your customers are responding to the progress that you're making on the ground.

Customers are clearly excited about the Dune Express becoming operational. We have our existing customers, but there are also several potential new customers we are currently in discussions with. It’s evident that the Dune Express is appealing and compelling to them. We anticipate continuing these discussions over the next three to four months, and we expect to increase our customer base. Jeff, do you want to add anything?

Yeah. One thing to note is that if the Dune Express is just over a year away, any contracting we're doing right now in the Delaware basin is taking into account the need for sand from the Dune Express. There is indeed a lot of interest from various operators in the Permian, particularly in the Delaware, who are seeking that size and scale.

And both sides get the trucks off the road. That's a real issue out there.

Yeah. The efficiency that's coming with this is you know with the Dune Express. So Jeff, do you want?

Yes. As John mentioned earlier, our focus is not on rushing to contract volumes for 2024, but rather on establishing strong partnerships with high-quality clients, including EMPs and pressure pumpers who are sustainable in the long run. Current contract discussions extend beyond just sand and logistics supply agreements; they involve a more intricate and long-term dialogue regarding an innovative infrastructure-based solution for the Permian. To clarify, infrastructure-based solutions involve expanding sand production to fulfill the demands of our large-scale, high-efficiency customers. There is a unique logistics solution, previously referenced by Chris, which entails a phased approach of multi-trailer deliveries transitioning from the drop depot model to the eventual Dune Express delivery system, anticipated to be ready in about a year. This initiative aims to ensure a secure and reliable supply for the future. It’s an ongoing process, and we have seen substantial interest early on. We are currently in the process of formalizing these concepts with the customer.

I mean, this is something we've been talking to these customers for about a long time, three or four years now. And now it's just within a year. And so…

Yes. It's become very clear now that the project is within a year of completion. Customers see progress on the ground. There should be more traction right? And it sounds like there is more traction. So that's encouraging. Okay, perfect. And then a quick follow-up or more of a housekeeping question on CapEx, cash CapEx particularly. John maybe you can remind us how much of CapEx associated with the Dune Express has been spent at this point? How much more is left? And then just for the fourth quarter, how should we think about CapEx and the residual CapEx related to the Kermit expansion that's coming online this quarter?

And Brian has those numbers. I'm going to let him answer those.

Yes. We've spent $180 million on the Kermit expansion. So there's $20 million, $25 million left. And on the Dune Express, we've got $132 million behind us. So another $268 million over the course of the next five quarters.

Okay, okay. Okay, guys. Thank you. Yes, I got that. Okay. Thank you. I send it back.

Thank you.

Our next question comes from Geoff Jay with Daniel Energy Partners. Please proceed with your question.

Hey, everyone. I have a quick question related to mergers and acquisitions. As companies begin to merge or are rumored to do so in the future, and as connections between them increase, I’m interested in how you think this impacts overall sand demand and what it means for your business.

Yes. This is Bud. I'll start, and my colleagues may want to add to my comments. I mentioned this earlier. I believe the key factor in acquisitions is whether the acquiring company is an existing customer. Generally, our larger customers are with Atlas Energy Solutions because we are well-suited to provide the scale and reliability they require. Therefore, I think this is very beneficial for Atlas in the long term. It's more challenging for smaller operators to compete with these large-scale operators, especially with the rising demand for pad drilling and completions, as well as increasing simultaneous fracking, which requires a substantial amount of resources quickly. We are uniquely positioned to meet those needs. Our scale, and our increasing scale, is crucial in this context. I'm not sure if my colleagues have anything to add to that.

No, I think that I agree with you. I believe that larger scale operations require larger scale services to accompany them. We've observed this in other regions, such as the Eagle Ford about 10 to 15 years ago. When larger operators enter the market, they need larger service companies that can meet their demands across their entire operations. They require that reliability because they are investing significant amounts of money and want to ensure successful execution.

I'll mention one other thing because your question may stem from a concern about whether this means less drilling activity. It can, as some of the smaller private operators may be actively growing their production to become more attractive as acquisition targets. However, as you've seen from us on a quarter-to-quarter basis, our results are very stable since we are largely contracted with big operators that have consistent and longer-term planned activity. We align well with these companies that are merging and achieving greater scale. Additionally, we've included the Rystad chart in the appendix of our presentation, which highlights the impressive job operators and pressure pumpers are doing to increase field efficiency. The profit per day per frac crew continues to rise. All these efforts to enhance efficiency are linked to scale, which helps to increase efficiencies while reducing the cost per unit. All of these factors play to our strengths.

Excellent. Thanks. That's really helpful.

Thank you.

Our next question comes from Michael Scialla with Stephens. Please proceed with your question.

It sounds like you're pretty confident you can be fully contracted on about 16 million tons per year next year. Is it fair to think you can go beyond that if the demand is there at a price you're okay with and you don't need to spend any additional capital to do that with the efficiencies you're seeing at Kermit? And is the CapEx number that the consensus has yet right now for next year about $325 million. Does that seem like a good number to you?

Yes, as Jeff mentioned, we are currently discussing volumes that exceed 16 million tons. When we originally built our plants, we expected them to produce between three million to four million tons, but they actually produced 5.5 million tons. With our expansion, we may be able to produce more at Kermit than we initially anticipated. Only time will tell. We also have opportunities to further increase our product output. John, do you want to add anything?

Our target is to achieve 80% of 16 million, specifically aiming for around 15 million. We want to retain some flexibility for on-the-spot decisions based on customer demand. There are new opportunities we are exploring to understand potential additional volumes. Regarding capital expenditures, we will need to revisit that topic. We strive to forecast our CapEx spending, but we often struggle with the timing and fluctuations involved. Currently, we plan to allocate $400 million in total to the Dune Express project, and the Kermit plant expansion is progressing as scheduled and within budget. We mentioned those figures earlier, but we can follow up on them later.

Did that help you?

Thank you. On the logistics side, do you anticipate continued growth there before Dune Express is completed? Are you expecting further adoption of the double and triple trailers? You mentioned the next drop depot planned for the fourth quarter. Do you have any insight into additional growth before Dune Express begins operations?

Yeah. We'll make Chris answer that for you.

We have consistently anticipated growth with the Dune Express. Reflecting on our progress this year, we have established dedicated, fit-for-purpose assets and a unique multi-trailering offering that sets us apart in the market, alongside the expansion of our drop depot footprint. We expect significant growth over the next year; however, our approach will not be to launch the Dune Express abruptly and expect immediate results. Instead, we aim to ensure that, well before the Dune Express is operational, we are already delivering 100% of the required volumes, including sand and logistics to the well site. Our goal is to make the transition to Dune Express as seamless as possible for our customers, so they notice no difference. I hope that clarifies your question.

We've added another heat zone drop depot. You might touch on that. It's a step towards that.

Yes, that's correct. During this transition period, we have over 1000 square miles of accessible multi-trailer operations and we plan to add another one in the fourth quarter. While we expect activity volumes to remain flat in the fourth quarter as we mentioned earlier, we do anticipate growth in that last mile with an increase in the first quarter.

Did that help you?

It does. Thank you very much, guys.

You're welcome.

Our next question comes from Doug Becker with Capital One. Please proceed with your question.

Thank you. I wanted to follow up on logistics but on the margin side. It looks like you were down just a little bit in the third quarter at least in part because of the shorter haul distances. What's the expected trajectory on margins as we move toward Dune Express at the end of next year?

I believe that for next year, we will operate historically within a 10% to 13% margin range. However, as we progress into next year, we anticipate moving towards a 15% to 20% margin as we approach the Dune Express.

Is that longer term?

I mean, longer term once the Dune Express is up and running, upward of 50% margins.

And so just to refine that 15%, 20% through the first three quarters of next year and then a step up as Dune Express comes on?

That's right.

As we ramp into it. I wouldn't expect it to happen immediately, but I think as we ramp into it.

Not day one. But it'll be a ramp up with the Dune Express volumes.

Makes sense. And just on the timing of Kermit, I know we've been highlighting late fourth quarter. I've been assuming December 1st, but just wanted to get a sense. Is there potential or any visibility it's a little bit earlier or a little bit later? Obviously it can have a pretty big impact on the fourth quarter.

I think we're still looking at a December start up on that when it comes to coming on that. I don't know that we're going to get that on any sooner than that or have those volumes available earlier than that.

Thank you very much.

Great. Thank you.

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

Hi, thanks and good morning. I'd like to follow up on Doug's question regarding the Kermit volumes. Can you provide more insight into how those sales volumes are expected to trend through 2024 as the plant expansion is implemented? Will there be an increase in Q1, or will it be a gradual ramp-up throughout the year?

We haven't provided any guidance on that. We expect it to be a slow and steady ramp. However, we're implementing this because our customer requested it. So, while we may see some increased activity, it will likely be a gradual process, which is what we're anticipating.

I understand. I have one final question regarding the Dune’s Sagebrush Lizard. I know there have been discussions about it possibly being added to the endangered species list. You believe you've addressed many of the potential risks associated with that. Could you provide us with an update on your current thoughts regarding this situation?

I'll start and then the team can add. We believe we're in a strong position since we are among the early participants in the conservation agreement. Therefore, even if there is a listing, we anticipate being fully operational and not experiencing any negative impact on our business. There have been many detailed responses submitted regarding the potential listing. Our general counsel, Rick Fletcher, has indicated that it will likely take a significant amount of time for the Department of the Interior and Fish and Wildlife to review and respond to all of those submissions. Our best estimate is that it may take at least a year or even a couple of years before a decision is reached on that matter.

Yeah. As Bud mentioned, we have just answered the questions posed by the Department of the Interior.

So we're coming in that way.

All right. Thanks very much. Appreciate the comments.

Our next question comes from Scott Grubber with Citi Group. Please proceed with your question.

Thanks for including me. I have a quick follow-up on logistics. If revenue trends are somewhat flat in the fourth quarter while you continue to add trucks, it seems like there might be some underutilization. I'm trying to understand how quickly you expect to return asset turns on the trucks to mid-year levels in 2024 as completion activity picks up. Will that happen in the first quarter or the second quarter? How soon can you achieve nearly full utilization of those assets?

Thanks, Scott. Just to remind everyone, we are currently running at full capacity. We have a combination of our own trucks and trailers alongside third-party partnerships, which is how we initially started this business. We still rely significantly on third-party trucks. Moving forward, as we aim for flat and growth trends, we will ensure our trucks maintain that full utilization rate.

Yes. So you'll be able to – well, we did some tracking revenue per truck. So will the 1Q be back to a 3Q rate then?

Yeah. Our revenue per truck should on the 1Q I would agree with that being aligned to the Q3 rates.

Okay. Okay. That's it. Thank you.

Good. Thank you.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Bud Brigham for closing comments.

Well, I want to thank everybody for joining our call. We look forward to reporting on our fourth-quarter results. Thank you, again.

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