Greetings, and welcome to the Atlas Energy Solutions Third Quarter 2024 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, VP Investor Relations. Thank you. You may begin.

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the third quarter of 2024. With us today are Bud Brigham, Executive Chairman; John Turner, CEO; and Blake McCarthy, CFO. Bud, John, and Blake will be sharing their comments on the company's operational and financial performance for the third quarter of 2024, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements defined under the US securities laws. Such statements are based on current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the annual report on Form 10-K, we filed with the SEC on February 27, 2024, our quarterly reports on Form 10-Q, and other SEC filings. You should not place undue reliance on forward-looking statements and we undertake no obligation to update these forward-looking statements. We will also refer to certain 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 the press release we issued yesterday afternoon. With that said, I will now turn the call over to Bud Brigham.

Thank you, Kyle, and thanks to everyone for joining us today for our third quarter conference call. Before I let John and Blake run through the quarter and our outlook, I want to take a quick moment to reflect on where Atlas stands as an organization. When we founded Atlas back in 2017, we believed there was a huge opportunity to drive improvements across the proppant value chain, particularly in how the sand is mined and delivered to customer well sites. Our stated goal is to help transform the Permian Basin into a more efficient factory on the ground. We have succeeded in becoming a low-cost provider of reliable proppant for Permian operators, and are now on the cusp of a significant change relative to traditional delivery systems by implementing the Dune Express to remove thousands of trucks from public roads. By doing so, we will both enhance efficiencies and reliability, while also reducing emissions. Most importantly, the Dune Express will make the roads and our communities in the Permian safer. Today, we are just weeks away from realizing that vision. The Dune Express continues to be on track and on budget. All major highway and lease road crossings are now complete, and more than 95% of the belt has been placed on the conveyor. From the outset, we knew that the electrical infrastructure could be one of the big gating items for the project. But with the factory testing complete for the four electric houses now being installed or en route to West Texas, this piece has also been derisked. All the credit goes to our wonderful construction team, our employees, and our trusted suppliers, who have turned what seemed like a pipe dream to many into what will become a revolutionary piece of infrastructure in the Delaware Basin. Thanks to them and our customers, who are stepping up for the benefit of our communities and the environment, the Permian Basin will be further differentiated as the premier domestic oil and gas basin in the country, and a much safer, cleaner, and better place to live and work. With that, let me hand the call over to John Turner.

Thanks, Bud. 2024 has been an eventful year for Atlas. At the outset, we knew we needed to work hard this year to prepare our organization for the start of the Dune Express, ensuring that our mining operations could consistently provide the increased volumes we hope to gain in the Delaware Basin while continuing to supply our key customers elsewhere in the Permian. With the completion of the Kermit plant expansion and the integration of the Hi-Crush personnel and assets into our organization, we added productive capacity and asset diversity to strengthen our mining operations. After the fire at our Kermit facility in April, we took a long hard look at where we stood from an operational excellence standpoint. We felt it was necessary to make some hard decisions around our operational leadership. Once the rebuild process was completed, we began a full review of our plant systems and processes. This almost immediately began yielding results as we rebuilt multiple opportunities for improvement and standardization, though the implementation of these improvements required some costs, as Blake will detail in a moment. Additionally, during the quarter, one of our new dredges at the Kermit facility was severely damaged during the commissioning process, resulting in a total loss of that asset. While the second dredge is currently operating and feeding the plant, we decided to pivot to a well-known domestic dredge manufacturer in pursuit of better real-time support and improved lead times on spare parts. We have a long track record of success with this OEM's equipment and are excited about working with them to drive down our mining costs back to our normalized levels. We have placed an order for two new dredges from this manufacturer and expect to receive the equipment in early 2026. In the meantime, we are using our existing dredges in combination with traditional mining to feed the Kermit plant. While this is delaying the next step change in our pursuit of lower mining costs, we still expect to see improvement in our overall OpEx per ton metrics moving forward. The combination of leveraging expenses from the fire-related temporary loadout operations at Kermit, our operational improvement initiatives, and the delays in dredge commissioning resulted in higher-than-anticipated operational expenses for the quarter. This was almost entirely driven by higher OpEx at our Kermit facility, as mining operations at all our other facilities performed very well throughout the quarter. At Kermit, it's important to note that July experienced the highest OpEx per ton, but each subsequent month showed sequential improvement, a trend we expect to continue through year-end when we expect to be closer to our normalized levels. Importantly, the work we have undertaken at our Kermit facility has enhanced our confidence in our ability to produce the volumes required by the Dune Express. This fall we started construction of a road and offload system that connects the Dune Express to our adjacent 115 and 874 plants that we acquired with Hi-Crush. Upon completion of this tie-in project in late 2024, all four of our Kermit facilities will have the capability to feed the Dune Express, creating a reinforced sand supply to ensure a sufficient volume to the Dune Express. This is imperative as we are highly encouraged by conversations we are having with our customers this RFP season. We are currently committed to more than 60% of our nameplate capacity for 2025, with more than 10 million of those tons slated to be delivered in the Delaware Basin. This is the first RFP season where Atlas is not only selling the advantages of the Dune Express with our high-quality sand, but our entire suite of logistical offerings that were enhanced by the acquisition of Hi-Crush. While Atlas's differentiated position is always valuable, it shines in markets like today where the decline in rig count, continued E&P capital discipline, and the recent large-scale consolidation among the operators are creating challenges in the domestic oilfield service market. Sand demand has performed better than other verticals, but it has always been one of the more volatile pieces of the value chain from a price perspective and is not immune in this market. Spot prices for West Texas sand are now trading at levels where much of the supply stack is operated at breakeven gross margin and negative cash flows. We anticipate that at today's prices, much of our competition will be forced to elect to defer necessary maintenance and reinvestment in their plants. We are increasingly hearing anecdotes of ship reductions and potential mine closures. This points to current prices being at unsustainable levels. Just as sand prices moved fast to the downside, they have also historically moved to the upside sooner and harder than we expect. However, Atlas's unique combination of Vantage reserves and distinct logistical advantages position us to significantly outperform our peers in today's market. Our customers understand that market conditions like today's can lead to distressed suppliers who have become significantly less reliable. It is more costly to depend on sand that does not show up than to pay for reliability and peace of mind. This has been a key differentiator for Atlas in our recent customer conversations and we expect this importance to only grow in the coming months, particularly with large operators who are making the Permian Basin a key part of their global development plans. Before I hand the call over to Blake, I'd like to provide a quick update on our autonomous trucking initiative. Early next year, we plan to begin a small commercial rollout of our partnership with Kodiak Robotics with an initial fleet of two driverless trucks, with hopes of growing that partnership throughout the year. We remain excited about applying autonomous driving technology to large swaths of private lease roads that are prevalent in the Delaware Basin, off the Dune Express, where traffic is light and speed limits are under 20 miles per hour. With that, I'll now turn the call over to our Chief Financial Officer, Blake McCarthy, to discuss our third quarter financial performance and outlook.

Thanks, John. For the third quarter of 2024, Atlas reported revenues of $304 million, up 6% sequentially from second quarter levels. Adjusted EBITDA was relatively flat sequentially at $71.1 million or 23% of revenue, and net income was $3.9 million or 1% of revenue. Revenues from product sales were approximately $145.3 million on volumes of 6.0 million tons, yielding an average sales price of approximately $24.34 per ton for the third quarter. Service revenues were approximately $159.1 million. During the quarter, we achieved a high watermark of 28 crews and delivered roughly 75% of our volumes via our own assets. Looking ahead to the fourth quarter, we expect E&P budget exhaustion to lead to a longer holiday slowdown than typically seen, which will negatively impact both sales volume and last mile crew counts. We expect our last mile crew count to remain in the 26 to 28 range for November, after which we expect to see some crew reductions during December as operators take a break before initiating their 2025 drilling and completion plans. Service margins are expected to hover around our historical average levels. Additionally, sales excluding DD&A were approximately $225 million. Planned operating expenses excluding DD&A but including royalties were approximately $88.8 million or $14.87 per ton, significantly above our normalized levels. Higher-than-anticipated rental equipment expenses, repair and maintenance expenses, dredge expenses, and a greater mix of traditional mining than anticipated contributed to elevated production expenses. As John stated earlier, we expect the combination of improved production at Kermit and the implementation of our operational process improvements will result in OpEx per ton metrics reaching normalized levels by year-end, setting the stage for improved operational and financial performance in 2025. Average OpEx per ton for the fourth quarter is expected to improve sequentially but will still be above our normalized levels. Q3 SG&A was approximately $25.5 million, a figure inflated by about $2.4 million of acquisition-related costs and approximately $6.3 million of stock-based compensation. Moving forward, cash G&A is expected to be approximately $15 million to $16 million per quarter. Royalty expense was approximately $5.7 million, and cash interest expense was approximately $10.7 million. Operating cash flow for the third quarter was $85.2 million, and adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $58.7 million, yielding an adjusted free cash flow margin of 19%. Capital expenditures during the quarter totaled approximately $86.3 million, with $68.5 million going towards growth and the remainder for maintenance. Our growth CapEx included $50.1 million spent on the construction of the Dune Express, with $15.1 million associated with Encore expenditures. Maintenance CapEx for the quarter was approximately $12.4 million. Cash and equivalents stood at $78.6 million against total debt of $475.3 million. Looking ahead to the fourth quarter, we expect operator capital budget exhaustion to result in a prolonged holiday slowdown in completion activity. While we do expect improvements in our average OpEx per ton to partially offset some of the impacts on our margins, we expect Q4 EBITDA levels to be flat to down relative to Q3 levels. Due to the strong cash flow profile of our business, we are increasing our dividend to $0.24 per share, representing a 5% increase over the prior period or $0.01 per share. Based on our closing share price on October 27, our annualized dividend yield is approximately 4.8%. In addition, I’m pleased to announce that our Board of Directors has authorized a share repurchase program under which the company may repurchase up to $200 million of outstanding stock over the next 24 months. We believe that Atlas's advantages in both resource base and logistical infrastructure position it to be a differentiated vehicle for return of capital to shareholders within the OFS universe, and we are excited to expand our options for distributing this capital. That concludes our prepared remarks. We will now let the operator open the line for questions. Thank you all for joining our third quarter call.

Thank you. We will now be conducting a question-and-answer session. The first question is from Jim Rollyson from Raymond James. Please go ahead.

Hey. Good morning, guys, and congrats on getting to the finish line on Dune Express. John, could you talk a bit more about some of the issues at Kermit and what you're focused on? Maybe expand on some of the key issues that you're trying to address or improve as you roll into next year with volumes picking up and the timeline and confidence in getting to the finish line on those improvements?

Yes, Jim, thanks for the question. I'll start it off, and then I'm going to let Chris walk through some parts of your question. Obviously, it's a great question. It would be easy to point to these issues and say we've just had a run of bad luck, but we're in the business of making our own luck. 2024 has obviously been a rough year concerning our operations and we're fully committed to getting it right from the ground up. We've implemented new operational leadership at the plant who are applying fresh eyes to the entire system. While the conclusions drawn can sometimes be painful to hear, the steps we are now taking are setting Atlas up for long-term success. We have the right assets, both in our reserves and our logistics, and it’s imperative that we maximize their value by developing and deploying them as effectively as possible. So I’m going to let Chris walk through what we're doing.

Thanks, John. In my experience, large operational failures are often the result of smaller underlying issues that compound over time. These issues eventually bubble up into something unexpected. The postmortem spotlight often exposes deeper operational problems that require immediate attention but catalyze profound long-term change within an organization. For us, the fire was a catalyst that kicked off a comprehensive assessment of our current operations. We rapidly addressed items that needed immediate action while concurrently identifying inefficiencies, bottlenecks, and areas of underperformance in our operations. Our communication has been streamlined to facilitate the sharing of information across teams and departments, leading to faster problem-solving and a more cohesive approach to strategic initiatives. We've made procedural and structural changes for almost real-time visibility into revenue, costs, and profitability. Our team has stepped up and executed well. We've met and exceeded commitments to our customers, and we've increased our delivery percentage. Currently, 75% of our produced sand is now delivered to the blenders. In October, our Kermit plant set a new wet plant production record, exceeding historical levels by nearly 40%, and three of our top four Kermit dry sand production months on record have been August, September, and October. While operations will always have issues, overcoming challenges in the way we did has strengthened our organization and helped shape our multi-year operational excellence roadmap that will continue to differentiate Atlas from our competition.

Appreciate all that. As a follow-up, Blake, you mentioned OpEx was high this quarter. You also noted that it has been improving steadily, and you'll start to see more normalized levels, but with the dredge orders not arriving until 2026, how do you see OpEx trending over the next four, five, or six quarters?

Yes. Jim, you’ve summarized that pretty well. Generating the lowest cost OpEx per ton across the industry is core to Atlas's strategy. As John mentioned, we have the strongest resources, but our company culture emphasizes developing those resources in the most efficient manner and constantly seeking better processes and more standardization. That’s why the Q3 figure of $14.87 per ton sticks in our craw. One thing that's misleading about that number is that it was driven entirely by the elevated expenses at our Kermit plant; the other plants performed very efficiently during the quarter. Our operational leadership is focused on getting that plant back on track. Even in Q3, we saw meaningful improvement from the beginning of the quarter through the end of September. We expect optimization efforts to yield more significant results during Q4. The primary issue for Q4 is that we expect reductions in throughput linked to operator budget exhaustion. This will negatively impact fixed cost absorption. While we expect average OpEx per ton to decline sequentially, the improvement won't fully reflect our underlying enhancements until 2025. However, as we mentioned in our prepared remarks, we are increasingly optimistic about our volume outlook for 2025.

Got it. That's helpful. Appreciate it, guys.

Hey, good morning everybody.

Good morning, Kurt.

Thanks for the incremental color. I want to take another step to that, if you could kind of talk about the bridge through the third quarter to the fourth quarter and into the first part of next year. What magnitude of volume decline are you expecting, and how are discussions on pricing evolving for 2025 deliveries?

No, that's a really good question. The truth is we're a little bit in the dark right now. The real variable that's still open is sales volume. We have a strong contracted volume backlog for Q4, but the prospect of a prolonged holiday slowdown in the oilfield is a very real concern this year. From what we know now, volumes are pointing to being down slightly. We might see some customers seeking Q4 relief in exchange for significant volume commitments in 2025, and while we are usually happy to accommodate customers in such scenarios that could impact volume. The tone of conversations for 2025 is very positive, and we are seeing the Atlas story resonate well with the ideal customers that we designed this company for.

That's great. Appreciate that color. The second question would be on the trucking rates decline. Could you provide insights on how the margin profile for Dune Express has changed since its inception versus current market dynamics?

I'll start on that, and others can chime in. When we originally modeled the returns on the Dune Express, we modeled on historically low trucking rates. While depressed trucking rates compress margin opportunities a bit, they couldn't sustain at these levels much longer. We've heard that many truck operators are barely covering their costs, and we've seen some local operators closing down. This environment will lead to some blowback, ultimately benefiting Dune Express in the long run. The advantages that the Dune Express offers will last significantly longer than just the next six months. We remain very optimistic about the margins from the Dune Express for 2025 and beyond.

From a logistics and trucking perspective, this is cyclical. We've seen margin compression over recent quarters, but as John mentioned, while costs compress, our costs at the end of the line also compress. The structural logistics advantage of being closer than any of our competition doesn’t go away with lower prices. We believe we have reached a low point and we’re optimistic about moving into 2025.

Hi, good morning. I'm curious about CapEx. Next year, CapEx spending should ramp down with the Dune Express completion. How should we think about the main pieces of CapEx?

That's a great question. We're still working through our budgeting cycle, so it's early for hard guidance on 2025 CapEx. We're not planning significant projects like the Kermit expansion, so it will be down year-over-year. We will keep investing in maintenance CapEx to preserve core assets. We have exciting growth initiatives in the pipeline, but we need to balance those with increasing dividends and stock buybacks. The budget process will help clarify how we allocate CapEx going forward.

Got it. No, that's super helpful. Thanks, Blake. Maybe stepping back to the sand market, we've seen a long tail of smaller providers; do you think that supply has to drop out of the market to improve the overall market health, or do we need prices to increase due to demand?

As we approach the RFP season, several contracts will roll off at the end of the year or early next year. There is depressed pricing nearing competitors' OpEx levels, and tough decisions will have to be made, leading to supply drops. While I do not expect drastic changes in Q4 as companies hold out for RFP volumes, once we move into Q1 or Q2, we might see market fallout, supporting prices in the long run.

Hi, good morning. How do you foresee the cadence of commercial deliveries ramping up on Dune Express into next year? When do you think you could reach the 11 million to 12 million ton-per-annum run rate?

I’m excited about the launch of Dune Express in Q4. There will be a ramp-up period as we get operators utilizing sand delivered by Dune Express effectively. We expect full ramp-up around mid-next year. There is considerable interest from our customer base in the Dune Express as they recognize the benefits of removing trucks from the road and improving operations.

As we approach this from a commercial perspective, it has always been about proving our reliability and rolling customers into Dune Express. We are seeing strong interest from customers, particularly as they recognize the completion nearing. We expect to move towards 24/7 operations with multi-trailer setups, improving overall sand delivery efficiency.

Thanks for the insight on that. How should we think about the margin progression for Dune Express during its ramp-up, particularly concerning potential under-absorption costs?

We do not sell Dune Express contracts separately from logistics prices. We are moving toward a fully delivered pricing model where sand and delivery are connected. As we mature our business model, we’ll provide clearer guidance on how to model margins for next year during our budgeting process.

Thanks for taking my question. Are you seeing any changes in the mix for wet sand versus dry sand with trends like simul-frac and trimul-frac?

From my perspective, it's more about locating sand assets closer to well sites rather than specific product types. Customers are often looking to maximize efficiency by utilizing sand that's closer to their operations. With Dune Express, our mines will be right in the middle to address that efficiency and reduce transport bottlenecks.

Indeed, as sand pricing hovers where it is now, logistics play a vital role in reducing overall delivered costs. Therefore, maximization of transport efficiency is crucial as we continue to evolve in the marketplace.

Thank you. I want to ask about OpEx on the mining side and how you see it evolving through 2025 and into 2026. What moving pieces are in your control?

We expect operational improvements will continue to drive OpEx per ton down, aiming for low double-digit levels by year-end and maintaining that through 2025. Our operations are high fixed-cost leverage businesses, so our throughput significantly impacts overall OpEx per ton. With improvements underway, we foresee a good performance in the coming year.

Regarding capital allocation, we aim to use excess cash flow for buybacks without neglecting strong dividends. We'll evaluate growth CapEx against shareholder returns to find a favorable balance moving forward.

I want to thank everyone for attending and participating in today's call. The fourth quarter is going to be very exciting. We will be discussing Dune Express, which makes operators more efficient. Efficiency is vital for manufacturing in the Permian Basin, the largest and most important production area in America. We look forward to updating you in the fourth quarter. For any questions, please reach out to Kyle. Thank you.

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