Earnings Call Transcript - AESI Q1 2026

Operator, Operator

Greetings, and welcome to the Atlas Energy Solutions First Quarter 2026 Earnings Call. Operator provided instructions were given. 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. You may begin.

Kyle Turlington, Vice President, Investor Relations

Hello, and welcome to the Atlas Energy Solutions Conference Call and Webcast for the first quarter of 2026. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Tim Ondrak, President of Power; and Bud Brigham, Executive Chair. John, Blake and Bud will be sharing their comments on the company's operational and financial performance for the first quarter of 2026, 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 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 annual report on Form 10-K filed with the SEC on February 24, 2026, and our quarterly report on Form 10-Q for the first quarter and current reports on Form 8-K 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 John Turner.

John Turner, President & CEO

Thank you, Kyle. Before turning to the quarter, I want to frame where Atlas stands today. On the sand and logistics side, the West Texas market is turning. Trucking rates have moved meaningfully off their lows. Logistics margins expanded from low single digits in January to mid-teens by March. Completion activity is building and our mining operations are effectively sold out. On the power side, we have signed a global framework agreement with Caterpillar securing 1.4 gigawatts of generation capacity, and we have just announced our first private grid power purchase agreement, a 120-megawatt deployment drawn from our initial 240-megawatt November order with Caterpillar. The strategic and commercial momentum heading into the balance of the year is the strongest it has been in some time. Turning to our first quarter results. Atlas generated revenue of $265.5 million and EBITDA of $28.4 million, representing an EBITDA margin of 11%. Results were impacted by severe winter weather, elevated maintenance at our Kermit facility and higher third-party logistics costs. Each of these items has been resolved, and we expect underlying margins to normalize beginning in the second quarter as the headwinds roll off and contracted volumes ramp. The clearest signal of the demand recovery is in our book of business. Customer volumes have moved our mining operations to a sold-out position for the second quarter at current production rates. And we expect our plants to remain very busy for the balance of the year. As contracts roll off or if we elect to increase production, additional sand sales this year should come at higher pricing. The macro backdrop is supportive. WTI is hovering near $100 a barrel and the 2027 strip has moved higher, but we want to be clear that our outlook is anchored in customer commitments and completion activity we can see today, not in any single price level holding. While the West Texas sand and logistics market has been in a rut for the better part of two years, Atlas never stopped investing in our infrastructure. When the markets get tight, our investment in our plants, logistics network and last mile equipment reinforce our position as the most reliable supplier in the Permian. Now let me turn to power, where we are deploying capital with the same operating discipline that built our sand and logistics franchise and where we believe Atlas' industrial capabilities translate directly. We have intentionally structured our power strategy differently from some peers by pursuing full scope power purchase agreements in which Atlas owns and operates a complete solution, including balance of plant. This creates stickier, longer-term customer relationships, provides significant advantages at contract renewal, delivers superior reliability compared to the grid in many cases, allows for greater pricing flexibility once equipment costs are recovered and creates high barriers for competitors due to the sum cost and complexity of the facility. With grid constraints likely to persist for years, we believe this PPA model is the right long-term strategy for our shareholders. In November, Atlas placed an initial order with Caterpillar for 240 megawatts of power generation equipment, sized in response to specific customer projects. As commercial momentum built early this year, we recognized the generational nature of this opportunity and entered into a separate global framework agreement with Caterpillar that secures an additional 1.4 gigawatts of power generation assets for delivery between 2027 and 2029. Together, with the initial 240-megawatt order, these commitments support our objective of owning and operating more than 2 gigawatts by 2030. The announcement of a global framework agreement immediately elevated our commercial position. Our commercial team went from hunting deals to being hunted. With power generation equipment in short supply, our secured supply chain and our ability to offer surety of delivery have moved us from medium-sized industrial projects into serious contention for data center deployments. On April 1, we announced our first private grid power purchase agreement, a 120-megawatt deployment that will be supplied from the initial 240-megawatt November order. The PPA carries an initial five-year term with two additional five-year extension options. Equipment delivery and construction are expected to begin later this year with commissioning targeted for the first half of 2027. We expect this 120-megawatt deployment to generate approximately $50 million to $55 million of adjusted free cash flow on an annualized basis once fully deployed. To support the customer during construction and commissioning, we have already begun providing bridge power with mobile generators. The combination of these bridge deployments and other recently executed microgrid deployments is expected to contribute approximately $35 million in incremental adjusted EBITDA over the remaining nine months of 2026, weighted toward the back half of the year as deployment ramps. Finally, in April, we successfully priced $450 million of 0.5% convertible senior notes due 2031. Concurrently, we entered into a capped call transaction with initial cap price of $22.32 per share, a 28% premium over last Thursday's closing price of $17.38. We used a portion of the $386 million in net proceeds to pay down our outstanding balance under our ABL and outstanding advances under our master lease agreement and interim funding agreement. We intend to use a portion of the remaining net proceeds to finance the initial 240-megawatt order. On a cash coupon basis, this transaction reduces cash interest expense of this quantum of capital from high single digits to 0.5%. The capped call meaningfully mitigates dilution up to the cap price, though we recognize residual equity optionality remains embedded in the structure. In summary, Atlas is well positioned to grow our power business from expected deployments of roughly 550 megawatts next year to approximately 2 gigawatts by the end of the decade. Combined with a recovering sand and logistics business, this trajectory would meaningfully transform our cash flow profile and create substantial long-term value for our shareholders. With that, I will now turn the call over to our CFO, Blake McCarthy, who will review our financials in more detail and provide an update on our sand and logistics operations.

Blake McCarthy, Chief Financial Officer

Thanks, John. At the time of our Q4 call, we were probably a bit more bullish about the prospects for oil than most industry prognosticators, as we are forecasting global oil supply and demand coming into balance later this year. Regardless, we are aligned with most forecasts that call for slightly flat to down U.S. activity levels in 2026. Well, as is par for the course in the oil field, the backdrop has changed in a hurry. The turmoil in the Middle East and its impact on global oil trade flow have led to a rapid recalibration of oil prices. While none of us are sure how the current conflict will end, hopefully, peacefully and quickly, we're increasingly confident that the floor on oil prices over the medium term has risen significantly. The commodity markets are signaling an increase in the call on U.S. unconventional production. While we've seen some signs of customers bringing activity schedules forward, the number of true completion crew additions in the Permian remains in the low single digits thus far. The potential recovery in West Texas activity in 2026 will likely look quite different from the recovery post-COVID. Customers aren't sitting on a massive inventory of DUCs like they were coming out of the pandemic. And honestly, the service industry doesn't have the ready-to-go idle equipment stock it did at that time. Instead, ramping production will require rig additions, rigs that will need to be recruited, completion spreads that will require crew-ups, and likely capital upgrades and ancillary services will need to be secured. Current pricing levels for all of these just don't justify the investments service providers will need to make to meet incremental customer demand. Thus, we are likely at the front end of a pricing recovery across the North American services complex. It's still very early, and the wild volatility we've seen in the commodity tape based on who's tweeting what certainly doesn't inspire extreme confidence, but the realities of the impact that current geopolitical events are having on physical global inventories are becoming increasingly self-evident, and the strip always eventually responds in kind. While we expect the larger operators to take a more cautious approach to activity additions in the near-term, the universe of smaller operators will likely front run the big boys as they historically have always moved to maximize their value capture during both markets. The West Texas oil patch is a small community that thrives on industry chatter, and we're starting to hear the right things about activity increases in the second half of the year. Thus far, we have seen a few operators take advantage of an elevated strip to accelerate what remains at their drilled uncompleted inventory, which directly led to us adding 1 million tons of incremental allocated volume through year-end. The limited response by most public E&Ps to date is not all that surprising, as they will likely evaluate the 2027 curve around midyear prior to making capital allocation decisions. It's not going to take many crew additions for the sand supply to get tightened. Today, we estimate approximately 75 frac crews operating in the Permian. Due to the increase in sand intensity of completion processes over the past few years, we believe a 10% increase in frac activity would conservatively add north of 7 million tons of incremental sand demand. Based on what we know about the market, it's going to be tough for the industry to produce enough to meet that demand, much less transport it to the well sites. While we haven't seen meaningful improvement in pricing just yet, you can feel the stage is getting set. While we remain cautiously optimistic on higher mine gate pricing, we have already witnessed higher logistics pricing. Last year was the perfect storm for poor logistics pricing. Post liberation day, we saw both falling activity in the Permian, along with weakening trucking rates nationally. Adding the impact of the June Express ramping midyear, and trucking rates fell below the levels we saw during COVID in the second half of last year. Margins for third-party trucking rigs turned negative in the fourth quarter. That rubber band finally snapped in early January as a small ramp in activity exposed the fragility of the logistics network in the Permian. We saw a spike in trucking rates even before the Iran conflict, and late February, higher diesel prices led to another round of rate increases. In the over-the-road market nationwide, tender rejection rates in March were approximately 14%, defined as typical of seasonal dips. This signifies a tighter, more expensive freight market with rates holding more than 800 basis points higher than 2025 levels. Rising rates nationally will pull rates higher in West Texas as carriers must now keep up with the over-the-road market. Although there is always a lag in passing those higher rates through to our customers, we did witness mid-teen logistics margins in March compared to the low single-digit margins in January and February. Higher trucking rates can also be a tailwind for higher mine gate pricing. Disadvantaged mines that are several mileage bands further away from activity sites are less competitive when hauling rates normalize. Higher rates also make the value proposition of the Dune Express even more obvious. Trucking rates in West Texas likely have more room to run as rates in the Permian are still about 10% below national over-the-road rates. Historically, Permian trucking rates are usually at a premium to the over-the-road market due to the wear and tear of driving on lease roads. Increased logistics pricing typically front runs increased mine gate pricing, so the improvements we are seeing now are very welcome. Moving to our financials. First quarter 2026 revenue of $265.5 million broke down to the following: proppant sales totaled $105.6 million, power equipment sales, $3.3 million; logistics, $139.1 million, and power rentals added $17.5 million. Total proppant sales volume was up sequentially to 5.7 million tons, which does not include approximately 130,000 tons of third-party sand purchases. Our logistics business set a quarterly delivery record of 5.5 million tons. Our average sales price for proppant for the first quarter was approximately $18.19 per ton, not including shortfall revenue of $1.9 million. For the second quarter, we expect volumes to be up sequentially, with the average sales price to be slightly below $18 per ton. We are effectively sold out for Q2. First quarter cost of sales, excluding DD&A, were $214 million, consisting of $74.7 million in proppant plant operating costs, $2.1 million for power equipment costs, $127 million of service costs, $5.9 million in rental costs, and $4.3 million in royalties. For the first quarter, per-ton proppant plant operating costs were approximately $13.86, including royalties, up sequentially from the fourth quarter. Higher expenses related to maintenance activities following the winter storm at our flagship Kermit facility were the primary driver of the elevated OpEx per ton. Q1 cash SG&A, excluding litigation and nonrecurring items, was $23.3 million. SG&A, excluding litigation expenses, is expected to average approximately $21 million to $22 million for the remainder of the year, per quarter. Growth CapEx for the quarter was $7 million, the majority of which was tied to our Power segment and maintenance CapEx of $24.6 million. Q1 will represent the high watermark for capital spending in our Standard Logistics business for 2026, as spending was primarily tied to essential equipment and preparatory work ahead of the Twinkle dredge deliveries. We are adjusting our 2026 CapEx guidance to approximately $350 million to $375 million due to bringing the 240-megawatt purchase on the balance sheet with the recent convertible offering. Maintenance CapEx of approximately $45 million is planned, with approximately $305 million to $330 million dedicated to growth, the vast majority of which is tied to the build-out of our private grid power business. Looking ahead to the second quarter, we are forecasting sequentially improved sales volume. We are effectively sold out of our productive capacity for the second quarter, as the step-up in production would likely require incremental personnel that current sand prices do not justify. Additionally, our visibility to second-half activity levels and, consequently, volumes is improving rapidly. Due to the increased fixed cost absorption and improved production efficiency, OpEx per ton is forecast to climb in the second quarter to approximately $12.75. OpEx per ton is expected to continue improving over the remainder of the year as new operating processes have begun bearing fruit at our fixed mines. In the first quarter, our logistics business was impacted by a spike in third-party trucking rates and a late-quarter increase in diesel prices. However, as mentioned, logistics margins improved progressively throughout the quarter from low single digits in January to mid-teens by March. We are currently forecasting mid-teens logistics margins for Q2. Additionally, as previously mentioned, Atlas's power business is building contracting momentum rapidly. During the first quarter, the company executed multiple contracts spanning upstream and midstream microgrid projects and bridge power deployments in the commercial industrial market. We expect to generate approximately $35 million in incremental adjusted EBITDA over the remaining nine months of 2026 from bridge and microgrid deployments. Looking at the current run rate for March EBITDA and with the incremental contributions coming from our Power segment, we expect Q2 EBITDA to be approximately $50 million. I will now hand the call over to our Executive Chairman, Bud Brigham, for some closing remarks before we turn the call over for Q&A.

Bud Brigham, Executive Chair

Thank you, Blake. First, I'm going to start with some context for my comments. It was 35 years ago as a young geophysicist that I set out on my own with a small amount of capital and founded Brigham Exploration. Our plan was ambitious to leverage cutting-edge technology to out-innovate the competition and create lasting value for shareholders. By hiring exceptional people, aligning them tightly with our investors and empowering them in an entrepreneurial innovative culture, that model delivered three IPOs and numerous successful exits. Along the way, our E&P companies drove several industry-transforming advancements. In the 1990s, we pioneered the use of 3D seismic, delivering unprecedented exploration success rates, leading to our first IPO in 1997. In 2004, we were an early mover with horizontal fracking in the oil plays and built a position in the Bakken. In 2007 and 2008, we began outperforming peers in the Bakken, in part by increasing frac stages. In 2009, we completed the first successful two-mile-long lateral with over 20 frac stages, which extended the Bakken play more than 70 miles to the west and accelerated development across all the major U.S. shale basins. And in 2014 and 2015, Brigham Resources' successful wells extended the Delaware Basin significantly to the south. Then in 2017, we founded Atlas and brought that same innovative spirit to oilfield services with four more firsts. First, our team designed, permitted and built the industry's first and only long-distance sand conveyor system, widely believed impossible at the time, which reliably delivers premium proppant 42 miles into the heart of America's most prolific producing region. We were also the first to autonomously truck proppant, the first with double and triple trailer configurations in U.S. oil fields and the first and only company to dredge mine proppant in the Permian Basin. As John and Blake have shared, we're only getting started. Our proven ability to innovate and execute large complex infrastructure projects gives us a unique advantage in addressing today's energy challenges. And of course, over that 35-year career, I've experienced many cycles and disruptions, but I've never seen demand inflections as powerful as the ones we're witnessing today. As the largest premier proppant and logistics provider in the world, we stand ready to respond. We are exceptionally well-positioned to support the delivery of incremental oil supply to meet global demand, demand which has only intensified with the recent Middle East disruption. As in the prior up cycles, we are positioned to deliver strong cash flow growth via proppant and logistics over the next several years. But what makes this cycle strikingly different for Atlas is that we're also optimally positioned to help meet America's rapidly expanding power needs. Our recently announced power contract, combined with the global framework agreement we just signed with Caterpillar, gives us both surety of supply and the scale to be a leading player in the fast-growing private power market. With these milestones and those still to come, we are clearly signaling our capabilities to both investors and customers facing acute grid constraints across Texas and the United States. The future for Atlas and power is here, and I believe we're emerging as a leader in this critical market. Thank you for joining us today. I'll now turn the call over to the operator for Q&A.

Operator, Operator

Operator provided instructions were given. The first question is from James Rollyson from Raymond James.

James Rollyson, Analyst, Raymond James

John, maybe start with you on a question on power. If we go back just a quarter ago, you were kind of focused on the commercial and industrial space, obviously targeting a specific customer with the original 240 megawatts. And as you've increased that commitment by a pretty large amount with the global framework agreement with Caterpillar, and you guys mentioned that people are now calling you instead of the other way around, I'm curious if that end customer has shifted over to the data center guys or not just given the magnitude of the power you guys are looking to add.

John Turner, President & CEO

Yes. Thanks, Jim. I'll start, and then Tim can add to this. Yes, Jim, you're right. The global framework agreement has had a profound impact on Atlas' commercial opportunity set. Before the agreement, our pipeline was weighted towards smaller industrial deployments. The combination of secured supply and access to the premium equipment from Caterpillar has changed the customer conversation overnight. Both the size of deployments we're being invited into and the quality of the counterparties has significantly changed as well. Reverse inquiries are now active. We're having a lot of reverse customer inquiries now on a daily basis. That's a meaningful part of why we're so optimistic about our path forward with power. Tim, do you want to add anything to that?

Tim Ondrak, President of Power

Yes. As John mentioned, we're getting a lot of inbound interest. The goal of signing the global framework agreement was to secure power for the opportunity sets that we had in front of us, which were heavily weighted toward smaller industrial deployments. When I say small, they're 50 to a couple of hundred megawatts. Since signing the global framework agreement, we've started to get some inquiries from some of the bigger data center projects. I think our queue going into that was roughly four gigawatts. Since signing that agreement, that queue has grown to somewhere between probably eight and 10 gigawatts. These are quality projects where we've gone through stages of vetting to see if they're real and have determined that as the project moves forward, we would like to participate.

James Rollyson, Analyst, Raymond James

It sounds like you can place a lot of equipment with a smaller number of customers. And then maybe as a follow-up, switching gears over to the sand and logistics business. Blake, you talked about incremental opportunities and how we've heard early indications of recovery of activity in U.S. land and obviously the Permian will be part of that. But I'm curious, as you think about incremental sand volumes where you're sold out today, what kind of price level do you need for sand to actually consider adding to your mining capacity?

Blake McCarthy, Chief Financial Officer

Yes, that's a good question, Jim. That question basically assumes that at any one point, a player has control over the price of sand, which, as you know, is a hyper-volatile commodity where supply and demand shifts quickly. Sand is critical to the completion process. When it's undersupplied it doesn't just move $3 or $4; it moves up in a hurry. As the largest player, we haven't seen a lot of movement in price yet. One encouraging sign is some operators have moved forward their RFP processes earlier than normal to lock in tons. We're happy to help secure volumes, but we're not going to lock in prices for the long term in a way that jeopardizes returns. In terms of adding production, compared to our nameplate there is still some upside, but adding capacity would require additional haul assets and minimal capital investment. We are unlikely to add production until sand pricing gets north of the $23 to $25 range per ton because that's where the industry starts earning its cost of capital. In a perfect world, sand in those normalized prices is a sweet spot for Atlas and doesn't encourage incremental supply. Sand always moves widely: when it goes down it goes down quickly; when it goes up it usually goes much higher than expected. It's something we're watching closely.

John Turner, President & CEO

Yes. One thing to note is back in 2021, sand was around $20 per ton. By March of 2022, it was north of $30 on its way to $40 a ton. Sand prices swing wide and are very volatile. When that supply-demand balance shifts, it shifts quickly.

Operator, Operator

The next question is from Derek Podhaizer from Piper Sandler.

Derek Podhaizer, Analyst, Piper Sandler

So encouraging to hear all the comments around the logistics margins going from the low-single digits to about the mid-teens here and guiding that for the next quarter. On the trucking rates specifically, how should we think about what a 10% uplift in the Permian activity would do to those trucking rates, which appear to be already tightening. Blake, I think you said they're still 10% below the national average. So maybe some additional color around where you think trucking rates can go if we do get an uptick in activity here.

Blake McCarthy, Chief Financial Officer

Yes. That's a great question, Derek. Pinning down where trucking rates are right now is difficult because there are a lot of moving variables. As I mentioned earlier, the typical relationship with over-the-road national freight versus Permian rates is inverted today. Typically, Permian rates trade at a 10% to 20% premium to over-the-road to incentivize owners to run in the basin, but currently Permian rates are still at a discount. Another factor is diesel—it's a direct hit to owner-operators. While most of our customers have been quick to work with us on passing those costs through, we've heard anecdotes of some operators refusing pass-throughs or only accepting a percentage. That's shortsighted because trucking margins were already razor thin, and forcing owner-operators to eat diesel inflation invites a trucking crunch. We're seeing some trucking companies choose to park assets rather than operate at a loss, which tightens the market further. That continued tightening is something we're watching. Higher trucking rates make the location of your mines and the breadth of your logistics network more important. Our mobile mines in the Midland Basin and the Dune Express for our fixed mines servicing the Delaware position Atlas strongly relative to many competitors and likely improves our ability to push mine gate pricing. On a modeling basis, that advantage increases our incremental margins. We were encouraged to see improvement from low-single digits into the mid-teens, and we're expecting mid-teens margins through this quarter. As we move into the back half of the year, we'll continue to push on that.

John Turner, President & CEO

The diesel price dynamic is a big tailwind for the Dune Express because it's an electric conveyor moving sand 42 miles. There's also a shortage of trailers with lead times; a lot of trailer manufacturing comes from Mexico where tariffs apply. You're likely to start seeing shortages in various places as we move through the year.

Derek Podhaizer, Analyst, Piper Sandler

That's all really helpful color. So, we talked about demand not being a problem. Thinking about the supply side: in previous calls we've talked about Tier 2, Tier 3 sand mines out there and that some supply was taken offline. If there's going to be this call on demand — I think you said 7 million tons — how do you think about those mines being incentivized to come back to the market? When mines shutter, they never truly leave and can come back quickly. Have you surveyed and looked around the supply stack to see which mines can come back quickly versus which have been truly taken out of the market?

John Turner, President & CEO

We can only go by past experience. Many mines that had closed were slow to reopen and commit capital until they had longer-term contracts. Proximity will matter more this cycle because of higher diesel and trucking rates. Mines closer to activity sites will be advantaged.

Blake McCarthy, Chief Financial Officer

Yes, the interplay between the logistics haul and mine production costs is important. For mines at the fringes of plays, diesel inflation makes their hauls cost prohibitive. You would need mine gate pricing to move significantly to incentivize those mines to ramp up. It would be risky for them to invest without longer-term contracts that justify the capital spend.

Bud Brigham, Executive Chair

Related to that, personnel is also an issue. It's a real challenge to find labor that can operate these plants, and that's going to be a constraint as well.

John Turner, President & CEO

The data center construction boom in Central Texas and parts of West Texas is pulling construction trades and workers out of the oilfield, which makes hiring more difficult. There are more factors this cycle than in 2022.

Operator, Operator

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

Sean Mitchell, Analyst, Daniel Energy Partners

Maybe turning back to power, can you talk about the specific equipment that Caterpillar is providing to you in this global framework agreement and why these units are well suited for the private grid versus other options?

Tim Ondrak, President of Power

Sean, the assets we're purchasing from Caterpillar are really two engine platforms: a medium-speed engine and a high-speed engine. Both are designed to operate in continuous duty. The medium-speed is a 4-megawatt unit, and the high-speed engine is a 2.5-megawatt unit. We view these as assets we want to own and operate for decades. They each have different characteristics that help support customer needs, so it's project-specific which units we would deploy. One of the platforms has not had a design change in 20 years, which indicates reliability, and the other has different models available under the agreement that let us match customer load requirements. What excites us is that they come from a highly respected OEM in Caterpillar. The OEM backing helps us predict maintenance costs, address issues quickly if they arise, and supports a Tier 1 portfolio of assets to operate for customers.

Operator, Operator

The next question is from Scott Gruber from Citigroup.

Scott Gruber, Analyst, Citigroup

Maybe turning to the OpEx side on your sand production business, I want to double check the OpEx per ton guide embedded in the Q2 EBITDA guidance. I think I heard $12.45 per ton, so I want to check that. And then obviously improvement will come with the new dredges: where do you think OpEx per ton lands on a normalized basis, and when do you think you can get there?

Blake McCarthy, Chief Financial Officer

A correction on that, Scott: the OpEx per ton guide for Q2 embedded in the Q2 guide is $12.75. It's a fixed-cost absorption business, and as we get closer to sold out that is a tailwind. We're still commissioning the new Twinkle dredges at the flagship Kermit mine. Once those are on, they will lower our variable cost and that will flow through as operating leverage. We could get to an $11 handle toward September–October if volumes cooperate, and longer term our goal is to get back to the high $10s on a full run-rate basis once optimized across the company. There's a lot of process improvement work under way that should continue to trend favorably through the year.

Scott Gruber, Analyst, Citigroup

I appreciate that. And then turning back to logistics, obviously encouraging trends on the trucking side, and you mentioned how that will influence Dune Express pricing. I'm wondering about timing on that point: are your Dune Express volumes priced for the year, or could pricing reset at some point this year?

Blake McCarthy, Chief Financial Officer

Many of those contracts have biannual or quarterly pricing reviews. It's still early, so you haven't seen much movement in sand pricing yet, but you've seen movement in trucking rates. For Dune Express volumes, we view them as a total cost of delivered tons. We combine those costs in a way that benefits the operator; that integrated view will be to our advantage as the cycle progresses. For bigger contracts, the upside is likely to be more pronounced as we move into 2027.

John Turner, President & CEO

Trucking pricing resets more frequently than sand pricing. Trucking pricing tends to be quarterly, while sand contracts often have longer cycles.

Operator, Operator

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

Keith Mackey, Analyst, RBC Capital Markets

Maybe sticking on the sand price theme, can you comment on your contract durations and amounts? Roughly how much of your sand could reprice between now and the end of the year based on current contract schedules?

Blake McCarthy, Chief Financial Officer

We tend to contract as much of our sand as possible through the RFP process. In terms of what is fully free float to spot, looking at the back half of the year we could probably reprice up to 20%–25% of our contract portfolio. On top of that, as people look to lock tons for 2027, that opens conversations to move larger portions of contracts. So there is upside to pricing as we move through the year, particularly as we enter the 2027 RFP season.

Keith Mackey, Analyst, RBC Capital Markets

Okay. Makes sense. And then can you run through more on the dredge implementation and timelines for the new Twinkle dredges? How does that align with the OpEx per ton guidance?

John Turner, President & CEO

On timing, the first Twinkle dredge is built and on location; they're expanding the pond right now. We expect that dredge to be floated by the end of the quarter into the second quarter. The second dredge starts arriving around June and will be constructed on site. We probably won't see the full impact from the dredges until the fourth quarter because commissioning and ramp will take time. While both may be floated by the third quarter, it will take time to fully commission and reach target performance. The guidance we've given does not incorporate the full effect of those dredges.

Blake McCarthy, Chief Financial Officer

There is no impact from the dredges in Q2. Mechanically, our current variable cost of sand is closer to $5.50 to $5.75 per ton. When the dredges get running, that variable cost should move down to the low $5s, which will help drive operating leverage.

Operator, Operator

The next question is from Don Crist from Johnson Rice.

Donald Crist, Analyst, Johnson Rice

On the global framework agreement, can you provide color on the delivery schedule? Is it pretty constant over 2027 through 2029, or is it back-end weighted?

Tim Ondrak, President of Power

Don, the delivery schedule for 2027 spans the last three quarters of the year. We still have 120 megawatts from our first order pre-framework that we expect to slot in there. In 2028 it's fairly constant and then accelerates in overall megawatts in the delivered slots.

Blake McCarthy, Chief Financial Officer

It's more weighted to 2027 and 2028 with a lesser commitment in 2029. As we move forward and start contracting assets, we have the ability to upsize the commitment later and that's something we'll explore.

Donald Crist, Analyst, Johnson Rice

From a contract timing perspective, would your goal be to have incremental capacity contracted, say, nine months before delivery, or is that too aggressive?

John Turner, President & CEO

Timing is difficult to predict. Our goal is to get contracts done as soon as feasible, but these take time. These are complicated transactions and negotiations for 15- to 20-year power agreements. We don't want to commit to an arbitrary timeline; the objective is to have contracts in place when we start deploying equipment.

Blake McCarthy, Chief Financial Officer

One thing to note is compute capacity is a real bottleneck for customers and creates urgency on their side. That urgency benefits both parties to move negotiations quickly, but these are large, infrastructure-scale contracts and each has a considerable construction runway from signing to power delivery. They are complex and like an M&A transaction; you want to get them right because you live with them for a long time.

Tim Ondrak, President of Power

The dynamics have changed with the number of inbound inquiries and the quality of counterparties. When building a contracted business with 15- and 20-year commitments, selecting the right assets and the right counterparties matters a lot. Given our pipeline expansion, we have more choice in who we work with and we're in a fortunate position. We'll share details as contracts close.

Donald Crist, Analyst, Johnson Rice

I appreciate the color. When a 500-megawatt contract can be well over $2 billion, it's understandable that it takes a while to get across the finish line. Rooting for you.

Operator, Operator

There are no further questions at this time. I would like to turn the floor back over to John Turner for closing comments.

John Turner, President & CEO

Yes. Thank you, operator. I want to thank everyone for their questions today. Before we close, I want to step back from the quarter and tell you why I believe Atlas looks fundamentally different two years from now than it does today. Start with what we announced last month, the 120-megawatt power deal, the power purchase agreement that we signed on April 1, which is expected to generate $50 million to $55 million of annual adjusted free cash flow once it's fully deployed. Returns on individual contracts will vary. They will depend on the customer and the market, term length, contract structure, et cetera. We would not expect every megawatt across our broader portfolio to deploy at those same economics. But this contract is a meaningful proof point of what the model can produce, and it represents a small fraction of the 2 gigawatts we expect to own and operate by 2030. We're not a company adding power at the margin. We're building a long-duration contracted cash flow stream on top of the sand and logistics franchise that is self-funding at this time as well. And we are doing it with secured supply from Caterpillar at a moment when generation equipment is one of the scarcest assets in the U.S. economy. The logistics business is the engine that funds this transformation. That engine is accelerating. We're effectively sold out for the second quarter as we've discussed. Our logistics margins are now running in the mid-teens with that strength expected to carry through the second quarter, and we are guiding to approximately $50 million of EBITDA in the second quarter, which is roughly a 76% sequential increase from the first quarter. The conditions Blake described—limited completion crew availability, tight equipment and rising trucking market rates—have historically favored reliable suppliers in the basin, and Atlas is that supplier. We've positioned our balance sheet to fund this growth without compromising returns, evidenced by the convertible financing. As Bud noted, in his 35 years in the industry, he has never seen two demand inflections of this magnitude converge: surging global oil demand on one side and acute U.S. power constraints on the other. Atlas is positioned to serve both. We have the assets, the contracts, the supply chain and the capital to deliver, and we intend to. Thank you for your time, your questions and your continued support. We look forward to updating you on our progress next quarter.

Operator, Operator

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