Earnings Call Transcript - AESI Q1 2024

Kyle Turlington, Vice President, Investor Relations

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the first quarter of 2024. With us today are Bud Brigham, Executive Chairman; and John Turner, CEO, President and Chief Financial Officer. Bud and John will be sharing their comments on the company's operational and financial performance for the first 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 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 we filed with the SEC on February 27, 2024, 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 this morning's press release. With that said, I will turn the call over to Bud Brigham.

Bud Brigham, Executive Chairman

Thank you, Kyle, and thanks to everyone for joining us today for our first quarter conference call. In addition to reviewing our first quarter results, we'll spend some time this morning providing an update on the great progress we are making integrating Hi-Crush and Atlas since the closing of that acquisition in early March. Additionally, we also need to discuss the recent fire at the Kermit facility and perhaps more importantly, the impressive response from our team to maintain both safety on site and reliable supply of sand to our customers throughout the disruptive event. I will go ahead and state that no other proppant producer could have possibly continued delivering profits to their customers the way Atlas has. Our differentiated scale, recently enhanced by our acquisition of Hi-Crush and their great people, our associated production redundancies, and our geographically distributed production assets uniquely position Atlas to continue reliably serving our customers even through rare unexpected disruptions. Whether it's a fire, severe weather, or traffic accidents, disruptions do occur. Atlas makes the Permian supply chain more reliable and sustainable. Briefly reviewing the events around noon on Sunday, April 14, a fire broke out at our Atlas Kermit facility, damaging equipment involved in our feed system, which takes sand from the separation and drying process to our silos. Due to the quick actions of our employees and quick response from the West Odessa, Kermit, Monahans, and Andrew's fire departments, the rest of the plant, including all production centers was unscathed. This incident only affected our ability to load trucks at Kermit and did not impact our ability to produce sand. Thankfully, and most importantly, we quickly ascertained that all of our employees and vendors were safe and accounted for. I want to again thank the first responders and our team of wonderful employees here at Atlas for keeping everyone safe and limiting the damage to the plant. Within hours of the incident, our sales and supply chain teams began notifying our customers of the event and also began taking steps to ensure their supply needs would continue to be met, resulting in uninterrupted service and zero sand-related non-productive time at customer well sites through the incident. Again, I think it’s obvious that no other company could have accomplished this. In under 48 hours, mobile load-out equipment and mobile silos began arriving at our Kermit plant to lay the groundwork for a temporary load-out solution while we began conducting repairs. Within 11 days from the fire, we reopened the Kermit facility and began loading trucks with sand. Today, the Kermit facility is loading close to 6,000 tons of sand, which is about 1/3 of our throughput prior to the incident. By the end of this month, we expect to receive all of the necessary equipment to completely rebuild the damaged feed system, and we expect the damaged portion of the Kermit plant to be fully restored by the end of June. This quick turnaround is another clear demonstration of Atlas' unique culture. Our exceptional team collaborated across our entire platform of distributed assets almost instantaneously. The pace at which they moved was almost shocking to think that we reopened the Kermit facility within just 11 days of the fire. Knowing the quality of our people, I know at this point that I shouldn't be surprised. When you partner with Atlas, you can count on quality and reliability, even under extreme circumstances. Again, thanks to our great people, our innovative culture, our unmatched scale, our relationships, and our diverse distributed assets that we are uniquely able to perform through these disruptions. I could not be prouder of how we have responded to this unexpected setback. With respect to the incident at Kermit, we wanted to provide more information about what happened and the improvements we are making to address the risk of a repeat event in the future. We see these events as opportunities to make Atlas better. First, now that we have completed a root cause analysis, there are a number of contributing factors that combined to result in the fire starting in the feed system between the plant and the silos. These factors included mechanical and process failures. We are responding by taking a number of actions to improve our systems and processes to protect us from the risk of recurrence. For example, in the near term, we have enhanced and increased inspections and preventive maintenance procedures. In addition, some of the technological enhancements in the design and construction of the Dune Express, specifically the multilayer belt detection system and more advanced auto-lubricating systems will be installed in our feed systems at the plants. This is important to spend a moment on. The five years of design and the significant investments in technology we've made in planning the Dune Express, particularly in automation around preventative maintenance events addresses the risk of an incident like this occurring on the Dune Express. For example, in addition to the smart idlers we've been discussing previously, we will have dual monitors on the pulley bearings for two separate systems: one for preventative maintenance and the other for real-time monitoring and prevention of catastrophic failures, as well as dual monitors for belt detection and slippage with interlocks to stop the conveyor if the belt is loose or slipping. The system will be hardwired to shut down the conveyor if a pulse is detected. Further, all pulley bearings will be auto-lubricated, which will mitigate the risk of incidents. Lastly, on the Dune Express, monitors, sensors, and cameras will provide real-time data and security along the 42-mile conveyor rail. I believe that the Dune Express is likely the most technologically advanced bulk material conveyor ever built. Wrapping up my section, subsequent to the closing of the Hi-Crush acquisition, the Board of Directors named John Turner as Chief Executive Officer, effective March 6, 2024. As Executive Chairman, I will remain very active in the company's operations, continuing to provide leadership ideas and vision to the company's management team, and I will continue to focus on identifying innovative strategic opportunities. John and I were founders of Atlas back in 2017. As a proven oil and gas entrepreneur, John has been and will continue to lead our outstanding management team to successfully manage day-to-day operations while building Atlas into the premier proppant and logistics company in our highly competitive industry. Atlas has a big future, and I believe John's leadership and executive experience, working with the rest of our outstanding management team, will result in continued innovation and growth to continue creating shareholder value. In addition to the much-deserved promotion of John Turner, effective May 13, Atlas is pleased to announce the appointment of Blake McCarthy as Chief Financial Officer of Atlas. Blake most recently served as President of NOV Grant Prideco. We welcome Blake aboard and are excited to have his leadership and expertise to help guide Atlas into the future. With that, I will now pass the call over to John.

John Turner, CEO

Thank you, Bud, for those kind words, and I echo your comments regarding the addition of Blake. I look forward to working side-by-side with Blake as we navigate the road ahead for Atlas. Blake's expertise in integration and acquisitions, along with his deep understanding of financial markets and the oil service industry, will be a welcome addition as we have just started our journey as a public company. The first quarter was an exciting period for Atlas with the closure of the Hi-Crush acquisition, the completion of the Kermit expansion and commissioning of the first of two new state-of-the-art dredges. The acquisition of Hi-Crush is already off to a great start. In March, Hi-Crush set a monthly volume record for their permit plants, and Pronghorn, along with Atlas' last mile, set a monthly record for total loads. We successfully floated our first new dredge in February and recently floated our second in late April. We expect the commissioning process for both dredges to be completed by the end of June, and we are well on our way to a fourth quarter 2024 commercial end-service date for the Dune Express. Atlas continues to evolve into a more integrated provider of diverse solutions for our customers, as emphasized by our addition of Pronghorn's logistics footprint, which amplifies Atlas' offerings of the Dune Express and expanded payload capacity logistics assets. It has been a remarkable first year as a public company. Our team has a lot to be proud of, and I'm proud of them. Regarding the Hi-Crush acquisition, we are off to the races with our integration, and it is exciting to think about what the combination of these very talented and innovative workforces will be able to accomplish as we share resources and best practices. We are working through the identification of additional potential synergies beyond the $20 million we initially announced at the time of the acquisition. The tie-in of Hi-Crush's permit operation to the Dune Express, the potential for dredge mining to be brought to Hi-Crush permit, and the combination of our utilities infrastructure and procurement programs are among some of the potentially impactful initiatives that we are currently working through. We have received positive feedback from our customers on the acquisition and look forward to better serving our customers through the combined offering of the Dune Express, the OnCore mines, and the last mile solutions. The addition of Hi-Crush truly provides Atlas with an unparalleled portfolio of proppant and logistics assets. Regarding logistics, Atlas remains the market leader in last-mile with 28 crews, of which 24 are in the Permian. We now deliver over 50% of our total sand volumes using our last-mile crews. Not only is Atlas leading with fully integrated solutions, we are also leading with technology, building on our digital platform's capability to monitor proppant inventory at our customers' well sites. We released our automatic ordering feature, an automated technology-assisted sand offering based on live inventory and operational data feeds. Our off the order feature provides the foresight to keep our sand production optimized while also giving our customers confidence in meeting their operational targets. On OptiOrder, we also released Gen 1 of our OptiDispatch feature, a first of its kind digital functionality to autonomously schedule, optimize, and dispatch sand delivery without human intervention. Combined off-the-order and OptiDispatch set the Atlas digital platform well ahead of the competition. Our automation, efficiency, scale, and innovation continue to drive market differentiation while advancing the digital transformation of the Permian Basin. Operation of OnCore #8 is currently underway, and we expect that unit to commence sales later this month under a long-term contract with an existing customer in the Midland Basin. This is the third OnCore unit deployed with this customer, further validating the value proposition the OnCore solution delivers to operators and the leadership position the OnCore team has established within the infield mobile mining market. Of note, #8 is a larger unit with the production capacity roughly double that of our seven other units currently deployed in the Permian. Regarding future OnCore deployments beyond #8, we have placed orders with our vendors for the equipment that will comprise Unit #9. We expect to take delivery of this equipment in the third quarter and have multiple mine sites secured under option agreements. We are in advanced discussions with a number of potential customers about the deployment of this unit. The construction of the Dune Express remains on time and on budget and was not impacted by the events last month at our Kermit facility. We have more than 200 personnel on the ground daily working on construction, and we continue to make great strides and remain confident on our fourth quarter delivery timeline. Notable construction milestones include, as of the end of April, we have substantially completed both of our major highway crossings, 16 of our 20 leased road crossings, and 9 of our 19 cattle and wildlife crossings. The installation of the sand feed system for the Dune Express, which we have described as the Plant Lake design, commenced in April and will run through June. The installation of the concrete sleeper will be completed by the end of this month. At the end of April, more than 60% of the conveyor modules were completed, and we expect to be 95% complete by the end of this month. As of today, 95% of the belt has been flat and is ready for installation. Thanks to our strong first quarter results, the heavily contracted and low-cost nature of our business, and the quick turnaround at the Kermit facility, we are going to increase our dividend 5% to $0.22 per share, up $0.01 compared to our dividend last quarter. Based on this dividend and our closing price on May 3, we now have a current annualized dividend yield of 4%. The pro forma maintenance CapEx beyond 2024 is expected to be around $60 million annually, providing Atlas with multiple avenues to further increase shareholder returns once the remaining growth CapEx associated with the Dune Express subsides. The overall sand market remains steady. Recent improvements in oil prices have not led to a pickup in activity yet, but it has changed the conversation from how low the rig count can go, which was a dialogue in the fall, to today's topic of when will the recovery occur. Frac efficiency remains a nice tailwind for Atlas and our peers. One of the main benefits of consolidation in the Permian is the increased mix of simul and tribal fracs, which today represents more than 20% of the Permian's completions market. Furthermore, we see continued year-over-year growth in drilling and completion efficiencies, which amplifies the effect of fleet additions, resulting in increased levels of proppant consumption. Atlas remains highly contracted for 2024, derisking much of the sand price volatility for this year. For the first quarter of 2024, which includes a 27-day contribution from Hi-Crush, we reported total sales of $193 million. Our revenue from proppant sales was $113 million on volumes of 3.9 million tons. As expected, we saw the first quarter get off to a slow start in January from an activity standpoint but returned to a more normal cadence for February and March. Our average sales price for the first quarter was approximately $29 per ton. Moving to service sales, which is revenue generated by our logistics operation, we reported $79 million in revenues for the quarter. In total, cost of sales excluding DD&A for the quarter was $107 million, which consists of planned operating cost of $40 million and logistics operating costs of $67 million. For the first quarter, our per ton plant operating costs were $10.88, which was negatively impacted by less dredge feed as we were commissioning the new dredge in March, and thus, we were more dependent on traditional mining throughout the quarter. We expect the commencement of both of our new dredges to provide incremental improvements in operational performance and further reductions in our mining costs through the rebuild of the Kermit facility. Royalty expense for the quarter was $3 million. SG&A expense for the quarter was $29 million, which includes $11 million of nonrecurring transaction costs and $4 million of noncash stock-based compensation. Cash interest expense for the quarter was $6 million, which was offset by $2 million of interest income generated during the period. We expect our interest income to decline in future quarters as we draw on our cash reserves to fund our growth projects. DD&A for the quarter was $17 million, and we generated net income of $27 million, representing a net income margin of 14% and earnings per share of $0.26. Net cash provided by operating activities was $42 million. Adjusted EBITDA for the period was $76 million, representing an adjusted EBITDA margin of 39%. We expect our adjusted EBITDA margins to decline in subsequent quarters as we ramp up revenue from our lower-margin logistics segment and incorporate the lower margin profile from the Hi-Crush acquisition. Adjusted EBITDA margins should improve in 2025 with the commencement of the Dune Express. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx for the quarter was $71 million, yielding an adjusted free cash flow margin of 37%. Lastly, we spent a total of $88 million on growth projects in the first quarter, with $75 million of this spend for the Dune Express and the majority of the remaining $13 million going towards the completion of the Kermit plant expansion in our new OnCore facilities. Cash and equivalents at the end of the quarter stood at $187 million with total debt of $481 million. For the second quarter, we expect a $20 million to $40 million EBITDA impact from the fire that occurred on April 14 and subsequent 11-day plant closure, which implies our second quarter financial results will be in line with the results of our first quarter. The EBITDA impact from having to source meaningful amounts of lower-margin third-party volumes, the loss of some spot sand sales, and higher OpEx costs associated with a more manual, less efficient temporary load-out implementation, which will be in place until the feed system is rebuilt, which is expected to occur in late June. As mentioned earlier, the fire had no impact on the plant's production centers, and once the rebuild of the feed system is complete, we expect the plant to resume normal operations in the third quarter after a normal ramp-up. We expect the rebuild cost to be fully covered by our insurance policies minus a $250,000 deductible. Once again, we do not expect the event to have any impact on the timing of the construction of the Dune Express or cause any non-productive time for our customers. Although a modest financial impact, I could not be more proud of the quick collaboration, teamwork, and resourcefulness of our employees to limit the impact and quickly reopen our facility so we can reliably serve our great customers. To the extent the fire has any additional lingering impacts on our financials, we will update guidance when appropriate. That concludes our prepared remarks, and we will now let the operator open the line for questions. Thank you all for joining in on our first quarter call.

Operator, Operator

If you would like to ask a question, indicate your line is in the question queue. Our first question is from Sean Mitchell with Daniel Energy Partners.

Sean Mitchell, Analyst

John, Bud, congrats on the hire. I think you are very lucky to have Blake McCarthy join the team; it's a great hire. But moving on to kind of business. You guys were able to reopen the plant pretty quickly after the fire, which was quite impressive. Can you walk us through the steps taken in the collaboration you talked about required to kind of reopen so quickly?

John Turner, CEO

Yes, of course. I'll start and then Chris will go into the details. I am extremely proud of our team and how they performed. It was a true collaboration between employees from Atlas and Hi-Crush. Chris Scholla led those efforts, and we successfully got the operation back up. I'll let them elaborate on what we did specifically.

Chris Scholla, Operations Lead

Yes. Thanks, John. So first, we really had to take a step back to understand our post-event process capabilities of the plant. So after that evaluation, we saw, look, our wet plants, dryers, screening tower, and load-out equipment were essentially unaffected, so we can produce sand, with the challenge being finding a creative way to load sand into the trucks. We were able to modify the conveyors under our screening tower to enable a redundant flow of sand to our new temporary load-out stations; these conveyors are bidirectional, one direction feeding haul trucks to transport sand to our temporary load out and the other direction feeding a ground-level zipper conveyor that transports sand to load out. In the last week, our zipper conveyor has proven its capability to handle the main feed, with the haul trucks becoming a pure bleed backup solution. It was incredible to watch all the different teams come together across our newly combined organizations. This was an absolute combined effort involving leadership and functions from both companies, including manufacturing, last-mile, load-out, OnCore, construction, and safety functions. No formal integration process was required here; it just occurred organically. Our teams and leadership naturally came together to develop a creative solution to get our current facility back online and serving our customers. The fact that within two weeks our Kermit facility was loading trucks was an accomplishment nothing short of incredible, and hats off to the entire team. I think this highlights our combined company strength, scale, and adaptability, as well as our deep relationships across the industry that will continue to differentiate Atlas in the future.

Kyle Turlington, Vice President, Investor Relations

Sean, just one last thing on that. As I mentioned on the call, I believe this supports our perspective on scale and culture. The high expectations we had, along with our focus on innovation and collaboration, enhance our reliability. No other company could have accomplished the work that Atlas has during this disruption, and it is improving the Permian.

Sean Mitchell, Analyst

Got it. That's a great response. Appreciate it.

Operator, Operator

Our next question is from Jim Rollyson with Raymond James.

James Rollyson, Analyst

Great job on managing the fire drill. John, I have a couple of questions regarding the dredges. It seems everything is on track for commissioning. Could you remind us about the cost impact on operational expenses once those are set up and running starting in the third quarter? Also, I saw in the slides that you mentioned trialing one of the older dredges at Hi-Crush's Kermit facility. How are you assessing that opportunity and its chances of success?

John Turner, CEO

Yes. Regarding the dredges, once we have these two new dredges operational, we anticipate a cost reduction of approximately $3 per ton on a line basis at Kermit. Back in 2021, when we relied on dredges for all our mining feed, our operational expenditure was around $650 per ton. However, we may not see the full impact of that reduction across our entire operational expenditure due to the increased number of assets in our system, including Monahans and the OnCore mines. As for the Kermit dredge, we plan to decommission one and transport it to Hi-Crush to test its efficiency in their pond later this year. We want to ensure our team focuses on getting the two new dredges operational first. We are aware they have a pond suitable for the dredge, but they have not opted for a long-term contract to test it yet. Since we still have one dredge on lease, we will proceed with this trial. If it does not yield the desired results, we will explore alternative ways to utilize dredge feed at other permitted mines if dredging at Hi-Crush is not viable. I believe there is still a chance to incorporate dredge mining across the Kermit facility, including both Hi-Crush and the Atlas mine. We are just beginning to assess this further, Jim.

James Rollyson, Analyst

Got it. That's helpful. And maybe one for Bud. Bud, one of your largest competitors recently got taken out by private equity. Just kind of curious your view on that from both a valuation and strategic perspective and how you think that might impact the market?

Bud Brigham, Executive Chairman

Thank you. It's great to see a sophisticated investor like Apollo acknowledge that U.S. Silica was undervalued and willing to pay a premium for a solid business with strong free cash flow. I encourage investors to refer to Slide 17 in our presentation. It provides an objective confirmation that our company, Atlas, is exceptional in terms of margins, cash generation, and growth profile. These qualities undoubtedly warrant a higher valuation than what we are currently experiencing, aligning more with midstream or production and field services enterprises. There is significant potential for our valuation to increase, especially as our distribution grows alongside rising cash flows and Dune Express in 2025.

Operator, Operator

Our next question is from Scott Gruber with Citigroup.

Scott Gruber, Analyst

Yes, good morning. I want to come back to the OpEx question. You guys have long discussed the benefits of these dredges. Just curious, just in terms of putting it all together with the new Hi-Crush assets as well. As you get these dredges up and running and you kind of move into mid-2025, should we still be thinking around a $9 per ton OpEx figure for next year? Is that the bogey?

John Turner, CEO

Yes. I think at $9, that's what we're kind of shooting for. Obviously, hoping that we get some additional benefits from the integration and from some synergies in there. But I think the $9 range is probably a good number to look at.

Scott Gruber, Analyst

Okay. And great. I appreciate it. And then coming back to the Dune Express, just wanted to get some updated color on contracting the associated loads. I mean we are just now six months out or so from startup. So what are you hearing from customers around the system? And any additional color you can provide on especially longer-term contracts associated with the system?

John Turner, CEO

Yes. We don't necessarily have Dune Express contracts, but what we do have are contracts that will take sand off the Dune Express, basically stand on logistics contracts with a number of operators that are operating in the Delaware Basin. A lot of our customers that are going to be taking sand off the Dune Express are very excited about it because they're obviously wanting to get sand off the road and make it safer. They also see the efficiencies that are going to come with the Dune Express. They see the well-site efficiencies, the ability to utilize fewer assets to deliver more sand to the well site. So I feel very good about where our contracting sits regarding the sand supply and logistics contracts for Delaware Basin customers. We're also currently working with some customers to get them signed up for contracts to take sand off the Dune Express. Right now, we're running 13 Delaware Basin crews, and Chris may want to talk about that. I mean that's something we've been working hard on to increase our exposure there. But go ahead.

Chris Scholla, Operations Lead

Yes. We know that Dune Express is coming online, and we're focused on integrating those customers into Dune Express. In the past, we targeted contracts similar to Dune Express. Through this transition, we've learned that the best approach is to leverage our existing customer agreements, operate our 13 crews, and have them efficiently utilize less public road mileage. We're seeing the effectiveness of Dune Express and the multi-trailer operations. We anticipate that our current customers in Delaware will continue to grow and transition smoothly into Dune Express once it is commissioned.

Scott Gruber, Analyst

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

Operator, Operator

Our next question is from Derek Podhaizer with Barclays.

Derek Podhaizer, Analyst

I was wondering if you could provide us an update on how you're looking at pricing moving through this year? I know it's come down quite a bit. So pricing, volumes obviously had an impact on the current mine the volumes are on the sideline. And then just the amount of your volumes at our contract. Just an update around those three items would be helpful for the rest of the year.

John Turner, CEO

Yes. So first off, as I’ll talk about pricing on some contracting, we are currently signing contracts probably somewhere in the mid-20s. A lot of that also includes logistics, which is different. So that's just the price of sand. Right now, we have around 80% of our contract volumes for this year contracted. There are still a number of contracts that we're currently working on. The contracting season really runs from probably let's say the fourth quarter all the way into the end of the third quarter, probably August time frame. That’s kind of the time that we are contracted. That’s when we're really contracting volumes. We did lose spot volumes with the events that happened to Kermit. We let those go. Obviously, we think those volumes will be coming back. Additionally, there's also opportunity with some of our OnCore mines to increase with one of our OnCore mines just coming on. We’ll be able to utilize some spare capacity in that mine that’s coming on out there. So I think that going through the year, I mean, there are still a number of contracts out there to be had. Obviously, we're looking at both sand and logistics contracts here, not just sand contracts.

Bud Brigham, Executive Chairman

I really talk a little bit about the efficiencies. I mean, we certainly have a tailwind with the continued improvement in efficiencies, and the fact that crews out there with more simul-fracs, etc. So that's a tailwind for us. And we'll see. I'm personally optimistic about the fundamentals of oil prices. The sense is that private operators are probably going to pick it up a little bit in the second half of the year, and that should be constructive.

John Turner, CEO

I think we're seeing sand demand increase by approximately 10% to 15% year-over-year. There are other forecasts that suggest even higher numbers. However, frac efficiencies haven't significantly increased with the number of crews operating. Nonetheless, we are observing more simul-fracs, which means more sand pumps are being used per well, and this is noteworthy.

Chris Scholla, Operations Lead

And Derek, one more thing to add real quick. The increased adoption of electric fleets is certainly helpful for that rise in completion efficiency. So those are a lot more efficient than dual fuel and our diesel fleet. So that's certainly helping drive that demand.

Derek Podhaizer, Analyst

Right. That's all very helpful. I appreciate the color. I just wanted to think about 2025 CapEx. I know you mentioned in the opening comments about $60 million being towards that maintenance book. Could you help us with what potential growth projects that you'll see in '25, obviously, small versus 24, but thinking about additional OnCore units or additional logistics pronghorn units? Obviously, we're going to have a big step down in CapEx, free cash flow increases, you're not raising the dividend. I'm sure you will have a more structured capital allocation return program in '25. But just to help us think about 2025 CapEx? Any other moving pieces aside from that $60 million of maintenance would be helpful.

John Turner, CEO

We haven't detailed that yet. There will definitely be some continuation from the Dune Express, which will be operational by the end of the fourth quarter. However, there will still be some capital expenditures next year, though I can't specify how much. We're also considering deploying some additional OnCore units. We will have more updates on autonomous trucking as we move forward with delivering sand autonomously. There may be capital expenditures related to potential mobile load-outs for the Dune Express. While we don’t have any major projects planned, we currently have this in our plans, but that could change.

Bud Brigham, Executive Chairman

Yes. In general, as you know, we've been through a period of very heavy CapEx when you look at the expansion that we had in the Dune Express, and we're ramping down on that. It's pretty remarkable in my view, the fact that we've had these healthy distributions even through that high level of investment in our CapEx, but it’s ramping down here in the second half of the year, and particularly, as you point out, in 2025. We’re going to be in a very, I think, a relatively luxurious position given our margins and our cash generation to be able to ramp up the distributions, but also to invest in some CapEx, more high-rate of return projects to drive efficiencies for the industry and improve reliability. And of course, Dune Express is a big part of that, the high-capacity trucking and eventually autonomous delivery. So 2025 is looking really exciting in that regard.

Derek Podhaizer, Analyst

Great. Good stuff. Thank you, guys. I'll turn it back.

Operator, Operator

Our next question is from Keith MacKey with RBC Capital Markets.

Keith MacKey, Analyst

First to start with, I wanted to ask about your appetite for acquisitions from here. I know you just closed on a sizable one, and there's lots of organic growth opportunities within the company, but also the experience you've added to your C-suite today might suggest that inorganic opportunities are still a potential priority for you. Can you just sort of lay out how you think about acquisitions going forward?

John Turner, CEO

You want to go? No? Okay. Sorry. Regarding acquisitions, the Hi-Crush acquisition has been significant. The integration is underway, and we are focused on that. Things are progressing well as we bring the teams together. While we don’t have any specific future acquisitions in mind, we will continue to assess this area. We approach acquisitions like any major project here, with specific return goals in mind. Our aim is to enhance our cash flow return story, and we’re on the lookout for high-margin businesses that can meet our internal rate of return criteria. There are various factors we consider when making these investments. We just acquired Hi-Crush and are working on its integration. Yes, we will keep searching for opportunities to grow and create value for our investors through acquisitions.

Bud Brigham, Executive Chairman

I'll just add a general comment. Obviously, given the rate of return on our projects such as the Dune Express and the high-capacity trucking and our margins and cash generation, it is a high bar. As you can see from the Hi-Crush acquisition, that was an extremely accretive acquisition, and I'm optimistic that we will have more acquisitions in the future. It's just we don't have anything we can point to right now.

Operator, Operator

Okay. Appreciate that. And maybe if we just think about it a little bit from the customer standpoint, lots of customer consolidation happening in the Permian right now. Can you just talk about what that means for oilfield services in general and your position within the market as well?

Bud Brigham, Executive Chairman

Yes. Thank you. I'll start, and these guys may want to add to it. Scale matters. As a former operator, we've appreciated that and recognize that. You're seeing that execution by operators to grow their scale and that drives down costs and drives up margins. There’s a lot of leverage associated with that. The same thing is true on the oilfield service side, and particularly for Atlas as the largest proppant producer and the largest logistics provider. We saw it through this recent disruption that our scale, culture, and innovative, collaborative culture and our great people enabled us to perform and deliver for our customers despite these disruptions. I think we’re benefiting from that, and it’s important that we continue to operate as efficiently as we can to reliably service our customers. I think Atlas is in a unique position. Nobody could have performed the way we have through that disruption, and we're going to continue to perform that way.

John Turner, CEO

Yes, many customers are seeking a diversification strategy, and Atlas serves that purpose. We have four dry mine locations and eight ongoing projects, along with a substantial logistics offering. No other company can provide what we do, and we will continue to enhance our capabilities to be a better partner for our customers.

Bud Brigham, Executive Chairman

Yes, we do, let's say nobody can match that.

Operator, Operator

Our next question is from David Smith with Pickering Energy Partners.

David Smith, Analyst

Good morning, and thank you. I just wanted to reiterate the congratulations on the incredible response to the fire as well as the hiring of Blake McCarthy. I thought it was really impressive that over half of your Q1 volumes were delivered with your own logistics. Have you talked about what you're seeing for your average delivery volumes in the areas to be served by Dune Express? And if you're seeing a greater mix of double and triple trailer deliveries. But really, how do average volumes per delivery compare to where you would expect them to be once Dune Express is fully online?

John Turner, CEO

Yes. I think from a total volume perspective, the Dune Express capacity with current average monthly volumes per crew today will need to be up around that 20 to 21 crews is what we’re looking at. As you’ve seen us, right, our business, looking at the last mile side of things, specifically in the Delaware, I mean, we've grown somewhere in that 8 to 10x range in the last 24 months. Therefore, our ability to achieve an additional 7 or 8 crews out there, we see as highly probable as we continue down that pathway.

David Smith, Analyst

Yes, thank you. I may have phrased the question incorrectly, but regarding the 120 trucks, total delivery capability will depend on the number of trips made each day and the average volume of each trip to the well site. I was particularly interested in understanding the average volume per trip to the well site, especially if customers are maximizing the option to deliver two or three trailers at once.

John Turner, CEO

So I guess you’re asking about the multi-trailer success? From the multi-trailer side, we've recently opened up our additional depot up in Polygon 6, which will the end or the end of the Dune Express lives, opening up pretty significant volume for us there. We've now run double and triple trailers with five customers out there, and we continue to see our average payloads go up. I believe with our first triple trailers starting out April 5 of last year to where we are today, now with two depots, looking to open a third one here shortly. I think our customers that are utilizing them. We’ve even had customers look and modify their completions program to optimize the use of double triple trailers. Two years ago, people thought this was something very creative but would never become a reality. It was the same thing with the Dune Express, right? And once our customers see the efficiencies that they gain on location, minimizing the trucks and also getting those trucks off the public road. We’ve had nothing but success there and also in recent conversations with folks to even optimize the pad layout and sizing around double trailers. So I think those types of actions and conversations for our customers really show where this is heading with the multi-trailer operations.

Operator, Operator

Our next question is from Neil Mehta with Goldman Sachs.

Neil Mehta, Analyst

Yes. Thanks for your comments, John. Congrats on your promotion and Blake, you as well. My first question is just around the Dune Express. As we think about construction, we're getting really close to coming into service. So what are the last kind of gating items? And can you give us a sense of your confidence interval around executing some of the last bottlenecks that might exist?

John Turner, CEO

I mean, obviously, the Dune Express construction has been moving along. We have over 200 people working on the construction of that. The fire itself is not going to impact the Dune Express construction at all. In fact, I think it’s going to enable our crews to install the tie-in to the plant more quickly. As far as the next bottleneck, I think the next milestone for us is going to be starting to commission the commissioning process, which is supposed to start at the end of the third quarter, early fourth quarter. We won't be selling any sand off the Dune Express for a while, but the commissioning of that process is going to take another three until the end of the fourth quarter.

Bud Brigham, Executive Chairman

John, about who a commissioning gas that will be running...

John Turner, CEO

Yes. Regarding the commissioning process, we're not yet running sand down the belts, but we are operating those belts to ensure they are tracking properly and functioning well, while resolving any issues. We've ordered all the necessary equipment and have teams on-site working on construction. We've completed our two major overhead road crossings, but we still need to address some cattle and wildlife processing and finalize lease road pricing. Overall, everything is progressing as expected on the Dune Express.

Neil Mehta, Analyst

And then you alluded to this free cash flow inflection, which we see in 2025 as well and the potential to return more capital to shareholders. Do you have a preference in terms of doing it through the dividend versus buybacks? Or is it price dependent? Just talk about the framework of how the Board is thinking about the return of capital.

John Turner, CEO

Currently, our primary focus is on returning cash to our investors, particularly through dividends, which is a key priority for us. We haven't had discussions about stock buybacks yet, but we plan to formalize that in a plan before the end of this year. For now, our main objective is to return cash to our shareholders.

Operator, Operator

Our next question is from Saurabh Pant with Bank of America.

Saurabh Pant, Analyst

If I can just go back to the Hi-Crush integration. I know there were a couple of questions early on. But if we come back to that and as you move through the integration process as you're going out and talking to the customers, looking at the assets, not just Kermit, but the OnCore assets. Can you share some feedback you have heard from the customers from the ops teams out there, both positive and negative, just that you have owned those assets for, I think, just around two months right now?

Bud Brigham, Executive Chairman

I want to make a quick general comment, and then others may want to add to it. This is Bud. Before the Hi-Crush acquisition, Atlas had a strong customer base in the Delaware Basin, and John opened up our high-capacity trucking and logistics business, which attracted a solid customer base for Atlas in that region. Hi-Crush did an excellent job with the OnCore mines' location in relation to those operators in the Midland Basin, establishing a strong clientele there as well. Customers are enthusiastic about our logistical advantages in both the Midland and Delaware Basins, allowing us to fully leverage Atlas's scale, reliability, and quality. Overall, the response has been very positive.

John Turner, CEO

Yes. No, I mean, I think if I just boil it down, I mean, it's about locating our mines and our sand proximity to every well site out there. A lot of concerns that customers had about going with a single sand provider was that they wouldn’t be able to deliver for them if they were in the Delaware Basin, and then they needed sand in the Midland Basin. But today, we’re delivering sand, obviously, to the back of the blender to all of our customers across whether they’re a Midland Basin player or a Delaware Basin player, just adding to that scale to be a better partner for our customers.

Saurabh Pant, Analyst

Okay. Awesome. Awesome. Just one more for me. Maybe just talk a little bit about your pricing strategy. I'm thinking pricing strategy more broadly from a Kermit versus OnCore perspective, right? Because OnCore is a very different kind of asset. I'm assuming you would continue to have slightly lower prices but longer duration contracts on those assets. But maybe you can talk to that a little bit and just maybe remind us that if the $26 to $28 per ton pricing guidance that you gave for the full year, is that still the right place to be?

John Turner, CEO

We're not really talking about what our pricing strategy is out there. Obviously, that’s something we obviously internally focus on. I will say we have a low cost to produce and we’re going to bring those costs down. We are very competitive when it comes to sand delivery. It's really about lowest cost to the well site. And so that's kind of where we focus there.

Saurabh Pant, Analyst

Okay. Perfect. Okay, John. I'll turn it back.

Operator, Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

John Turner, CEO

All right. We'd like to thank everybody for joining us for our first quarter call, and we look forward to reporting our second quarter results on our next call.

Operator, Operator

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.