Earnings Call Transcript - AESI Q2 2025

Operator, Operator

Greetings, and welcome to the Second Quarter 2025 Financial and Operational Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, Vice President, Investor Relations. Thank you. You may begin.

Kyle D. Turlington, Vice President, Investor Relations

Hello, and welcome to the Atlas Energy Solutions' conference call and webcast for the second quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Chris Scholla, EVP and President of Sand and Logistics; and Bud Brigham, Executive Chair. We will be sharing our comments on the company's operational and financial performance for the second quarter 2025, 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 in 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 comments 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 25, 2025, our quarterly report on 10-Q for the first quarter, our other quarterly reports on Form 10-Q 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 G. Turner, President and CEO

Thank you, Kyle. For the second quarter, Atlas generated $70.5 million of adjusted EBITDA on $288.7 million of sales, representing a 24% adjusted EBITDA margin. Our second quarter results at the low end of our $70 million to $80 million guidance range reflected the well-documented slowdown in Permian Basin completion activity, resulting in a slight sequential decline in volumes. This was primarily driven by customer pauses, extended delays between pads and schedule shifts rather than outright fee reductions as operators navigated recent commodity price uncertainty. For the third quarter, we anticipate a sequential increase in volumes, supported by continued market share gains and the strength of our high-quality customer base despite persistent challenges in the West Texas oilfield services market through the end of 2025. The Permian frac crew count, which averaged over 90 active crews in 2024 and peaked at approximately 95 crews by March of 2025 has declined to around 80, the lowest since 2017, excluding the COVID downturn. This reduction has a magnified impact due to significant frac efficiency gains in recent years. Daily sand pumped per fleet has more than quadrupled since Atlas's founding in 2017 and risen approximately 25% since 2023. As a key enabler of this industry transformation, Atlas benefits long-term from increased sand consumption, but in today's market where customers are delaying completions, each crew reduction or delay has a heightened effect. These efficiency improvements drive better wells and returns for our customers, positioning Atlas as a primary beneficiary when completion activity rebounds. As the Permian's largest annual logistics provider, our scale and the cost efficiencies of the Dune Express provide clear operational and economic advantages over competitors, but we remain exposed to further declines in activity. Despite an approximate 15% decline in sand volumes from our first quarter exit rates, we anticipate year-over-year growth in annual sand volumes, driven primarily by our 22 million committed tons for 2025. Based on our internal estimates, Atlas has expanded its market share from just 15% at the time of our IPO to the high 20s by 2024, bolstered by the Hi-Crush acquisition to approximately 35% of all sand sold today. As we prepare for the fall RFP season, we expect additional market share gains in 2026 as we secure contracts to optimize our productive capacity and maximize utilization of the Dune Express. The synergies of our low-cost mines and integrated logistics network provide a competitive edge in total delivered sand pricing, which we intend to leverage throughout the contracting season. Spot prices for West Texas sand remained in the mid- to high teens, levels insufficient to justify continued reinvestment for much of the industry, particularly as mines face low utilization and challenges absorbing fixed costs. While the supply stack has been resilient until recently, we are now seeing competitors idling underutilized mines and reducing shift schedules. We expect further supply rationalizations over the next few quarters and believe 2025 will mark the first year since the in-basin sand industry's inception that total supply capacity contracts. Combined with rising per fleet sand intensity, this sets the stage for our pricing recovery, when completion activity rebounds, a recovery for which Atlas is strategically positioned to capitalize on. The Dune Express is now fully operational with construction and commissioning completed on time, a milestone many considered ambitious. Currently, the majority of the sand deliveries from our Kermit plant utilize the Dune Express at our End of Line and State Line facilities, which has reduced public growth traffic and emissions in the area. During the second quarter, we sent just over 1.5 million tons of proppant down the conveyor. With the Dune Express' operational efficiencies now tangible, customers are actively securing access to its benefit for 2026. Alongside 5 million tons already contracted for next year, we have identified over 12 million tons of additional sales opportunities, signaling strong demand; there won't be room for everyone. The second quarter of 2025 represents the first full quarter of our integrated power operations following the acquisition of Moser Energy Systems. The integration of Moser into the Atlas family has surpassed our expectations, reflecting the strong cultural alignment identified during the diligence process. We are increasingly optimistic about the growth potential of our power business. Our commercial team is actively evaluating over 200 megawatts of opportunities across commercial, industrial, microgrid and production support applications. The well-documented surge in power demand across the broader economy has significantly expanded our potential customer base beyond our traditional oil and gas operators. As the cost of generating capacity rises in today's market, our ability to deliver tailored, efficient power configurations to meet customer-specific needs has driven strong traction within our existing customer base and into new sectors, including manufacturing, technology and other industrial markets. As we enhance our visibility in the broader power market, we anticipate further diversification of our customers' end markets, creating growth opportunities for Atlas that mitigate the volatility of the oil and gas industry. A key commercial objective of the Moser acquisition is to extend the duration of our contracts in this business. While our sales team is securing longer-term contracts with key oil and gas operators, the contract duration sought in these emerging markets is significantly longer, often exceeding a decade, a feature we view as highly attractive for stabilizing cash flows and reducing our exposure to historical cyclicality. Our power team has achieved significant progress in enhancing operational efficiencies and expanding manufacturing capacity at our Casper, Wyoming facility, all while maintaining minimal capital expenditure. As we finalize the integration of Moser Energy Systems, I am increasingly confident that our power business will serve as a critical growth driver for Atlas in 2026 and beyond. Following the close of the second quarter, we acquired PropFlow, a patented on-site profit filtration system that enables 24-hour continuous pumping, which Chris Scholla will discuss in further detail shortly. Proppant filtration has become an increasingly critical aspect of proppant delivery and wellsite efficiency, and the addition of PropFlow to the Atlas portfolio positions us with what we believe is the industry's leading filtration system. I'd like to take a moment to warmly welcome the PropFlow team to the Atlas family. In closing, while we anticipate ongoing challenges in the West Texas oil field services market through the end of 2025, we believe these conditions will accelerate the necessary steps to rebalance the industry. For Atlas, these challenges also create significant opportunities. The acquisition of Moser Energy Systems in early 2025, and PropFlow more recently demonstrates our ability to capitalize on difficult market cycles, enabling us to pursue strategic acquisitions and enhance our market position and through-cycle earnings potential. We expect our growing structural advantage in Sand and Logistics to deliver differentiated performance, which will become increasingly evident as industry conditions improve. Meanwhile, our Power business is well positioned to drive sustained growth for Atlas, capitalizing on the secular tailwinds shaping the broader power market. Now I will turn it over to our EVP and President of Sand & Logistics, Chris Scholla.

Chris Scholla, EVP and President of Sand and Logistics

Thanks, John. At Atlas, our focus isn't just selling sand. It's about unlocking the most cost-effective, scalable businesses through logistics, automation and integrated infrastructure. The Permian market is beginning to see that very clearly. We delivered another quarter of record operational performance driven by our focus on customer alignment, relentless pursuit of efficiencies and disciplined capital execution. In May, our Kermit plant and network of Encore mines both set all-time production records. The Dune Express is fully commissioned and has removed almost 8 million sand truck miles from the Delaware Basin public road lease. Our logistics team set a quarterly volume record of 5.5 million tons delivered to the well site. We have now shipped almost 1,000 truckloads autonomously. And this quarter, we achieved our first autonomous multi-trailer delivery. Atlas continues to position itself as the logistics and infrastructure backbone of the Permian Basin. Let's talk about the Dune Express. This system is not just a cost play; it's a strategic unlock. For years, a segment of the customer base has been locked in and tethered to legacy providers by high switching costs, fragmented logistics and opaque pricing models. The Dune is changing all of that. By eliminating long-haul trucking, reducing delivery volatility and compressing total landed cost, we're now opening doors to customers in the Delaware Basin that have never sourced a single ton directly from Atlas, all while reducing the commercial truck traffic on the roads and therefore, reducing our industry's impact on the community. Let me be clear about our long-term strategy. We are not content to be a vendor in the portfolio of our customers. Our goal is 100% of the work, 100% of the time. That means when an operator completes a pad in the Permian, Atlas is responsible for the sand from the mine to the wellhead. The reason is simple; integration outperforms coordination. We know that if we can control the mine, the inventory, the delivery system and the final handoff at the well site, we can outperform on cost, reliability and safety. By controlling that entire chain, we are positioned to deliver more than just tons; we can deliver certainty to our customers. This integration is why we are so excited to add PropFlow to our existing portfolio of innovative technologies and further enhance our customer value proposition. PropFlow is designed to fully eliminate proppant debris at the wellsite, while also removing the equipment and associated maintenance in the red zone. This technology enables continuous pumping operations for our customers and makes it possible to virtually eliminate operational disruptions. PropFlow's existing customer base already features blue-chip operators, and we expect that roster to grow as we support the expansion of its market penetration. Increasingly, our customers are recognizing that we are an operational extension of their completions programs. In our customer base, we're seeing a clear trend away from spot market relationships and towards fully integrated multi-pad structures, where Atlas owns a full delivery experience. Approximately 60% of our active last mile crews rely on analysts to deliver 100% of the sand required for their basin-specific completions program. It highlights the trust we have built around execution with our customers, and we expect this to shift to deeper, stickier relationships to accelerate as we scale. I will now turn the call over to our Chief Financial Officer, Blake McCarthy.

Blake McCarthy, CFO

Thanks, Chris. In Q2 2025, Atlas generated revenues of $288.7 million, adjusted EBITDA of $70.5 million, a 24% margin. EBITDA was at the low end of our $70 million to $80 million guidance range as volumes came in slightly below expectations as operator schedule shifts deferred some second quarter volumes into the third quarter. Additionally, cash SG&A was elevated during the quarter due to third-party consulting costs and litigation expenses. Economic and commodity price uncertainty is eliciting cautious behavior from our customers, which led several to defer scheduled completions from the second quarter to later in the calendar year. We expect third quarter volumes to be up in the mid-single digits sequentially, with August and September slated to be our strongest volume months of the year, driven by recent customer wins and new Dune Express trials. We expect our Power business to generate incremental sequential growth driven by increased unit deployments. However, a forecasted decline in our average proppant sales price and a reduction in shortfall revenue is expected to more than offset these gains, resulting in a sequential decline in consolidated revenue and EBITDA during the third quarter. Breaking down revenue for the second quarter, proppant sales totaled $126.3 million. Logistics contributed $146.4 million, and power rentals added $16 million. Proppant volumes were 5.4 million tons, down approximately 4% from the levels in the first quarter. Average revenue per ton was $23.29, boosted by shortfall revenue from unmet customer pickups. Excluding this, the average price was $21.17 per ton. As of today, we expect our average sales price to decline to approximately $20.50 during the third quarter. Total cost of sales excluding DD&A was $195.9 million, comprised of $60.9 million in plant operating costs, $123.9 million in service costs, $5.9 million in rental costs and $5.2 million in royalties. Per ton plant operating costs fell to $11.23 excluding royalties, down from Q1, with further normalization expected in Q3 due to higher anticipated volumes and further operational efficiencies. Cash SG&A for the quarter was $25 million, which included cash transaction expenses and other nonrecurring items of $2.2 million, netting to $22.8 million on a normalized basis. SG&A is expected to remain around the $22 million to $23 million range in the third quarter due to the aforementioned elevated third-party consulting costs and litigation expenses. DD&A was $40.6 million. Net income was negative $5.6 million and earnings per share with a loss of $0.04. Operating cash flow for the second quarter was $88.6 million, a considerable improvement relative to levels in the first quarter, driven primarily by improvement in working capital intensity that was in turn driven by an improvement in customer collections. Adjusted free cash flow, defined as adjusted EBITDA less maintenance CapEx, was $48.9 million or 17% of revenue. Total CapEx during the second quarter was $34.1 million, consisting of $12.5 million in growth CapEx and $21.6 million in maintenance CapEx, bringing total CapEx for the first half to approximately $69.6 million. We continue to budget $115 million of total CapEx for 2025 and expect our second half CapEx to decline to first half levels. We are maintaining our dividend of $0.25 per share, which represents a 7.9% yield as of Friday's close. I'll now turn the call over to our Executive Chairman, Bud Brigham, for his closing remarks.

Bud Brigham, Executive Chairman

Thanks, Blake. 40 years in the oil and gas industry imparts a hard knocks education that no classroom can match. Boom and bust cycles drive home a crucial lesson. While upswings rain profits on nearly everyone, true resilience and value are forged in the downturns when prices crater and competitors crumble. This hard-won wisdom is the foundation of Atlas. We didn't build Atlas assuming perpetual $40 sand prices. We supply one of the most volatile commodities in existence. Recognizing that reality, we engineered Atlas differently as a low-cost, high-margin operation designed not just to survive volatility, but to thrive amid it. Our reputation as West Texas' most reliable proppant supplier wasn't earned during the easy post-founding years. It was forged in the crucible of the 2020 COVID downturn when we honored every customer commitment even as competitors abandoned theirs. We've only grown stronger since the pandemic. As the lowest cost proppant producer and a state-of-the-art logistics provider, we boast unique differentiated advantages, including the Dune Express, autonomous and multi-trailer trucking and advanced power solutions. Leveraging these strengths, while others struggled to stay afloat in this trough, we're playing offense. As we've discussed, Atlas hasn't just expanded our market share in proppant and logistics, we've also entered new markets. Recent moves like the Moser acquisition earlier this year and last week's PropFlow deal underscore how we're uniquely positioned to create value while our competitors are constrained. I can't predict when this cycle will turn, but I know Atlas will emerge even stronger, poised to capture outsized financial rewards when it inevitably does. That concludes our prepared remarks. Now we'll open it up for Q&A.

Operator, Operator

Operator Instructions. Our first question comes from the line of Stephen Gengaro with Stifel.

Stephen David Gengaro, Analyst

I'd like to start by noting that the Permian has been quite soft. You mentioned where spot prices are, but then you referred to the share gains you’ve been experiencing. Can you elaborate on what is driving those share gains and how you see that developing over the next several quarters?

John G. Turner, President and CEO

Thanks, Stephen. This is John. I appreciate the follow-up. In 2025, our Permian frac crew count reached approximately 95 in the first quarter, and currently, we are around 80 crews according to our data. There have been other reports indicating there are about 70 active crews, so the range is between 70 and 80. The number of frac crews for which we provide sand and logistics has remained fairly consistent since the first quarter, fluctuating around 24 to 25 depending on the week. This is flat compared to the first quarter when there were 95 crews operating. Based on the estimated 80 crews, we are currently supplying about 35% of all sand sold in the Permian, which was higher in the high 20s in 2024. If our crew count is elevated and the actual number is closer to the 70 that others have reported, our market share could be between 40% and 45%, which is quite significant. Chris mentioned this earlier, and I’d like to expand on the reasons we are observing this trend. First and foremost, delivering sand efficiently to the wellbores is crucial in the completion process. We began selling sand in 2018/2019 and have established a strong reputation as a dependable sand provider. During COVID, we were the only sand company that kept both of our mines operational, thanks to our cost-effective operations and the commitment of our owners, executives, and employees to be the finest service provider. Fast forward to now, and Atlas has transformed; we are no longer just a sand supplier. Following our acquisition of Hi-Crush, we now possess the largest network of in-basin sand, both wet and dry. We have developed the most extensive logistics solutions in the Permian, including our own trucking fleet and trailers. Additionally, we have created an app that greatly enhances the management of logistics and will continue to improve with features that bolster our customers' operational efficiency. The Dune Express has been a major breakthrough in sand and logistics. Atlas remains proactive, making investments and innovating in the mine and blending sectors, with our latest move being the acquisition of PropFlow. Continuous pumping is vital for our customers, which is why it is important to us. Atlas strives to exceed our customers’ expectations, and we are still working on improving the technology and services that are most crucial to them. If you talk to our customers, I believe they will affirm that they receive the highest level of service from Atlas, better than with any other company. During my time as an operator, I noticed that many service providers often fell short in customer service. Over the years, I've ensured that Atlas excels in this area. Do I believe this trend will persist? Yes. Over the last year, numerous customers have requested us to be their sole source for sand and logistics. This trend will likely continue because Atlas is dedicated to providing the best service. We have experienced similar market conditions before, and we are currently proving our value to our customers. Atlas will keep investing and expanding its offerings to better serve our customers.

Stephen David Gengaro, Analyst

Great. The other question I had was just around capital allocation. It sounds like you've had very good success with the trucks from Kodiak to start, and I think there's a lot more on order. And then when you sort of think about CapEx needs versus capital returns to shareholders in kind of a soft market, how do you prioritize?

Blake McCarthy, CFO

Stephen, it's Blake. Good question. I think just to kind of reiterate what John said, it's no secret that the West Texas market is pretty tough sledding right now. The playbook in like a tough market like today is for the general service industry; everybody slashes CapEx and goes to pricing levels that generate cash flow breakeven levels almost immediately in order to preserve some type of utilization and keep the lights on. That ultimately results in an erosion of earnings power. When the cycle recovers, the necessary maintenance capital that gets scrapped, any type of investment in innovation that gets pushed to the side. On the flip side of that, our position as the low-cost supplier enables us to go to those pricing levels while still generating a healthy amount of operating cash flow, which in turn enables us to continue investing in the business while returning capital to our shareholders. On the investment side, that's not to say that we're going to spend money like drunken sailors in all directions. For instance, we're not currently investing in incremental mines as the West Texas sand supply stack is currently in the process of contracting, which we think is necessary and a long-term benefit to Atlas. However, we are continuing to invest in our logistics platform as seen in our recent acquisition of PropFlow, our continued partnership with Kodiak, as pointed out, and some other things we have in the pipeline. We're focused on widening the gap between us and our competition when it comes to efficiency and customer experience when others are forced to stand still. I think that's going to become very evident when you look at the market share data and our ability to hold crew count flat while the market has been in free fall over the past few months. On the power front, we're very encouraged by the commercial developments we've seen over the last few months. We're excited to see that begin to bear fruit over the next few quarters. Capital allocation there is an easier discussion as most of those projects we're pursuing have longer-duration contracts attached to them with quick cash flow generation. So it's a pretty simple return math. Balancing, continuing to invest in the business versus returning capital to shareholders is obviously an important leg of that stool. Protecting the balance sheet is also crucial. I think that the dividend remains very important to us. We are in the midst of a down cycle right now with sand pricing at cash flow breakeven levels for the industry, and we're still generating cash. That means we have to be efficient with our balance sheet management. We've got to be tight on costs, and we've got to set a higher return threshold for CapEx to balance it all. But that's what this company was built for. We're investing to make this model even more durable and we're confident that, that will really begin to shine through for investors as we work through the rough second half of the year and into 2026. Ultimately, this down cycle is going to prove very healthy for the West Texas sand market and the logistics industry, and I think we're going to be in prime position on the backside. So we're going to continue to strengthen our position.

Operator, Operator

Our next question comes from the line of Derek Podhaizer with Piper Sandler.

Derek John Podhaizer, Analyst

So John, I thought your commentary around the power business was interesting. It's the first time you really talked about those opportunities for the business outside of oil and gas. Maybe can you expand on what these entail and maybe help frame for us the size of this opportunity set?

John G. Turner, President and CEO

Yes. I will outline this, and then Tim can respond to some of the questions. Tim Ondrak, the Head of our Power business, will elaborate. The demand for power isn't limited to the oil and gas sector. Prior to our acquisition of Moser, we explored various markets and recognized this trend. Whether in commercial and industrial technology, government, data centers, or oil and gas, we acquired Moser because it provided us with the best platform to expand our power business across these areas. Moser represents more than just a generator supplier. Over the years, this team has been at the forefront of innovations in mobile power, and that innovation is still ongoing with some exciting new technologies. Moser has a strong pool of technical experts. Since the acquisition, we have enhanced the team with key additions that allow us to more swiftly enter these promising markets, whether it's developing microgrids, supplying bridge power for permanent solutions, or offering power as a service. We believe our offerings are distinctive in this sector, and we are well-equipped to meet the needs of those markets. We are currently assessing the size of these markets and discussed some of that during the call. Tim, do you have anything else to add?

Tim Ondrak, Head of Power Business

Yes, Derek, Tim Ondrak. How are you? So on these opportunities, we're not abandoning oil and gas. We still think the oil and gas base is attractive. But the commercial and industrial space tends to come with more unique solutions. We think we're well positioned to provide those. A lot of those are bridge to permanent solutions, but we're really a partner, and we're not solving a near-term problem, where we're waiting for line power. We're solving a permanent solution for somebody that comes with a 5- to oftentimes 10- or 15-year contract. The returns in that space are pretty attractive, especially from a long-term cash flow stability standpoint. Some of those are folks in the tech space. They're in manufacturing. They're in different industrial processes, where the need for power in the United States has created a situation where they need to bridge that gap, and we're in a perfect position to provide that.

Derek John Podhaizer, Analyst

Great. That's helpful comments. And then maybe on just thinking about the supply stack, and you guys seem pretty confident that we're going to see a real supply contraction the first time since in-basin sand mines became a thing. So maybe can you help us understand the tangible evidence and proof points that you're seeing of these Tier 2 or 3 mines actually shutting down? And then maybe how much do you think will come off-line from the $90 million or $100 million of supply in the Permian?

Chris Scholla, EVP and President of Sand and Logistics

Yes, this is Chris. We have confirmed that one major mine in Kermit has shut down and let go of all staff except for management. When we consider the supply situation, while the numbers may technically add up, it’s essential to have the necessary mechanics, electricians, and skilled workers to operate effectively. Across the board, we are hearing about layoffs and staff reductions, with companies trying to reduce operational expenses to survive. This indicates the direction of the market. The current supply situation is likely overestimated regarding what can be provided today. We are already witnessing supply constraints emerge. As we enter Q4 with uncertain schedules, we expect the supply situation to continue diminishing. It’s only a matter of time before competitors who are not investing in their facilities are unprepared for any market upturn.

Derek John Podhaizer, Analyst

Could you quantify? I mean, are we talking 5 million, 10 million, 15 million tons potentially being stacked or coming out?

Chris Scholla, EVP and President of Sand and Logistics

Yes. I would probably say on a total market basis, just my gut, 20% of the market at least is not available.

Operator, Operator

Our next question comes from the line of Jim Rollyson with Raymond James.

James Michael Rollyson, Analyst

First question, just if you kind of look at the market we've had and obviously, operators have been very focused on minimizing well AFEs and pushing prices on service companies as low as they can get it to try and offset oil prices, etc. Would love to hear just kind of how you guys are responding to that from a cost perspective, from an operations perspective, etc.

Chris Scholla, EVP and President of Sand and Logistics

Yes, thanks, Jim. This is Chris. You're correct that there is a strong emphasis among operators on reducing well costs at the moment. Our sales team hears about this consistently. At Atlas, we are positioned to succeed in this environment. We focus on total delivered value rather than just the price point. When considering total delivered costs, we frequently receive inquiries about the price per ton of sand from our mines. From my viewpoint, that's an outdated consideration. We have shifted our focus to the total delivered costs at the well site. Our competitive edge lies in our reliability, efficiency, and execution capabilities. To elaborate on the strategic platform we have developed, we began with the lowest cost structure using high-quality Dune sand from Monahans, then progressed to vertically integrating logistics by acquiring Hi-Crush, which provides us with a significant logistical advantage and the largest network of mines in the Midland Basin. We also launched Dune Express to eliminate the need for long-haul trucking in Delaware. Additionally, we introduced PropFlow, enabling around-the-clock pumping and enhancing our value chain. These initiatives were intentional and part of our strategy to maintain the lowest cost structure. Even in favorable market conditions, we operate efficiently, emphasizing integration. We own the largest network of mines and control logistics. Our continued investment in technology, infrastructure, and automation is crucial to our differentiation. Furthermore, we align ourselves with the most efficient operators who fit our logistics footprint and share our operational philosophy. We have moved away from lower-value opportunities to concentrate on operators who appreciate our logistics innovation. This disciplined approach has enabled us to cultivate stronger relationships and gain a larger share of business. We are not pursuing marginal sales or transactional pricing; instead, we focus on building long-term strategic partnerships with customers who share our vision of what a partnership entails.

James Michael Rollyson, Analyst

Thank you for that, Chris. I appreciate it. My follow-up question is about Dune Express. It has been a tough time to launch it into the market especially with all the chaos happening. There seems to be a hesitance from customers to engage in new contracts, which often occurs in such market conditions. However, you mentioned some points about expanding your blue-chip customer base and having more discussions about Dune Express as we approach next year. I would like to hear your thoughts on your confidence in achieving some of the additional 12 million tons of volumes you are anticipating for next year. If you're already in discussions about this, any insights or details you can share would be appreciated, especially considering the slow market start we're currently facing.

Chris Scholla, EVP and President of Sand and Logistics

Yes. I mean, we're definitely having those conversations. I think to kind of kick back a little bit, a lot of these guys didn't think that the Dune Express was actually going to happen and operate efficiently. So you had a lot of operators really sit back and take this wait-and-see perspective and see if this was going to work. Meanwhile, they did have to support their programs in 2025 with the contracts that they had. They continue to sit with those legacy relationships that are long-standing in the Delaware. I think as customers have continued to come out and tour the facility, look at the Dune Express, it's a moment of, wow, this is really working. This is impressive. For those customers that did have those open types of opportunities, we've been able to transition one customer that we had 1 crew with to 100% of their work with 3 crews now just based on the Dune. We see that trend continuing. But look, like we've hit those early adopters. I think the early majority, we're hitting in stride, and that late majority from that adoption curve will fall in here soon. The RFP season coming up is really the perfect timing. Some of the first openings that some of our customer base has; look, these are guys that we've never sold a ton to. Now we're in direct conversations with those guys from the strategic differentiator that is the Dune.

Operator, Operator

Operator Instructions. Our next question comes from the line of Don Crist with Johnson Rice.

Donald Peter Crist, Analyst

I wanted to start with the costs to produce at your mines. Was there something in the quarter that helped you along with that? Was it a new cutter head or anything like that? Because normally, when we see volumes come in a little bit, we see the cost actually per ton go up a little bit. Was there anything in the background there that we could point to?

Chris Scholla, EVP and President of Sand and Logistics

No. I think operationally, we've talked a while here in terms of that operational excellence trend and really continuing to operate lean and mean throughout. I think as we continue, when operators sit on us for pricing, we're doing the same through our value chain. We're going out from a procurement perspective, looking at uncovering every rock, trying to get as lean and as mean as we possibly can. But from an operational basis, I think one of the things you'll see and you see these operational records being hit by facilities; we do continue to put the volume through those lowest cost facilities out there. Kermit overperforming expectations has really allowed us to continue to move down that cost curve. That's a continuation of what we said in place as an operational strategy a year ago. You'll continue to see that through 2026.

John G. Turner, President and CEO

I think Chris has done an excellent job when it comes to where we came from and where we are today and where we're going on this. That's something I've noticed; it's like volumes go down, so does our OpEx per ton. That's not something that you would notice, but I think our operations team has really stepped up and really done a great job understanding what the mission is and the goal is here at Atlas and for Atlas to be profitable and generating cash flow for its investors.

Donald Peter Crist, Analyst

I appreciate that color. And just one on the power side for me. The conversations that you're having with operators out there, I'm guessing they're for larger kind of microgrids, maybe in the 10, 20, 30-megawatt range. Can you elaborate on those conversations? But number two, will any of those contracts that you could potentially sign over the next couple of quarters come with any increased CapEx in the motor side? Or do you have that covered already?

Tim Ondrak, Head of Power Business

Yes. This is Tim, again. So those are definitely projects we're looking at. Our CapEx budget is pretty well set for this year. I think when we look at those opportunities, we think we're in a position to deploy somewhere between 40 and 50 megawatts between now and the end of the year. That's already built into CapEx, and that allows us to be selective on the projects that make the most sense for us. As John alluded to in his comments, we're evaluating over 200 megawatts of opportunities, and those are expected to come to fruition in the next 12 months for the majority of them. As we look at those projects, we're in a good position to take advantage of them. Some of those, we can use next year's CapEx to take advantage of them. The operators that are looking at those microgrids, a lot of times, have a solution in place, and the microgrid is the next evolution of their power strategy versus just placing generators on one pad and empowering a set of wells on that pad.

John G. Turner, President and CEO

I'd say some of that is not just that 200 megawatts; I mean, that's what we're looking at now. 60% of that is actually on the commercial and industrial side too. I don't think it's too much of a stretch for us to supply that—to play in that market either. It's just an extension of what we're currently doing.

Operator, Operator

Our next question comes from the line of Josh Jayne with Daniel Energy Partners.

Joshua W. Jayne, Analyst

First one, could you just expand a bit more on the strategic rationale behind the PropFlow acquisition? And then maybe in the response, could you also give your thoughts on the wet sand market versus dry sand market? How you think that market share for wet sand ultimately evolves over the next 12 to 24 months?

John G. Turner, President and CEO

Yes, if you look at PropFlow, they have innovative technologies that significantly enhance our customer value proposition. It was the one aspect of the wet sand value chain that we were missing, and it really completes our offering. From a customer standpoint, it removes equipment operating in the red zone, allowing for continuous pumping, which helps our customers become more efficient. After meeting the management team, we felt a strong cultural fit, and it strategically aligned with our goals as our wet mines continue to see high demand. In terms of wet and dry, as mentioned earlier, it's all about total delivered cost. We have early adopters and customers who are either fully wet, fully dry, or using both types. Ultimately, it comes down to the total delivered cost and the value of efficiency and reliability we provide. Our network of mines enables us to fully support those customers. I don't see many players in the market investing in mine expansions given the current conditions, so I expect stability in the market for the foreseeable future.

Joshua W. Jayne, Analyst

Okay. And then just a general one on customer mindset. We've had a lot of changes in the macro environment over the last 90 to 100 days. Could you just talk through operator mindset and if it's changed post-Liberation Day? Are operators generally more comfortable today than they were, let's say, 90 to 100 days ago?

John G. Turner, President and CEO

From an operator's perspective, it varies by customer. Larger companies tend to maintain their momentum even during downturns, while smaller independents can shift quickly in either direction. Overall, there’s a sense that things will remain stable for a bit as customers assess their programs for the fourth quarter. Many are still determining their budgets for 2026, and we expect to gain more clarity in September and October once budget season wraps up. Overall, it seems like there’s a greater sense of stability in the market rather than a sharp decline, which we do see reflected from our customers.

Operator, Operator

Our next question comes from the line of Jeff LeBlanc with TPH.

Jeffrey Michael LeBlanc, Analyst

I was wondering about logistics. How should we consider the scale of non-Dune Express deliveries for the second half of the year and into 2026 compared to the 4 million tons in Q2?

Chris Scholla, EVP and President of Sand and Logistics

Yes, it's about 4 million. I think we're looking at pretty flattish Dune Express volumes through the back half of the year for now. With the sequential increase in the total volumes, they should be up mid-single digits. Commensurately, the non-Dune Express logistics volume should be up approximately in line with those numbers.

Jeffrey Michael LeBlanc, Analyst

Okay. And then I guess, the follow-up would be how should we be thinking about the margins on those deliveries versus the Dune Express? And additionally, for Dune Express margins, how is the progression from single to double or triple trailers going?

John G. Turner, President and CEO

The economics from the Dune Express have been there. I think that we're still in that ramping phase. So when we think about the overall logistics margin profile, we have that approximately flat moving forward just because the Dune Express volumes are expected to be flat. Multi-trailer margins are significantly higher than single trailer Dune Express margins, which are, in turn, significantly higher than the traditional logistics margins. I think that it's a period of maturation for the overall logistics business as we're pushing people more towards the multi-trailer operations because it's more efficient for them. It's more efficient for us. It's a win-win for all parties. But that takes a bit of time. It involves some changes in how people construct their pads and the mindset around the allocation of equipment around the well site. So we're holding people's hands through that. I think once the people that have gotten going on that, they're like, wow, this really works. It is exciting and it's really sticky. That's part of just an education phase that we're working through with our customers.

Chris Scholla, EVP and President of Sand and Logistics

Yes. We run that analysis as well in terms of the Dune. Now that we have stable periods of numbers behind us with the Dune, if you look at the cost of the Dune and quite honestly, once we get it sold out, it's right in line with our expectations, if not just slightly below that. That moves us from spreadsheet theory and math to real-world transition in the margins.

Operator, Operator

Our next question comes from the line of Eddie Kim with Barclays.

Sungeeun Kim, Analyst

Just want to circle back on your guidance for 3Q volumes up mid-single digits sequentially. I know you mentioned some share gains and deliveries pushed out from 2Q to 3Q, but that still seems surprisingly good given the sequential declines that some of the pressure pumpers have been guiding to. Just curious on your confidence level there. Is most of that sort of in hand at this point? Or is there some downside risk if Permian fleet count declines more than your current expectations?

John G. Turner, President and CEO

There is always some downside, but there is also potential for upside. We are managing volumes with significant caution. As I mentioned, Atlas is executing effectively right now. Although the market is challenging and we have between 70 and 80 completion crews active in West Texas, we have successfully maintained that crew count. This reflects the strong efforts of our operations team. Currently, we anticipate a sequential volume growth of about 4% to 5% based on our internal projections.

Sungeeun Kim, Analyst

Got it. And definitely, the market share gains have been pretty impressive. My follow-up is just on early expectations on the trajectory of 4Q. I mean, looking back the past two years, your 4Q has declined in the low double digits sequentially from both a revenue and volumes perspective. Any reason this year might look different? Or should we expect a similar sort of historical seasonality? Any thoughts there would be great.

John G. Turner, President and CEO

Yes. We see the same seasonality. I think that's pretty pervasive across the entire service industry. I think it's a little early this year. With this type of market, I wouldn't be surprised that people do take extended breaks during the holiday season, and it's Texas too. They might take some long hunting trips as well. That being said, we do have a number of opportunities. As Chris mentioned, we're having discussions with some new customers around 2026, and there's potential trial opportunities and stuff like that. It's a little early to see how Q4 shapes up. But I wouldn't be surprised if you saw just overall industry volumes down quarter-over-quarter.

Kyle D. Turlington, Vice President, Investor Relations

Operator, we likely have time for one more question as we approach the hour.

Operator, Operator

It appears there are no further questions queued up. Therefore, it looks like we have reached the end of the question-and-answer session. I'd like to turn the floor back to CEO, John Turner, for closing remarks.

John G. Turner, President and CEO

All right. Thank you. I'd like to thank our team for all their hard work and our investors for their continued support. While market conditions are not ideal, we're confident in our strategy and excited about the opportunities ahead as we drive growth in the coming quarters. We look forward to reporting our third quarter numbers. Thanks, guys.

Operator, Operator

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