Earnings Call Transcript - AESI Q4 2025

Operator, Operator

Greetings, and welcome to Atlas Energy Solutions, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, VP, Investor Relations. Thank you. You may begin.

Kyle Turlington, VP, Investor Relations

Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the Fourth Quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Tim Ondrak, President of Power; and Bud Brigham, Executive Chairman. John, Blake, and Bud will be sharing their comments on the company's operational and financial performance for the fourth quarter of 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 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 will file with the SEC on February 24, 2026, our 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 Turner, President and CEO

Thank you, Kyle. For the fourth quarter, Atlas generated $36.7 million of adjusted EBITDA on $249 million of revenue, representing a 15% adjusted EBITDA margin. For the full year 2025, we delivered $221.7 million of adjusted EBITDA on $1.1 billion of revenue, achieving a 20% adjusted EBITDA margin. Our Q4 results exceeded our initial expectations. Volumes came in at 5.3 million tons, flat sequentially with the third quarter. The typical end of year seasonality was notably muted as customers took minimal downtime around the holidays. This was particularly encouraging following the steep decline in West Texas completion activity we experienced over the summer. It now appears that most operators have adjusted their activity levels to align with the $50 to $60 WTI strip and are comfortable maintaining operations at these levels. The quarter also marked the highest utilization we've seen to date on the Dune Express as Delaware Basin customers increasingly recognize the efficiency and reliability benefits this system brings to their logistics supply chains. We view this as a strong indicator of the system's performance heading into 2026. In November, we announced the order of 240 megawatts of power generation equipment, accelerating our strategic evolution into a leading provider of behind-the-meter long-term power solutions across a broad range of domestic industries. We see the evolving power market over the next decade as a truly generational opportunity, and we're moving aggressively to capitalize on it. After years of relatively flat U.S. electricity consumption, the grid is now confronting surging demand, which hit record levels in 2025 and is projected to grow by as much as 25% by 2030, driven by the explosive expansion of data centers and the resurgence in domestic manufacturing. Utilities are struggling to keep pace amid infrastructure constraints and reliability challenges where rising residential electricity prices, up 7.4% in 2025 alone, are creating political and economic pressure for more affordable, dependable alternatives. This dynamic is pushing developers to secure dedicated behind-the-meter power assets to derisk their projects and meet timelines. For many of these companies, grid constraints represent a new and urgent challenge, compressing decision-making windows dramatically. Since the summer of 2024, Atlas has been positioning itself as the go-to solution in this space. The Moser acquisition completed this time last year provided a cash flow platform and critical engineering expertise that complements our strength in large-scale project execution. Over the past nine months, we've been actively transitioning the business from a traditional short-term generator rental model to a power-as-a-service approach, selling electrons under longer-term arrangements. This shift has involved upgrading communication systems, refining our sales process, and focusing our commercial efforts towards customers seeking dense long-term deployments. We're encouraged by the progress. We reached a tipping point in this transformation. Earlier this year, we successfully deployed our first microgrid with a Permian E&P customer, which has since been upsized. In the first quarter of 2026 alone, we anticipate deploying at least 30 megawatts under long-term microgrid multi-basin contracts with E&P and midstream customers. Based on our current pipeline, we are targeting more than 50% of our existing fleet under long-term contracts by year-end. January also marked the initial deployment of our patented hybrid battery solution, which integrates with generators as a grid-forming system, delivering meaningful improvements in cost and maintenance efficiency. The commercial potential for this technology extends far beyond the oilfield. While these advancements in our existing power business are promising, the larger behind-the-meter projects represent a true step-change opportunity for Atlas. We have active commercial negotiations underway and expect to provide greater visibility on equipment placement and the resulting economic impact to Atlas in the near term. Our pipeline features a broad range of behind-the-meter power projects across multiple industries, including energy, data centers, manufacturing, and others, with contract terms typically spanning 5 to 15 years, creating durable long-term cash flows. We have particular strength and see especially compelling risk-adjusted returns in projects in the 50 to 500-megawatt range where our modular platform enables efficient execution and high-density deployments. At the same time, our differentiated track record with large CapEx infrastructure projects, such as our high-capacity plants and the Dune Express conveyor system, combined with our scalable design and growing expertise, advantage us for the execution of even larger-scale opportunities as customer demand intensifies. The opportunity set continues to expand rapidly with several prospects advancing from initial discussions to formal proposals and active negotiations. We are targeting more than 500 megawatts deployed across our fleet in 2027 with the potential for substantial additional growth beyond that as we secure larger scale projects and build on our initial orders. The ordered equipment is slated for delivery starting in the second half of 2026, with energization targeted to begin in Q1 2027. Each of these projects has the potential to meaningfully enhance Atlas' cash flow profile, and I am very excited to share more details with you as we close transactions. So stay tuned for the updates. I will now turn the call over to our CFO, Blake McCarthy, to go through our financials in more detail.

Blake McCarthy, CFO

Thanks, John. The underlying performance in our sand and logistics business improved in the fourth quarter despite a continued challenging pricing environment. Plant operating expenses per ton declined sequentially to $12.28 despite elevated costs in October related to operational challenges in Q3 and higher maintenance spending during December. Our cost of production, although improved, remains elevated at our flagship Kermit complex due to current limitations on our dredge feed. This is expected to be alleviated with the deployment of our two new Twinkle dredges, which are scheduled for commissioning in the second quarter. The market backdrop for West Texas sand and logistics remains challenging with current pricing at the industry's marginal cost of production. Permian completion activity is expected to be down year-over-year, although it appears to have stabilized at Q4 levels for now. Despite the challenging market environment, Atlas' commercial team has positioned us well to grow volumes in 2026. Leaning on our cost-advantaged mines and logistics network, we were able to increase our share of current customer sand procurement spend while also adding some key new customer relationships, which we expect to grow and scale over the course of 2026 and beyond. The current oil macro environment remains quite opaque. So we don't have significant visibility into all of our customers' full year plans, but our Q1 schedule is very busy with sales volume expected to be up approximately 10% sequentially and further growth expected in the second quarter. The winter storm at the end of January impacted everyone's operations in the Permian, and we lost approximately four days of production and deliveries. This temporary shutdown is expected to negatively impact Q1 EBITDA by approximately $6 million. However, I'm proud to say Atlas was the last sand provider delivering in the Delaware before we had to shut down due to ice. The fact that was made possible by the Dune Express, removing so much road mileage and the related risks. Speaking of the Dune Express, it continues to run extremely well. January 12 marked the one-year anniversary of its first commercial delivery. And thanks to our partners, I'm proud to announce that we have eliminated more than 21 million miles of truck traffic in the Delaware Basin. We are very proud of the fact that the Dune Express is materially improving quality of life and safety for families and the broader community in the region. The Dune Express achieved record shipments in the fourth quarter of approximately 2.1 million tons, including a monthly shipment record in November of 760,000 tons. For the first quarter, we expect new customer wins and continued spot volumes to drive improvements in Dune Express volumes and believe we are positioned to deliver north of 10 million tons via the Dune Express this year. We are grateful to our customers for partnering with us to make the Permian Basin a safer place to live and work. All that said, the obvious question is, if the Dune Express is working so well, why were Q4 service margins so weak? While Q4 numbers were burdened by large load bonuses to ensure driver availability through the holidays, the real answer to that question is simply pricing. Logistics pricing in the Permian has fallen to completely unsustainable levels, well below those seen during COVID. To compete with the Dune Express, we have seen increasingly irrational behavior from some of our logistics competitors, which we believe sets both them and their customers up for eventual problems and disruptions. We believe several companies are currently delivering standard prices where they're effectively subsidizing their customers. Thus, the margin differential provided by the Dune Express is there. It's just partially insulating us from historically bad pricing. Encouragingly, we are seeing signs of this market beginning to break the other way. Third-party trucking rates are beginning to see upward momentum, echoing what we're seeing in the broader over-the-road market. That is typically the first sign that trucking companies are tired of subsidizing their customers, and as a result, margins have to come up. In November, Atlas introduced our first last-mile storage pile system to the market. While other pile systems in the market essentially use mining equipment that has been reapplied for the oilfield, our system is built for purpose. Today, we have six systems in place to support our wet sand operations with testing underway for deploying the system in dry sand operations. These systems are key to continuing our further enabling of our customers' continuous pumping initiatives, which are driving record sand consumption per completion crew. While the market for sand and logistics in 2026 looks like it will remain challenging, we are looking to take advantage of the weaker market conditions to cement Atlas's position as the provider of choice. The pricing pendulum in our industry has swung too far for too long, and the pricing advantage is certainly tight. We're hearing more anecdotes of competitors struggling to fill customer obligations. And I'll echo the comments from the large-cap oilfield services calls when I say that it's only going to take a very small increase in completions activity for pricing to move. This RFP season, we saw market share shift to the higher-quality suppliers with fewer volumes being spread among lower-quality mines. The supply and demand for sand in the Permian is much tighter than the market realizes, especially for dry sand. On our last conference call, we set a cost savings target of $20 million in annualized savings. As it stands today, we have executed upon that target through a combination of the elimination of third-party last mile equipment, reductions in rental equipment, headcount optimization, and procurement savings. Despite the early success of these efforts, we will continue to push for further cost optimization as we look to lower the fixed cost structure of our business across the organization. Moving to our financials. As John touched on earlier, Atlas recorded full year 2025 revenue of $1.1 billion. Total company adjusted EBITDA was $221.7 million or 20% of revenue. Deconstructing full year revenues, proppant sales totaled $478 million on volumes of 21.6 million tons, while logistics and power contributed $558.8 million and $58.5 million, respectively. Fourth quarter 2025 revenue of $249.4 million broke down to the following: Proppant sales totaled $105.2 million, Logistics contributed $126.1 million and power rentals added $18.1 million. Total proppant sales volume was slightly up sequentially to 5.3 million tons, while the logistics business delivered approximately 4.9 million tons. Our average sales price for the fourth quarter was approximately $19.85 per ton. For the first quarter, we expect volumes to be up approximately 10% sequentially with the average sales price of sand to be approximately $18 per ton. Q4 cost of sales, excluding DD&A, were $187.3 million, consisting of $60.6 million in plant operating costs, $115.2 million of service costs, $7 million in rental costs, and $4.5 million in royalties. For the fourth quarter, our per ton plant operating costs were approximately $12.28, including royalties, down sequentially from the third quarter, but still elevated versus our normalized levels. Higher volumes and a reduction in extraneous costs at the plants for Q3 levels drove the lower plant operating costs. For the first quarter, we expect our OpEx per ton to be approximately in line with the levels in the fourth quarter, reflecting the impact of the severe weather in January. Over the course of 2026, we expect to see improvements in our realized variable costs as the new dredges are commissioned at our Kermit facility. Cash SG&A for the quarter was $22.6 million. SG&A, excluding litigation expenses, is expected to decline in the first quarter due to our previously announced cost-cutting initiatives. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $22.9 million or 9% of revenue. Growth CapEx equated to $5.1 million, the majority of which was tied to our Power segment and maintenance CapEx during the quarter was $14.4 million. The elevated maintenance CapEx spend was primarily tied to preparations related to the dredging and wet plant operations at Kermit ahead of the Twinkle dredge deliveries. We expect cash capital spending in 2026 to be approximately $55 million, down significantly year-over-year and heavily weighted to the first half. Maintenance CapEx of approximately $45 million is planned with approximately $10 million dedicated to growth, evenly split between sand and logistics and power. Additionally, we expect to make progress payments on the 240 megawatts of power assets we have on order as they begin to be delivered over the course of the second half of the year. These payments will be financed from our recently announced lease facility with Eldridge and are expected to total approximately $190 million over the course of the second half of the year. Net interest expense is expected to be approximately $16.5 million per quarter in the first and second quarters, rising to approximately $20.5 million in the third quarter and $22 million in the fourth quarter. As John also touched on in his remarks, our plants have begun the year quite busy with WTI prices hovering around $60; oil prices will dictate if we continue to keep this pace up. We have a clear line of sight on strong volumes for the first half of this year, but many of our customers are taking a wait-and-see approach with respect to their second half completion schedules. Our recent market share gains are a testament to Atlas' efforts to position ourselves as the reliable partner of choice to the best operators in the Permian Basin. For the first quarter, while volumes are expected to be up sequentially, the expected decline in sales price per ton, combined with the lost days of revenue due to the winter storm, will be a headwind to margins. Additionally, our logistics business was burdened by load bonuses to ensure driver availability around the turn of the calendar, which will mute logistics margins improvement until later in the quarter. However, we are seeing a return to a more normal cost structure as the quarter progresses, which combined with a growing delivery schedule, will yield an improved margin structure through the quarter. Additionally, the power business is expected to generate a greater contribution sequentially. Thus, we expect EBITDA to be approximately flat with Q4 levels, with the company exiting the quarter at a higher run rate in March versus January. I will now hand the call over to our Executive Chairman, Bud Brigham, for some closing remarks before we turn the call over for some Q&A.

Bud Brigham, Executive Chairman

Thanks, Blake. While we're navigating another cyclical trough in oil prices, the future for Atlas has never been brighter. Just as we were ideally positioned for the post-COVID Permian recovery, which substantially expanded our cash flows, we're primed for the inevitable rebound in oil and gas activity today. But in addition, as I stated on our last call, we're going hybrid. Today, Atlas is laying the groundwork for transformative long-term growth through behind-the-meter power contracts. These 5- to 15-year agreements are expected to deliver robust revenue visibility paired with predictable costs, including fixed and stable expenses for SG&A, maintenance, and interest, complementing our powerful but more volatile oil and gas revenue streams. Our proven expertise in large-scale infrastructure, amplified by the Moser acquisition, uniquely equips us to power the surge in AI, robotics, and manufacturing. We see these initial permanent power projects as a strategic springboard, drawing in more customers and building a portfolio of assets that generate steady recurring cash flows. As discussed by John, demand for behind-the-meter power is accelerating rapidly, fueled by rising costs and potential grid shortfalls that are pushing commercial, industrial, and data center users towards swift commitments for bridge and permanent solutions. We're witnessing a seismic shift in power sourcing. To borrow from our partners at Bloom Energy, on-site power has evolved from a last resort to a business necessity. U.S. power demand is growing at its fastest rate in decades. Let me emphasize, the Atlas investment story is more exciting than ever. Chronic underinvestment in exploration spending, coupled with shale's maturation and steep decline rates, sets the stage for what I believe will be a prolonged upcycle. While most U.S. shale basins struggle with inventory depletion, the Permian, where Atlas leads in proppant production and logistics, will be key to meeting rising oil demand. Even at today's cyclical lows in sand and logistics pricing, our low-cost model shines through, thanks to the Dune Express and efficient mining operations. When activity rebounds, and it's a question of when, not if, we anticipate stronger utilization, pricing, and margins, sparking a sharp profitability upturn. By investing ahead of this oil upcycle, while we are also launching our high-potential power business, Atlas offers investors dual catalysts for substantial growth. I'm deeply grateful to our exceptional team, the true innovators fueling our advancements. Their dedication has me more optimistic than ever about Atlas' future. Thank you for joining our fourth quarter and year-end conference call. I'll now hand it over to the operator for Q&A.

Operator, Operator

Our first question is coming from Jim Rollyson of Raymond James.

James Rollyson, Analyst

John, you talked a bit about the power side. Obviously, a quarter ago, you ordered the 240 megawatts. I'm pretty sure you mentioned then you had line of sight on customer opportunities there. You've since secured financing, which I presume doesn't happen without similar line of sight. So maybe just an update on kind of what's taken a little while on getting that contracted? And do you have good line of sight on where that equipment is actually going at this point since we're less than a year out from its deployment?

John Turner, President and CEO

Yes, it's a great question, Jim. Thank you for asking. We have strong visibility into the customers expected to take a significant majority of this equipment package, which is on schedule for delivery. Deliveries are set to begin at the end of 2026. These customers are creditworthy, diversified across various markets, and have expressed substantial follow-on requirements beyond their initial commitments, which creates clear opportunities for additional equipment orders and sustained future growth. Our strategy remains solely focused on behind-the-meter power solutions, and we are not pursuing grid-interconnected or utility-scale opportunities. Instead, we aim to deliver reliable on-site power directly to customers facing grid constraints. Often, these projects start with bridge power to meet immediate needs, generating significant near-term cash flow and accelerating our path to full development. These bridge arrangements swiftly evolve into long-term behind-the-meter agreements, as customers recognize the lengthy grid timelines and the value of our integrated approach. So yes, we definitely have a clear understanding of who those customers are and expect to be reporting on that soon.

James Rollyson, Analyst

Appreciate that. And maybe as a follow-up, just kind of related here is I've watched this market evolve and different players kind of approach this in different ways, it seems like there's two strategies I've seen, one being guys that are just providing power equipment basically on a rental basis and then the second being guys that are providing the entire solution, all the balance of plant, et cetera. I'm kind of curious if you could elaborate on kind of which strategy fits yours and how you see the return opportunity there.

Blake McCarthy, CFO

Yes, please go ahead. I’ll have Blake respond to that, and then Tim Ondrak, our head of the Power business, can provide further insights. That’s a great question, Jim. The equipment aspect is clear for most in the market; it’s about costs and returns. However, with behind-the-meter solutions, requirements can vary significantly depending on the facility’s function, thus affecting the necessary balance of plant and equipment. This variability impacts the cost per megawatt and subsequently the pricing. Our approach has been to engage early with customers making significant facility investments, understanding their goals, and conducting thorough front-end engineering to meet their specific needs. This can result in a wide range of costs for our facilities and pricing, as we always aim for a strong unlevered return on invested capital. Furthermore, the return on equity can be quite attractive when leverage is considered. As we move forward with these initial projects, we anticipate a broad range of outcomes and look forward to sharing the economic details transparently as we finalize deals.

John Turner, President and CEO

I also believe this is why it has taken longer to finalize the agreements. One reason for the delay in signing these agreements is that they are not simply generator rental arrangements. These involve planning, engineering, and coordination of all the equipment, along with many other necessary steps. That is why the process is taking longer than we initially expected.

Blake McCarthy, CFO

It also makes those facilities much stickier because it's fit for purpose.

Tim Ondrak, President of Power

Yes. And I think just to kind of close out, I think our strategy is bridge to permanent. And when we look at the thesis that really drives that, we view power as a structural need. And so depending on the utility region and where folks are building out their facilities, those delays can be from 2028 all the way up to, I think we've heard 2034 from some people. And so when a customer looks at what their power need is, as they start their facilities, it can be substantially less than their growth intentions. And so the model that we have to execute on that is to provide mobile power generation into a permanent facility that meets that long-term need and gets the customer to a place where they don't need to worry about a utility timeline and they can focus on operating their business.

Operator, Operator

The next question is coming from Derek Podhaizer of Piper Sandler.

Derek Podhaizer, Analyst

I want to keep going on the economics question. So obviously, there are some numbers out there. We talk about plus or minus $300,000 per megawatt per year of EBITDA, kind of compare that to your current financing costs. Maybe just help us understand when you talk about the recips building the facility, the balance of plant included in there, how should we think about the economics and the earnings of these potential projects that you're working on? Just maybe a little bit of help around that as far as some of the numbers that we're hearing out in the market.

John Turner, President and CEO

Yes, I'll begin and Blake can add to that. The economics, as we mentioned earlier, depend on several factors. When it comes to the development of balance of plant facilities, those are standard and our comprehensive behind-the-meter solutions. We also need to consider the initial contract term and aim for longer-term contract structures for stability. Our objective is to achieve attractive internal rates of return that significantly exceed our cost of capital on the initial term, with potential for upside from extensions and expansions. Would you like to add anything?

Blake McCarthy, CFO

Yes, Derek, I'm really glad you asked this question. It's a great inquiry since I know people are looking for a way to incorporate some metrics into their estimates. John's mention of IRR is probably the best way to approach this. For these projects, we are aiming for an unlevered IRR in the high teens, which we find quite appealing given the contracted nature of these cash flows. When you add leverage to those cash flows, the equity returns become very attractive. From a long-term perspective, the figure of around $300 per megawatt is a reasonable proxy for just the equipment, but it's a bit oversimplified when it comes to the customized power facilities we are developing. Therefore, using that IRR, along with the magnitude of our facilities, which we have disclosed, is a good method to estimate cash flows from these projects. You should be able to use that alongside the equipment costs to get a decent estimate of the cash flows we anticipate from these projects.

Derek Podhaizer, Analyst

Got it. Okay. Great. That's super helpful. And then just my follow-up as far as a question around lead times for your additional equipment. You talked about going 400 to 500 megawatts of deployed capacity. Is this going to be a continuation of the 240 megawatts, those larger 4-megawatt recips that you recently ordered? And if so, how should we think about when you'd be able to get those deliveries and the lead times around that? And then really beyond the potential 500 megawatts, maybe line of sight on the future orders beyond the 500.

John Turner, President and CEO

Thank you, Derek. I'll address that question, and Tim can add his insights as well. Our relationships with key OEMs and our strong track record in executing large-scale infrastructure projects remain significant advantages. These factors enabled us to secure the 240 megawatts of 4-megawatt reciprocating units set to be delivered in late 2026. They also allow us to maintain visibility on additional equipment for high-quality opportunities within a pipeline exceeding two gigawatts. These relationships, built on trust, scale, and early positioning, have provided us with access to redirected capacity from delayed projects in the industry. Currently, lead times for additional 4-megawatt reciprocating units are extending into late 2027, reflecting the high demand for behind-the-meter generation equipment industry-wide. Our recent $375 million lease facility offers flexible, non-dilutive support tailored to our needs, enabling milestone payments during the packaging conversion into term finance upon delivery. This funding has been crucial for our initial 240-megawatt commitment and sets us up well for short-term deployments as we aim for 500 megawatts by 2027, most of which will be secured under long-term contracts. Looking ahead to beyond 2027, especially as we target bigger, denser behind-the-meter opportunities across various markets, we expect to need additional financing for further equipment orders. We are currently evaluating options that align with our disciplined capital approach while leveraging our proven track record and strong cash flow generation from bridging to permanent financing. Regarding additional equipment packages, we currently have the 4-megawatt reciprocating units, but there may be other opportunities, and I’ll let Tim elaborate on that.

Tim Ondrak, President of Power

Yes. So Derek, I think there's equipment available. I think if you look at global capacity, a lot of it has been backlogged. I think there's been a lot of announcements publicly to kind of back into what may be left. So we really see two pools of equipment that come available. The first pool is where you have to be in the market, you have to be talking to people and orders cancel or portions of orders cancel or get delayed. And so there's equipment that comes to market. And I think there's a second where OEMs are doing the same thing that we're doing where they're outbuilding relationships with the groups that are putting these in place. And I think as John alluded to, we're in a strong position to take advantage of those relationships. You look at the folks that are on this team and the relationships that they bring and then you look at the reputation of Atlas in being able to manage and develop these substantial projects. And I think that gives confidence to OEMs that when they place assets with Atlas, it's going to be a good long-term relationship, and it's going to give all of us a good name. So I think that's what we're leaning into, and we've got line of sight into the equipment that we would use to take us to that 500 megawatts.

Operator, Operator

Our next question is coming from Stephen Gengaro of Stifel.

Stephen Gengaro, Analyst

I guess staying on the power theme. One of the things we've sort of learned over the last couple of years was there's a skill set required to sort of deploy these assets at the site and operate them effectively and efficiently. Can you talk about sort of your internal expertise to execute these behind-the-meter projects?

Blake McCarthy, CFO

I'll start by discussing our extensive experience in building complex facilities. We constructed the Kermit and Monahans facilities from scratch in West Texas, turning bare land into sophisticated sand manufacturing sites. Additionally, we had the innovative idea to create a 42-mile conveyor belt in the desert, which many initially doubted, but it is now operational. When we engage in initial conversations, people recognize our capability to manage large infrastructure projects from the ground up. Our in-house electrical expertise, enhanced by the Moser acquisition, further strengthens our position. Since that acquisition, we have actively recruited top talent to bolster our team. Together, these elements create a powerful combination. We're also reaching out to a different set of customers beyond the familiar 25 E&Ps, requiring us to educate them about who we are. As they learn about our accomplishments, they become more comfortable. When we introduce our electrical experts, their knowledge impresses potential clients, leading to faster progress in commercial discussions. Now, I'll pass it over to Tim for more specific details.

Tim Ondrak, President of Power

Yes. So I think Blake touched on a couple of things there. I think, first and foremost, when we acquired Moser, we got a team with a 50-year operating history. And so that was a great place to start from, from a talent perspective. We added to that team with some outside talent that have helped us substantially in the C&I and the larger megawatt deployments. And then from a long-term perspective, we've built an operating team with 20-plus years of experience in operating large engine systems. And so we really think combining all of those things, we're able to deliver the same level of execution that we've delivered in the sand and logistics space and brought that over to the power space.

Stephen Gengaro, Analyst

Okay. No, that's helpful. That's good color. The other question I had is, and you mentioned, I think, in response to a prior question, the sort of the delays in grid interconnection. And you also, I think, made a comment about you sort of think about this as a bridge to permanent power. But it feels to us like that bridge to permanent power is pretty long. And I was just curious what you're hearing on the utility interconnection side and kind of the queues for larger loads to be delivered and how that kind of impacts your planning and thought process.

Tim Ondrak, President of Power

Yes, that's a significant question. The utility network in the United States is very complicated, with rules that can change unexpectedly. When we discuss projects with different clients, each has a unique story but shares a common theme: utilities are struggling to meet demands. Thus, they need what they refer to as a bridge solution. Understanding the challenges utilities face, along with their project delays in various districts, reveals how this impacts the entire industry. Many utilities are projecting interconnection timelines ranging from 2028 to 2034 across the country, although some areas might experience longer or shorter wait times. In discussing these issues, it's clear we are addressing infrastructure. We have over 200 megawatts of bridge equipment from our acquisition of Moser, but our main focus is that this is a long-term infrastructure play. While there are some drawbacks to the bridge system, such as fuel efficiency and footprint, these can be mitigated by deploying a long-term system designed for regular operation. We often reference contracts of 5 to 15 years, but ultimately, these facilities need to serve for 30 years or more. We believe that the structural changes in this market will favor those who invest in their own systems now, and that the broader electrical grid will benefit from the influx of private capital investing in infrastructure throughout the United States.

Blake McCarthy, CFO

Yes, Stephen, it's a very dynamic space. It seems like every morning, there are multiple headlines related to getting longer and pushing timelines. We all believe that utilities will face increasing pressure to manage these interconnections, especially as affordability becomes a more significant topic in politics. It likely makes more sense for the private sector to address this issue rather than relying on public utilities to handle it.

John Turner, President and CEO

Yes. Even if they can obtain power from the grid, they cannot rely entirely on it. As Tim mentioned, our discussions involve not just end users but also the providers. Feedback from the providers suggests that while we may supply some of the power, we cannot fulfill all of their needs. They have also been informed that to receive additional power from us, they must demonstrate the ability to generate a certain portion of their own power. There is clearly a lot happening and changing in this area, but that's the current situation.

Tim Ondrak, President of Power

Yes. And I think the one last point I'll make on that is we're out and we're talking to people every day and they're looking at big projects. And the two things that are most consistent are: one, the utility has moved the goal line on when they're actually going to show up; and two, that they're not going to meet the full request for power.

Operator, Operator

The next question is coming from Doug Becker of Capital One.

Doug Becker, Analyst

I think the questions are really appropriately focused on power up to this point, but I did want to touch base on the sand and logistics business. First half volumes look very good. I appreciate the lack of visibility around the second half of the year, but any type of range you could provide for production growth for the full year to kind of give us some goalposts to think about?

Blake McCarthy, CFO

Yes, that's a great question. I apologize for the lack of clarity, but our outlook is somewhat uncertain at the moment, which I know our customers also recognize. If we look back three months, many forecasts suggested oil prices would be around $45 to $50 at this time, yet we're currently at $66 WTI. While this price includes a significant geopolitical risk premium, we all acknowledge that geopolitical risks are ongoing. Our commercial team has performed excellently in securing volumes, setting us up for a solid first half. However, many of our customers have indicated they have their plans for the first six months but would like some flexibility for the second half. A lot of that will depend on the commodities market. Currently, we anticipate an increase in our overall volumes year-over-year, which creates a broad range for second half volumes due to the expected strong performance in the first half. Nonetheless, we are facing a challenging pricing environment, which presents a headwind. Therefore, we are concentrating on aspects we can control, such as reducing the variable cost of our production at the plants. We're looking forward to the dredge commissionings scheduled for later this quarter and into Q2, which should lead to significant improvements at our Kermit facility. Our goal in the sand and logistics sector is to establish ourselves as the premier sand logistics provider in the Permian, ensuring that when the market cycle changes, we're the reliable supplier that customers prefer for sand delivery to their well sites, allowing them to focus on their operations without concern.

Doug Becker, Analyst

That's fair. On the logistics side, highlighted the trucking challenges, but pointed out some upward momentum in trucking rates. Just any color on the margin outlook in logistics for this year after a pretty slow start on the margin front with the Dune Express.

Blake McCarthy, CFO

Yes, that's a good question, and I wanted to provide some clarity since it's a common inquiry. We are in a position to improve from a low starting point as we ended 2025 and began 2026. During late Q4 and early Q1, our logistics business faced significant load bonuses offered to third-party carriers to ensure we had enough drivers to meet customer demand during the holiday season, especially when the weather was quite harsh in January. Moreover, as we noted earlier, our sales team excelled during the contracting season, successfully securing attractive opportunities in a challenging market. This includes a substantial amount of work that will boost Dune Express volumes, which is key to increasing our margin differential in a tough pricing landscape. From a numerical perspective, Doug, I anticipate that logistics margins in Q1 will likely be similar to Q4, with December last year and January this year being low points. Currently, projections for Q2 suggest a notable improvement, reaching the double digits, though perhaps not quite into the mid-teens, representing a significant improvement compared to the rest of the market.

Operator, Operator

The next question is coming from John Daniel of Daniel Energy Partners.

John Daniel, Analyst

First question is, can you speak to the actual number or the volume of power increase coming from the E&P operators for microgrids? And then have you tried or will you try to tie sand volumes to contracts for that power?

Tim Ondrak, President of Power

The increase in microgrid volume from E&P seems to vary by basin. In two of our three most active basins, about half of the new requests for well site generators involve some form of microgrid system, which typically connects the production from two to four pads. We anticipate that as the year continues, we will allocate more units to these systems. Regarding the connection of sand volumes to power, we agree that it's a good concept. We aim to be a comprehensive solutions provider for our customers. Currently, many of the teams involved, such as completion and production teams, operate separately within organizations. However, from a sales perspective, we are continually striving to improve our offerings for our customers. Therefore, I wouldn't dismiss that possibility.

Operator, Operator

Our next question is coming from Eddie Kim of Barclays.

Edward Kim, Analyst

I wanted to revisit the topic of volumes. You mentioned that you are in discussions about adding new customers this year and that you are increasing your share of spending with existing customers, which seems to be going well. Just to clarify, are these successes fully incorporated into your first quarter volumes guidance, or do you expect those volumes to begin contributing later in the year?

John Turner, President and CEO

I would say those wins are not necessarily reflective of our first quarter volumes. I mean first quarter volume is going to be depressed some because of the weather. But I would expect to see some of those impacts kicking in as we move. You're going to see some of it in the first quarter and then it's going to kick in second and third.

Blake McCarthy, CFO

Yes, there is always an increase in customer activity. January typically begins slowly, with a steady increase throughout the quarter. The winter storm in January affected operations for about four and a half days, which is not fully captured in those volumes. Our expectation is that Q2 volumes will be higher than Q1.

Edward Kim, Analyst

Got it. And then just sticking on that theme, I mean, you mentioned strong volumes in the first half, but customers taking sort of a wait-and-see approach in the second half. I guess just based on your conversations, it seems like E&Ps might not really be buying this $65 WTI oil price right now. And are they, do you think, still operating as if we're in kind of the mid-50s environment? And I'm just curious what oil price do you think we'd have to get down to for them to consider a volumes reduction in the second half of the year?

Blake McCarthy, CFO

Yes. I believe their budgets for this year are set around $50 to $55 oil. The current activity in West Texas reflects that price range. They have established their capital expenditure budgets and aren’t likely to change them based solely on fluctuations in commodity prices. However, if the commodity prices remain high and people become more comfortable with those levels, they likely appreciate the additional cash flows they are currently generating.

John Turner, President and CEO

The investment cycle is relatively short, allowing for longer wait times on decisions regarding shale wells. As Blake mentioned, they are currently comfortable with their position. If this continues, we may observe steady activity through the end of the year, but it ultimately relies on fluctuations in prices.

Operator, Operator

The next question is coming from Michael Scialla of Stephens.

Michael Scialla, Analyst

You mentioned the last mile storage system. I just wanted to ask about that, allows continuous pumping of wet sand. You said you're testing the dry sand solution. What needs to happen there for that to be successful? And what could the opportunity be for that system if it works?

John Turner, President and CEO

Earlier this year, we launched a system aimed at increasing the amount of sand delivered to the well site and improving the timing of that delivery to enhance efficiencies for operators to pump more sand downhole. We've made progress on the wet sand side, with all systems now deployed and many of our customers already using them and requesting more. However, we still have work to do regarding the dry sand solution. The timing for that progress is uncertain, but we are conducting tests and will provide more updates later. The results we are seeing so far are promising. Moving forward, a key trend will be continuous pumping, as many customers are requesting this because they are seeing significant results from our sand delivery solutions, including the Dune Express and our wet sand options. This is another step towards meeting our customers' needs and providing effective solutions to help them achieve their goals.

Blake McCarthy, CFO

Yes. The trend of continuous pumping is very significant in our industry. The completion crews we supply sand to for continuous pumping operations use much more sand each month compared to traditional zipper crews. However, a major constraint is the well site footprint, including boxes and silos. Utilizing a pile system allows for more sand to be stored in one location. Our system enables the use of piles efficiently and with clean sand, especially when combined with PropFlow technology. This is crucial for highly efficient continuous pumping operations and enhances the sand intensity for each completion crew. We believe that when budget planning shifts from $50 oil to a more comfortable $65 and above, we will see an increase in activity, which will quickly tighten the market.

Tim Ondrak, President of Power

Yes. So the hybrid power system is it's essentially combines battery technology that we've developed in-house on the patents on, and that was funded through a DoD grant that the legacy Moser business obtained in 2018. And what that system essentially does is hybridizes with our existing generators. And it controls the operation of those generators so that they run at peak load and the battery then distributes power into that system, shuts the generator off. And so what it does is it lowers the run time on those generators, which extends our maintenance cycles from essentially once a month service to once every 45 days as much as once every 60 days. It lowers the fuel cost for our operators, and it decreases the risk of a shutdown event on the customer's location, which those are not good for downhole pumps, which is primarily what we do in that business. And so we're pretty excited about the potential to deploy that at scale in the legacy Moser business. We think it's differentiated. We've proven it on multiple well sites, but I think when you apply that to the broader industry outside of oil and gas, it's got uses really across every industry where folks want more clean, reliable power and that battery system provides clean, reliable power that can integrate with whatever systems they're using, whether they're prime power systems or backup systems.

Operator, Operator

Our final question today is coming from Jeff LeBlanc of TPH.

Jeffrey LeBlanc, Analyst

I wanted to see if you could provide some color on the expected cost savings over the second half of the year once the Twinkle dredges come online...

John Turner, President and CEO

He wants to get at the cost savings that we're going to expect in the second half of the year once the dredges come on? Yes. And I'll let Blake cover that.

Blake McCarthy, CFO

We haven't had a consistent dredge feed at our main Kermit facility for more than a year now, and that facility is designed for a clean and steady dredge feed. This has led to various bottlenecks in the process, which have increased the operational expenses per ton from that facility. When the facility is running well, it is the lowest cost facility in the entire Permian Basin. As we bring those two dredges online, particularly the Twinkle dredges, which have been our most reliable producer, we are very optimistic. We believe these dredges will significantly improve the quality of our dredge feed, leading to beneficial effects across the entire process. It will enhance wet shed operations, alleviate pressure on the dryers, and help the overall facility operate more efficiently. Our overall variable costs have likely risen by about $1 due to the dredge feed issues. This will have implications for the first half of the year that will carry into the second half. There is a significant circular connection regarding the overall operational expenses per ton, as much of it is linked to volume throughput, which depends on customer activity in the latter half of the year. However, if we project first half activity into the second half, we can anticipate a notable reduction in operational expenses per ton as we progress through the year.

Operator, Operator

At this time, I'd like to turn the floor back over to Mr. Turner for closing comments.

John Turner, President and CEO

Thank you, operator, and thank you all for joining us today and for all the great questions. We truly appreciate the time you've taken with us to our exceptional team. Thank you for all the hard work. To our customers, thank you for your partnership and trust and our investors. Thank you for your committed and continued support, belief in Atlas. We look forward and are excited about reporting our results going for 2026 and our first quarter results here in two or three months. Thanks, everyone, for joining, and that ends the call. Thank you.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.