Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Atlas Energy Solutions Inc (AESI, Financial) reported a 6% sequential increase in revenues, reaching $304 million for the third quarter of 2024.
- The Dune Express project is on track and on budget, with major highway and lease road crossings complete and 95% of the build placed on the conveyor.
- The company has successfully integrated the high crush personnel and assets, adding productive capacity and asset diversity to strengthen mining operations.
- Atlas Energy Solutions Inc (AESI) is committed on more than 60% of its nameplate capacity for 2025, with significant volumes slated for delivery in the Delaware Basin.
- The company announced a 5% increase in its dividend to 24¢ per share, reflecting confidence in its cash flow generation capabilities.
Negative Points
- Operational expenses were higher than anticipated due to lingering expenses from fire-related temporary loadout operations and delays in dredge commissioning.
- One of the new dredges at the Kermit facility was severely damaged, resulting in a total loss and delaying cost reduction efforts.
- Spot prices for West Texas sand are at levels where much of the supply stack is operating at breakeven gross margin and negative cash flows.
- The company expects a prolonged holiday slowdown in completion activity, which will negatively impact sales volume and last mile crew counts.
- Atlas Energy Solutions Inc (AESI) anticipates flat to down EBITDA levels in the fourth quarter relative to the third quarter due to operator capital budget exhaustion.
Q & A Highlights
Q: Can you expand on the issues at the Kermit facility and the steps being taken to address them?
A: John Turner, CEO, explained that 2024 has been challenging, but they are committed to operational excellence. New leadership has been put in place to address systemic issues, and improvements are already showing results. Chris, from the operations team, added that the fire incident was a catalyst for change, leading to a comprehensive review and improvements in communication and processes, resulting in record production levels at Kermit.
Q: How do you see operating expenses per ton trending over the next few quarters?
A: Blake McCarthy, CFO, noted that while Q3 saw high operating expenses due to issues at Kermit, improvements are expected in Q4. The full benefits of these improvements will be seen in 2025, with OpEx per ton trending towards low double digits. However, full optimization will not be achieved until new dredges arrive in 2026.
Q: What is the expected impact of the Dune Express on margins, given current trucking rates?
A: John Turner, CEO, stated that while current low trucking rates compress margins, the Dune Express was modeled with conservative assumptions. The long-term benefits of the Dune Express, such as reduced trucking needs and enhanced logistics, will significantly improve margins over time, despite current market conditions.
Q: How are you approaching capital allocation with the completion of the Dune Express and increased free cash flow?
A: Blake McCarthy, CFO, explained that with the completion of major projects, CapEx will decrease. The company will focus on maintaining a strong balance sheet, investing in core assets, and returning capital to shareholders through dividends and buybacks. The buyback program provides flexibility to return excess cash to shareholders.
Q: What are your expectations for the sand market in 2025, considering current pricing and supply dynamics?
A: Chris from the operations team indicated that while current sand prices are low, they expect some supply to drop out of the market due to unsustainable margins for competitors. This, combined with refreshed budgets and activity in Q1, should support higher sand prices and a healthier market in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
