Atlas Energy Solutions Q3 2026 Earnings Call Transcript

Atlas Energy Solutions (NYSE:AESI) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=1eSdN4mz

Summary

Atlas Energy Solutions reported Q3 2026 revenue of $267.8 million and adjusted EBITDA of $30.3 million, with an EBITDA margin of 11.3% at the lower end of guidance due to strategic pricing decisions.

The company is focusing on its power business, securing equipment and financing for two significant data center projects, and expects to sign Energy Service Agreements by year-end.

The future outlook is positive, with improved Q4 performance expected, driven by increased sales volumes and logistics margin improvements.

Operationally, the company is leveraging its partnership with Kodiak for autonomous trucking, significantly increasing delivery efficiency.

Management emphasized the strategic shift toward providing reliable “behind-the-meter” power solutions for data centers, highlighting the challenges and opportunities in the current grid infrastructure.

Full Transcript

OPERATOR

Greetings. Welcome to the Atlas Energy Solutions third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Kyle Turlington, VP of Investor Relations.

Thank you, Kyle. You may begin.

Kyle Turlington (VP of Investor Relations)

Hello and welcome to the Atlas Energy Solutions conference call and webcast for the third quarter of 2026. With us today are John Turner, President & 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 third quarter 2026, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management’s expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially.

You can learn more about these risks in the annual report on Form 10-K filed with the SEC on February 24, 2026, and our quarterly report on Form 10-Q for the third quarter and current reports on Form 8-K and other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday’s press release. With that said, I will turn the call over to John Turner.

John Turner (President & CEO)

Thanks, Kyle. For the third quarter, Atlas generated revenue of $267.8 million and adjusted EBITDA of $30.3 million, and adjusted EBITDA margin of 11.3%. That was the low end of our guidance range. Sales volumes were lower, and lower volumes through the plants pushed up our OPEX per ton. Volumes were down mostly because of a choice we made. We held our pricing and let some customers go rather than match bids from competitors selling below where we were willing to sell.

Choosing to hold the line cost us sales volume during the third quarter. However, our sales team has done a good job backfilling the temporary sales gap with volumes at reasonable prices. We expect both sand volumes and profitability to improve in the fourth quarter. Blake will walk through the details. Now to Power. I know most of your questions are here, so I’ll take them head on. I think about our data center business in four steps: secure the equipment, sign the Energy Service Agreements, put long-term financing in place, and deliver the power. Each step takes risk out and brings the value of these projects closer to our shareholders. Each step is done for our two data center projects, and Socorro is already in the delivery stage. Let me walk through all four.

First, securing the equipment. We started on this well before this quarter. In November of last year we placed our first order for long-term power generation equipment, 240 megawatts. In March we signed a global framework agreement with Caterpillar, and that secured an additional 1.4 gigawatts of natural gas generation equipment with deliveries from 2027 through 2029. In a market where equipment is the constraint, that’s what put us in the position to have these conversations.

This quarter we added to it. We signed two cost reimbursement agreements, or CRAs, with a leading frontier AI lab along with equipment purchase agreements to secure long lead time equipment. The first CRA covers the balance of plant equipment needed to deploy a large share of the generation equipment we purchased under our global framework agreement with Caterpillar. The second CRA covers an incremental 283 megawatts of generation equipment. Our customer committed capital to secure this equipment ahead of final agreements, and that says a lot about how serious they are.

The CRAs allocate the equipment to this customer today. It’s slated for two data center projects, and if a project moves, the equipment goes with the customer. Our customer’s backstop of these equipment purchases is what allowed us to put in place a $424 million bridge facility with Goldman Sachs and Barclays. We have drawn $171 million and expect to draw more this quarter as progress payments become due. The facility is priced at SOFR plus 250 basis points.

Between the CRAs and the bridge, we’ve taken a lot of the financing and timing risk out of these projects. Long lead time equipment won’t be what holds up first power. Second, signing the Energy Service Agreements. As indicated by the two CRAs, we are in active late-stage commercial negotiations on two significant data center projects with the frontier AI lab. I know some have asked questions why these haven’t been executed yet, and the reason is these are large projects with multiple counterparties. While the power purchase is a big investment for us, it’s small relative to the scale of the total data center investment.

The ESA, the data center lease, the gas supply agreement, and the EPC contract all have to come together in concert. With that much capital at stake, everyone needs the terms to be right, and so do we. We are negotiating 15- to 20-year terms. The CRAs and the bridge show that nobody is waiting around. Our customer wants first power as soon as possible, and so do we. We’ll announce the agreements when they’re signed. Third, long-term financing. I want to address dilution directly because I know it’s on your minds. As part of the capitalization of these projects, we will complement the debt with some incremental equity or equity-linked securities. And I’d rather tell you that plainly than leave you guessing. So let me frame it. Our plan is not to raise equity for these projects until the ESAs are signed, not before. When we do, it will complement debt. The 15- to 20-year structure of these contracts supports a high level of leverage, so we expect debt to fund a substantial majority of the capital.

Part of our equity share is already funded through our payments to date on the Caterpillar equipment. So any new equity would fund contracted long-term cash flows that are highly accretive, not projects we hope to win. As we said last quarter, we expect these projects to generate EBITDA paybacks of five to six years, and we expect unlevered returns in the mid to high teens. With the debt, these contracts are expected to support the return to both existing and new equity shareholders would be meaningfully higher.

Whether that equity comes as common equity, subsidiary-level equity, or convertible debt, our objective is to choose the form and timing that minimizes dilution, and we’ll judge it by one measure: cash flow accretion. Fourth, delivering the power. Socorro has a good look at how we execute. We signed the Socorro PPA on March 31st. Today, all generator pads have been poured. The first gensets are on site. Our 26 megawatt mobile facility has been powering the site during construction, allowing our customer to ramp their testing facilities until the 120 megawatt plant is online. We expect the permanent 120 megawatt plant to be online at the end of the first quarter, about a year from signing, and to begin recognizing revenue early in the second quarter.

Construction is well underway. The slab for the first power hall, the battery storage pad, and the power distribution center foundations are all complete, and the underground electrical conduit is in. Generator deliveries have begun, and 15 of our 30 generators have been delivered. Next we’ll erect the power halls, set the generators and distribution equipment in place, and move into commissioning. Once operating, this facility is projected to generate $50 to $55 million of adjusted free cash flow a year.

It’s the same team, the same Caterpillar equipment, and the same construction model we’ll use on the larger projects. Socorro shows what Atlas does well: build quickly, operate reliably, and put power where it’s needed. It’s our blueprint for on-site power, and we’re just getting started. For the two data center projects, both are targeting first power in late 2027 with ramps through 2028, and for one of them into 2029. To hit those dates, we need to start site work in early 2027. That brings me to permitting in Texas. The state has paused approval of air permits for data center projects. That was unexpected. We’re engaged with the relevant agencies, and we expect the state to lay out what it wants to see from these projects. Our projects were designed to bring their own power, use minimal water, and mitigate noise and light, and we think that puts them in a good position.

We’re not going to predict when the pause ends. If there were an extended delay in Texas, our customer has opportunities in other states with clear permitting paths that require first power in 2027, and we would work with them to move the projects and the equipment there. These two projects will not be the end of our growth in this business. We’re seeing growing demand for behind-the-meter power for projects starting up in late 2028 and 2029, and we are having active conversations with our equipment providers to see what can be available and when. As the buildout of America’s compute infrastructure accelerates, we are positioning ourselves to be right in the middle of it.

In our oil and gas power business, we expect to exit the year with approximately 200 megawatts deployed, with roughly half under multi-year agreements. The fleet is close to sold out, and we’re starting to see pricing improve, particularly on microgrid work. Going forward, most of the capex in this business will be allocated to maintenance and refurbishment. The goal here is cash flow. So: secure, sign, finance, deliver. The first step is done, and each one after it takes more risk out of the value we’re building. With that, I’ll turn the call over to our CFO, Blake McCarthy.

B Blake McCarthy (Chief Financial Officer)

Thanks, John. On our last conference call I detailed how there continue to be some egregiously low price bids in the sand market from some of our competitors, and that a few of our customers were insisting that we meet those bids if we wanted to retain their volumes. Instead, we chose to remove ourselves from those RFPs, as Atlas provides a level of service reliability that can, frankly, be taken for granted. We do our job so well that our customers forget about what life is like on the other side.

So we drew a line in the sand with respect to pricing and allowed some longtime customers to see what West Texas completion activities look like without Atlas keeping the site well supplied. While the decision negatively impacted our third quarter results, it stemmed further price bleed and allowed us to make room for incremental demand from current customers and A-tier customers we have been targeting for a very long time, setting us up for improved performance in Q4 and for a full first half of 2027.

During the quarter, our overall sales volume and Dune Express volumes were down due to the vacancies left by the rejected bids, leading to sand revenue being down 8.3% sequentially. This resulted in higher OPEX per ton, particularly at our Kermit facility, with overall proppant OPEX per ton of $13.96 including royalties. The lower demand at Kermit did enable us to perform some much needed work on our water supply and wet shed, which has resulted in meaningfully improved output and costs.

In October, overall OPEX per ton is expected to improve to approximately $13 per ton in Q4 and continue into 2027. Importantly, our commercial team has done a wonderful job of filling the volume hole left by the rejected customer volumes in Q3. Overall sales volume is expected to be up meaningfully from 5.4 million tons in the third quarter to 5.7 to 6.1 million in the fourth quarter. As we mentioned on our prior quarter’s call, RFP season for some of our key customers got started early this year, and while sand pricing overall remains challenged, the accelerated RFP season has resulted in us having a line of sight on more than 23 million allocated tons for 2027 at pricing levels roughly in line with 2026 pricing. Already, we are well on our way to being fully utilized across our system for next year. Despite the strong commodity price environment, Permian operators have yet to really hit the gas pedal on activity, so our objective is to fill up the plants and begin moving price on the incremental ton.

While sand pricing remains stubbornly in the $16 to $18 range, we are significantly more bullish on the outlook for logistics pricing. Throughout the year we have seen steady increases in driver shortages and thus in driver rates. As Atlas logistical efficiencies provide us significant competitive advantages in the total delivered cost of sand, we used our advantaged logistics cost structure to sweat competitors who could not find drivers for a good part of the year.

While this negatively impacted our logistics margin, it enabled us to capture incremental volumes for most of the year outside of the volumes we turned away. However, the market has now reached a point where we feel it is not just possible but necessary for us to push pricing through the oilfield grapevine. We have heard of numerous instances of well sites dependent on competitor sand experiencing significant non-productive time. But cheap sand only saves you money if it shows up on time, and with the shortage of drivers in West Texas—driven by continued strength in the over-the-road market and the steadily growing sucking sound coming from the data center buildout market—the number of suppliers that can still ensure that the product gets to the job on time is shrinking rapidly. We began passing through rate increases during the third quarter, which helped to lead to margins of approximately 11%.

Adjusting for expenses related to the closure of our northeast region, we were able to achieve this despite the drop in Dune Express volumes quarter over quarter. With the anticipated improvement in Q4 delivered and Dune Express volumes, we expect logistics margins to improve to approximately 14% to 15% during the fourth quarter and continued strength in 2027. As of the end of the third quarter, Kodiak has delivered 37 Kodiak-powered autonomous trucks to us. Our Kodiak-powered fleet made more than 9,000 autonomous deliveries during Q3, up almost 100% sequentially from the second quarter. Our partnership with Kodiak has begun to result in significant productivity gains, which we expect to accelerate as new operational milestones are reached that will expand the operational footprint these trucks are able to reach.

We are targeting operations on public roads by the middle of next year, subject to regulatory and operational milestones. The recent leap in the operational capabilities and efficiencies of our Kodiak fleet is incentivizing us to continue to invest in growing the technology as a percentage of our overall trucking, which is on course to approach 45 Kodiak trucks operating by year end and 100 by the middle of next year. With driver shortages a key issue in West Texas today, the combination of the Dune Express and autonomous deliveries has only enhanced Atlas reliability premium.

In the Permian, our power business reported sequential growth of approximately 11% with improved utilization on our distributed power fleet and the ongoing operations at our new facility in El Paso. Q4 contribution from this business is expected to display continued improvement as we deploy larger portions of that fleet under long-term contracts. Q3 adjusted cash SG&A, excluding extraordinary litigation expenses and other non-recurring items, was $25.2 million.

Adjusted cash SG&A is expected to be approximately $22 to $24 million for the fourth quarter. Growth CapEx for the third quarter was approximately $181.9 million, of which roughly $160 million is tied to our November 2025 order and buildout of the SCORA project. Maintenance CapEx for the quarter was $5 million. We expect fourth quarter CapEx of $315 to $345 million depending on the timing of project progress payments and now expect full year CapEx to approach $700 million.

The majority of the Q4 spend is tied to the purchases backed by the CRAS and financed through our bridge loan facility. CapEx for the SANO Logistics business and our oilfield power business will remain focused on pure maintenance activities in the fourth quarter and into 2027, as current pricing dynamics do not justify incremental growth capital, and we will instead focus on optimizing free cash flow harvest. On the heels of our successful convertible issuance in April and the recently announced bridge financing, Atlas existing liquidity is enough to satisfy our immediate capital needs.

As John mentioned, the continuing growth of our behind-the-meter power business will require incremental capital. We expect the vast majority to come from corporate and project-level debt with a modest equity component, and those financing efforts will follow, not precede, the execution of the contracts that underwrite these investments. Looking ahead to the fourth quarter, we expect sequential improvement in every segment of our business and for adjusted EBITDA to fall in the range of $40 to $50 million. I will now hand the call to our Executive Chairman, Bud Brigham, for some closing remarks before we turn the call over for some Q&A.

Bud Brigham (Executive Chairman)

Thank you, Blake. Every era of progress has been built on energy. The industrial age ran on coal and steam; the digital age runs on electricity, and demand is rising faster than anyone planned. Data centers are the factories of the AI economy. A single new campus can require hundreds, if not thousands, of megawatts, and developers are running into a hard truth: the grid cannot keep pace. Interconnection queues stretch for years. New transmission takes a decade to permit and build.

The capital is ready and the chips are ready, but the power is not. That gap is where Atlas Energy Solutions stands. We are building a dedicated power business providing a fast path to reliable power on private, local grids operating independently from the increasingly fragile public grids—so-called behind-the-meter power. Compressed project timelines provide utility-class electricity without the delays and regulatory challenges of the public grid. Instead of years in a queue, customers get reliable on-site electric supply sized to their load and backed by a team that knows how to keep it running.

We have the right strategy for the times, the right equipment, and, critically, the right people. The companies building the future need partners who move at their speed. Atlas was built in the field on large energy infrastructure projects where reliability is a daily requirement, not a slogan. We bring that discipline to every megawatt we deliver. The next chapter of American innovation belongs to those who can power it. Atlas Energy Solutions intends to help write it.

Thank you for joining us today for our third quarter conference call. This concludes our prepared remarks, and I will now turn it over to the operator for Q&A.

OPERATOR

Thank you. We will now be conducting a question-and-answer session. We ask that you please limit yourself to one question and one follow-up. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Our first question comes from Steven Giangaro from Stifel. Please go ahead.

Steven Giangaro (Analyst at Stifel)

Thanks, and good morning, everybody. A couple for me. Can you give us maybe a little more detail on the financing? You talked a bit about it on the prepared remarks, but how should we think about the financing, what type of debt levels you’re comfortable with on long-term contracts, and how will you keep us informed as we go forward here?

John Turner (President & CEO)

You want to take it?

B Blake McCarthy (Chief Financial Officer)

Yeah, sure. Yeah. Thanks for the question, Stephen. So, yeah, we did give some color in the prepared remarks, but obviously funding capital projects of this size is something we discuss every day. It’s clearly a gigantic piece of the puzzle, so happy to go into more detail. Only caveat being this: I don’t have full control of when these contracts are executed. And since markets are fluid and can change fast, we do have to remain flexible. It’s important to highlight that we aren’t going to fund these projects before the contracts are executed.

You know, the bridge financing we secured through our partners at Goldman and Barclays, that takes care of our near-term capital needs with long lead time equipment, and that’s all backed by the CRAs. But, you know, thinking a bit more holistically about this, you know, the contracts that back these projects, they’re different from any type of contract we’ve signed as a company before. We have take-or-pay sand contracts, but those are typically shorter in duration and serve more explorers than actual contracted capacity. These ESAs are hard contracts of 15 to 20 years with set monthly capacity charges where a customer has stated, I expect you to earn your return through the capacity payment.

So that results in a significantly more stable cash flow stream than anything currently in the Atlas Energy Solutions portfolio. And it opens up a whole different set of financing options. Additionally, the contracts are typically backed by an investment-grade counterparty that guarantees the capacity payments. So behind-the-meter power, in general, it’s a bit new to credit lenders. So I think existing data center projects are probably the best analog, as there are simply more precedent financing data points available on contracts of 15 years or longer with appropriate counterparties. The market has shown a willingness to underwrite up to 90% leverage on these projects. We’ll likely be a bit more conservative, but assuming 80 to 90% leverage, that’s not out of bounds.

This debt typically resides at the subsidiary level and it’s backed by the contracts and the hard assets and is supported by the credit wrap, again from an investment-grade counterparty. So now, obviously, 80 to 90% leverage, that leaves about a 10 to 20% equity component. But as we mentioned in the prepared remarks, we have already substantially funded the equity portion of the first project through our purchase of the Caterpillar equipment, which will be contributed into the project. The most important thing to remember on these projects and the related financings is both the debt and equity will be funding projects that are really massively accretive to the EBITDA and cash flow of the company.

To frame the size, together they represent multiples of our current EBITDA. So these are big projects at very attractive return profiles. And I, to put it bluntly, I think the market is going to want to fund these projects, and whatever we do, we’re going to structure these projects and the financings to maximize returns for existing shareholders.

Steven Giangaro (Analyst at Stifel)

Great. Two other quick ones: the uncontracted portion of your global frame agreement — how much do you think these projects will absorb of that capacity?

B Blake McCarthy (Chief Financial Officer)

You know — yeah, I’ll go ahead. So, all right. You know, again, not going to provide too much incremental detail on the project beyond what we’ve already disclosed until the contracts are executed. But, you know, you’re a smart guy, Stephen, and as you probably infer from the information we did disclose around the CRAs, these are both sizable projects, and it’s not off base to assume that it would de-risk a very sizable amount of the GFA. You know, thinking about that a bit more, you know, we’re very pleased about how our relationship with Caterpillar has evolved. You know, we’re working very closely with them to evaluate — like they have very clear end-customer priorities where they want their equipment with the right people and their capacity. And so, you know, they’re managing their capacity going forward. With that in mind, we obviously don’t want to just do, you know, the SCORA project and these two projects and be done.

So, you know, we’re working with them around, you know, active capacity additions to the GFA. But as you — yeah, which basically does imply that, yeah, these projects would take down a very large chunk of the GFA assets.

Steven Giangaro (Analyst at Stifel)

Great, thanks for the details. I’ll get back in queue.

OPERATOR

Our next question comes from Julian Demullen Smith with Jefferies. Please go ahead.

Patrick (Analyst at Jefferies)

Good morning, guys. It’s Patrick instead of Julian. Actually, back to the power contracting, I was just wondering if we could dive more into the timing of those. I think, you know, you’ve given us this 180-day bridge facility. You’ve said the negotiations are close to the end — that language has been used for a little while now. So I guess is that kind of like a year-end expectation or before end of 1Q expectation, or do we need to look at the extension terms on that 180-day facility?

John Turner (President & CEO)

Yeah, look, this is John. You know, we feel very confident about the steps we’ve taken and the position we currently sit in the organization and Atlas Energy Solutions as a whole. You know, the projects we’re working on, you know, they fit with our customers’ core objective of initial compute in late 2027 with aggressive branch from there on into ’28. So, you know, in order to hit those compute timelines in 2027, we’ve got to be breaking ground in Q1 and working at a pretty serious pace from there.

You know, everything that has needed to be done making these projects go on the front end has been done. You know, we’ve de-risked the supply chain, we’ve secured interim financing, and we’ve lined up the contractors. You know, the only thing left to do is execute contracts, like you asked. And, you know, we expect — for us to hit those timelines, we expect those contracts to be executed by year end. You know, we’re effectively negotiating both of those agreements at the same time, both of these contracts that we’re working on and between those projects, you know, so we expect pretty short order — once we execute one, we’ll get the other one executed.

Patrick (Analyst at Jefferies)

Thank you. And a follow-up: can I just ask about the link between the customer reimbursement programs and the bridge facility? It’s backing the bridge, so can you help me understand the timing link between those — when the customer reimbursement facility starts paying the bridge?

B Blake McCarthy (Chief Financial Officer)

No. So, effectively what the CRAs do is the customer effectively says that, hey, if we don’t get to an ESA within a certain timeline, we will fully reimburse the lenders for all the cash outflows. So they’re effectively making their balance sheet available to backstop the entire financing through the interim — yeah, through the interim.

OPERATOR

Our next question comes from Jim Rawlison with Raymond James. Please go ahead.

Jim Rawlison (Analyst at Raymond James)

Hey, good morning, guys, and thanks for all the time. Blake, maybe if you could help bridge something here on CapEx. As we think about this, with the project you have ongoing in Texas already and the two incremental projects that you’ve gone through, the CRAs and bridge funding — and let’s just say, assuming you don’t add incremental capacity from Caterpillar — maybe a little roadmap through next year on CapEx so we can maybe do our own math on kind of where the funding or funding gap kind of comes in.

B Blake McCarthy (Chief Financial Officer)

Yeah, I mean, I think that that number changes significantly with the execution of the contracts, right? So, you know, you can — with what we’ve disclosed, right — you can have, like, the kind of the obligations of, like, ’27 deliveries under the GFA. Those generators, you know, probably only represent, you know, 30 to 40% of the CapEx of these projects. So obviously that number goes up pretty significantly with the execution of these contracts. That being said, obviously that comes with it a very clear cash flow stream on the backside of that CapEx. And so you can — you know, there’s quite a few smart investors that have done some math based on what we disclosed on the CRA. You know, basically, like, you know, you can use the — there’s a couple markers out there. I would say that the CapEx per megawatt of these projects has continued to climb as the load requirements, the load profile requirements of the end customer, has continued to get more intense.

So, I mean, these are big, expensive capital projects, and it will be a significant amount of CapEx upon execution. But like I walked through in detail, you know, it’s a very financeable cash flow.

Jim Rawlison (Analyst at Raymond James)

Understood, and maybe — go ahead.

B Blake McCarthy (Chief Financial Officer)

Yeah, I think the other thing to note on that from a CapEx perspective is CapEx will be deployed as the assets are deployed. And so some of these contracts ramp into 2028 and, therefore, you know, some of that CapEx will also lead into 2028. Yeah.

Jim Rawlison (Analyst at Raymond James)

Yep, that makes sense. And maybe a bigger-picture question: you know, early on in the development of this business, as it was kind of pivoting towards the data center opportunity as it kind of ramped up in your face, you know, I think there was some view that this was mostly going to be bridge power that leads to ultimately grid connections. And when Bud was talking earlier, it, you know, just made me think — obviously 15- to 20-year deals seem more like a permanent solution.

I’d love to hear what kind of context your customers or potential customers that you’re talking with, how they’re viewing that now given all the changes that have happened in the market since this all started.

John Turner (President & CEO)

Yeah, I think first off is, I think you can look at the agreements that we’re talking about here with these 15-year, 20-year contracts. I mean, customers are looking at this as permanent power. You know, there has been a change, obviously, over the past six to nine months about the grid and its capacity to fund it. Then you’ve had some political backlash. But I think it’s been pretty clear there’s been a turn that, you know, if a data center is going to come, it’s going to need to bring its own power, and it’s not going to be able to rely on the grid, and they won’t be able to rely on the grid.

So that’s really where you’ve seen the turn. And, you know, I’ll let others chime in on that, but, you know, the discussions we’re having are really the ones that are about, you know, providing primary power.

Bud Brigham (Executive Chairman)

Yeah, this is Bud. I just want to amplify one of the comments that John made that has become obviously increasingly apparent: that the grids are less stable and a bit more fragile, particularly with the increasing demand on the grid, but also the intermittent energy that’s been subsidized into the grid. My view is — and I think it’s pretty obvious — that the development of these private grids, private power that is not pulling from the grid and can actually be supplemental power, provide supplemental power to the grid, is very healthy and, particularly politically, it’ll be very beneficial, less vulnerable to the regulatory problems associated with the grid — in fact, again, beneficial to those challenges that the grid faces. So we think the playing field is tilted our direction for providing this long-term power to power these AI factories that are going to drive significant economic growth for our country.

Jim Rawlison (Analyst at Raymond James)

Appreciate your thoughts. Thanks, guys.

OPERATOR

Our next question comes from Alexa Drano with Goldman Sachs. Please go ahead.

Alexa Drano (Analyst at Goldman Sachs)

Hey, good morning, team, and thanks for taking our question. Just wanted to ask on the prospective contracts: can you talk a little bit about what that structure might look like? Is it more of fixed capacity payments, or is it minimum take-or-pay commitments? Just how do we think about it as the potential data center customers are then ramping up their loads?

B Blake McCarthy (Chief Financial Officer)

Yeah, I mean it’s a pretty simple pricing structure. The majority of the payment comes through just a fixed capacity charge where it’s just like this capacity is available. Like I said, you can think of that being the base return. In addition to that, you know, there’s typically a variable component that covers the O&M fees — sorry, operating and maintenance fees — that fluctuates with utilization. That is, you know, more for potential cost overruns and expenses and stuff like that.

I mean, like we talked about, the load profiles are pretty harsh on the systems, and so the more they use it, obviously the more the maintenance spending goes up, and that functions to capture that incremental expense. But they’re really relatively simple contracts in terms of the pricing structure.

John Turner (President & CEO)

Yeah, that’s a great question. And I think that, you know, when you think about just the base business, we’ve really entered this more mature phase where, from the genesis of Atlas until just very recently, we’ve been in a pretty steady growth phase with pretty heavy capital investment. Sand Logistics is very much leaning towards the infrastructure side of the OFS universe, where it’s heavy capex on the front end and then low capital intensity in maintenance on the backside.

As you could see in our Q3 results, our maintenance capex has continued to decline — it was only around $5 million last quarter. As we think ahead, the combination of the legacy Sand Logistics business with the oilfield power business and then some cats and dogs in terms of the corporate side and IT capex, you’re probably looking at this business, the base business only, really requiring somewhere around $40 million of maintenance capex per annum.

We’ve continued to see improving operations from our plants. Our logistics team — we talked about positive momentum on our logistics margins moving forward. And the power team has done a really good job of contracting that base legacy oilfield fleet. So we’re really thinking about all three businesses being very steady cash cows going forward and delivering positive free cash flow to help contribute to delevering the balance sheet as we move forward.

OPERATOR

Our next question comes from Derek Podhazer with Piper Sandler. Please go ahead.

Derek Podhazer (Analyst at Piper Sandler)

Hey, good morning everyone. I guess just on power, I think you mentioned in your prepared remarks with the CRA agreements that if the project moves, the equipment moves with it. So maybe you could just talk a little more about whether this equipment is specifically designed for these two data set of projects with this customer, or if there’s something else that we should be thinking about with that comment. Just some more color on that would be helpful.

John Turner (President & CEO)

Yeah, that’s a good question. And I think you hit the nail on the head where the equipment is dedicated to the customer, right. They’re the ones making their balance sheet available to backstop the CRAs, and it belongs to them, not necessarily to the project. That being said, they continue to prioritize these two projects. Everybody’s very optimistic about moving forward with that. I think one thing you touched on that’s a pretty interesting trend we’re seeing from the larger players is they’re starting to standardize their data center designs — the actual data halls. I think obviously that creates more efficiencies as they look to aggressively ramp their own internal compute profiles. And so that makes it much easier for these systems to move from location. Right. Like there’s not going to be a big delta in the design of one data center versus the other.

I think that trend is going to continue to gain steam as we move forward.

Bud Brigham (Executive Chairman)

Yeah. And I also think it’s going to impact the construction of it as well.

John Turner (President & CEO)

Yeah. Much more standardized — it’s going to make it much smoother. They’re going to be able to deploy it more quickly so that they can meet their first power needs and then ramp pretty aggressively through that. So I don’t think it’s specifically designed — this equipment’s not specifically designed for a specific site. Although it’s being applied to a specific site, it can be used in multiple places.

Derek Podhazer (Analyst at Piper Sandler)

Got it. Okay, that’s helpful. And then switching over to oil and gas and the proppant side. So you talked about more than 23 million tons allocated for next year, 2027. Can you maybe break that apart as far as what that implies for Permian activity, from a frac fleet or frac activity perspective? And then what really needs to happen through RFPs? Where can you see those volumes go? Could we get closer to the mid-20s if we add a couple more frac fleets that we’re not thinking about?

Just maybe some color around the different drivers and levers, at least when we think about that more than 23 million and what it means for Permian activity.

John Turner (President & CEO)

Yeah, I mean, we feel really — we’re pretty confident in our position right now as far as it relates to volumes for next year, and we’ve got line of sight on more than enough tons to completely fill up our plants. Obviously, still, and I think the RFP season — I’ll let Brian comment on this — I think the RFP season is, you know, we’re through a big part of it. We do have line of sight, and I do think any increase in frac activity, meaning with the addition of frac fleets out there, could put upward pressure on sand pricing.

But you want to go ahead and give more comments?

Brian

Yeah, I think John covered it well. Most of the large operators have already completed their RFP process and made awards for those programs. There’s always going to be spot work and programs that add crews, depending on what the market looks like throughout the course of the year, and we typically find a lot of success in capturing that business. That’s really, I think, where that incremental volume could come from at this point, given the fact that most of those large operators have already awarded their volumes.

John Turner (President & CEO)

Yeah. And then, Derek, to the heart of your question, that more than 23 million of allocated tons is based around effectively flat pressure pumping fleets in the Permian. As we talked about on the call, it’s been a really attractive commodity price environment, but the operators have certainly not hit the gas pedal in terms of adding incremental crews. And I think part of that is due to just a shortage of actual available pressure pumping equipment capacity.

After the beginning of the Iran conflict, you saw a few incremental crews get added — it’s been pretty steady state. And so all of the allocated tons that we’ve been able to suck up for next year, that’s really been market share capture.

Derek Podhazer (Analyst at Piper Sandler)

Got it. Great. Thanks everyone. I’ll turn it back.

OPERATOR

Our next question comes from Eddie Kim with Barclays. Please go ahead.

Eddie Kim (Analyst at Barclays)

Hi, good morning. Just on the power side, I know you mentioned that a lot needs to happen before an ESA actually gets over the finish line, but as you see things right now, do you think we could get to a signed ESA on those two CRA agreements before year end, or does it look like it might be more of an early 2027 event?

B Blake McCarthy (Chief Financial Officer)

Yeah, we already answered that earlier in the call. We said that we’ve already done most of the steps on the front end of this project, right. We de-risked the supply chain, we secured interim financing, and we’ve lined up the contractors. The only thing really left is to probably update some technical exhibits in the ESAs and hash out some final terms. But I think it’s very reasonable to expect both ESAs by year end.

John Turner (President & CEO)

Yeah, I mean in order for us to hit the timelines that we laid out, we expect to hit those timelines and execute the ESAs by year end.

Eddie Kim (Analyst at Barclays)

Got it, got it. Understood. And then, just on that same line of questioning, you mentioned line of sight to more than 23 million allocated tons for next year. Just looking at the past two years, it looks like your final year-end volumes have trended more or less in line with the allocated tons that you quoted at the beginning of both of those years. For next year, should our kind of baseline assumption take 23 million tons to be sort of preliminary guidance in terms of volumes at this point, and to the extent that unallocated tons come through, that would represent upside, of course?

Just curious, kind of your confidence level on the volume coming in.

John Turner (President & CEO)

Yeah, I mean that more than 23 million tons probably serves as a good baseline assumption. Yeah.

Eddie Kim (Analyst at Barclays)

Okay, got it. Thank you. I’ll turn it back.

OPERATOR

Our next question comes from Keith Mackey with RBC Capital Markets. Please go ahead.

Keith Mackey (Analyst at RBC Capital Markets)

Hey, thanks and good morning. Just first question, you mentioned the air permit moratorium. Do these two projects that you’re working on now currently already have their air permits? And if not, is an air permit a prerequisite to signing the ESA? Just some clarity there would be helpful.

John Turner (President & CEO)

So we have one air permit that’s been submitted. It was submitted pre-moratorium, and so that’s on hold right now. But our air permits are standard air permits, and it’s a permit by rule. We’re obviously watching the governor’s office very, very closely for any more guidance coming out of there. Those are going to be, in any contract that a power developer signs, conditions precedent, and we expect to have that cleared up and to move forward. We would sign ESAs with that being in there and allowing the flexibility to permit the project somewhere else, should that moratorium continue in Texas.

Keith Mackey (Analyst at RBC Capital Markets)

Okay, thanks for that color. And just on the capex per megawatt, you mentioned that’s been climbing. Can you just maybe give us some help as to where you think things are now?

B Blake McCarthy (Chief Financial Officer)

Yeah, it continues to climb. I think the key thing to remember on capex per megawatt climbing is that it doesn’t change the economics of the contract. As John reiterated on the call, these projects — it’s pretty easy to backsolve where we expect them to generate unlevered returns in the mid-high teens with EBITDA paybacks of five to six years. If you rewind 12 to 18 months, as people started first using distributed power assets to power data centers, the capex per megawatt was much lower, and we quickly found that the systems as they were designed were not able to handle the load swings. So there’s significantly more load management equipment that’s been added to those systems, and that’s expensive equipment. Previously we’ve talked about it being anywhere from $1.5 to $2.5 million of capex per megawatt.

That’s probably trended at a low level above $2 million — the low end of that range now starts at $2 — and it continues to climb, but obviously that passes through into incremental price per megawatt.

Keith Mackey (Analyst at RBC Capital Markets)

Yeah, got it. Okay, appreciate the color. Thanks very much.

OPERATOR

Our next question comes from Josh Jain with Daniel Energy Partners. Please go ahead.

Josh Jain (Analyst at Daniel Energy Partners)

Thanks for taking my questions. This might have been answered on the power side, so I’m going to focus on the sand and logistics business. The first one is, you talked about walking away from some lower-priced sand business in the third quarter. I’m just curious. We have a pretty different crude price environment today than we had a year ago. So when we think about the market in 2027, you alluded to what you’ve ultimately contracted, but are you seeing a different sense of urgency from some of the larger operators today heading into next year than you did a year?

John Turner (President & CEO)

Yeah, I mean a different sense of urgency on operations. Well, a different sense of urgency just in terms of securing their sand. Yeah, I think for sure, that was Josh. I think that was 100% evidenced by the fact that they pulled forward their RFP. Like typically we have this call, like our Q3 call, we’re like, all right, as we enter RFP season, we’ll update you all on our allocated tons. Well, we’re having this call already, and Brian and his team have already kind of filled up the cup. And so I think that there’s procurement teams of our customer base, they’re sharp people, and they knew that like, hey, prices, like commodity prices moving, let’s take risk off the table.

And there are still quite a few zombie mines out there, right, that just, they’re not really producing. They might be running 20, 30% utilization, but they’re still like serving there in bids, like getting there in the RFPs and trying to bring down, just fill up their volume for fixed cost absorption. So savvy procurement people use that to try to bring down the price of sand. But we effectively said like, hey, we’re not going below this. And we also know with the dynamics you’ve got in the trucking market right now, that’s a big differentiator, right? You can buy dirt-cheap sand, but you’re not going to save money when it doesn’t show up on the well site and it causes a lot of NPT, right? Like you’re having all that equipment out there not working because the sand hasn’t shown up. It’s a lot more expensive than paying an extra three, four dollars a ton of sand. And really that’s the position we’re in and, with our, you know, our larger customers, they understand that.

They understand that the incremental efficiencies that Atlas Energy Solutions provides their operations and, you know, we’ve been very satisfied with how we’ve moved through the RFP process. Now one last thing I’d say is, though, is that now that we’ve got that cup filled for next year, like I would say that, like, you know, Brian mentioned, hey, we’ve always been really successful when spot opportunities come up. Well, you know, when you have that marginal ton is really where we would look to raise price. Right? Like that’s the, hey, like when I, I got to move things around, you know, I got to potentially like add risk to my production system.

Like I’m not going to do that without there actually being incremental price coming through. And so that’s really what we’re going to look to do, you know. And in general, you know, I think that our, you know, our Q4 guide points to a stronger Q3 and really if, like, you get under the hood or, you know, the entire Q4 progression is sequential improvement into year-end, where, you know, based on our customer schedules, December is going to be a really strong month, which kind of runs counterintuitive to typical seasonality you see, except in strong commodity environments where customers want to hit the next year early in the next year, they want to hit it running.

And so we’re certainly seeing that. And then, so I think things look tighter as we get into Q1.

Brian

I think, I mean, I think next year, I mean, I think we’re probably starting, I think we’re going to start seeing double-digit increases in logistics pricing. You know, there’s going to be pressure all across the basin to meet needs of the operators. I think they’re seeing that, you know, because all of a sudden there’s opportunity outside of the Permian where a trucking company can go make three times their profit a day by going and hauling for data centers versus hauling sand and doing logistics in the oil fields.

So I think there’s going to be significant pressure on the logistics piece, especially going into the first quarter. And I think, you know, I think that’s a pre reflection of what we’re seeing with the operators in their RFPs right now,

John Turner (President & CEO)

which is where we’re advantaged.

Josh Jain (Analyst at Daniel Energy Partners)

Thanks for all that detail. And we agree with you on the trucking side as we’ve tracked it over the course of this year. My follow-up, sort of building on that point, is just on automation and what you’re seeing with Kodiak. So you gave some pretty helpful guide points: start your 37 trucks today, 45 at the end of this year, 100 by the end of next year potentially. And when you talk about your, is there more room to run on the current fleet that you have on those 37 trucks from a utilization standpoint?

I’m just trying to unpack how much further, like, on the load per truck you could go today relative to where you’re operating, and maybe just expand on that a little bit more and the importance of automation and that relationship moving forward. And then I’ll turn it back. Thanks.

John Turner (President & CEO)

Yeah, I’ll start. I think that the relationship with Kodiak is, I mean, is very important to Atlas Energy Solutions. I mean, obviously, you know, we got into the autonomous business. We’ve been doing autonomous deliveries out there for a couple of years. Kodiak continues to improve their efficiencies. You know, we’ve done a significant number of loads, and we continue to increase that as we move through and further expand that relationship. I mean, ultimately, you know, we want to be on the road and, you know, Kodiak and Atlas Energy Solutions are working towards that, you know, and then we will continue.

That’s when you will continue to see a lot of the efficiencies continue to accrue to Atlas Energy Solutions. I think, you know, from a standpoint of efficiencies and cost, I think we have a long way to go on the Kodiak relationship. I think, you know, there’s obviously things that we’ve been doing to see the profitability, you know, see improved profitability on our side. But the one thing I will say is that, you know, going into next year and once we get to over-the-road, you know, we’re going to see real pressure on driver shortages, and the relationship in what we do with Kodiak is really going to separate and give Atlas Energy Solutions a clear competitive advantage in the Permian because we’re the only ones that can run those Kodiak trucks on the road and use those in our deliveries.

Josh Jain (Analyst at Daniel Energy Partners)

Thanks. I’ll turn it back.

OPERATOR

We have reached the end of our question and answer session. I would now like to turn the floor back over to John Turner for closing comments.

John Turner (President & CEO)

Yeah, thanks everyone for your time and your questions. You know, here’s where we are, I’d say, in power. We’ve secured the equipment for our two data center projects, and we’re working to get those agreements signed. You know, we’ll make those announcements when we do. You know, our plan is the same one that we laid out last quarter and laid out this quarter: long-term financing followed by, you know, no equity until, you know, signed contracts and permanent financing is put in place.

You know, obviously very excited about where our power business is in the organization. I mean, this has been transformational for Atlas Energy Solutions and, you know, we’re continuing to execute and, you know, I feel very confident that we’re going to get this done and we’re also going to continue to grow this business. Obviously in the sand and logistics business, excited. I mean, we’ve been in a trough over the past year, two years, and I do think 2027 is going to be a good year, not only for the logistics side. Also, if we have continued higher oil prices, we’re going to continue—you’re going to, you’re going to see sand prices go up because you’re going to have frac crews added. And when you do that, I mean, there’s nobody better positioned than Atlas Energy Solutions to take advantage of that with our cost structure.

And I just want to thank everybody for joining us, and we look forward to reporting to you our fourth quarter results in next year. Thanks.

OPERATOR

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

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