Atlas Energy Solutions Inc. (AESI) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presented mixed signals. While there are positive developments such as market share gains, potential growth in the power business, and strategic acquisitions, these are offset by weak financial performance, including a net loss, higher operating expenses, and reduced revenue projections. The Q&A highlighted uncertainties in cost management and future volumes. Given the company's mid-sized market cap, the net effect is expected to be neutral over the next two weeks, as positive and negative factors balance each other out.
Key Financial Performance
Adjusted EBITDA $40.2 million, a 15% adjusted EBITDA margin. This was impacted by a weak West Texas completions market and elevated operating expenses at the Kermit facility.
Revenue $259.6 million, with a breakdown of $106.8 million from proppant sales, $135.7 million from logistics, and $17.1 million from power rentals. Revenue was affected by lower customer demand and margin pressure in logistics.
Proppant Volumes 5.25 million tons, slightly lower than the second quarter. Average revenue per ton was $20.34. The decline was due to customer completion activity slowing down.
Operating Expenses (OpEx) per ton $13.52, driven by challenges at the Kermit facility, including dredge feed and wet shed issues, which led to elevated third-party service costs and downtime.
Net Loss $23.7 million, with a net loss per share of $0.19. This was influenced by lower sales volumes, elevated operating expenses, and litigation expenses.
Adjusted Free Cash Flow $22 million or 8% of revenue. This was impacted by maintenance CapEx and lower profitability.
Total Accrued CapEx $30.5 million for the quarter, consisting of $12.3 million in growth CapEx and $18.2 million in maintenance CapEx. Total accrued CapEx for the first 9 months was approximately $100.1 million.
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Operating Highlights
Dune Express: Expected to exceed 10 million tons in 2026, a major ramp from 2025.
Power Business: Targeting over 400 megawatts deployed by early 2027, with the majority under long-term contracts. Significant investments in new power generation assets have been made.
Permian Market Share: Estimated to have grown to about 35% during the down cycle, with further growth expected in 2026.
Cost Savings Initiative: Aiming for $20 million in annual cost savings through corporate G&A rightsizing, fixed cost optimization, and procurement savings.
Operational Challenges at Kermit: Issues with dredge feed and wet shed increased costs to $13.52 per ton. Expected to normalize in Q1 2026 with further improvements in Q2 2026.
Shift to Power Business: Focus on stable, long-term contracts in power generation to reduce volatility and enhance cash flow stability. Investments in Moser Energy Systems and new assets to support this shift.
Dividend Suspension: Temporarily suspended to prioritize capital allocation for transformative opportunities in the power market.
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Risk or Challenges
Weak West Texas completions market: The company faced a significant decline in customer demand due to a weak West Texas completions market, impacting revenue and adjusted EBITDA.
Customer delays in completion activity: Several key customers slowed or paused completion activity into 2026 to preserve 2025 capital budgets, leading to lower-than-expected volumes and revenue.
Operational challenges at Kermit facility: Issues with the dredge feed and wet shed at the Kermit facility caused elevated third-party service costs and downtime, increasing operating expenses.
Decline in Permian frac crew count: The Permian frac crew count dropped significantly, reducing demand for the company's services and impacting logistics margins.
Low trucking rates: Trucking rates in the Permian Basin fell to below COVID-era levels, pressuring logistics margins.
Litigation expenses: Elevated litigation expenses increased cash SG&A costs, impacting overall profitability.
Suspension of dividend: The company temporarily suspended its dividend to preserve capital for transformative opportunities in the power market, which may affect shareholder sentiment.
Economic cyclicality in oil and gas: The inherent cyclicality of the oil and gas industry limits the justification for incremental growth investments in sand and logistics.
Capital requirements for power market expansion: The company's entry into the power market requires significant capital investment, creating financial strain during a period of lower profitability.
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Guidance & Outlook
Fourth Quarter Sand Volumes: Expected to decline sequentially to approximately 4.8 million tons, which is forecasted to be the low point during the cycle. Customers have begun communicating early 2026 plans, implying improving volumes early in the calendar.
Operational Costs: OpEx per ton, including royalties, rose to $13.52 due to challenges at the Kermit facility. Costs are expected to normalize in Q1 2026 with further improvement in Q2 2026 as new dredges are commissioned.
Logistics Business: Margins are expected to decline sequentially in Q4 2025 due to seasonality and planned customer crew reductions. However, the company is carrying extra capacity to meet anticipated 2026 demand.
Permian Market Trends: Frac crew count has declined, and WTI prices around $60 provide little incentive for operators to ramp activity. A broad recovery is not expected in early 2026, but the company is optimistic about gaining market share.
Dune Express Utilization: Expected to exceed 10 million tons in 2026, a major ramp from 2025.
Power Business Growth: Targeting more than 400 megawatts deployed by early 2027, with the majority under long-term contracts. The opportunity pipeline is approaching 2 gigawatts in potential projects.
Dividend Suspension: The dividend has been temporarily suspended to protect the balance sheet and optimize growth, particularly in the power market. Management expects this pause to be temporary.
Efficiency Initiative: Aiming for $20 million in annual cost savings through corporate G&A rightsizing, fixed cost optimization, and procurement savings. Full impact expected by mid-2026.
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Shareholder Return Plan
Dividend Suspension: Atlas Energy Solutions announced the temporary suspension of its dividend program. The decision was made to protect the company's balance sheet and optimize growth opportunities, particularly in the power market. Management emphasized that this is a temporary measure and expects to resume dividend payments in the future.
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Key Q&A
Q:What is the updated power strategy and how does Moser fit into it?
A:The power strategy has advanced to the next phase, focusing on becoming an integrated power producer and behind-the-meter power provider. Moser's acquisition brought a seasoned team in engineering controls and manufacturing, enabling immediate bridge power solutions and unlocking the permanent power business.
Q:Do you have contracts or a line of sight to contracts to justify ordering the 240 megawatts of new capacity?
A:Yes, there is a line of sight to contracts, and negotiations are ongoing. Financing is being considered through project financing, as the equipment is designed for long-term contracts and stationary operation.
Q:Can you provide details about the equipment ordered, such as the type and specifications?
A:The equipment consists of 4-megawatt natural gas reciprocating engines (resi units) with high density and redundancy. These are stationary units designed to create power plants under long-term contracts.
Q:What is the CapEx related to the orders, and does it include the balance of plant or battery support?
A:The order includes the balance of plant, and costs are in line with market reports. However, full cost per megawatt details are not disclosed until EPC contracts are finalized.
Q:What caused the higher operating costs at Kermit, and when will they normalize?
A:Higher costs were due to tailings management issues, leading to inefficiencies in the wet plant and drying process. Costs are expected to decline in the fourth quarter and further improve with new dredges arriving in 2026.
Q:What is the outlook for 2026 capital spending, particularly for power and sand businesses?
A:2026 CapEx is expected to decrease from 2025 levels, focusing on maintenance. Power CapEx will have minimal impact on 2026 cash CapEx, with project financing being a key strategy.
Q:How does the 400 megawatts deployment target reconcile with previous targets?
A:The 400 megawatts target includes both legacy and new assets, with total deployable capacity reaching 500-plus megawatts. The power EBITDA target has been revised upward, reflecting high-return investment opportunities.
Q:What is the market for reciprocating engines, and how does it affect Atlas' contracting?
A:The market for natural gas-fired generation equipment is tight, with lead times extending to 2028 and beyond. Atlas is retaining capital to act on opportunities and secure equipment slots.
Q:What is the composition of the 2-gigawatt market opportunity?
A:The opportunity includes 10% oil and gas, 40% C&I (non-data center), and 50% data centers. Atlas is uniquely positioned to provide bridge and permanent power solutions.
Q:What are the lead times for gas reciprocating engines, and how is Atlas positioned?
A:Lead times vary but generally extend to 2028 or beyond. Atlas is prepared to act quickly on opportunities, leveraging its capital and market position.
Q:What is the outlook for the sand business in 2026?
A:The sand business is expected to face challenges due to low oil prices, but Atlas aims to gain market share and maintain cash flow. The Dune Express adoption is expected to improve volumes.
Q:Has the share buyback program been suspended?
A:The $200 million share buyback authorization remains in place, but no buybacks were executed in the current quarter. Management prioritizes capital allocation to high-return opportunities like the power business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the cost per megawatt for the entire package, the OEM of the equipment, and the exact EBITDA generation per megawatt due to ongoing negotiations. Additionally, they did not provide clear guidance on 2026 sand business volumes or the exact split of CapEx between power and sand businesses.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Barclays Bank
Capital Securities
Division Capital
Division Piper
Division RBC
Division Stifel
Inc Research
Kermit issue
Markets Research
Piper Sandler
Raymond Associates
Research Division
SGA
Sandler Co
Securities Inc
Stifel Nicolaus
completion activity
core
cycle
dredge
friend
generation asset
grid
initiative
investment risk
litigation
logistics ton
loss
megawatt power
oil gas
pace
power market
power solution
royalty Cash
sand logistics
seasonality customer
term value
AESI Transcript
Atlas Energy Solutions Inc. (AESI) Q3 2025 Earnings Call Transcript
Unknown11-4
The earnings call presented mixed signals. While there are positive developments such as market share gains, potential growth in the power business, and strategic acquisitions, these are offset by weak financial performance, including a net loss, higher operating expenses, and reduced revenue projections. The Q&A highlighted uncertainties in cost management and future volumes. Given the company's mid-sized market cap, the net effect is expected to be neutral over the next two weeks, as positive and negative factors balance each other out.
Atlas Energy Solutions Inc. (AESI) Q2 2025 Earnings Call Transcript
Positive8-5
The earnings call reflects a positive sentiment with strong financial performance, strategic initiatives like the Dune Express, and growth in market share. The Q&A session highlighted Atlas's strategic focus on efficiency and long-term partnerships, with positive guidance for Q3 and Q4 volumes. Despite some uncertainties, the overall tone is optimistic, supported by strategic acquisitions and market share growth. Given the company's market cap, a positive stock price movement of 2% to 8% is expected over the next two weeks.
Atlas Energy Solutions Inc. (AESI) Q1 2025 Earnings Call Transcript
Unknown5-6
The earnings call reveals mixed signals: strong strategic moves and dividend increase contrast with operational challenges and economic uncertainty. While revenue and EBITDA were slightly below expectations, optimistic guidance and potential market recovery offer hope. The Q&A indicates cautious optimism but lacks clarity, leading to a neutral prediction. With a market cap of $2.17 billion, the stock is unlikely to experience extreme volatility, suggesting a neutral stock price movement within -2% to 2% over the next two weeks.
Earnings call transcript: Atlas Energy Solutions Q1 2025 misses EPS forecasts
Unknown5-6
The earnings call presented a mixed picture. Positive aspects include the acquisition of Moser Energy Systems and a dividend increase, but these are offset by higher costs and market uncertainty. The Q&A highlighted management's cautious tone and vague responses, reflecting uncertainty in market conditions and project deferrals. While the company has strong fundamentals, the lack of clear guidance and market volatility suggest a neutral impact on stock price over the next two weeks, particularly given the market cap size.
AESI Slides
Frequently Asked Questions
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