Atlas Energy Solutions Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2026

Key Takeaways

  • Positive Sentiment: Third-quarter results were pressured by lower sand volumes. Revenue was $267.8 million and Adjusted EBITDA was $30.3 million, at the low end of guidance, after Atlas rejected below-market bids and incurred higher operating costs per ton.
  • Positive Sentiment: Management expects a broad fourth-quarter recovery, forecasting Adjusted EBITDA of $40 million-$50 million, sand volumes of 5.7 million-6.1 million tons, lower plant costs, and logistics margins improving to approximately 14%-15%.
  • Positive Sentiment: Atlas has secured equipment and interim financing for two large behind-the-meter data-center power projects, including a $424 million bridge facility backed by customer reimbursement agreements. Management expects 15- to 20-year energy service agreements to be signed by year-end, with first power targeted for late 2027.
  • Negative Sentiment: The power expansion will require substantial additional capital and a modest equity or equity-linked component, creating potential dilution, although management expects debt to fund roughly 80%-90% of project costs after contracts are signed. Texas has also paused air-permit approvals for data-center projects, introducing timing risk despite possible relocation alternatives.
  • Positive Sentiment: The base Sand & Logistics and oil-field power businesses are moving toward cash-flow harvesting, with more than 23 million tons already allocated for 2027 and only about $40 million of expected annual maintenance CapEx. Atlas also expanded its Kodiak autonomous-truck fleet, targeting 100 trucks by mid-2027, which could strengthen its position amid driver shortages.
AI Generated. May Contain Errors.
Earnings Conference Call
Atlas Energy Solutions Q3 2026
00:00 / 00:00

There are 15 speakers on the call.

Operator

Please note, this conference is being recorded. I will now turn the conference over to Kyle Turlington, Vice President of Investor Relations. Thank you, Kyle. You may begin.

Speaker 1

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 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 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.

Speaker 1

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.

Speaker 2

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.

Speaker 2

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. 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 MW. In March, we signed a global frame agreement with Caterpillar that secured an additional 1.4 GW of natural gas generation equipment, with deliveries from 2027 through 2029. In a market where equipment is a constraint, that's what put us in the position to have these conversations. This quarter, we added to it.

Speaker 2

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 frame agreement with Caterpillar. The second CRA covers an incremental 283 MW 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. These 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.

Speaker 2

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 services 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.

Speaker 2

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.

Speaker 2

When we do, it will complement debt. The 15-20 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.

Speaker 2

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 is a good look at how we execute. We signed the Socorro PPA on March 31. Today, all generator pads have been poured. The first gensets are on site. Our 26 MW mobile facility has been powering the site during construction, allowing our customer to ramp their testing facilities until the 120 MW plant is online. We expect the permanent 120 MW 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.

Speaker 2

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 million-$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.

Speaker 2

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.

Speaker 2

We are 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 build-out of America's compute infrastructure accelerates, we are positioning ourselves to be right in the middle of it all. In our oil and gas power business, we expect to exit the year with approximately 200 MW deployed, with roughly half under multi-year agreements. The fleet is close to sold out, and we are 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. Secure, sign, finance, deliver. The first step is done, and each one after it takes more risk out of the value we are building.

Speaker 2

With that, I will turn the call over to our CFO, Blake McCarthy.

Speaker 3

Thanks, John. On our last conference call, I detailed how there continued to be some egregiously low-priced bids in the sand market from some of our competitors. Then 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. 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.

Speaker 3

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 plant 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 cost in October.

Speaker 3

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 million-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. 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.

Speaker 3

Despite a 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-$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.

Speaker 3

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 oil field grapevine, we have heard of numerous instances of well sites dependent on competitor sand experiencing significant non-productive time. Cheap sand only saves you money if it shows up on time, and with a 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 build-out 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.

Speaker 3

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%-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.

Speaker 3

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 shortage as the 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 in 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.

Speaker 3

Adjusted cash SG&A is expected to be approximately $22 million-$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 build-out of the Socorro project. Maintenance CapEx for the quarter was $5 million. We expect fourth quarter CapEx of $315 million-$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 Sand & Logistics business and our oil field 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.

Speaker 3

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 million-$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.

Speaker 4

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 capital 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 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 compresses project timelines, provides utility-class electricity without the delays and regulatory challenges of the public grids.

Speaker 4

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 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 would 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 Stephen Gengaro from Stifel. Please go ahead.

Speaker 5

Thanks, and good morning, everybody.

Speaker 3

Morning, Stephen.

Speaker 5

A couple for me. Can you mind giving us maybe a little more details 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 are comfortable with on long-term contracts, and how will you kind of keep us informed as we go forward here?

Speaker 3

You want to take You, Blake? 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, something we discuss every day. It is clearly a gigantic piece of the puzzle, so happy to go into more detail. Only caveat being this, I do not 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 is important to highlight that we are not going to fund these projects before the contracts are executed. The bridge financing we secured through our partners at Goldman and Barclays, that takes care of our near-term capital needs for the long lead time equipment, and that is all backed by the CRAs.

Speaker 3

But thinking a bit more holistically about this, the contracts that back these projects, they are different from any type of contract we have signed as a company before. We have take-or-pay sand contracts, but those are typically shorter in duration and serve more as floors 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 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.

Speaker 3

Behind-the-meter power, in general, it is 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 will likely be a bit more conservative, but assuming 80%-90% leverage, that is not out of bounds. This debt typically resides at the subsidiary level, and it is backed by the contracts and the hard assets, and it is supported by the credit wrap, again, from an investment-grade counterparty. So now, obviously, 80% to 90% leverage, that leaves about a 10%-20% equity component.

Speaker 3

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

Speaker 5

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?

Speaker 3

Yeah, I'll go ahead. So, all right. Again, not going to provide too much incremental detail on the projects beyond what we've already disclosed until the contracts are executed, but you're a smart guy, Stephen, and as you probably inferred from the information we did disclose around the CRAs, these are both sizable projects. It's not off base to assume that it would de-risk a very sizable amount of the GFA. Thinking about that a bit more, we're very pleased about how our relationship with Caterpillar has evolved. We're working very closely with them to evaluate. They have very clear end customer priorities where they want their equipment with the right people and their capacity. So, they're managing their capacity going forward with that in mind.

Speaker 3

We obviously don't want to just do the Socorro project and these two projects and be done, so we're working with them around 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.

Speaker 5

Great. Thanks for the details. I'll get back in queue.

Operator

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

Speaker 6

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'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. I guess, is that kind of like a year-end expectation or a before end of 1Q expectation, or do we need to look at the extension terms on that 180-day facility?

Speaker 2

Yeah. Look, this is John. We feel very confident about the steps we've taken and the position we currently sit in, the organization and Atlas as a whole. The projects we're working on, they fit with our customer's core objective of initial compute in late 2027, with aggressive ramps from there on into 2028. In order to hit those compute timelines in 2027, we've got to be breaking ground in Q1 and working at a pretty furious pace from there. Everything that has needed to be done, making these projects go on the front end, has been done. We've de-risked the supply chain, we've secured interim financing, and we've lined up the contractors. The only thing left to do is execute contracts, like you asked. And we expect for us to hit those timelines, we expect those contracts to be executed by year-end.

Speaker 2

We have effectively been negotiating both of those agreements, and it is at the same time, both of the contracts that we are working on. Between those projects, we expect pretty short order, once we execute one, we will get the other one executed.

Speaker 6

Thank you. A follow-up. Can I just ask about the link between the Cost Reimbursement Agreements and the bridge facility? It is backing the bridge, so can you help me understand the timing link between those, when the customer reimbursement facility starts paying the bridge?

Speaker 3

No. Effectively what the CRAs do is the customer effectively says that, "Hey, if we do not get to an ESA within a certain timeline, we will fully reimburse the lenders for all the cash outflows." So they are effectively making their balance sheet available to backstop the entire financing.

Speaker 2

Through the interim.

Speaker 3

Yeah, through the interim.

Speaker 6

Okay.

Operator

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

Speaker 7

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 CAT, 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?

Speaker 3

Yeah. I think that number changes significantly with the execution of the contracts, right? So, with what we've disclosed, right, you can have the kind of the obligations of 27 deliveries under the GFA. Those generators probably only represent 30%-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. There's quite a few smart investors that have done some math based on what we disclosed on the CRA. Basically, 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.

Speaker 3

These are big, expensive capital projects, and it will be a significant amount of CapEx upon execution. But like I walked through in detail, it's a very financeable cash flows.

Speaker 7

Understood. And maybe Go ahead.

Speaker 8

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

Speaker 3

Yeah.

Speaker 7

Yep. No, it makes sense. And maybe a bigger picture question. 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, I think there was some view that this was mostly going to be bridge power that leads to ultimately grid connections. When Bud Brigham was talking earlier, it 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.

Speaker 2

Yeah. I think, first off is, I think you can look at the agreements that we are talking about here with these 15-year, 20-year contracts. Customers are looking at this as permanent power. There has been a change, obviously, over the past six to nine months about the grid and its capacity to fund it, then you have had some political backlash. But I think it has been pretty clear there has been a turn that, if a data center is going to come, it is going to need to bring its own power, and it is not going to be able to rely on the grid, and they will not be able to rely on the grid. So, that is really where you have seen the turn, and I will let others chime in on that. But the discussions we are having are really the ones that are about providing primary power.

Speaker 4

Yeah. This is Bud. I just want to amplify one of the comments that John made, that it has become obviously increasingly apparent that the grids are less stable and a bit more fragile, and particularly with the increasing demand on the grid, but also the intermittent energy that has been subsidized into the grid. My view is, and I think it is pretty obvious, that the development of these private grids, private power, that is not pulling from the grid, and it can actually be supplemental power, provide supplemental power to the grid, is very healthy. And particularly, politically, it will be very beneficial, less vulnerable to the regulatory problems associated with the grid, and in fact, again, beneficial to those challenges that the grid faces.

Speaker 4

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.

Speaker 7

Appreciate your thoughts. Thanks, guys.

Operator

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

Speaker 9

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 a fixed capacity payment, 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?

Speaker 3

Yeah. 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, there's typically a variable component that covers the O&M piece, or sorry, operating and maintenance piece, that fluctuates with utilization. That is more for potential cost overruns, expenses, and stuff like that. These are, like we talked about, the load profiles are pretty harsh on the systems. The more they use it, obviously, the more the maintenance spending goes up. That functions to capture that incremental expense. But they're really relatively simple contracts in terms of the pricing structure.

Speaker 9

Okay, that's helpful. Then on the base business, could you just talk a little bit about what that free cash flow could look like in a normalized or a through-cycle environment? How do we think about the CapEx and cash associated with that part?

Speaker 3

Yeah. That is a great question. I think that, when you think about just the base business, we have really entered this more mature phase, where, from really think about from the genesis of Atlas until just very recently, we have been in a pretty steady growth phase with pretty heavy capital investment. It is very much, Sand & Logistics is very much like the You know, 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 are probably looking at this business being the base business, only really requiring somewhere around like $40 million of maintenance CapEx per annum.

Speaker 3

I think that we continue to see improving operations from our plants, our logistics team. We talked about there is positive momentum on our logistics margins moving forward. The power team has done a really good job of contracting that base legacy oilfield fleet. So that we are really thinking about all three businesses being very steady cash cows going forward and delivering positive free cash flow to help contribute to deleveraging the balance sheet as we move forward.

Speaker 9

Thanks. We will turn it over. Appreciate the color.

Operator

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

Speaker 10

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 AI Frontier Lab, the equipment moves with it. Maybe you could just talk a little more about whether this equipment is specifically designed for these two data center 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.

Speaker 3

You know, that's a good question. 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. I think 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. That makes it much easier for these systems to move from location, right? There's not going to be a big delta in the design of one data center versus the other.

Speaker 3

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

Speaker 2

I also think it's going to impact the construction of it as well.

Speaker 3

Yeah.

Speaker 2

Standardize, 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. I don't think it's specifically designed. This equipment's not specifically designed for Our power equipment's not designed for a specific site. Although it's being applied to a specific site, it can be used in multiple places.

Speaker 10

Got it. Okay. That's helpful. Then switching over to just the 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, and where can you see those volumes go? Could we get closer to the mid-20s if we had a couple more frac fleets that we're not thinking about? Just maybe some color around the different drivers and levers when we think about that more than 23 million and what it means for Permian activity.

Speaker 2

Yeah, I mean, we feel really I mean, we're pretty confident in our position right now as far as it relates to volumes for next year. I know we've got line of sight on more than enough tons to completely fill up our plants. Obviously, still open. I think the RFP season, I'll let Brian comment on this. I think the RFP season is, 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 crews out there, could put upward pressure on sand pricing. But you want to go ahead and give more comments?

Speaker 11

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 in 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.

Speaker 3

Yeah, Derek, to the heart of your question, though, that more than 23 million of allocated tons is based around effectively flat pressure pumping fleets in the Permian.

Speaker 2

Yeah.

Speaker 3

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. I think part of that is due to just a shortage of actual available pressure pumping equipment capacity. It's been after initial, like right after the beginning of the Iran conflict, you saw a few incremental crews get added. It's been pretty steady state. All of the allocated tons that we've been able to suck up for next year, that's really been market share capture.

Speaker 10

Got it. Great. Thanks, everyone. I'll turn it back.

Operator

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

Speaker 12

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. 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?

Speaker 3

Yeah, we already answered that earlier in the call. I think that we said that we've already done most of the steps on the front end of this project. We derisked the supply chain, secured interim financing, 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. I think it's, yes, very reasonable to expect both ESAs by year-end.

Speaker 2

Yeah, I mean, in order for us to hit the timelines that we laid out, we're going to have to, we expect to hit those, like Blake said, hit those timelines and execute the ESAs by year-end.

Speaker 12

Got it. Understood. Just shifting over to sand, 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 kind of year-end volumes is trending 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, or should we take, I guess, 23 million tons to be sort of preliminary guidance in terms of volumes at this point? To the extent that unallocated tons come through, that would represent upside, of course. Just curious kind of your confidence level on the unallocated-

Speaker 3

Yeah, I mean, that

Speaker 12

tons coming.

Speaker 3

That more than 23 million tons probably serves as a good baseline assumption.

Speaker 2

Yeah.

Speaker 12

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.

Speaker 13

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.

Speaker 8

We have one air permit that's been submitted. It was submitted pre-moratorium, and so that's in hold right now. But our air permits are standard air permits, and so it's a permit by rule. So we're obviously watching the governor's office very closely for any more guidance coming out of there. Those are going to be in any contract that a power developer signs. Those are going to be 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.

Speaker 13

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

Speaker 3

Yeah, it continues to climb. I think the one thing, the key thing to remember on CapEx per megawatt climbing is that it does not change the economics of the contract. As John Turner reiterated on the call, with these projects, it is pretty easy back solve where we expect them to generate unlevered returns in the mid to high teens with Adjusted EBITDA paybacks of five to six years. I think that going, if you rewind 12, 18 months as people started first using distributed power assets to power data centers, the CapEx per megawatt was much lower, and people quickly found that the systems as they were designed were not able to handle the load swings. There is significantly more load management equipment that has been added to those systems, and that is expensive equipment.

Speaker 3

I think that previously we have talked about it being anywhere from $1.5 million to $2.5 million per CapEx per megawatt. That has probably trended at a low level above $2 million. Just the low end of that range now starts at the two, and it continues to climb. But obviously, that passes through into incremental price per megawatt.

Speaker 13

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

Operator

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

Speaker 14

Thanks for taking my questions. This might have been answered on the power side, so I'm going to focus on the Sand & 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

Speaker 2

Yeah. Maybe a different sense of urgency on operations?

Speaker 3

Well, a different sense of urgency just in terms of securing their sand supply.

Speaker 2

Yeah.

Speaker 3

I think for sure that was. Yeah, yeah. Josh, I think that was 100% evidenced by the fact that they pulled forward their RFP. Typically, we have this call, like our Q3 call, we're like, "All right, as we enter RFP season, yeah, we'll update y'all on our allocated tons." We're having this call already, and Brian and his team have already kind of filled up the cup. I think that the procurement teams of our customer base, they're sharp people, and they knew that, like, "Hey, prices, like commodity prices moving, yeah, let's take risk off the table." There are still quite a few zombie mines out there, right? That just, they're not really producing.

Speaker 3

They might be running 20%, 30% utilization, but they are still serving there in bids, getting there in the RFPs and trying to bring down, yeah, just fill up their volume for fixed cost absorption. Savvy procurement people use that to try to bring down the price of sand. But we effectively said, "Hey, we are not going below this." And we also know with the dynamics you have in the trucking market right now, that is a big differentiator, right? You can buy dirt cheap sand, but you are not going to save money when it does not show up on the well site and it causes a lot of NPT, right? You are having all that equipment out there not working because the sand has not shown up is a lot more expensive than paying an extra 3, 4 dollars a ton of sand.

Speaker 3

Really, that is the position we have taken. With our larger customers, they understand that. They understand the incremental efficiencies that Atlas provides their operations. We have been very satisfied with how we have moved through the RFP process. One last thing I would say is though, is that now that we have got that cup filled for next year, I would say that, like Brian mentioned, "Hey, we have always been really successful when spot opportunities come up." When you have that marginal ton is really where we would look to raise price, right? That is the, "Hey, when I got to move things around, I got to potentially add risk to my production system. I am not going to do that without there actually being incremental price coming through." That is really what we are going to look to do.

Speaker 3

In general, I think that our Q4 guide points to a stronger Q3. Really, it is like you get under the hood, the entire Q4 progression is sequential improvement into year end, where 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. We are certainly seeing that. I think things look tighter as we get into Q1.

Speaker 2

I think next year, I think we are probably starting, I think we are going to start seeing double-digit increases in logistics pricing. There is going to be pressure all across the basin to meet needs of the operators. I think they are seeing that, because all of a sudden there is opportunity outside of the Permian where a trucking company can go make three times of their profit a day by going and hauling for data centers versus hauling sand and doing logistics in the oil fields. I think there is going to be significant pressure on the logistics piece, especially going into the first quarter. I think that is a clear reflection of what we are seeing with the operators in their RFPs right now. Which is where we are advantaged. Exactly.

Speaker 14

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, building on that point, is just on automation and what you're seeing with Kodiak. So you gave some pretty helpful guide points, starting your 37 trucks today, 45 at the end of this year, 100 by the end of next year potentially. 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, on a load per truck, you could go today relative to where you're operating. Maybe just expand on that a little bit more, the importance of automation and that relationship moving forward, and I'll turn it back. Thanks.

Speaker 2

Yeah, I'll start. I think the relationship with Kodiak is very important to Atlas. Obviously, 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. We've done a significant number of loads, and we continue to increase that as we move through and further expand that relationship. Ultimately, we want to be on the road, and Kodiak and Atlas are working towards that. That's when you will continue to see a lot of the efficiencies continue to accrue to Atlas. I think, from a standpoint of efficiencies and cost, I think we have a long way to go on the Kodiak relationship. I think there's obviously things that we've been doing to see the profitability, see improved profitability on our side.

Speaker 2

But the one thing I will say is that, going into next year and once we get to over the road, we're going to see real pressure on driver shortages, and the relationship and what we do with Kodiak is really going to separate and give Atlas a clear competitive advantage in Permian, because we're the only ones that can run those Kodiak trucks on the road and use those in our deliveries.

Speaker 14

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.

Speaker 2

Yeah, thanks everyone for your time and your questions. Here is where we are. I would say in power, we have secured the equipment for our two data center projects, and that we are working to get those agreements signed. We will make those announcements when we do. Our plan is the same one that we laid out last quarter and laid out this quarter, long-term financing followed by no equity until signed contracts and permanent financing is put in place. Obviously very excited about where our power business is in the organization. This has been transformational for Atlas, and we are continuing to execute, and I feel very confident that we are going to get this done, and we are also going to continue to grow this business. Obviously, in the Sand & Logistics business, excited.

Speaker 2

We have been in a trough over the past year or two years, and I do think 2027 is going to be a good year, not only for the logistics side, but also if we have continued higher oil prices, you are going to see sand prices go up because you are going to have frac crews added. When you do that, there is nobody better positioned than Atlas to take advantage of that with our cost structure. 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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