Solaris Energy Infrastructure, Inc. Class A

Good day and welcome to the Solaris Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good morning and welcome to the Solaris Third Quarter 2021 Earnings Conference Call. I am joined today by our Chairman and CEO, Bill Zartler, and our President and CFO, Kyle Ramachandran. Before we begin, I would like to remind you of our standard cautionary remarks regarding the forward-looking nature of some of the statements that we will make today. Such forward-looking statements may include comments regarding future financial results and reflect the number of known and unknown risks. Please refer to our press release issued yesterday along with other recent public filings with the Securities and Exchange Commission that outline those risks. I would also like to point out that our earnings release and today's conference call will contain discussion of non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release, which is posted on our website at solarisoilfield.com under the News section. I'll now turn the call over to our chairman and CEO, Bill Zartler.

Thank you, Yvonne, and thank you everyone for joining us today. I'm pleased to share another quarter of strong Solaris results. We generated a 40% sequential quarterly increase in revenue to over $49 million, adjusted EBITDA increased 18% sequentially to $7.7 million, and we paid our 12th consecutive quarterly dividend. We ended the quarter with $43 million of cash and no debt on the balance sheet. Industry fundamentals continue to shape up strongly during the third quarter. Oil prices increased to the $80 range and gas prices climbed over $5 as global supply and demand dynamics continued to tighten. During the third quarter, U.S. horizontal rig count grew 10% from the second quarter average, while completions activity grew at a slower rate as operators increased drilling activity and inventories of drilled and uncompleted wells reached multi-year lows. Since the end of the third quarter, the horizontal rig count is up another 7%. Many operators have taken advantage of higher commodity prices and attractive well-head economics, albeit not at the same rate as the increase in commodity prices. We expect operators to continue to increase drilling activity, including many private operators that haven't been active in many years. Meanwhile, we continue to see public operators stick to capital discipline. Many are indicating modest increases in drilling and completions activity and spending next year as they plan to maintain or slightly grow production. We believe this combination of robust commodity prices, capital discipline from public operators in 2021, and growing backlog from both public and private operators all set the stage for another year of activity improvement in the U.S. completions and for Solaris in 2022. Beyond increases in overall activity levels, we also believe recent supply chain tightness in the market will play well into Solaris' strength in the coming year. The industry is currently facing constraints in many critical areas such as labor and trucking, and both new and existing Solaris offerings help reduce the impact of these bottlenecks by providing highly efficient, large storage buffers with multiple unloading spots and built-in automation. We're continually improving our system automation that is core to Solaris. We believe continued automation can help further reduce labor requirements, improve performance, and reduce costs. We demonstrated this with our Auto Hopper technology we introduced a couple years ago, which resulted in increased operational efficiencies, reduced labor, increased reliability, and reduced spillage and dust when traditional frac blenders are in use. Our new Auto Blend technology advances those automation gains by completely replacing traditional blender technology with a streamlined, integrated, all-electric blender. During the third and fourth quarters, we continue to run customer trials with Auto Blend. Several of our customers have now seen firsthand the significant improvement in reliability and performance of the AutoBlend versus traditional blenders. We continue to demonstrate that our AutoBlend solution can further reduce headcount requirements while also improving uptime performance and sand throughput. Additionally, because AutoBlend is all-electric, it can be integrated with the same cleaner power sources that are used by a growing number of electric frac fleets. We believe that the continued industry focus on capital efficiency will drive demand for technologies that can both improve operational efficiencies and meet sustainability initiatives. Alaris is the only integrated provider of all electric solutions for the low-pressure side of well completions operations, and we believe this strongly positions us to address many of the challenges of today's market, as well as support our customers' key ESG targets. We expect our next two auto blend units to enter service No letter in the first quarter of 2022 and we are looking forward to full commercialization of the system. We continue to have discussions with several customers about longer term contracts in order to secure spots in the supply chain queue. The performance of our system and the commercial structure under discussions appear compelling for our customers that have trialed our system. Supply chain lead times on some of the components of the auto blend have continued to tighten and we have ordered long lead items for a few additional blenders as we finalize commercial negotiations. Trucking is another area of tightness in the industry that is receiving a lot of attention right now. When we manage the last mile for our customers, it means we manage the trucking logistics in conjunction with our silo-based sand storage services on well sites. Much of Solaris' ability to achieve record-managed last-mile activity in the third quarter is a direct testament to our equipment and the associated supply chain and operational technology, the team we've built to management, and our balance sheets. Our last mile logistics team has grown in both size and sophistication and has worked hard to strengthen our deep relationships with trucking providers. Our strong balance sheet has also helped us secure trucking access as our debt free balance sheet and liquidity allows trucking carriers both certainty and speed of payment. We are also expanding our next generation belly dump unloading offerings that work in conjunction with our silos. Today we have two new top fill based systems of different designs currently running in full-scale trials and are very pleased with the results of both so far. Both solutions allow for flexible placement on well sites up to 400 tons per hour offload rates and preserve the option to unload from pneumatic trucks to maximize truck procurement flexibility. This flexibility should allow operators to optimize their payloads for trucking availability, lead to lower overall costs, and increase surety of meeting production time schedules at a time when trucking resources are tight. While the Solaris silo system already offers many efficiency benefits today, we believe this enhanced belly dump loading technology could ultimately result in new customers for Solaris. Our customers will continue pushing for solutions that ensure wells can be completed as fast and efficiently as possible, and at current commodity price levels, the timeline to reach production is crucial to driving value. We believe our people, relationships, and technologies are well positioned to ensure our customers can meet these timelines are also offering all electric, automated, and safe solutions that enhance sustainability benefits for the entire oil and gas industries. With that, I will now turn it over to Kyle for more detailed financial review.