Solaris Energy Infrastructure, Inc. Class A

Good morning and welcome to the Solaris Oil Field Infrastructure, Inc. Q4 and Full Year 2021 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please send to 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, today's event is being recorded. And now I'd like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investor Relations. Ms. Fletcher, please go ahead.

Good morning and welcome to the Solaris Fourth 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'd 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 a 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 this morning. 2021 was an exciting year for Solaris. The market continued its recovery as global oil and gas demand improved significantly and supply remained constrained, which supported strengthening commodity prices throughout the year. This led to increased drilling and completion activity, and we redeployed systems to meet demand. We also brought two new technologies to market that are now showing evidence of success, and we remain committed to paying a dividend to our shareholders. For the fourth quarter of 2021, our fully utilized system count was up 7% sequentially to 63 systems and adjusted EBITDA was up 28% to approximately $10 million. We paid our 13th consecutive dividend at the end of the year with $36 million of cash and no debt. During the quarter, we ran two of our new top fill based systems on jobs that were part of our managed last mile offering. Our top fill offerings allow us or our customer to utilize higher payload bottom or belly dump truck trailers. while preserving the option to fill our silos using traditional pneumatic trailers for increased flexibility and reliability. During the fourth quarter, we were able to use our top fill technology to optimize trucking, which contributed to improved profit per system. We see this continuing as we roll out additional top fill systems. We also continue putting our auto blender integrated electric blender through trials. As of today, we have four completed auto blend units in the field. We are very pleased with how the units are running and are encouraged by the positive feedback from our customers. We continue to see multi-year growth potential with several customers with this new technology. The fourth quarter also saw a full-core impact of higher pricing that we implemented in August, as well as mixed shifts as more customers opted for 9- and 12-pack configurations of our sand systems to provide a greater buffer of well site storage due to sand and driver availability challenges. Our system configuration flexibility, top-fill offerings, and autobland technology represent additional opportunity for Solaris to grow revenue and margin on a per-fractly basis. As we look into 2022, we see industry fundamentals continuing to strengthen. Supply and demand balance continues to remain tight, with oil demand expected to continue increasing. Layering in recent incremental geopolitical risks, near-term oil prices have increased into the $90 range, and gas prices remain over $4 in MMBTU. Based on commodity prices, announced operator budgets, and discussions with customers, we see increased filling and completion activity in 2022. E&P operator budgets now point to an over 30% increase in spending this year, although part of that increase will be due to rising service costs, activity is also increasing across the industry. The horizontal rig count activity is currently up over 10% over the fourth quarter of 2021 average and up over 30% versus the 2021 annual average. These rig additions will also translate into increased completions activity for 2022 and beyond. As a result, we expect Solaris' fully utilized system activity in the first quarter of 2022 to be up approximately 10% over the fourth quarter of 2021. Beyond activity trends, we see a continuation of many of the same themes from 2021. Operators will continue to look for ways to improve efficiency and sustainability, which plays well into our strengths. We see the current constraints in many critical areas such as labor, sand, and trucking also continuing for the near term. During the fourth quarter, Solaris helped customers address some of these constraints by deploying more 9- and 12-pack offerings as well as our new top fill solutions. Both of these new and existing Solaris offerings help reduce the impact of supply chain bottlenecks by providing highly efficient large storage buffers with multiple unloading options, trucking flexibility, and built-in automation. We spent much of the last couple of years building our last mile management capabilities and relationships. We built a strong team and software support that can provide the highest level of customer service as well as constant data visibility and analytical improvements. 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. The addition of our top-field technology enhances these capabilities. In the fourth quarter, we benefited from deploying our top fill systems to existing Solaris customers. While our top fill solution provides attractive standalone economics to Solaris and our customers, the potential of future top fill deployments to our new customers represents incremental market share and return potential for Solaris. We have strong demand signals from both existing and new customers for top fill systems, and as such, we will be growing our top fill fleet significantly in 2022. Our market penetration and timing plans for our top fill solution will remain dynamic based on market demand and supply chain. Another thing we can see continuing in 2022 is the electrification of well-set equipment. Almost all of the new frac equipment on order is electric. Our equipment has been all electric from inception. We're able to integrate our equipment to run off the same power source running the frac pumps on location. Our electric auto blend integrated blending unit in particular offers not just an electric design but eliminates several complex components from traditional blender setups and provides built-in redundancy and automation. We deployed our first auto blend unit with multiple customers in 2021 and currently have four blenders in the fleet today. All four are working or scheduled to be working for customers during the first quarter with a few jobs transitioning past trial phase into earning revenue. Today, we have received very positive feedback from our customers, many of whom see the Solaris AutoBlend as a step-change improvement from legacy blenders that helps them avoid spending capital on older, not-fit-for-purpose technology with ongoing reliability and maintenance challenges. This dynamic has many parallels to our ramp-up of sand silo deployments in 2017 and 2018 during the frack fleet reactivation cycle, where Solaris replaced old legacy, not-fit-for-purpose sand handling equipment. Given this initial success and additional demand indicators, we are committing to building several additional auto blend units in 2022. Supply chain lead times on some of the components of the auto blend have continued to tighten, and we have already ordered long lead items for additional blenders as we advance commercial discussions. In summary, 2021 was a year of meeting market demand, keeping our commitments to our shareholders, and demonstrating success of our new technologies. In 2022, we will focus on continued execution to meet another year of anticipated market growth as well as the build out of new technology to capture incremental market opportunities. 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 while also offering all electric, automated and safe solutions that enhance sustainability efforts for the entire oil and gas industry. Given the results we've shared today, we're even more excited about the prospects for 2022 as we continue to invest in new technology while continuing to pay our dividend and maintain our strong balance sheet. With that, I'll turn it over to Kyle for more detailed financial and guidance review.