Solaris Energy Infrastructure, Inc. Class A

Good morning and welcome to the Solaris Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one Good morning and welcome to the Solaris Second Quarter 2022 Earnings Conference Call.

I'm 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 Gap 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. Our second quarter financial results demonstrate the early innings for a more robust opportunity set for Solaris than we've seen in the past. Over the last few market ups and downs, our total addressable market was generally limited having a set of six sand silos paired with a frack crew and a relatively small last mile service offering. During the last few years, including through the downturn, Solaris expanded its engineering software and manufacturing teams and has been hard at work designing and building new technologies that complement and build upon our core offering. Today, our total addressable market has grown significantly as we roll out additional offerings. Although we are still tied to the number of frack crew sites in operation, Our opportunity on those sites has grown significantly. Today's offering includes top fill solutions, the auto blend unit, water and chemical silos, and a more sophisticated last mile offering that expands our potential earnings footprint per well site. These growth opportunities were born out of our internal innovation and our culture of continuous improvement that are core values for Solaris. We've always believed that the entire raw material supply or low pressure side of the well site holds tremendous opportunity for efficiency improvements, just as the sand storage handling did. Our vision was to design a low pressure side of the well site that integrated the sand, water, and chemical storage and handling into one all-electric automated operating platform with minimal headcount required to operate multiple built-in redundancies for the highest reliability and the smallest footprint possible. This vision required capital investment that we began making in 2020, despite the town turn and accelerated this year as these offerings have had great traction and commercial success. They're now resulting in higher revenue and profit per frac fleet and return opportunity for Solaris. Our number of fully utilized sand systems is a proxy for the number of frac crews we follow and is still a good measure of part of our success. We believe our 12% sequential sand silo system growth in the second quarter exceeded the underlying activity growth in frac crews as the new technology deployments helped us expand our customer list. The efficiency our technology enables has always been important but has become even more critical at a time when access to incremental frac crews, workers, and consumables needed to drill and complete wells is challenged. Our new top-fill technology enhances these efficiency benefits by maximizing payload and minimizing unload times of trucks hauling sand to the well site. The combination of increased payload and faster unloading times allows the drivers to achieve more turns which reduces the overall number of trucks and drivers required to supply sand to a well site. We estimate the number of required truck trips can be reduced by up to 20% by using our top fill technology. Fewer trips and fewer drivers help lower overall trucking costs as well as alleviate the worker availability bottleneck that continue to be a challenge for the industry. Fewer truck trips and people on well sites also means improved safety and a lower carbon footprint. Customers also maintain the option to unload pneumatically, which helps to ensure reliability and uptime performance. The value our customer sees in these efficiency gains is evident in a growing backlog we're experiencing for our new top fill technology. Nearly every customer that has a top fill today has indicated plans to continue to use the system and in many cases, some of our top fills have allowed us to add incremental silo work for new customers, in addition to their current system activity. This brings incremental return on a pull-through basis. Based on these early results, we have a growing backlog in demand for the units, giving us line of sight into additional deployments over the coming quarters. During the second quarter, our last mile services offering delivered a record amount of sand to well sites throughout the lower 48, which was an additional contributor to overall profit per system. As we've rolled out the top fill equipment, we have used them in many of our integrated last mile jobs and have been able to further enhance our margins. We've strategically built our last mile service offering over the last few years by investing in an experienced team, investing in software, and integrating our top fill equipment. We were also able to win work with new high quality customers, and with the ramp in our top fill deployments, we've also started to benefit from an increasing number of belly dump tons contributing to our profit mix. We see continued momentum with our integrated last mile service offering as our team continues to execute as our new top fill equipment gets rolled out. It's only getting started in terms of deployments to help drive incremental market share wins in the coming quarters. Our auto blend unit also provides incremental efficiencies on well sites, and this benefit is also evident in the increased demand we've seen. Our blender revenue days were up over 50% in the second quarter, and some of our deployments have been consistently with the same customer. The AutoBlend's increased automation, smaller footprint, built-in redundancy, enhanced safety, and all-electric design all contribute to a significant reduction in downtime caused by traditional blenders, resulting in an increase in pumping hours for our customers. This translates to more wells per frack crew, which alleviates a major industry pinch point on pumping equipment and labor availability, and ultimately results in lower operating costs for our customers. Like the rest of the Solaris offering, AutoBlend is all electric and can be integrated with power sources that are used by electric freight fleets today, thus reducing or completely eliminating fuel requirements for Solaris equipment. While the industry is remaining disciplined and is far away from a full-scale new build cycle, we believe the new electric freight fleets coming into the market in 2023 provide a strong opportunity for continued AutoBlend deployment in addition to the adoption for conventional fleets. Last quarter we spoke about how we frame the potential return opportunity on a per frac crew basis relative to the investments we are making in new technologies, particularly the top fill and auto blend units. We believe that for every well site where we deploy a top fill, our last mile services, our fluid silos, and our auto blend unit, we deploy two to three times the investment and expect two to three times the return or contribution margin per frac crew compared to a single six-pack sand system. We are already seeing these incremental returns on well sites that incorporate our new offerings. It's also important to reiterate that each of these new service offerings is designed to work in conjunction with the Solaris sand silo system. As these new technologies deploy and pull through additional sand silo units, we believe our activity growth can outpace the industry track through deployments. For example, there are customers and basins that Solaris has not historically had a large presence with. We believe that our new technology will allow us to essentially grow into new or underrepresented markets such as the Rockies and Bakken. And with a return opportunity of two to three times versus a standalone silo system, we'd also expect to see our overall profit per system expand over time as well as customer and basin additions. Because we have a culture of innovation and continuous improvement, we're continuing to work on additional efficiency enhancements for our customers to further grow our addressable market. One additional example of this is the modifications we made to our equipment to enable handling of wet sand. While it is still early to know what the ultimate demand will be for wet sand, several operators have spoken about it in the context of mobile or on-site mines. Wet sand typically contains 4-6% water content that historically has been hauled by boxes or bottom drop trailers. While the weight of the water results in smaller volumes of sand that can be transported per truckload, The total delivered cost of the sand is significantly cheaper by reducing trucking distances with more proximal mine locations and eliminating capital and operating costs required to dry the sand. We recently tested the ability of our full offering to handle wet sand, including modified sand silos, fluid silos, top fills, and auto blend. We are pleased with the initial results and will continue to run these trials. The early trials indicate that we would require relatively minor modifications to retrofit sand systems for this capability and our monitoring market demand, which would justify this incremental deployment of capital. While Solaris Sand Systems already offer many efficiency benefits today, we believe this enhancement could result in new customers or incremental work with existing customers. We are encouraged by the strong performance we have achieved so far this year and look forward to meeting our customers' demands for high-quality service, continued innovation and cost-effective solutions that drive completions execution. Our second quarter results are pointed to progress in growing our revenue and margin opportunities through our investments in new technologies. We expect our expanded offering to continue to provide an economic and efficiency edge for both our customers and Solaris and are excited about our incremental market growth opportunities. We look forward to understanding the initial prospects for growth in 2023 as we continue to invest in forward-thinking solutions while continuing to pay our dividend and maintain our strong liquidity. With that, I'll turn it over to Kyle for a detailed review of our financial results and guidance.