Solaris Energy Infrastructure, Inc. Class A

Good morning, afternoon, evening, and welcome to the Solaris Q4 2022 Earnings Teleconference and Webcast 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 1 on your telephone keypad. 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 fourth quarter and full year 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 Commissions 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 solarisboilfield.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 all for joining us this morning. 2022 was another strong year for Solaris. We deployed systems to meet rising demand, invested in our business to grow our addressable market, and expanded our presence with new and existing customers and bases. We continue to focus on innovation and improving our service quality and reliability. Our most visible growth in 2022 came from our all-new electric, top-field-based systems We started the year with a couple of units and have more than 30 operating in the field today. This growth would not have been possible without the investments we made in new technology, people, and continuous improvement of our offering. The design and deployment of both of our new technologies, AutoBlend and our TopFill based system, together with ongoing system enhancements, are supported by our own internal engineering and manufacturing capabilities, which we ramped up to match our customers' strong demand. We invested $81 million in capital expenditures to support this strong demand, which helped drive a near tripling of adjusted EBITDA to $84 million in 2022 and a fourth quarter exit rate approaching $100 million. We also continue to pay our dividend and end of the year with no net debt. In 2022, we continued innovating to help our customers improve their efficiency by lowering their overall costs. The Solaris top fill system enables our sand systems to be compatible with belly dump trucks without losing the backup option and reliability of multiple offload points for pneumatic trucks. Belly dump trucking allows for increased sand volume per truckload and increases the number of turns per truck. Our system is not only unique in its redundancy, but can also be supported by multiple electric power sources. The result is our customers benefit from higher truck payloads and faster unloading times, resulting in fewer trucks and drivers needed to supply well sites and ultimately lower costs. We are also seeing some of our customers use our top fill solutions to successfully complete simul-frac jobs and we believe operators will continue to push the envelope in seeking further efficiencies. For example, some operators are testing the use of wet sand to drive additional efficiencies. Earlier this year, we completed our first live trial with a modified sand system and topfill system together on the wet sand portion of a frac job. While the wet sand opportunity today is small relative to total sand consumed, it has grown over the past couple of years and we are ready to play a role in this development. We have a proven history of investing in and being rewarded for our efforts to support our customers' efficiency improvements as it has demonstrated in the rapid adoption of our topfill solutions. We believe our top fill investment allowed us to grow faster than the underlying U.S. frac market and grow our footprint in historically underrepresented basins like the Rockies. While belly dump solutions have been in the market for many years, including our own early designs, in 2022, our new system established Solaris as the largest provider of belly dump-compatible sand storage in the lower 48. The strong top fill adoption has already resulted in us broadening our customer list, including pull-through sand silo work, and we are encouraged by the longer term visibility for that to continue. Every customer that has a Topfill unit today has indicated plans to continue using those units and we are working with several of them on agreements for multiple units. Based on this current activity and backlog, we plan to build new units in 2023 to meet incremental demand. Beyond our Topfill solution, the other new offering we continue to advance this past year is AutoBlend, our electric hydrated delivery system, which eliminates many of the problems of today's traditional blenders. Like our top fill solution, AutoBlend is designed with redundancy, increased automation, a smaller footprint, increased safety, and is 100% electric. These features contribute to a significant reduction in downtime typically caused by traditional blenders resulting in an increase in pumping hours and lower maintenance requirements for our customers. While traditional blenders require one or more dedicated personnel to operate, AutoBlend can be run remotely from the data van. When used in conjunction with the full Solaris offering, including sand systems, fluid systems, and our top-fill solution, on-site labor requirements can be reduced by about 80%. Given the continued tightness in pumping equipment and labor availability in the industry, we believe our full offering translates to more wells per frack crew and ultimate results in lower operating costs for our customers. Even further savings are possible when our all-electric equipment is tied into the same power source as electric frac fleets, which continue to grow in the market. Today, electric frac fleets make up a small percentage of overall activity, though some estimate they could become a quarter of all activity over the next few years. While many operators are currently using either our top fill solution or auto blend, Approximately one-third of the FRAC crews we supported in the fourth quarter operated a combination of sand silos, fluid silos, last mile services, top fill, and or auto blend on one well site. While these individual services already offer many efficiency benefits as standalone offerings today, we believe more integration could result in new customers or incremental work with existing customers. We expect to see a growing number of well sites with multiple Solaris offerings. Additionally, we view the return potential of a fully integrated Solaris City opportunity on a per-frac crew basis to be a multiple of a single six-pack system today. Throughout 2022, we spoke about how we framed this return opportunity on our new technologies relative to the investments made in those offerings. We believe that for every well site where we deploy a sand system, fluid system, top fill, auto blend, and last mile services, We're already seeing these incremental returns on well sites that incorporate our new technologies, and as we continue to ramp up additional deployments over the coming quarters, we would expect to see our overall profit per system grow over time, as well as continued pull-through benefits to SAM system deployments and new customer additions. As we think about our plans for 2023, we will continue investing in growth capital that creates positive returns for our business. We also see opportunities to return incremental capital to our shareholders. The backlog of demand for our topfill equipment continues to outstrip supply, so our topfill system will make up the majority of our growth investments in 2023. As we build our fleet, we expect to be nimble with those plans based on the balance of customer demand and bottom drop trailer supply. Our capital plans for 2023 are weighted towards the first half of the year so we can meet demand and maximize the benefit of the returns and cash flow we expect to generate. We also focus on how we will share our excess cash flow with investors over the course of the year. Every employee at Solaris is also a shareholder, and in total, we own 16% of the company, so we're highly incentivized to find the right balance of investment into our business and returns to investors that will maximize shareholder return. During 2022 and into 2023, we also increased how much we give back to our employees, which Kyle will share more detail on later. Our results would not be possible without our employees, and we believe having a strong shareholder alignment in our employee base combined with a strong team-focused and entrepreneurial culture has led to Solaris being a great place to work. I'm proud to share with you that for the second year in a row, we've been recognized as a top workplace by the Houston Chronicle. This incredible achievement is a testament to our team's dedication to build an organizational culture where people feel supported, engaged, and excited to help Solaris achieve our goals. Wrapping up, I would like to say that at Solaris, we're extremely proud of the strong performance we achieved in 2022 and look forward to executing on our prospects for growth in 2023. Our customers' increasing demands for high-quality service continued innovation and cost-effective solutions have pushed us to be proactive in solving the always evolving industry pinch points. We expect our expanded offering to provide a superior economic and efficiency benefit to our customers while also enhancing our returns. We are confident in the conversion of our strategic investments into a meaningful free cash flow inflection over the coming quarters and will remain thoughtful on how we deploy this excess cash. With that, I'll turn it over to Kyle for a more detailed financial and guidance review.