Solaris Energy Infrastructure, Inc. Class A

Good morning and welcome to the Solaris Q4 2023 Earnings Conference Call. All participants will signal by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President of Finance and Investor Relations.

Good morning and welcome to the Solaris Fourth Quarter 2023 Earnings Conference Call. Joining us today are 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 outlined those risks. I would also like to point out that our earnings release in 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 in the news section on our website. 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. 2023 was another strong year for Solaris as we deployed more systems, generated positive free cash flow, and continued to return cash to shareholders. Recapping our results. For the full year, we generated $293 million in revenue, $97 million in adjusted EBITDA, and $26 million in free cash flow. In the fourth quarter of 2023, we generated $63 million in revenue, $21 million in adjusted EBITDA, and $16 million in free cash flow. We returned a total of $47 million to shareholders in the form of buybacks and dividends and completed two dividend raises during the year. During the last couple of years, we made investments in new products that have created new earnings power and accretive cash flow generative capabilities. During the fourth quarter, we wrapped up our planned investments in these product lines, which enabled us to drive a significant increase in our free cash flow. In the fourth quarter, we converted 76% of our adjusted EBITDA into free cash flow. We expect an even stronger free cash flow conversion in 2024 as our new product lines generate returns and our pace of growth capital spending slows significantly. Earlier in 2023, our confidence in this coming inflection drove us to enhance our shareholder returns program. We announced an enhanced framework in March of 2023 to return at least 50% of free cash flow to shareholders over the long term, and we have delivered on that commitment over the last 12 months. During 2023, we raised our per share dividend twice, representing an increase of approximately 15% in 2023 and 20% since we started paying a dividend in 2018. We also announced a $50 million share repurchase authorization, $26 million of which we exercised in 2023 to repurchase over 3 million shares. In total, our 2023 return to shareholders, including dividends and share repurchases of $47 million, represent over 13% of our market capitalization. will return over 100% of our free cash flow to shareholders as we borrowed our revolving credit facility in early 2023 to opportunistically repurchase shares. Yesterday, we also announced that our board has approved a first quarter 2024 dividend of $0.12 per share and that we repurchased an additional $1.1 million in shares for approximately $8 million so far this year. This equates to an additional $13 million in shareholder returns or another approximately 4% of our current market cap that has been or is scheduled to be returned to shareholders in the first quarter of 2024. Pro forma for these additional first quarter shareholder returns, Solaris has cumulatively returned over $170 million through dividends and share repurchases since we began to return capital to shareholders during the fourth quarter of 2018. This represents approximately half of current market cap and essentially 100% of our through As we look into 2024, we expect a continued maturation of both our business and the U.S. shale industry. Shareholder returns are certainly a large part of this maturation theme, but I would also like to discuss a few other key industry themes that we believe Solaris is positioned well for. North American oil production continues to reach record levels despite the use of pure oil rigs and frac crews as operators continue to find operating efficiencies. We expect operators to continue to look for ways to increase well productivity and do more with less. As a partial offset to this efficiency trend, drilling incompletion intensity continues to grow to offset production declines that can be exacerbated by a shift from a core to a lower tier resource development. This intensity comes in the form of more sand moving on a per day or per hour basis than we've ever seen in this industry. Our high throughput systems directly address and continuously support this growth in frack rate and intensity. For example, our top fill systems combined with upgrades we've made to our sand systems provide a powerful combination of a reliable and industry-leading sand handling equipment. These upgrades help reduce the total delivered cost of sand for our customers by reducing the number of truckloads required through higher payloads and turning trucks quicker. More recently, we've come up with additional innovations to our existing technology that have helped our customers increase the amount of sand offloaded per hour. Also, over the last couple of years, our systems have also successfully supported the completion of simultaneous well frack jobs known as simulfracks. We've always believed that the entire raw material supply chain or low pressure side of the well site holds tremendous opportunity for efficiency improvements. Our equipment and the complementary measurement and software tools are keys to unlock these process improvements. As frack intensity grows, it remains clear that service providers such as Solaris, who offer reliable, safe, high throughput, raw material handling solutions, will be key to helping operators maximize their capital and operational efficiency initiatives and provide a safe environment to do so. As another example, the use of closer proximity sand to drive additional efficiencies has grown over the last 12 months, most prominently in the Permian Basin. The savings on last mile trucking is the most predominant economic driver, and the ability to maximize payload on leasehold roads when using bottom drop trucks can also significantly produce savings. While the opportunity set is still relatively small compared to total sand consumed in the market, we are working with our customers to execute on these opportunities. Another theme continuing to grow in the markets is the electrification of oil and gas development. We have largely seen this play out in the growing demand for electric frack fleets. Our systems have been 100% electric since inception and are designed ready to plug and play into the same power sources our customers are using to supply their electric or traditional frack operations, including grid power, turbines, and natural gas powered engines. Our equipment continues to fit the bill as operators are asking for or even requiring all electric equipment to drive lower costs, higher reliability, and reduce emissions. And finally, consolidation at both the operator and service company level continues to be a theme in the maturing US shale landscape. Operators can gain significant efficiencies by executing development plans on larger, contiguous acreage blocks. Likewise, service providers are Binding to grow scope and leverage operational and financial synergies across multiple product lines. Today, Solaris has primarily been a participant in consolidation and mergers yet. We continue to look for the right fit that would enhance our cash flow and shareholder returns profile, keep our balance sheet healthy, and complement our culture of innovation. I'd like to summarize by highlighting that 2023 was an exciting development year for Solaris. We gained significant traction and earnings from new products and new customers, grew our overall system deployment, and began to see conversion of our strategic investments over the last couple of years into meeting global fleet free cash flow generation. We strengthened our shareholder return framework this past year by increasing our per share dividend twice to $0.12 a share, representing an approximately 15% increase from 2022 levels, and returning $26 million in the form of share repurchases as part of our $50 million authorization. Expect a higher amount of free cash flow in 2024 should give Solaris the ability to add value by increasing liquidity, reducing revolver borrowings, growing sustained shareholder returns, maintaining our healthy balance sheet, participating in consolidation, and remaining ready for the future potential organic growth opportunities with strong cash position. With that, I will turn it over to Kyle for a more detailed financial review.