Solaris Energy Infrastructure, Inc. Class A

Good day and welcome to the Solaris Second Quarter 2024 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 telephone keypad. To withdraw your question, please press star then two. Please note today's 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.

Thank you, Operator. Good morning and welcome to the Solaris Second Quarter 2024 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 our previously announced acquisition of Mobile Energy Rentals LLC, 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 Security 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 in the news section on our website. In addition, because this transaction is subject to shareholder approval at a special meeting, this communication and other materials are subject to certain proxy solicitation rules and guidelines. I'll now turn the call over to our Chairman and CEO, Bill Darler.

Thank you, Yvonne, and thank you, everyone, for joining us this morning. During the second quarter, Solaris produced strong free cash flow, returned incremental cash to shareholders, and continued to deliver value to our customers. To recap our second quarter results, we generated $74 million in revenue, $21 million in adjusted EBITDA, and $18 million in free cash flow. We returned $5 million to shareholders in dividends and recently announced a third quarter dividend of 12 cents per share, which will result in approximately $183 million returned to shareholders through dividends and share repurchases since 2018. After the quarter ended, we announced a transformative acquisition of Mobile Energy Rentals, or MER, that provides Solaris with an accretive entry into a new mobile distributed power product line with exposure to multiple end markets, both within and outside the oil field. Our acquisition of MER not only adds a great team and a current contracted business, but also provides us with the opportunity to invest primary capital to meet visible market demand for mobile distributed power. Both Solaris and MER are currently at exciting inflection points. Solaris is coming off a successful growth capital program where we introduced a new complimentary product offering that is helping us earn more dollars per frat crew we follow. Now that the build-out of this product line is complete, we are seeing a significant inflection in free cash flow generation. Our second quarter free cash flow of $18 million is the highest quarterly cash flow we've seen in four years, and we expect the core Solaris business will continue to generate significant free cash flow in future quarters as well. MER's inflection point is in its growth trajectory. MER is seeing demand growth across multiple end markets that underpins new growth investments in its mobile power generation assets. As a result, MER plans to more than triple its fleet size from roughly 150 megawatts today to approximately 500 megawatts by late next year. To execute this growth plan, MER needs access to capital, field service, and corporate infrastructure, which Solaris can provide. Additionally, Solaris' engineering and manufacturing capability provides further potential operational synergies, and our presence on one-third of the completion sites in the U.S., combined with long-standing relationship with U.S. oil and gas operators and midstream companies, present attractive commercial cross-selling opportunities. The timing of this combination at our respective inflection points in cash flow and growth trajectory couldn't happen at a better time, and we're excited to share progress with you about our combined businesses after our anticipated closing in the third quarter of 2024. Turning back to Solaris' well-side equipment rental business, I'll give a brief overview of industry activity levels. During the second quarter, we saw the anticipated choppiness in U.S. drilling incompletions activity we referenced in our last earnings call, mostly due to a continued activity decline in natural gas exposed basins as a result of low gas prices. Most of this decline appears to be behind us now, and we saw stabilization in gas-exposed activity and continued strength in oil basins such as the Permian. For the third quarter of 2024, we expect activity levels to be relatively flat with the second quarter. As I mentioned earlier, the Solaris board recently approved our third quarter dividend of $0.12 per share, and I'd like to reiterate our commitment to shareholder returns. Solaris has an established track record of making strategic, organic investments that drive earnings and cash flow growth. These investments have enabled Solaris to grow free cash flow and provide meaningful cash returns to shareholders, and throughout our most recent capital growth program, we continued to do both. We believe the MER acquisition introduces another opportunity to invest in a growing new product line, an attractive return, and strengthen our ability to continue returning capital to our shareholders in the longer term. The diversification and growth of our pro forma earnings stream combined with the longer term nature of the distributed power contracts should support increased earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder return programs, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital. With that, I will turn it over to Kyle for a more detailed financial review.