Solaris Energy Infrastructure, Inc. Class A

Good day, and welcome to the Solaris Energy Infrastructure fourth quarter and full year 2024 earnings teleconference and webcast. 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. For 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, this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President in Finance and Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to the Solaris Fourth Quarter 2024 Earnings Conference Call. Joining us today are our Chairman and CEO, Bill Dartler, 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 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. 2024 was a tremendous year of transformation for Solaris. We generated strong free cash flow in our legacy Solaris logistics solution business and found a great opportunity to reinvest that cash to the acquisition and subsequent growth of a mobile power generation business that is now Solaris Power Solutions. I'll start this morning by giving you an update on our power solution strategy, including the latest power generation capacity order and long-term customer contract that we announced last night in our earnings release. We're only six months into our journey of building a premier behind the meter power as a service company, and our team has done an incredible job executing on this strategy. Our power solutions fleet began with just over 150 megawatts generation assets. Last quarter, after executing on a series of orders and several multi-year customer contracts, we were on a path to grow to around 700 megawatts by early 2026. Last night, we announced the next leg of growth for the power fleet, We recently placed a new order for an additional 700 megawatts that doubles our fleet size to approximately 1,400 megawatts or 1.4 gigawatts by early 2027. We believe this additional capacity will allow us both to service growth with our current customer base and add new customers. Speaking of supporting customers, last night we also announced a strategic long-term partnership with one of our current customers that includes a contract for a minimum of approximately 500 megawatts with a national term of six years for a new data center. We are also finalizing the formation of a joint venture with this customer to jointly own the power plant equipment supporting the new data center. Kyle will provide more detail on the structure of this partnership later. We believe this latest fixture and joint ownership agreement is indicative of the evolving nature and importance of the market for behind-the-meter power, as well as a strong testament to Solaris' high-quality value proposition. I'm excited about the continued momentum we observe for Solaris power solutions. Today's power applications are getting larger and more numerous, coupled with customers recognizing the longer-term nature of their requirements that has driven this nearly tenfold increase of our business to 1.4 gigawatts. A single data center today can require well over a gigawatt of power, and some oil field and other microgrids are approaching 100 megawatts in power demand. Our integrated behind-the-meter power solution is well suited to satisfy those needs. The growing need for power is being driven by the electrification of everything, the domestic reshoring of manufacturing, and the growing quantity and scale of data centers. Demand for power has outpaced investment in infrastructure, creating a significant opportunity for a power solution segment. This has resulted in extended grid interconnection wait times, in turn driving a greater need for bridge and permanent behind-the-meter long-term power solutions, which we are well positioned to supply. For many customers, that bridge timeframe is extending thus behind-the-meter power is evolving toward more permanent power, which will supplement the grid by helping manage complex loads, providing redundancy, and potentially even improving grid resilience. The notion of bring your own power is becoming a requirement for many industrial applications. We define this total offering as power as a service, which for Solaris reflects our business model whereby we provide both behind-the-meter power generation and distribution services into our customers' specific applications, which are becoming increasingly complex and require 24-7 operation and oversight. Power as a service also means we are filling the role of the electricity provider for our customers which requires combining reliability and agility with compelling economics and emissions profiles. Delivering reliable power as a service starts with a culture of collaboration and creative problem solving, led by the right team and supported with the right equipment. This proven framework has been the cornerstone of our logistics business, and now we're applying the same principles to build our power business. Our power solutions business is guided by its founders, who are not only steering operations, but also mentoring, the next level of talent. As recognized industry leaders, both bring extensive expertise in designing, installing, and managing electrical infrastructure. We also recently added Max Izaguirre to our board. Max is a former chairman of the Texas Public Utilities Commission and a former ERCOT board member. Max spent much of his career developing power and other power and natural gas related infrastructure projects, both in the U.S. and international. And he brings to us an invaluable perspective on the power markets for Solaris. As we continue to integrate, our teams are creating operational synergies. We've repositioned several groups such as engineering, internal manufacturing, and information technology to service both power and logistics. We're also cross-pollinating the power solutions field team with talent from our logistics solutions business. Being reliable, agile, and cost competitive also means we need to have the right equipment to optimize each customer's application. Today, our fleet is standardized around medium-sized gas-fired turbines that range in size from 5 megawatts to 38 megawatts. These block sizes provide flexibility to design tailored power solutions for the customer's need and operating parameters. This also allows us to effectively scale with our customer's power needs in all phases as we retain the ability to move power around the site as customer needs dictate. Our turbines offer substantial power density, so they're well-suited for larger projects, including those requiring gigawatts of power demand. A portion of our recent equipment orders are purpose-built modular systems designed to stay on location for longer periods of time, offer enhanced fuel efficiency, and additional state-of-the-art emissions control systems. I mentioned earlier that we're observing an evolving need to have behind-the-meter power on location for extended periods of time. In a few of those cases, within the extent required, we're helping our customers develop emissions permits to allow behind-the-meter gas-fired turbines to operate on a multi-year basis. The majority of the turbines in our fleet are built on a technology that produces the lowest NOx emissions available in the turbine market. This advantage starting point helps us make the addition of emission controls economic for our customer and enables us to help drive a best-in-class emissions profile. We continue to build our asset and contract portfolio with a focus on opportunities where we can provide power on a multi-year contract. As a donor fleet, we'll be able to service a wider range of applications. This could include providing power for other data centers, other commercial and industrial facilities, oil and gas production in midstream, and possibly also having a smaller portion available for short- and medium-term power needs, such as emergency power or shorter-term grid delays that provide attractive returns. We plan to remain disciplined in our deployments and expect to earn attractive returns on our capital over time. Turning to Solaris Logistics, we're seeing a significant increase in our activity in Q1, We expect at least 15% sequential increase in fully utilized systems despite a relatively flat outlook for overall oil and gas completions. The increase in Solaris logistics activity is being driven by the continued adoption of our new technology and market share gains. We believe this reflects the excellent job our logistics team has done in winning work with new and existing customers and the unwavering service they provide for our customers. Over the past few years, we've developed additional equipment to complement our sand silo systems on each well site that increase trucking efficiency. We call this add-on kit the top fill system. In the fourth quarter, approximately 70% of our locations had both our legacy sand system and a top fill system. Going into the first quarter, we expect closer to 75% of our sites to have multiple Solaris systems, and we're effectively sold out of our top fill solution. The financial impacts to Solaris of having two systems on location is a near doubling of the earnings potential per location, which we expect to materialize over the coming couple of quarters. Last night, we also announced that our board has approved Solaris' 26th consecutive dividend of $0.12 per share for both A and B class shareholders. Fundamentally, both of our businesses are cash-generative, and we believe that continues to support our long history of returning cash to shareholders and puts us in a unique position to both grow shareholder returns and invest in growth. We are excited about the results for both business segments. The continued momentum we are seeing in the Solaris Power Solutions segment and the exceptional team and innovative culture that we continue to build. We are focused on maximizing shareholder value through growing the company and maintaining our dividend without sacrificing the strong financial profile of our business. With that, I will turn it over to Kyle.