Solaris Energy Infrastructure, Inc. Class A

Good morning and welcome to the Solaris first quarter 2025 earnings conference call. All participants will be in lesson only mode. Should you need assistance, please signal a conference 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 on your telephone keypad. To withdraw your questions, please press star, then two. Please note, this event has been recorded. I would like to now turn the conference over to Yvonne Fletcher, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Operator. Good morning, and welcome to the Solaris First Quarter 2025 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 outline those risks. We also encourage you to refer to our earnings supplement slide deck, which was published last night on the investor relations section of our website under events and presentations. I would 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 new section on our website. I'll now turn the call over to our Chairman and CEO, Bill Zarler.

Thank you, Yvonne, and thank you everyone for joining us this morning. Solaris' first quarter results reflect strong performance from both of our business segments. This was the second full quarter executing with our combined business units, focusing on generating strong free cash flow from our legacy logistics solution business and reinvesting that cash in our growing Power Solutions business. The strong performance from both segments and the continued benefits we are observing from integration highlight the complementary nature of these two businesses. I will begin with an update on our Power Solutions commercial and growth strategy, including a discussion of several exciting developments announced in our first quarter earnings press release last night. In our prior update in late February, we announced that Solaris signed an initial six-year contract with a major customer for approximately 500 megawatts of power generation capacity to support a new data center campus and that equipment to support this contract was to be capitalized within a joint venture. Last night we announced that the commercial contract has been upsized to approximately 900 megawatts for an extended initial tenor of seven years. We also announced that we have closed on the joint venture agreement under which Solaris will perform as manager and power operator of the joint venture. The structure of the upsize JV remains unchanged from prior communication with Solaris owning 50.1% of the partnership and our partner and customer retaining 49.1%. We are excited about the opportunity to partner with and provide primary power for our fast moving customer who is one of the leaders in the evolving artificial intelligence industry. We believe this joint venture demonstrates the value Solaris provides as a partner in providing reliable power solutions that extend beyond temporary bridge power needs. The extended tenor of the upsized commercial contract improves earnings visibility of our power solutions business into 2033. The average tenor in our power solutions contract book now exceeds five years as compared to about six months less than a year ago when we announced the acquisition of MER. This upsizing of the contract and JV resulted in the effective full commitment of our power fleet at a time when secular power demand continues to grow numerous opportunities in our commercial pipeline coalescing around the second half of 2026. Given this backdrop, we secured approximately 330 megawatts of additional generation capacity from our manufacturing partner to continue to service the needs of new and existing customers. This capacity was not easy to obtain as the OEM supply chain has gotten progressively tighter since our initial orders. We expect to take delivery of a majority of this most recent order in the second half of 2026, which results in a new pro forma total capacity of approximately 1,700 megawatts operated by Solaris, of which we will own approximately 1,250 megawatts on a net basis after giving effect to our 50.1% interest in the joint venture. On the new pro forma delivered total fleet of 1700 megawatts, we remain approximately 70% contracted with around 500 megawatts of open capacity to bid into the growing number of opportunities we continue to pursue. These opportunities include a combination of data center opportunities with new potential customers, projects for energy production and processing facilities, and various other industrial applications. The data center opportunity presents both unique challenges and exciting prospects. We continue to receive inquiries for larger applications, which render the traditional methods of power procurement and reliability planning a challenge for those prospective customers. A large data center used to be under 50 megawatts and would rely primarily on grid power with a bank of reciprocating generators as standby backup. It is becoming increasingly evident that the largest data centers will tap a variety of sources for their primary, secondary, and emergency backup power. Modern data centers have grown to several hundred megawatts with leading edge capacity surpassing 1,000 megawatts. Managing loads at this scale is challenging for anyone, including grid operators. By co-locating generation on site as part of their primary power mix, power consumers gain the ability to diversify their energy source and to control some of their own primary and built-in backup power that can operate either independent of or in conjunction with the grid. By using best in glass gas turbines and associated equipment such as SCRs, customers gain additional benefits of power density, capability to modularly scale, and relatively low emissions and water use profiles. Under the Solaris power as a service model, these benefits can be provided at a compelling all-in cost, often competitive with the delivered price of base load grid power. Considering total cost of ownership, our model is akin to a fixed capacity payment and with a variable commodity price input via the natural gas that is paid for by the customer. This results in a significant portion of our customers' costs being hedged for the duration of the contract. We can remain economically competitive with the grid, offer visibility to long-term power costs, and provide built-in backup through redundancy and reserve margin. We believe time to power, delivered cost, and surety of supply were the primary drivers behind our customers' desire to enter into the long-term partnership with Solaris. For customers that take a similar longer-term strategic view to solving power constraints, but do not have the expertise or bandwidth to manage a large co-located power plant, Solaris' power as a service model provides a solution that is evolving with the market need. Increasing regulatory challenges for data centers are also highly supportive of the power as a service theme. The notion of bring your own power is real as evidenced by growing recognition from grid regulators and operators regarding the limited availability of baseload power for new additional large loads. By co-locating generation off-grid in island mode, customers can accelerate time to power and benefit from true uninterruptible power. We'll discuss how this approach also enhances the resiliency of their operations and may eventually contribute to overall grid resiliency as well. Turning to our logistics segments, Solaris Logistics had a very strong first quarter with system activity up over 25% sequentially as we benefited not only from the seasonal rebound, but also from new customer wins and continued adoption of our top fill system. Our advanced technology offering continues to position us as the partner of choice. Our silo systems have the ability to handle increasing sand throughput as completion intensity and in turn efficiencies continue to accelerate. These increased efficiencies have contributed significantly to the success of our top fill system as well, which was effectively sold out during the first quarter. During the quarter, approximately 75% of our locations were equipped with both our legacy sand silo system and a top fill system. This natural cross-selling has resulted in a substantial increase in Solaris' earnings capacity, effectively doubling our earnings potential at the individual well site level. As we look ahead, we have conviction in the relative stability of activity levels during the early part of the second quarter resulting in no changes to our prior second quarter guidance. We are, however, beginning to observe some operators respond to the recent commodity price softness by delaying jobs or reducing the number of fractures expected in the second half of the year with an oil directed basis. During the first quarter, we also continue to harvest significant free cash flow generation resulting from the fleet investments made in prior years. Our early mover advantage in the complete electrification of our logistics solutions fleet continues to provide a commercial advantage as our fleet is already well positioned for the ongoing electrification trend that allows us to redirect cash to reinvest in our growing power solution segment. We also observe unique synergies between our two segments as we continue to integrate our businesses. We will continue to have hiring needs in the power solution segment for some time, enabling us to continue to cross-train many of our logistics field technicians to fulfill this visible need with trusted in-house expertise. Our efforts to integrate our engineering, supply chain, and manufacturing functions also continue to progress. Meeting the air permitting requirements in certain jurisdictions for multi-year fixtures requires investment in selective catalytic reduction emissions control systems, or SCRs. We've collaborated with our customers to select the best available control technology and our advanced stages of planning manufacturing assembly of some components of the SCRs in our manufacturing facility located in early Texas. Bringing some of this manufacturing in-house is expected to lower costs and potentially mitigate exposure to tariffs, both of which help improve our returns on capital. In-house manufacturing also provides us with greater control over product quality and design. We're excited about the first quarter results from both business segments, as well as the continued momentum and visibility we are seeing in the Solaris Power Solutions segment. I am proud of the exceptional team and innovative culture that we continue to build. We are focused on maximizing shareholder value through growing the company without sacrificing the strong financial profile of our business. With that, I will turn it over to Kyle.