Solaris Oilfield Infrastructure

Good day and welcome to the Solaris second quarter 2021 earnings conference call. All participants will be in a 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 a touchtone phone. 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 of Finance and Investor Relations. Please go ahead.

Yvonne Fletcher Good morning and welcome to the Solaris Second Quarter 2021 Earnings Conference Call. I am joined today by 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 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 GAAP measures are available in our earnings release, which is posted on our website at solarisoilfield.com under the new section. I'll now turn the call over to our Chairman and CEO, Bill Hartler.

Thank you, Yvonne, and thank you, everyone, for joining us today. The second quarter of 2021 was another strong quarter for Solaris. We generated a 23% sequential increase in revenue to over $35 million. Adjusted EBITDA increased 6% sequentially to $6.5 million. And we paid our 11th consecutive quarterly dividend. We ended the quarter with $46 million of cash and no debt on the balance sheet. During the second quarter of 2021, oil prices climbed from over $60 to over $70 as operators remained disciplined with supply additions and global oil demand continued to improve. U.S. natural gas prices also improved from the $2 range to over $4. Historically, U.S. operators have been quick to ramp completions activity in reaction to similar commodity price increases. This cycle, however, we are seeing a measured industry reaction, which we believe bodes well for sustained recovery in the U.S. oil and gas market. During the second quarter, public operators maintained capital and production discipline by holding FRAC programs relatively steady. Private operators that added significant completions activity in the run-up to oil prices in the $60 range have not had a significant activity response to the $70 jump. The U.S. horizontal rig count, however, is currently up over 30% from the second quarter average, while the completions ramp remains slower. Taking an initial look at the rest of the year, we believe that operators are allocating an increased portion of remaining 2021 budgets to drilling activity. Combined with sustained higher commodity prices, this provides incentive for increased U.S. completions activity later in 2021 and through 2022, which Solaris is gearing up for with new and existing customers and technology, which I will give more detail on shortly. Turning to Solaris activity, our system count has grown more than 25% over the course of 2021, which has closely followed overall industry trends. Our permanent exposure drove a stronger start in the first quarter than peers with different basin exposures, and our business model was relatively less impacted by winter storm Erie in February, both of which impacted our relative growth rates in the second quarter. Looking into the third quarter, we expect relatively flat frack activity for the industry as operators maintain capital discipline and shift budgets towards drilling activity. However, we expect to see some market share gains that should lead to solar system count increasing throughout the third quarter to exit higher than where we are today. This week, we are finalizing a three-year agreement with an existing customer who will switch their non-Solaris-provided sand storage equipment to Solaris on jobs where they manage those supply chain decisions. While we do not control the pace of this activity ramp, we expect to end the third quarter a few systems higher than where we are today with this customer alone. Additionally, as this customer's activity levels grow, we expect to grow with them. Strategic customer alignments such as this are an example of how we are gaining recognition and trust from new and existing partners, and how our customers are confident in partnering with us to drive further efficiencies in their completion operations. We see another great example of these type of alignments with our customers through the growth in our Last Mile business, where we help our customers solve supply chain issues by leveraging the continued development of our Solaris Lens Last Mile software. These developments position us even stronger as a dedicated and trusted provider of value for what we think will be a strong finish for the year and even stronger next year. On the topic of efficiencies, last quarter we spoke about our technology open house where we demonstrated our new electric blending technology as part of our full equipment offering. During the second quarter, we successfully ran our all-new electric blender on full-scale multi-well trials. During these initial trials, our blender reached up to 8.5 pounds of sand per gallon at 108 barrels per minute, which translates to over 27,000 pounds per minute of sand throughput. We achieved these rates over the course of multiple stages, and we believe they represent leading-edge performance in the industry. All of this was operated remotely from the safety of the data van on location, removing three or more people from potentially hazardous work areas 24 hours a day. While we are working on incorporating learnings from our initial trials, as well as developing the right commercial model for this new technology, the initial results are driving active dialogue with our customers around potential long-term commitments for multiple units. As a result, we are building additional units and expect to bring two more blenders into service late in the fourth quarter that we believe will generate compelling incremental returns. We have increased confidence that the demand for the new blender will generate additional pull-through revenue opportunities with a full Solaris equipment and services offering. In addition to the momentum we are generating with our electric blender, we also expect to bring our second-generation equipment for filling our sand systems using belly dump trucks to the market in the third quarter. This bolt-on addition to our sand system is in the final testing stages, and we believe it will extend the benefits of our reliable vertical storage and delivery system to markets where operators are seeing the advantages of belly dump trucking over pneumatic trucking. Solaris will continue developing and introducing solutions that automate operations and reduce the resources need for oil and gas development. We believe designing equipment that is fit for purpose, all electric and fully automated for today's high throughput completions design, which in some instances even push the limits beyond current levels, all with the goal of helping our customers maximize well site value, performance, economics, and safety. With that, I'll turn it over to Kyle for a more detailed financial review.