Good morning, and welcome to the Solaris Q4 2023 Earnings Conference Call. 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. Please go ahead.

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 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. 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 of 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-generating capabilities. During the fourth quarter, we ramped 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. We returned over 100% of our free cash flow to shareholders as we borrowed on 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 shares for approximately $8 million so far this year. This equates to an additional $13 million in shareholder returns for 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 the current market cap and essentially 100% of our through-cycle free cash flow, as we consistently return cash to shareholders every quarter since then, including during the COVID-induced downturn and during our recent growth capital years. As we look into 2024, we expect to continue 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 fewer oil rigs and frac crews, and 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 and completion intensity continues to grow to offset production declines that can be exacerbated by a shift from a core to a lower-tier resource developer. 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 continue to support this growth in frac rate and intensity. For example, our top systems combined with upgrades we've made to our sand system provide a powerful combination of our 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 front loads 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 frac jobs known as simul-fracs. We've always believed that the entire raw material supply chain for the 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 frac 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 sand in closer proximity 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 rock trucks can also significantly produce savings. While the opportunity set is still relatively small compared to the 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 frac 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 frac operations, including grid power, turbines, and natural gas power engines. Our equipment continues to fit the bill as operators are asking for or either requiring all-electric equipment to drive lower costs, higher reliability, and reduced emissions. And finally, consolidation at both the operator and service company level continues to be a theme in the maturing U.S. shale landscape. Operators can gain significant efficiencies by executing development plans on larger contiguous acreage blocks. Pipeline service providers are combining operations to leverage operational and financial synergies across multiple product lines. Today, Solaris has primarily used internal investments to grow our scope. While we have not been a direct 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, new customers through our overall system deployment and began to see conversion of our strategic investments over the last couple of years into meaningful 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. Expecting a higher level 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 future potential organic growth opportunities with a strong cash position. With that, I will turn it over to Kyle for a more detailed financial review.

Thanks, Bill, and good morning, everyone. I'll start with recapping our fourth quarter financial and operational results. Operating cash flow was $24 million after $7 million in capital expenditures, which came in below our guidance of $10 million. We generated $16 million in free cash flow. We returned $6 million to shareholders, which was made up of our $0.12 per share quarterly dividend and the repurchase of about $1 million of shares. We used excess cash to reduce our revolving credit facility borrowings by $7 million, resulting in a $30 million remaining balance together with $6 million in cash at year-end. Net debt declined to $24 million from $34 million in the third quarter. We ended the year with approximately $47 million of available liquidity. Our activity in the fourth quarter, as measured by fully utilized systems, was down 5% sequentially to 103 systems compared to our original expectations of a flat system comp from the third quarter due to weaker-than-anticipated industry activity. We followed an average of 64 frac crews, which was down 4% from 67 frac crews followed in the third quarter. As highlighted in Bill's commentary, we're continuing to see more stages pumped and more lateral feet completed per day, which has reduced the overall number of frac fleets required to meet market demand. Total contribution margin per fully-utilized system, including ancillary and trucking services, was flat sequentially at just over $1 million. On a per frac crew followed basis, total contribution margin was also flat sequentially at $1.7 million annualized. SG&A in the fourth quarter totaled $7.2 million and included non-cash stock-based compensation of $1.8 million. Net interest expense was $0.9 million. Turning to our first-quarter and initial full-year outlook. Following the initial build-out of our top systems, our capital spending rate has decreased significantly, which we expect will continue to yield significant free cash flow throughout 2024. For 2024, we expect total capital expenditures to be less than $15 million or less than $4 million per quarter. Using current consensus estimates for the first quarter, this puts our capital expenditures at roughly 15% of adjusted EBITDA, and using current consensus estimates for full-year 2024 adjusted EBITDA and our current market capitalization, our guidance for capital expenditures results in a roughly 25% free cash flow yield excluding any impact from working capital. Our capital expenditure guidance for the year largely reflects maintenance levels of spending and does include some level of continued development capital spending as we remain committed to working with operators to create solutions that address the changing nature of frac operations while also maintaining a disciplined approach. However, our main focus will be on value-added system maintenance and upgrades. Because the majority of growth capital projects and ongoing system enhancements are done using our internal engineering and manufacturing capabilities, we have the flexibility to quickly and cost-effectively address our customers' initiatives. Adjusted EBITDA in the first quarter of 2024 is expected to be up roughly 10% sequentially, which is approximately in line with current consensus estimates. We expect industry activity and our system count to be up modestly from seasonal lows in the fourth quarter and to be relatively stable from then on. Our year-to-date activity levels are up slightly from the fourth quarter, and we continue to have availability to meet customer demand for all our technology offerings that could drive additional growth. We also expect total contribution margin per fully utilized system to be modestly higher in the first quarter sequentially due to improved pricing, modestly lower system costs as upgrades and maintenance we pulled forward in the third quarter tapered into the fourth quarter, and incremental contribution from system deployment. We expect contribution from ancillary last-mile logistics services to be flat sequentially. SG&A in the first quarter is expected to be flat sequentially at around $7.2 million. For modeling purposes, we expect the total pro forma tax rate to be roughly flat at 26%, and the pro forma fully diluted share count to also be flat at 44.3 million shares as Q1 repurchases should offset planned issuances related to annual stock-based compensation. Similar to prior years, we anticipate the heaviest use of cash from working capital to be in the first quarter, with subsequent quarters typically showing a reduction. We expect a similar to modestly higher working capital draw in the first quarter of 2024 as compared to the first quarter of 2023, which was a use of approximately $8 million. As in prior years, this includes the payment of annual cash bonuses and other annual cash outflows such as property taxes. Net of adjusted EBITDA roughly 10% higher sequentially and sub $4 million in capital expenditures, we expect positive free cash flow of approximately $10 million to $15 million in the first quarter. As our capital spending is expected to remain relatively low for the rest of the year, we anticipate generating significant free cash flow for the remainder of the year after the seasonally higher working capital use of cash in the first quarter. To summarize our first-quarter outlook. Adjusted EBITDA is expected to improve by roughly 10% sequentially. Net of CapEx of less than $4 million and a seasonally higher working capital draw, we expect free cash flow to be between $10 million and $15 million. Already in 2024, we have purchased approximately $8 million in shares as part of our repurchase authorization and announced our $0.12 per share dividend for the first quarter. We expect to use any excess cash to continue to strengthen our balance sheet and opportunistically repurchase shares. Before we open the call for questions, I'd like to reiterate that we have spent the last couple of years making strategic organic investments that are driving earnings and cash flow growth and have enabled us to grow cash returns to shareholders. Now that this growth capital program is meaningfully tapering down, we believe 2024 will be an exciting year in showcasing the strength in cash flow generating capability of our expanded service offering. All else being equal, we believe our investments will enable us to deliver stronger earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder returns program, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital. With that, we'd be happy to take your questions.

We will now begin the question-and-answer session. The first question is from Stephen Gengaro, of Stifel. Please go ahead.

Thanks. Good morning, everybody. I guess the first one for me is just around there was some M&A announced this morning in the Permian with two frac sand suppliers. Just curious how you think about that and any impact on the business given especially considering what one of the two players is putting together on the express side.

I think as we've been consistent with, the industry is pretty fragmented and needs some level of consolidation and how and what that looks like over the course of the next year, it's hard to say. I think those are different businesses yet complementary in certain ways, with a lot of the proximity mines developed by the Hi-Crush team, which are great assets, and Atlas runs a great operation and a great mine. And I think putting the two together makes a lot of sense. We do a little business with Atlas today and hope that continues. Some of it is driven by customer demand, some of it driven by just the logistics efficiencies of our system for the high-capacity jobs in the Delaware.

Great. Thanks. And when we think about obviously you spent a lot of growth CapEx and you're well positioned going into '24. Where do you sit as far as idle equipment and how should we think about the percentage of traditional systems that have one of the new technologies attached to it as we evolve through 2024?

I believe we said last quarter that we had roughly systems available to put to work that had been upgraded on the sand silo side, and I think we're running in the neighborhood of 55 to 60 available on the tophill systems to combine with that. And so that means we can roughly do half to a little bit greater than half of our silo systems could run with tophills for a total of, if you looked at it from a total system count, that's 150 kind of the total capacity perspective at this point without really any capital going forward.

Great. And then just one follow-up from me. When we think about sort of the underlying pricing in the business, for both sides, both new technology and sort of traditional, are we pretty stable right now or what are you seeing on the pricing side?

We're pretty stable. If you recall, our model really is a monthly rental type for our systems, and so to the extent that we provide our customers with the ability to move much more volume through our system over the course of a month, they actually lower their costs even in a rising cost environment with us. I think that if you looked at the actual commodity of sand and you look at the public announcements thus far, sand pricing in an unstable environment seems to be dropping somewhat because we've seen additional capacity, and at a flat frac crew count, you're still growing sand demand as we talk about intensity. I mean we've seen sand demand go up; it's just a matter of how much additional capacity can come online under that.

Great. Thanks for the details.

Seeing no other questions, I would like to turn the conference back over to Mr. Bill Zartler for any closing remarks.

Sorry, guys. I thought I did and I didn't, I realize I forgot. Thank you for including me. Bill, you called out innovation in the prepared remarks as that's been sort of a key characteristic for Solaris. I'm just curious if you could speak to opportunities out there whereby you could pursue small tuck-in deals, which would bring additional innovation that you could quickly expand. And obviously, I'm not looking for any names, but just what is the opportunity set?

As I mentioned, there are a lot of opportunities both on the low-pressure side to manage the supply chain and technologies around being very efficient and reliable. Ultimately, the pumping hours per day have increased dramatically, and anything you can do around that well site to prevent or enable the operator to run nearly 24 hours a day where you can improve. So, technologies around that, technologies around ensuring that all of the pinch points can be managed, or set that we're seriously evaluating.

Okay. Does that something — I mean, this is kind of a dumb question so I apologize. But is that more intriguing to you than trying to do the bigger transformative deal?

I think they're all attractive to us. I think our real edge is around higher technology, high touch, high service quality, where we're not actually running as much equipment as we are making sure that it is reliable and serviceable and that we've got a strong engineering team and digital team to help ensure that both we can deliver alongside with the basic equipment—measurement and the control and the flow of that information back to systems today for remote operations for data analysis. We can provide all of that information to our customers in a way that helps them make their operations better.

Fair enough. Okay. Thank you for including me.

This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Bill Zartler for any closing remarks.

Thank you, Lydia. I'd like to conclude our call by thanking all of our employees for their tremendous and hard work in 2023. I'd also like to thank our customers and suppliers for their continued support of Solaris. We are encouraged by the results in this past year and look forward to continuing to make strides, helping our operator customers improve well site efficiency and productivity, as well as continuing to execute, grow, and enhance our shareholder return program. Thank you all and we look forward to sharing our progress with you in a few months. Stay safe.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.