Good morning and welcome to the Solaris Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. 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.

Thank you, operator. Good morning and welcome to the Solaris third 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 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 on the news section of 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. The Solaris team had a great third quarter. The highlights include the following: We announced and closed on the transformative acquisition of Mobile Energy Rentals, a distributed power business which we supported with new financings to fund the growth and integration of their team into the organization. We renamed the company Solaris Energy Infrastructure, which we believe more accurately reflects our broader solution offering that now includes providing Power-as-a-Service to companies both inside and outside the energy industry. We delivered strong service quality and performance to our customers across both our legacy business and our newly acquired business. In our Solaris Logistics segment, which is our legacy business, we continue to generate free cash flow and maintain multiple Solaris systems on over 60% of our customer locations during the quarter, primarily driven by the continued success of our heartfelt product. In our newly established Solaris Power Solutions segment, which represented the acquired MER business, we are currently running more than 220 megawatts of power and have signed new customer contracts for more than 80% of our pro forma capacity under agreements for two to four years, with a line of sight to having all of our order capacity fully contracted. These accomplishments helped to drive our third quarter results of $75 million in revenue and $22 million in adjusted EBITDA, which includes only a 20-day stub period in September from the Power Solutions business. We also returned $5 million to shareholders in dividends during the quarter, and yesterday announced a fourth quarter dividend of $0.12 per share which will result in approximately $190 million returned to shareholders through dividends and share repurchases since 2018. I'd like to provide an update on the progress within our new power business. It has been less than two months since we closed on our acquisition of Mobile Energy Rentals, and both the integration and the commercial opportunity set are advancing rapidly. The Power Solutions team has been a great addition to Solaris. They're innovative problem solvers focused on safety, customer service through performance, and entrepreneurship. This aligns well with our company values and culture. We have identified attractive opportunities to grow our power solutions business organically and through acquisitions. These opportunities include expansion of our fleet of turbines, additional support equipment, such as switchgear, transformers, cables, and other items needed to deliver valuable high-quality and reliable power solutions to our customers. Since the acquisition announcement, we have observed an acceleration in demand for rapidly deployable configurable power as wait times to obtain grid connectivity continue to extend. Today, Solaris Power Solutions customers include a large hyperscale data center and various upstream and midstream energy companies, requiring power for various applications, including production, processing, and transportation projects. Data center power demand is being propelled by rapid growth for artificial intelligence computing applications. Timely access to reliable power is critical for data centers given the competitive landscape and high capital investment in computing infrastructure. Our customers appreciate our swift deployment of dependable power solutions, enabling them to maximize their investments. For our energy customers, our demand is motivated by production and processing operations, which are less correlated to short-term commodity prices. In certain geographies, such as West Texas and New Mexico, where greater infrastructure may not be available or reliable, our customers generally have access to low-cost natural gas, which can significantly decrease the cost of generating their own behind-the-meter power. An attractive feature of our mobile turbine offering is our ability to produce power in dense fire blocks utilizing stranded gas as fuel. As delays for grid connectivity continue to extend, we're working with our customers to solve their longer-term power needs beyond a short to medium-term bridge. Our customers are assessing how behind-the-meter solutions combined with grid power over the longer term can provide baseload power flexibility, enhance backup in case of grid disruption, options for efficient operational expansion, and manage load variability. Additionally, because our equipment is located on or close to the demand center and uses local fuel, it can generally be cost-competitive on a relative basis with line power. Over time, we believe our value proposition for behind-the-meter power will find more appeal as capital investments required to augment interruptible sources of generation and upgrade transmission infrastructure, while upward pressure on power prices exacerbates the interconnection delays. We believe this transition from short-term bridge power to medium- to long-term solutions is already underway and likely to continue. This transition is demonstrated by our recent success in contracting our fleet. We have committed to new orders that will grow the power generation fleet size from approximately 150 megawatts at acquisition closing to an expected 535 megawatts by the end of the third quarter of 2025. At acquisition closing, almost all of the Power Solutions segment capacity was operating under short-term agreements and our commitment to fleet expansion was predicated upon advanced customer interactions. In the two months since closing, we have converted those engagements into contracts for approximately 450 megawatts or more than 80% of our ordered fleet capacity. These contracts have terms that range from two to four years. We also have visibility to the full effective utilization of our ordered fleet based on advanced discussions with our customers and prospects. Our clients value our team's ability to execute, and they've indicated interest in expansion beyond our currently planned capacity. We are carefully assessing our planned capacity alongside the range of market opportunities. Turning to our Solaris Logistics Solutions segment. The U.S. drilling and completion levels remained choppy in the third quarter, but activity on average was roughly in line with our expectations of flat compared to the second quarter of 2024. Our Logistics Solutions activity generally followed the industry as we averaged 91 fully utilized systems, roughly flat with the second quarter. We filed 56 completion crews on a fully utilized basis in the third quarter, which was flat sequentially, and we maintained multiple systems on over 60% of those locations. That 60% is also double where we were in early 2023, highlighting the success of our strategic investment in building and deploying a fleet of top-fill equipment that drives efficiencies for our customers as well as increased earnings opportunities per location for Solaris. As we look at the fourth quarter of 2024, we expect to see some seasonal impact from E&P budget exhaustion. We believe this could drive a decline in activity as measured by fully utilized systems of roughly 10%. However, we have increasing visibility and growing momentum into the first quarter where we see most of this activity coming back with specific customer wins. The Solaris Logistics segment produced $18 million of free cash flow in the third quarter. We are using that cash flow in addition to funds from our recent financing to fund the growth of our Power Solutions business. As I mentioned earlier, the Solaris Board recently approved our fourth quarter dividend of $0.12 per share, and I'd like to reiterate our commitment to shareholder returns. We continue to demonstrate strong free cash flow generation from our Logistics Solutions business, and we've increased visibility to free cash flow generation from our recently signed power solutions contracts. This should lead to a significant inflection in free cash flow during the second half of 2025 following the completion of our current growth capital plans. The end market diversification and enhanced growth profile of our pro forma earnings and cash flow stream, combined with the multi-year tenors of the power contracts we are signing, are expected to provide support for our shareholder returns program even as we continue to invest to grow our power fleet's capacity. We will continue to focus on executing the right organic and inorganic opportunities that enhance our return on capital, helping us maximize total shareholder returns, strengthen our balance sheet, and bolster liquidity. With that, I will turn it over to Kyle for a more detailed financial review.

Thanks, Bill, and good morning, everybody. I'll start by recapping our third quarter financial and operational results. We will also provide a financing and guidance update. During the third quarter, we generated total company revenue of $75 million, adjusted EBITDA of $22 million, adjusted pro forma net income of $4 million, and adjusted pro forma earnings per share of $0.08. Our acquisition of MER closed on September 11th, and our third quarter results include contribution from MER for the final 20 days of the quarter. We established two new reporting segments: Solaris Logistics Solutions, which consists of our legacy energy business, and Solaris Power Solutions, which consists of the acquired MER business plus contributions from our continued growth capital investment for new power-related equipment as it is deployed. I will discuss our segment profitability results, which exclude the impact of corporate SG&A and is reported separately. Our Logistics Solutions segment generated revenue of $70 million and segment adjusted EBITDA of $24 million. Revenue was down 5% sequentially due to lower last mile trucking volumes in our ancillary service offering and a slight decline in activity to 91 fully utilized systems deployed from 92 fully utilized systems deployed in the second quarter. Logistics segment adjusted EBITDA declined 6%, relatively in line with the revenue decline. As Bill mentioned, we expect activity in this segment as measured by fully utilized systems to decline roughly 10% in the fourth quarter of 2024 as a result of typical seasonality. We expect some temporary decremental impact on our per system profitability levels due to cost absorption as we expect to hold onto some costs in anticipation of most of this activity coming back in the first quarter. Turning to our Power Solutions segment. Over the last 20 days of the third quarter, Power Solutions generated approximately $5 million in revenue and $3 million in segment adjusted EBITDA. These results were in line with the expectations we shared at the acquisition announcement in July, considering annual run rate EBITDA of $50 million based on contracts in place at that time. As Bill shared, we've made tremendous progress in contracting our order power fleet equipment with more than 80% of our expected capacity pro forma for all equipment deliveries now contracted with identified growth opportunities that could result in our capacity being fully committed. During the quarter, we were able to procure an additional 57 megawatts of mobile gas turbines. In addition, we were able to pull forward equipment deliveries for previously ordered equipment so that we could service near-term customer needs. Our team's ability to problem-solve continues to differentiate our offering. As a result of these fleet updates, we expect to deploy an average of at least 240 megawatts on contracted revenue during the fourth quarter compared to approximately 156 megawatts in the third quarter. Our contract profile provides significant visibility into 2025. For Q1, we expect an average of at least 300 megawatts contracted in generating revenue. We expect the remaining bookings for megawatts-generating revenue to be more evenly split between the second and third quarters of 2025. Turning to guidance on corporate items for the fourth quarter of 2024. We expect total SG&A of approximately $9.5 million. We provided a new detail of our segment level adjusted EBITDA in our earnings release, and the corporate adjusted EBITDA reflects corporate-level SG&A and other expenses or income, less stock-based compensation and other non-recurring items. For modeling purposes, total SG&A guidance, less stock compensation, should get you close to that segment level impact. Netting these impacts to the total company adjusted EBITDA levels should result in fourth quarter 2024 adjusted EBITDA of between $33 million and $36 million. For the first quarter of 2025, our ability to deploy megawatts in our power business quicker than we originally forecast, combined with the visibility from our recently signed power contracts should drive a total adjusted EBITDA in excess of $40 million. Below the operating line, we expect interest expense to be approximately $9 million for the fourth quarter. We expect the total pro forma tax rate to be approximately 26% and the pro forma diluted share count to be approximately 61 million shares. Turning to an update on our balance sheet, cash, and liquidity picture. In conjunction with the transaction, we closed on a $325 million senior secured term loan. And shortly after the quarter ended, we finalized our new senior secured credit facility that provides additional liquidity of up to $75 million. We expect to use funds from these financings as well as cash from operations to fund our near-term growth capital plans and liquidity needs. We ended the quarter with total debt of approximately $325 million and $117 million in total cash, of which $98 million is restricted for growth capital expenditures. Our new credit facility remained undrawn. During the quarter, we generated operating cash flow of approximately $11 million and deployed $58 million for capital expenditures. The vast majority of these investments were for progress payments on our power equipment order book, with approximately $2 million of this CapEx for sustaining capital at Solaris Logistics. Looking at the fourth quarter, we expect total company capital expenditures of approximately $130 million, which should trend down to approximately $75 million in Q1 of 2025 and approximately $75 million in Q2 of 2025, and finally, approximately $15 million in Q3 of 2025. Our capital expenditure assumptions include only the equipment we have on order today, and we will provide an update if opportunities materialize that require additional investment and provide attractive returns. Our forecast also includes approximately $3 million to $4 million of quarterly sustaining capital expenditure for Solaris Logistics as the majority of our capital expenditures will be for progress payments for power equipment on order. We anticipate taking final delivery of all equipment currently on order by the end of the third quarter of 2025 and expect free cash flow to inflect back to positive during the second half of 2025. Other uses of cash include our shareholder returns program. As Bill mentioned, our Board recently approved our 25th consecutive dividend of $0.12 per share, which will be paid on December 16th to holders of record as of December 6th, 2024. At our current share count, this should equate to a little more than $7 million per quarter in dividend payments. Pro forma for the fourth quarter dividend payment, Solaris has returned $190 million to shareholders since we began our shareholder returns program in 2018. We remain committed to sharing our success with our shareholders and employees, each of whom own shares of Solaris stock and are aligned with management to continue growing earnings, cash flow, and shareholder returns. With that, we'd be happy to take your questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Stephen Gengaro with Stifel. Please go ahead.

Thanks and good morning everybody.

Morning, Steve.

Well, first, thanks for all the great detail. That was a lot of detail, especially from Kyle. I think the first question, just on the mobile energy rental side. You talked about what's contracted and how it's evolving into the fleet. So, sort of two parts to the question. One is, how is the availability of equipment beyond kind of what you have your eyes on currently? And the other one that's connected to that business is, do you see any material change to kind of profitability per megawatt deployed as we sort of try to model this out over the next couple of years?

Availability is still very tight. We have a great team in the Mobile Energy Rental guys, and we've been able to find a few things and negotiate with the manufacturers to move some things up in the queue. But in general, it still remains very, very tight in the marketplace. From a contractual perspective, we were very pleased to secure contracts at rates fairly similar to where we were using shorter terms. So, I think the market is telling us that it's tight and it's willing to lock the power up for longer periods of time recognizing that the significant demand in the data center world needs to be there for much longer than some of the originally very short-term bridge contracts. And I think the same goes for oilfield customers as well, with the recognition that in areas like the Permian Basin and Delaware Basin, you're seeing long lead times to get connected up and it makes sense to lock in the terms for longer periods. Thus, we are seeing that happen. We're seeing pricing probably remain flat to increase over the next several years.

Great. That helps. The other question is about the end market. Can you update us on the number of data centers that are currently being deployed and have visibility out to the third quarter of 2025? Are they all related to oilfield and data center customers? How do you see this evolving?

Kyle can probably give you a detailed percentage. But currently, we've got 6 sites under contract, with the majority being in two big hyperscale data facilities. The bulk of the power, about 75%, probably goes into the data center market. When we look forward to what we assess at the end of the third quarter, beginning of the next quarter next year, it's probably still about 75% data center. I think when we originally bought the business, we were hoping for a 50/50 split. We'll tell you that the hyperscalers' demand for power has been significant and growing, and they're recognizing the need to term that up, so I think that's weighted us heavier in that direction than we originally forecast.

Yes. And the overall size of those installations is significant, so when you look at the weighted average of the megawatts from a location standpoint, it's probably closer to the 50/50 split, but as far as megawatts go, the data centers have a very high demand for power.

Okay, great. Thank you for the color.

Thank you.

Thank you. We have the next question from Sean Mitchell with Simmons. Please go ahead.

Hey guys. Can you hear me okay?

Yes, very good, Sean.

I have a couple of questions. What options do you have regarding the solar turbine capacity you have secured going beyond the third quarter? Are there any opportunities there for you? And Kyle, could you share how valuable the reserved capacity slots are in terms of dollar amounts? These have likely increased in value since you signed the deal, so is there a way to assess that value?

The value of the slots, I mean, we want to take delivery of them. We've got them filled into our demand, and so the return on that capital, as we've turned it up, is roughly in line, maybe slightly better on average, but it's all firmed up in much longer places than we originally forecast. I think we're actually up a little bit on an overall basis. Kyle can dig into that a little bit with you. In terms of looking forward, yes, we're in active dialogue about what we're willing to commit to going forward and what kind of contractual arrangements our customers would like to see with those incremental assets.

I think specific to a couple of our OEM partners, our team that came in through the acquisition has a long history of product development with all of these guys. I believe we and the OEMs are thinking about what the medium- to long-term solutions look like for this evolving power space. There's a fair amount of value in that relationship. So, slots, yes, those are here today. But we're also evaluating other options within a broadly distributed fleet that we see developing here over the medium- to long-term for the company.

I'd add that I think the notion of this behind-the-meter bridge power, the bridge is getting longer and that implies you need to do a few more things with the assets in terms of how long they may sit there and what we need to do from a regulatory and operational perspective. So, that market is evolving. I think it's looking closer to longer or medium-term bridges as opposed to what we thought may have been just kind of temporary short-term startup power needs.

Got it. And then, Bill, just on that point, you talked a little bit earlier on the call about the delays for grid connectivity. Are the customers basically saying it's getting longer? I mean, I guess it's not getting better?

The lead times are increasing, and the demand for artificial intelligence-driven data centers exceeds what the utility can accommodate in the near future. This means we are facing longer lead times for additional demand, and from a size perspective, it will take much longer to address these needs.

Thanks for all the color. It's been fun to watch.

Thanks, Sean.

Thank you. The next question comes from David Smith with Pickering Energy Partners. Please go ahead.

Hey, good morning and congratulations on the contract coverage. When you announced the MER deal, I think you also planned year-end 2025 capacity at 478 megawatts, went up to 525 megawatts in the September investor presentation, and it's now 535 megawatts. Could you give us some color on that additional 57 megawatts? Maybe how opportunistic that was and how you see the potential for additional capacity growth beyond placing orders for new equipment?

I think, at this point, the market remains very tight, and nothing has changed there. Importantly, all of those increments were tied directly to a demand on the customer side. The incremental orders were to meet specific needs, and it was important. The reality is there were a couple of small orders that we were able to combine. From a short-term perspective, I really don't see a whole lot available out of the OEMs, at least through the balance of this year and for most of next year. Options out there are other bits on the secondary market where people have secured capacity for their own end use, and projects have been delayed. We've got a strong pulse in the market. Our team has been doing this for 20, 30, 40 years, and those relationships are valuable. It's difficult to put a dollar figure on them, as was pointed out in the earlier conversation. However, our ability to source both the turbine side and the balance of plant side remains promising, and we're taking a range of approaches to win in the market. Importantly, those additions were directly tied to customer needs.

No, appreciate it. And then a quick follow-up is just regarding the line of sight you mentioned to have remaining order capacity contracted the 85 megawatts, just wondering if you could provide any color there. If this line of sight is contracts that haven't been signed yet, and also just fixing into what you're interested in seeing how the market might evolve before the equipment gets delivered in the middle of next year?

Yes, I think it's a combination of the two: demand from our current customer base as well as working with customers on their 2025 opportunities. What's nice about this business is we're seeing six, 12, 18-month look forward, which is super helpful from a planning perspective. That's sort of the cadence of the timing of executing an opportunity from a contractual standpoint while meeting it on site. I think it might be helpful to update a little bit on how we're seeing the exit rate from the balance of deliveries coming in with the original Solaris Logistics business. We announced the deal and as we've provided updates on guidance, we've really talked about a mid-range of $230 million of EBITDA on an exit run rate basis next year. With where we are from a contracted standpoint with the 450 megawatts, we've effectively contracted up that level of EBITDA from the power side of things. We've got another 15% of pro forma capacity available, which could add $20 million to $30 million of EBITDA on a run rate basis. We feel very confident that will get contracted and will start contributing to cash flow. So, we view this as a series of steps for the business from announcement to closing to this first quarter of earnings from the business under our belt, and the big narrative is on the contracting side of things. We feel excited about this.

Really good steps. Thank you for the color.

Thanks, Dave.

Thank you. The next question is from Mike Breard, a Private Investor. Please go ahead.

How much natural gas do you need to buy to make your smaller units profitable? And how much do you need for your larger unit?

From a contractual standpoint, we're providing the turbines and the balance of plant to allow the customer to generate electricity power on their location. So, they're ultimately purchasing the gas or they are using their own gas in the oilfield applications in a number of instances. When we look at the total cost of ownership between the rental of the equipment and then the gas consumption for fuel, we do see the solution as being relatively competitive with alternative baseload power. Particularly when you're looking at the energy side where you've got stranded field gas that really doesn't have a market, it may actually be significantly lower than what they're paying the utilities. The turbines are efficient and consume fuel responsibly, and we're actually working on applications that could drive improvements in the heat rate on the units.

And Mike, you can refer to our website. Each one of the spec sheets on the equipment has their heat rates and efficiency curves.

Okay. I was just wondering how much natural gas would be required for the customer to buy?

Yes, it will be embedded in the heat rate and chemistry curve. It varies at ambient temperatures and there are specs and graphs on our website that explain it further. The 5.7 megawatts and 16.5 megawatts.

Okay. Thank you.

Thanks.

Thank you. We have reached the end of the question and answer session. I'd now like to turn the call back over to Mr. Bill Zartler for any final closing remarks.

Thank you. I'd like to conclude today's call by reiterating that Solaris remains committed to providing exceptional service quality and value to all of our customers. We leverage our innovative technologies across both of our business segments, and our leading market position within the Logistics Solutions segment underscores our unwavering commitment to our customer base. This will remain a core focus of Solaris going forward. We are equally focused on executing the large commercial opportunity set in the Power Solutions segment. It's accelerating rapidly, and it highlights a further need for bespoke behind-the-meter power generation applications across various end markets. Together, the combined businesses are uniquely positioned for significant growth and increasing total shareholder value. I'd like to thank our employees, customers, and suppliers for their continued partnership in making Solaris successful. Thank you.