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Good day, and welcome to the Solaris Oilfield Infrastructure First Quarter 2024 Earnings Teleconference and Webcast. [Operator Instructions] 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 First Quarter 2024 Earnings Conference Call. Joining us today are our Chairman and CEO, Bill

Thank you, Yvonne, and thank you for everyone for joining us this morning. Solaris is off to a great start in 2024. We produced another quarter of strong free cash flow, returned incremental cash to shareholders and continued to deliver service quality to our customers. To recap our first quarter results, we generated $68 million in revenue, $23 million in adjusted EBITDA and $14 million of free cash flow. We returned a total of $13 million to shareholders, including $8 million of share repurchases and $5 million of dividends. Last year, we announced an enhanced framework to return at least 50% of free cash flow to shareholders over the long term. To date, we have returned far above that minimum commitment. During the first quarter, we distributed $5 million in dividends and opportunistically bought back just over 1 million shares for about $8 million. Yesterday, we announced that our Board approved the second quarter of 2024 dividend of $0.12 per share. Including these scheduled returns in the second quarter, we will have returned $178 million to shareholders in dividends and share repurchases since 2018. These returns represent nearly half of our current market capitalization. As we think about uses of our cash going forward, we remain committed to our shareholder return framework with our dividend remaining paramount to that strategy. We built a track record of stable and growing dividends. We've now paid 22 consecutive quarters of dividends without a cut, and we brought per share dividend by 20% since inception. Opportunistic share repurchases since 2018 have also allowed us to reduce share count by 7% on a net basis, which in turn has helped us grow the per share dividend without meaningfully growing the total cash outlay for the dividend. We borrowed on our revolver to help fund those share repurchases as well as organic fleet investments. We also expect to pay that debt down with free cash flow over the coming quarters. Our strong free cash flow generation this year also provides an attractive opportunity for us to build cash, which provides flexibility for reducing revolver borrowings, participating in consolidation and remaining ready for future potential organic growth opportunities. Additionally, we remain committed to shareholder returns. Turning to a broad look at the industry. I'd like to reiterate a few themes that we see continuing to materialize as it relates to the maturation of the U.S. shale industry and how Solaris is positioned to benefit from these themes. Consolidation, efficiency and electrification have been and likely continue to be the key themes for the industry, and we expect to play a role in each of these. Electrification continues to be a dominant theme in the U.S. oilfield and other parts of our economy. We've seen growing adoption of electric frac fleets and related equipment and the development of remotely powered independent grids to support production activity. Solaris' systems have been all electric from the start. Traditionally, we provide generators to power our equipment, but we've experienced increased demand and adoption from our customers to operate our equipment using distributed power available on location, including natural gas powered [ rectificating ] generators and turbines and grid power. Our equipment is easily run off these power sources, saving our customers' money on fuel and reducing overall emissions. Consolidation among operators and service providers is likely to continue over the coming years as inefficiency remains a key catalyst for consolidation. For operators, larger contiguous anchorage blocks allow for significant operational efficiencies in oil and gas development. And for service providers, diversifying through the combination of multiple product lines can grow revenue opportunity and drive financial and operational synergies. While we have not been a direct participant in consolidation and mergers yet, we continue to look for the right fit that will enhance our cash flow and shareholder returns profile, keep our balance sheet healthy and complement our culture of innovation. Operators also continue to find ways to count resources more efficiently. Despite the reduced number of active rigs and frac crews in the market today, North American oil production continues to flow at record levels driven by drilling and completion operational efficiency gains. These efficiency gains have resulted in record daily pumping hours, longer laterals, more stages pumped per day and unprecedented daily sand usage, all of which have driven significant cost savings. While Solaris systems represent just a small fraction of the total well cost, operators have benefited from a lower cost per tonne of sand delivered as our solutions offer greater optimization of the raw material supply chain. As an example, the upgrades we made to all of our silo systems and top fill equipment for enabling belly dump trucking drive industry-leading reliability and sand offloading rates. Some of these upgrades include customer-focused software tools that allow better visibility and control over inventory and trucking as well as increased truck unloading rates. Our top fill systems, which are present on more than half of the frac crews we service today helped produce the total delivered cost of sand by reducing the number of truckloads required through higher payloads and increasing truck turns. As total sand usage grows, we believe our high throughput material handling solutions become crucial for maximizing capital and operational efficiencies in logistics. I'd like to summarize by highlighting that we continue to expect strong cash flow generation in 2024 as our capital spending is at maintenance levels and our products, both new and old, continue to generate meaningful returns. The Solaris team continues to support our customers with the highest level of innovation, reliability and safety against a somewhat choppy backdrop of near-term drilling and completions activity. We are confident in our ability to add value to our customers through addressing the growing nature of completions intensity with the right solutions and for our shareholders through increasing liquidity, growing substantial cash returns, maintaining a healthy balance sheet and remaining ready for future potential organic and inorganic 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 first quarter financial and operational results. Operating cash flow was $17 million. After $3 million in capital expenditures, we generated $14 million in free cash flow. We returned $13 million to shareholders, which was made up of our $0.12 per share quarterly dividend and the repurchase of about $8 million of shares. Total debt on our revolving credit facility remained at $30 million. Together with $3 million in cash at the end of the quarter, net debt was $27 million. We ended the quarter with approximately $41 million of available liquidity. Our activity in the first quarter, as measured by fully utilized systems of 102 systems, was essentially flat with the fourth quarter of 2023. We followed an average of 64 frac crews, which was also flat with the fourth quarter. Our prior expectations for the quarter were for modestly growing system count, which we saw in January. Throughout February and March, industry activity continually weakened throughout the quarter, as job starts and gas-exposed basins pushed to the right. Annualized contribution margin per fully utilized system, excluding ancillary trucking services, improved 4% sequentially, as we benefited from a pricing reset in January and some improved cost efficiency. Ancillary services contribution improved in the first quarter sequentially and was stronger than expected due to a more favorable job mix. As a result, total annualized contribution margin per fully utilized systems, including ancillary trucking services, improved 7% sequentially to $1.1 million. On a per frac crew followed basis, total annualized contribution margin improved 6% sequentially to nearly $1.8 million. SG&A in the first quarter was approximately $8 million, including noncash stock-based compensation of $2.2 million. Net interest expense was $800,000. Working capital was a seasonally higher use of cash at $5 million and included the payment of annual cash bonuses and the annual resetting of overhead expenses. Capital expenditures of $3 million were in line with our prior guidance of less than $4 million per quarter or less than $15 million for the year 2024. Turning to our guidance for the second quarter. We expect North American land activity to be relatively flat from current levels in the second quarter as natural gas weakness impacts completions activity in gassier basins while strong oil prices support stable activity in basins such as the Permian. As noted earlier, our system deployments in the first quarter trended down as the quarter progressed. Exiting April and heading towards the second half of the quarter, we're seeing some increases in our system deployments for both sand systems and top fill units. Based on our current outlook, we expect that the number of frac crews we follow and thus, our fully utilized system count on average in the second quarter could be down 5% to 10% from the first quarter average. While we do see some oil-directed activity additions weighted towards the back half of the second quarter, we also continue to see program delays in gassier and even combination basins such as the Eagle Ford. We expect SG&A in the second quarter to be lower sequentially and approximately $7.5 million. We expect the total pro forma tax rate to be roughly flat at 26% and the pro forma dilutive share count to be flat at 44.1 million shares. We are maintaining our capital expenditure guidance for the year 2024 of less than $15 million, which largely reflects maintenance levels of spending with some continued rollout of system upgrades. We expect these puts and takes to translate into a sequential increase in free cash flow to between $15 million and $20 million in Q2. We expect to use this cash to continue to fund our quarterly dividend, opportunistically evaluate share repurchases and pay down debt. We expect adjusted EBITDA to be down a couple of percentage points lower than activity sequentially as pricing remains steady, but activity softness, job mix and cost absorption impact profitability. 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 free cash flow and provide meaningful cash returns to shareholders. We believe the first quarter of 2024 is already showcasing the strengthened cash flow generating capability of our expanded service offering. All else 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. [Operator Instructions] The first question comes from Luke Lemoine with Piper Sandler.

Kyle, just back to your market outlook. You talked about a flat overall freight market in 2Q from the 1Q exit levels, which makes sense. Kind of given the shape, January was better, February, March was down. But could you talk about any industry visibility heading into the second half of the year?

Yes. I mean I think when we look at just the commodity outlook, obviously, oil prices are very supportive to continued activity. We think in the medium term, gas prices will support additional activity, but not necessarily here in the short term. So our guidance is somewhat driven by the fact that we're roughly 1/3 of the overall market. So we do have pretty broad exposure. We did see the end of the first quarter is sort of the bottom in terms of relative activity in the quarter. And as we look out, we do see some high-quality adds for the business as we continue to evolve the mix of customer within the portfolio across multiple basins. So I think we're feeling a little bit of a low here, but we do see the adds in the calendar as we look at.

Okay. Then in '23, you had really good technology adoption. If you just kind of look at systems per frac, fleet follows. Could you talk a little bit about how you see this developing this year for top fill systems and all the blend and the penetration with those?

Yes. I think as we look at the adds, the preponderance of the adds that we have coming out are with 2 system deployments, so both sand systems and bucket elevators. So the adoption continues to increase. We've included some additional offloading capacity adders to the system in the last couple of months that is giving our customers even higher rates of throughput within the system. So we're effectively able to reduce the amount of downtime between 1 truck to the next. And so we're just continuing to tweak that offering to enhance the overall value to the customer, and we're seeing adoption with that. So the name of the game continues to be more pumping hours per day, more sand per day. And as we've done over the last 10 years, we are continuing to challenge our team internally. Our customers are challenging us, and we're rising up to the challenge to provide continued high reliability and continued high throughput rates, which is allowing us to really kind of stay at the cutting edge of completion trends.

[Operator Instructions] Our next question comes from Stephen Gengaro with Stifel.

So 2 things for me. I know, one, it's probably pretty soon. But any -- the silica deal this morning to be taken private, do you think that has any impact on the competitive landscape in the well site logistics business?

No, not really. I mean, the boxes in our equipment have found their home. I think our addition of the top fill has debottlenecked us more from a trucking perspective, allows trucks to turn much faster like they might do with the boxes. The rate at which things are happening on the well side, I think we continue to see things move our direction with that just because of the high throughput volumes and the movements on the well side and the electrification use of our facility versus running diesel fuel around. So I don't think it has any necessarily impact on us.

Great. And then as we think about the next several quarters, I know Luke touched on it a little bit. But when you sort of plan for your year and then '25, how are you thinking about just overall U.S. activity, the way the larger customers have been more disciplined, when the privates may or may not step in and then how kind of the gas markets evolve as export capacity starts to get closer?

Well, I think we constantly evaluate it. And the curve tells us something. If you look at the gas price curve and where we are today versus forward market relative to that, I think the private sector has been out of it and they've reconsolidated, and a lot of PE guys have sold their businesses to the upstream in this consolidation over the last year. I think they're all out [indiscernible] and reloading capital. And so I think that if the price is supported, I think we'll see a bit of resurgence maybe late '24 on into '25 for that new money to go to work in the industry.

And then just one final one. When we look at the consolidation we've seen both on the E&P side and on the pressure pumping side, as we sort of get a little more data on how it's affected you, have you seen much impact there as far as consolidation on both those fronts? And then maybe also curious about whether your expectations -- maybe expectations is a strong word, but your view that you potentially start gaining share with the new technologies involved. Have you seen any data that supports that?

Yes. I think the shifting mix of the customer base, we have seen that. There are folks that prefer other solutions in our. There's folks that see that. And so as the upstream guys have consolidated, we've actually seen net adds, I think, through some of that consolidation as folks have grown their use of frac fleet. I think in terms of the frac customer consolidation, it's been a very interesting trend. I think it's been pretty neutral along the way. I don't think we've lost much. I don't think we've necessarily gained much out of that as they've consolidated. I think the brill note was the number of frac fleets used versus available today is -- and the utilization is relatively low. So -- and I think the utilization on the electric frac fleets is much higher than that on the traditional fleet. So as we see the bifurcation a little bit in that market, I think we support more of the electric fleets than otherwise. And so I think we'll see net adds out of that.

Our next question comes from Don Crist with Johnson Rice.

Given the pullback in CapEx, obviously, you're going to spin off a lot of free cash flow. And in the first quarter, given where your stock was, you bought back a lot more stock. But can you just talk about the use of that cash going forward? Should we assume some debt repayment as we kind of move through this year? Or do you think it's going to be more weighted towards dividends and buybacks with a little bit of debt left on the balance sheet?

Yes. So Don, last year, I think we had 2 increases to the dividend on a per share basis. So feel very good about the $0.12 a share sort of run rate today. Our buybacks are opportunistic, as you alluded to. And I think priority for us is reloading the balance sheet a bit. We borrowed on the revolver to again opportunistically repurchase some shares last year and a little bit in the first quarter, which delayed some of the pay-down, I think we would have seen more debt pay-down in the first quarter had we not been in the market buying back shares. So I think on balance, we expect to see some added liquidity to the balance sheet via paying down some debt. So I think that's sort of how we're seeing the capital allocation. Since the fourth quarter of 2018, the dividend has been paid. We have not cut it. We've increased it multiple times. So that is absolute priority, and it's very important to us. And we've got a lot of flexibility here as we look forward to look at reloading the balance sheet, as I mentioned, buybacks, look at the dividend, as well as organic and inorganic growth opportunities that we're constantly evaluating it. We are in a really good position to evaluate lots of options given the cash flow coming off the business.

Our next question comes from Sean Mitchell with Daniel Energy Partners.

Obviously, seeing a lot of M&A in the EV space. We've seen a little bit more in the larger service space. Just maybe give us a little color if you have any, on just kind of M&A opportunities or thoughts around M&A in the smaller cap service space today versus maybe 6 to 12 months ago. It feels like for a while, expectations were probably out of whack to get deals done. Is that getting better? Or what are you guys seeing on the M&A front?

I think expectations, we've been in this cycle where valuations are down for not long enough to people get the -- the private guys get the picture. There's no massive bite. Even though everyone has a hockey stick in their forecast, the market doesn't have a hockey stick. And so as we look for opportunities out there with unique technologies, with generally protected or closer markets and offerings that we think makes sense, there's a lot out there. I think the privates are beginning to evaluate, especially those held by some legacy, longer-term PE holders, it's sort of getting to be time to begin to market these things. And so having the balance sheet ready is important to us.

You have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mr. Bill

Thank you, Megan. This year, marks Solaris' 10-year anniversary since its founding as a company. When we look back over the last decade, we're amazed at what we've accomplished as a team and we far exceeded our original goals that we laid out. I'd like to thank all of our employees, our customers and suppliers for continued partnership and making Solaris a success over the decade. As we think about the next 10 years, we're very excited about continuing to deliver new and innovative solutions for our customers that continue driving improvements in well site efficiency and help us continue executing on our shareholder returns program. Thank you all, and we look forward to sharing our progress with you in a few months.