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Good morning and welcome to the Solaris Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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.

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

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 [ph] 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 sport equipment, such as switchgear, transformers, cables, and other items needed to deliver a valuable high-quality and reliable power solutions to our customers. Since the acquisition announcement, we have observed an acceleration in demand for rapid deploy configurable power as wait times to obtain grid connectivity continue to extend. Today, Solaris Power Solutions customers include a large hyperscale data center in 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 the 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, they find more appeal as capital investments required to augment interruptible sources of generation and upgraded transmission infrastructure, while upward pressure on power prices exasperate the interconnection delays. We believe this transition from short-term bridge power to medium to long-term hour 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 tenders 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 full 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 through 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 multiyear 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 fleets 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 contribution 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 decline 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 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 on to 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 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. 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. [Operator Instructions] 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 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 horse-trade a few around with the manufacturers and move some things up in the queue. But in general, it still remains very, very tight in the marketplace. So, that happened. I think from a contractual perspective, we were very pleased to term up at rates fairly similar to where we were using shorter term. So, I think the market is telling us that its tight and it's willing to lock the power up for longer periods of time recognizing that the chunkier stuff in the data center world needs to be there for much longer than some of the original, very short-term bridge. And I think the same goes to oilfield customers as well that the recognition that -- Permian Basin, Delaware Basin, you're seeing long, long lead-times to get connected up and might as well lock this term -- lock the power up for longer term. So, we're seeing that happen. We're seeing pricing probably remain flat to up over period -- over the next several years.

Great. That helps. And then the other question is just kind of on the end market. Just kind of refresh us on how many -- you talked about data centers and -- are the assets being -- that are currently being deployed right now and they have visibility out for 3Q 2025. Are they all around kind of the oilfield and the data center customers? And how do you think that evolves?

Kyle can probably give you a detailed percentage. But currently, we've got 6 sites under contract. But the majority will be in two big hyperscale data facilities with the bulk of the power. And what's that percentage, about 75% of the power probably goes into the data center market. When we look forward to what -- look as of the end of the third quarter, beginning of third quarter next year is probably 75% data center. I think when we originally bought the business, we were sort of thinking it would involve 50/50. We'll tell you, the hyperscalers' demand for power has been significant and growing, and they're recognizing the need to term that up. And 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, but as far as megawatts go, the data centers are very intense as far as the power demand.

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.

So, a couple from me. What are you -- how do you -- do you have any options on the back of the solar turbine capacity that you have locked up moving beyond third quarter? Are there any options there for you? And then Kyle, maybe for you, just how valuable are the slots of the capacity you currently have locked up in terms of dollar amount? I mean, these things have gotten way more valuable since you signed the deal, I've got to believe. So, is there any way to put a value on that?

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. And then 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 that -- 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 with effectively product development with all of these guys. And so I think we and the OEMs are thinking about what the medium to long-term solutions look like for this evolving power space. So, I think there's a fair amount of value in that relationship. So, slots, yes, those are here today. But I think as we look forward and we're in a position, I think, to really be on the cutting edge of what the market looks like as far as the balance of different solutions for this evolving market. So, today, we've got a fleet of the 5.5-megawatt turbine, 16.5 megawatts, and a 35-megawatt unit. And so as we look forward that we're very comfortable with that fleet, but we are also evaluating other options within broadly distributed fleet that we see developing here over the medium to long-term for the company.

I'd add that I think that 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, what we need to do from a regulatory perspective and permanent perspective. So, that market is evolving. And 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 start-up power needs, if you will.

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?

Getting longer and the demands for some of the -- especially the artificial intelligence-driven data centers are higher than the utility can even get to in any near future. So, it's both longer lead-times on incremental and then pure size perspective, it's much, much longer term.

Thanks for all the color. Its 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, it's 535 megawatts now. 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?

Well, I think, at this point, the market is very tight and that nothing has changed there. I think importantly, all of those increments were tied directly to a demand on the customer side. So, the incremental orders were to meet a specific need. So, I think that's important. The reality is there were a couple of 1s and 2s that we were able to cobble together. From a short-term perspective, 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 perhaps their own end use and projects have been delayed. And so again, we've got a really strong pulse in the market. Our team has been doing this for 20, 30, 40 years. And so those relationships are sort of -- hard to put a dollar figure on them to Sean's to the point on the value of the slots. I think the pulse that we have in the market is really allowing us to have some edge in terms of sourcing in the turbine side, but also on the balance of plant side. It's not just about the prime mover. It's also about all the components that are required to deliver the customer, the voltage, and capacity that they're looking for, for their end use. So, it's very much in the spirit of our culture and the entrepreneurship and we've got a lot of different ways to win. But importantly, those ads were directly tied to needs for the customer.

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 middle of next year?

Yes, I think it's a combo of the two of both demand from our current customer base as well as work and collaborate with customers on what their 2025 opportunities look like. I mean, what's nice about this business is we're seeing six, 12, 18-month look forward. And so from a planning perspective, that's super helpful. So, that's sort of a cadence of the timing of executing an opportunity from a contractual standpoint, but actually meeting it on site. I think it might be helpful to update a little bit on how we're seeing the exit rate sort of the balance of the deliveries coming in with the original Solaris Logistics business. And we announced the deal and as we've provided some updates on guidance, we've really kind of talked about a midrange 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. And 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. And so we feel very confident that, that will get termed up and will be contributing to cash flow here in the business. So, we view this as just a series of stair steps for the business from announcement to closing to -- this is our first quarter of little bit of earnings from the business under our belt, and then you know the big stories on the contracting side of things. So just feel like this story is unfolding one step at a time, and we're really excited about it.

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

So, I think 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. But when we look at sort of 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 on the energy side where you've got stranded field gas that really doesn't have a market, it actually may be significantly lower than what they're paying the utilities. But the turbines are very efficient and our good consumers of fuel, and we're actually working on a couple of different 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 their efficiency curves?

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

Yes, it will be embedded in the heat rate and chemistry curve. It varies at ambient temperatures and so there's an iso-number and all that specs. There's actually some 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