Q2 2024 Solaris Oilfield Infrastructure Inc Earnings Call

August 9, 2024

Carver Conference: www.SolarisOilfield.com

Operator: and welcome to the Solaris 2nd quarter of 2024 earnings conference call.

Operator: Welcome to the Solaris Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star 1 and 2. Please note, today's event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investment Relations. Please go ahead. Thank you, Operator.

Speaker Change: Good day and welcome to the Solaris Second Quarter 2024 Earnings Conference Call.

Operator: All participants will be in Muslim-only mode. Should you meet assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note today's event is being recorded.

Yvonne Fletcher: I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investment Relations. Please go ahead.

Yvonne Fletcher: Thank you, Operator. Good morning, and welcome to the Solaris Second 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 our previously announced acquisition of Mobile Energy Rentals, LLC, future financial results, and reflect a number of known and unknown risks.

Yvonne Fletcher: Thank you, operator.

Yvonne Fletcher: Good morning and welcome to the Solaris 2nd quarter of 2024 earnings conference call. Joining us today are Chairman and CEO Bill Zartler and our President and CFO, Kyle Ramachandran.

Yvonne Fletcher: 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 our previously announced acquisition of Mobile Energy Rentals LLC, 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 outlined 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.

Yvonne Fletcher: Please refer to our press release issued yesterday, along with other recent public filings with the Security 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.

Speaker Change: 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.

Speaker Change: Such forward looking statements May include comments regarding our previously announced acquisition of noble energy rentals or the future financial results.

Speaker Change: A number of known and unknown risks.

Speaker Change: Please refer to our press release issued yesterday, along with other recent public filings with the Securities and Exchange Commission that outline those risks.

Speaker Change: 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.

Yvonne Fletcher: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliation to comparable GAAP measures is available in our earnings release, which is posted in the news section on our website.

Speaker Change: Location of this additional.

Speaker Change: Additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Yvonne Fletcher: Reconciliations to Comparable Gap Measures are available in our earnings release, which is posted in the News section on our website. In addition, because this transaction is subject to shareholder approval at a special meeting, this communication and other materials are subject to certain proxy solicitation rules and guidelines. I'll now turn the call over to our Chairman and CEO, Bill Zartler.

Speaker Change: Conciliations to comparable GAAP measures are available in our earnings release.

Speaker Change: What was it in the news section on our website.

Yvonne Fletcher: In addition, because this transaction is subject to shareholders' approval at a special meeting, this communication and other materials are subject to certain proxy solicitation rules and guidelines.

Speaker Change: In addition, because this transaction is subject to shareholder approval at a special meeting those communications and other materials are subject to certain proxy solicitation rules and guidelines.

William Zartler: I'll now turn the call over to our Chairman and CEO, Bill Darler. Thank you, Yvonne, and thank you everyone for joining us this morning. During the second quarter, Solaris produced strong free cash flow, returned incremental cash to shareholders, and continued to deliver value to our customers. To recap our second quarter results, we generated $74 million in revenue, $21 million in adjusted EBITDA, and $18 million in free cash flow. We returned $5 million to shareholders in dividends and recently announced a third quarter dividend of $12 per share, which will result in approximately $183 million return to shareholders through dividends and share repurchases since 2018.

Speaker Change: I'll now turn the call over to our chairman and CEO Eldar.

Bill Zartler: Thank you, Yvonne, and thank you, everyone, for joining us this morning. During the second quarter, Solaris produced strong free cash flow, returned incremental cash to shareholders, and continued to deliver value to our customers. To recap our second quarter results, we generated $74 million in revenue, $21 million in adjusted EBITDA, and $18 million in free cash flow. We returned $5 million to shareholders in dividends and recently announced a third quarter dividend of 12 cents per share, which will result in approximately $183 million return to shareholders through dividends and share repurchases since 2018.

Thank you Yvonne and thank you everyone for joining us this morning.

Speaker Change: During the second quarter, Soliris pretty strong free cash flow return incremental cash to shareholders and continued to deliver value to our customers.

Speaker Change: Our second quarter results, we generated $74 million in revenue $21 million, and adjusted EBITDA and $18 million of free cash flow.

Returned $5 million to shareholders in dividends and recently announced a third quarter dividend of 12 cents per share, which will result in approximately $183 million returned to shareholders through dividends and share repurchases since 2018.

William Zartler: After the quarter ended, we announced a transformative acquisition of mobile energy rentals or MER that provides Solaris with a creative entry into a new mobile distributed power product line with exposure to multiple end markets, both within and outside the oil field. Our acquisition of MER not only adds a great team and current contracted business, but also provides us with the opportunity to invest primary capital to meet visible market demand for mobile distributed power. Solaris and MER are currently at exciting influence. points. Solaris is coming off a successful growth capital program where we introduce a new complimentary product offering that is helping us earn more dollars per frat crew we follow.

Bill Zartler: After the quarter ended, we announced a transformative acquisition of Mobile Energy Rentals, or MER, that provides Solaris with an accretive entry into a new mobile distributed power product line with exposure to multiple end markets, both within and outside the oilfield. Our acquisition of MER not only adds a great team and a current contracted business but also provides us with the opportunity to invest primary capital to meet the visible market demand for mobile distributed power. Both Solaris and MER are currently at exciting inflection points.

Speaker Change: After the quarter ended we announced the transformative acquisition of mobile energy rentals or N E R.

Speaker Change: Soliris with an accretive entry into a new mobile distributed power product line with exposure to multiple end markets, both within and outside the oilfield.

Speaker Change: Our acquisition of M. A R. Not only adds a great team and the current contracted business, but also provides us with the opportunity to invest primary capital to meet visible market demand for mobile distributed power.

Speaker Change: Oh, Soliris and M. A R or currently unexciting inflection points.

Bill Zartler: Solaris is coming off a successful growth capital program where we introduced a new complementary product offering that is helping us earn more dollars per frac crew we follow. Now that the buildout of this product line is complete, we are seeing a significant inflection in free cash flow generation. Our second quarter free cash flow of $18 million is the highest quarterly cash flow we've seen in four years, and we expect the core Solaris business will continue to generate significant free cash flow in future quarters as well.

Speaker Change: Ericsson is coming off a successful growth capital program, where we introduced a new complementary product offering that is helping us earn more dollars per frac crew we follow.

William Zartler: Now, if a build out of this product line is complete, we are seeing a significant inflection in free cash flow generation. Our second quarter free cash flow of $18 million is the highest quarterly cash flow we've seen in four years, and we expect the core Solaris business will continue to generate significant free cash flow in future quarters as well. MER's inflection point is in its growth trajectory. MER is seeing demand growth across multiple end markets that underpins new growth investments in its mobile power generation assets. As a result, MER plans to more than triple its fleet size from roughly 150 megawatts today to approximately 500 megawatts by late next year.

Speaker Change: Now with the build out of this product line is complete we are seeing a significant inflection in free cash flow generation, our second quarter free cash flow of $18 million is the highest quarterly cash flow. We've seen in four years and we expect our core Soliris business will continue to generate significant free cash flow in future quarters as well.

Bill Zartler: MAR's inflection point is in its growth trajectory. MER is seeing demand growth across multiple end markets that underpins new growth investments in its mobile power generation asset. As a result, MDR plans to more than triple its fleet size from roughly 150 megawatts today to approximately 500 megawatts by late next year.

Speaker Change: Let me ours inflection point in its growth trajectory.

Speaker Change: Are you seeing demand growth across multiple end markets that underpins new growth investments and its mobile power generation assets.

Speaker Change: As a result, our plans to more than triple its fleet size from roughly 150 megawatts a day to approximately 500 megawatts by late next year.

William Zartler: To execute this growth plan, MER needs access to capital, field service, and corporate infrastructure, which Solaris can provide. Additionally, Solaris's engineering and manufacturing capability provides further potential operational synergies. And our presence on one-third of the completion sites in the U.S. combined with long-standing relationship with U.S. oil and gas operators and midstream companies present attractive commercial cross-selling opportunities.

Bill Zartler: To execute this growth plan, MER needs access to capital, field service, and corporate infrastructure, which Solaris can provide. Additionally, Solaris's engineering and manufacturing capability provides further potential operational synergies, and our presence on one-third of the completion sites in the U.S., combined with our longstanding relationships with U.S. oil and gas operators and midstream companies, presents attractive commercial cross-selling opportunities. So the timing of this combination at our respective inflection points in cash flow and growth trajectory couldn't happen at a better time, and we're excited to share progress with you about our combined businesses after our anticipated closing in the third quarter of 2024.

Speaker Change: Do you have to keep this growth plan and the army doctors to topical field service and corporate infrastructure with Soliris can provide.

Speaker Change: Nurses engineering and manufacturing capability provides further potential operational synergies.

Speaker Change: Our presence on one third the completion sites in the U S combined with long standing relationship with U S oil and gas operators and midstream companies present, an attractive commercial cross selling opportunities.

William Zartler: So the timing of this combination at our respective inflection points in cash flow and growth trajectory couldn't happen at a better time, and we're excited to share progress with you about our combined businesses after our anticipated closing in the third quarter of 2024.

Speaker Change: So the timing of this combination at a respective inflection points and cash flow and growth trajectory couldn't happen at a better time and we're excited to share progress view about our combined businesses. After our anticipated closing in the third quarter of 2024.

Bill Zartler: Turning back to Solaris' well-site equipment rental business, I'll give a brief overview of industry activity levels. During the second quarter, we saw the anticipated choppiness in U.S. drilling and completions activity we referenced in our last earnings call, mostly due to a continued decline in activity in natural gas exposed basins as a result of low gas prices. Most of this decline appears to be behind us now, and we saw stabilization and gas-exposed activity and continued strength in oil basins such as the Permian. For the third quarter of 2024, we expect activity levels to be relatively flat with the second quarter.

William Zartler: Turning back to Solaris' well-side equipment rental business, I'll give a brief overview of industry activity levels. During the second quarter, we saw the anticipated choppiness in U.S. drilling and completions activity we referenced in our last earnings call, mostly due to a continued activity decline in natural gas exposed basins as a result of low-gas prices. Most of this decline appears to be behind us now, and we saw stabilization and gas-exposed activity and continued strength in oil basins such as the Permian. For the third quarter of 2024, we expect activity levels to be relatively flat with the second quarter.

Speaker Change: Turning back to Soliris as well site equipment rental business I'll give a brief overview of industry activity levels.

Speaker Change: The second quarter, we saw the anticipated choppiness in U S drilling and completions activity, we referenced on our last earnings call, mostly due to our continued activity decline in natural gas those patients as a result of low gas prices.

Speaker Change: Most of this decline appears to be behind US now and we saw stabilization in gas expose activity and continued strength in oil basins such as the Permian.

Speaker Change: For the third quarter of 2024, we expect activity levels to be relatively flat with the second quarter as.

William Zartler: As I mentioned earlier, this LARIS board recently approved our third quarter dividend of 12 cents per share, and I like to reiterate our commitment to shareholder returns. Solaris has an established track record of making strategic, organic investments that drive earnings in cash flow growth. These investments have enabled Solaris to grow free cash flow and provide meaningful cash returns to shareholders, and throughout our most recent capital growth program, we continue to do both. We believe the MER acquisition introduces another opportunity to invest in a growing new product line at attractive return and strengthen our ability to continue returning capital to our shareholders in the longer term.

Bill Zartler: As I mentioned earlier, the Solaris Board recently approved our third quarter dividend of $0.12 per share, and I'd like to reiterate our commitment to shareholder returns. Solaris has an established track record of making strategic, organic investments that drive earnings and cash flow growth. These investments have enabled Solaris to grow free cash flow and provide meaningful cash returns to shareholders, and through our most recent capital growth program, we continue to do both.

Speaker Change: As I mentioned earlier, the Soliris Board recently approved our third quarter dividend of 12 cents per share and I'd like to reiterate our commitment to shareholder returns.

Speaker Change: Soliris has an established track record of making strategic organic investments that drive earnings and cash flow growth.

Speaker Change: These investments have enabled <unk> to grow free cash flow and provide meaningful cash returns to shareholders and throughout our most recent capital growth program. We continued to do both we believe.

Bill Zartler: We believe the MER acquisition introduces another opportunity to invest in a growing new product line for an attractive return and strengthen our ability to continue returning capital to our shareholders in the longer term. The diversification and growth of our pro forma earnings stream, combined with the longer-term nature of the distributed power contracts, should support increased earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder return programs, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital. With that, I will turn it over to Kyle for a more detailed financial review.

Speaker Change: The <unk> acquisition introduces another opportunity to invest in our growing new product line and attractive return and strengthen our ability to continue returning capital to our shareholders and the longer term.

William Zartler: The diversification and growth of our pro-former earnings stream combined with the longer term nature of the distributed power contracts should support increased earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder return programs, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital.

Speaker Change: The diversification and growth of our pro forma earnings stream combined with the longer term nature of the distributed power contracts should support increased earnings power and cash flow resilience moving forward as compared to prior cycles.

Speaker Change: We will continue to focus on sustaining and growing our shareholder return programs, increasing our liquidity strengthening our balance sheet and executing on the right organic and inorganic opportunities that enhance our return on capital.

Kyle Ramachandran: With that, I will turn it over to Kyle for a more detailed financial review. Thanks, Bill, and good morning, everyone. I'll start by recapping our second quarter financial and operational results, and we'll also provide a return back.

Speaker Change: I'll turn it over to Kyle for more detailed financial review.

Kyle Ramachandran: Thanks, Bill, and good morning, everyone. I'll start by recapping our second quarter financial and operational results, and we'll also discuss a transaction. Operating cash flow was $19 million. After $1 million in capital expenditures, we generated $18 million in free cash flow, from which we returned $5 million to shareholders and paid down $14 million of our revolving credit facility. At the end of the second quarter, we had total debt on our revolving credit facility of $16 million and net debt of $11 million.

Kyle: Thanks, Bill and good morning, everyone I'll start by recapping, our second quarter financial and operational results and will also provide a transaction.

Kyle Ramachandran: We ended the quarter with approximately $53 million of available liquidity. Our activity in the second quarter, as measured by fully utilized systems of 92, was down approximately 10% from the first quarter of 2024 and was in line with guidance. We followed an average of 56 frac crews, which was down from 64 frac crews in the first quarter of 2024.

Kyle Ramachandran: Cash Nothing. Operating cash flow was $19 million. After $1 million in capital expenditures, we generated $18 million in free cash flow, from which we returned $5 million to shareholders and paid down $14 million of our revolving credit facility. We ended the second quarter with total debt on our revolving credit facility of $16 million, at net debt of $11 million. We ended the quarter with approximately $53 million of available liquidity. Our activity in the second quarter, as measured by fully utilized systems of 92, was down approximately 10% from the first quarter of 2024 and was in line with guidance.

Kyle: Operating cash flow was $19 million after $1 billion in capital expenditures, we generated $18 million in free cash flow from which we returned $5 million to shareholders and paid down $14 million of our revolving credit facility.

Kyle: At the end of the second quarter with total debt on our revolver.

Kyle: Having credit facility of $16 million net debt of $11 million.

Kyle: We ended the quarter with approximately $53 million of available liquidity.

Kyle: Our activity in the second quarter as measured by fully utilized systems 92 was down approximately 10% from the first quarter of 2024 and was in line with guidance.

Kyle Ramachandran: We followed an average of 56 track crews, which was down from 64 track crews in the first quarter of 2024. Ancillary services contribution improved in the second quarter sequentially due to an increase in fleets that utilized last mile trucking services and an increase in tons delivered per bet, excluding a $2 million benefit from a favorable property tax settlement and cost of service. Total annualized contribution margin per fully utilized system was roughly flat sequentially at $1.1 million. On a per-frag crew-followed basis, total annualized contribution margin improved 6% sequentially to nearly $1.9 million, as a larger percentage of well-sights were serviced by multiple pieces of Stellaris equipment.

Kyle: Following an average of 56, Frac crews, which is down from 64 Frac crews in the first quarter of 2024.

Kyle Ramachandran: Ancillary services contribution improved in the second quarter sequentially due to an increase in fleets that utilize last-mile trucking services and an increase in tons delivered per day, excluding a $2 million benefit from a favorable property tax settlement and cost of service. However, total annualized contribution margin per fully utilized system was roughly flat sequentially at $1.1 million. On a per frac crew followed basis, total annualized contribution margin improved 6% sequentially to nearly $1.9 million, and a larger percentage of well sites were serviced by multiple pieces of Solaris equipment.

Kyle: Ancillary services contribution improved in the second quarter sequentially due to an increase in fleets that utilize last mile trucking services and an increase in tons delivered per day <unk>.

Kyle: Excluding $2 million benefit from a favorable property tax settlement and cost of service total annualized contribution margin per fully utilized system. It was roughly flat sequentially at $1 $1 billion.

Kyle: On a per Frac crew, followed basis total annualized contribution margin improved 6% sequentially and nearly one $9 million.

Kyle: A larger percentage of well sites were serviced by multiple pieces of Solaris equipment.

Kyle Ramachandran: S-GNA and the second quarter was approximately $8 million and included non-cash stock-based compensation of $2.7 million. Excluding the impact of the property tax settlement, working capital use was neutral. As mentioned, capital expenditures in the second quarter were approximately $1 million.

Kyle Ramachandran: SG&A in the second quarter was approximately $8 million and included non-cash stock-based compensation of $2.7 million. Excluding the impact of the property tax settlement, working capital use was due to: As mentioned, capital expenditures in the second quarter were approximately $1 million. Turning to our guidance for the third quarter, as Bill mentioned, we expect U.S. land completion activity to be relatively flat from average second-quarter levels in the third quarter. As natural gas weakness appears to have bottomed, and oil prices continue to support stable activity in basins such as the Permian.

Kyle: SG&A in the second quarter was approximately $8 million and included noncash stock based compensation of $2 $7 million.

Kyle: Excluding the impact of the property tax settlement working capital use was neutral.

Kyle: As mentioned capital expenditures in the second quarter were approximately $1 million.

Kyle Ramachandran: Train to our guidance for the third quarter. As Bill mentioned, we expect US land completion activity to be relatively flat from average second quarter levels in the third quarter. As natural gas weakness appears to a bomb, an oil price has continued to support stable activity in bases such as the permit. We expect S-GNA in the third quarter to be relative to the flat sequentially at approximately $8 million. We expect the performance tax rate to be approximately 26%, and the pre-transaction closed pro-formative share count to be flat at 44.3 million shares. For the third quarter, we expect Stellaris's adjusted EBITDA to be roughly flat sequentially at $20 to $21 million, excluding any impact from the transaction.

Speaker Change: Turning to our guidance for the third quarter as Bill mentioned, we expect U S land completion activity to be relatively flat from average second quarter levels in the third quarter as natural gas weakness appears to have bottomed and oil prices continue to support stable activity basins, such as the Permian.

Kyle Ramachandran: We expect SG&A in the third quarter to be relatively flat sequentially at approximately $8 million. We expect the pro-forma tax rate to be approximately 26 percent and the pre-transaction close pro-forma dilutive share count to be flat at 44.3 million shares. During the third quarter, we expect Solaris's adjusted EBITDA to be roughly flat sequentially at $20 to $21 million, excluding any impact from the transaction.

We expect SG&A in the third quarter to be relatively flat sequentially at approximately $8 million.

Speaker Change: We expect the pro forma tax rate to be approximately 26% and the pre transaction close pro forma diluted share count to be flat at $44 3 million shares.

Speaker Change: For the third quarter, we expect Soliris is adjusted EBITDA to be roughly flat sequentially at 20% to $21 million, excluding any impact from the transaction.

Kyle Ramachandran: I will not provide a brief update on the MER acquisition time. We filed our intended proxy this week, and mailing us commence the proxy materials to our stockholders. Special meeting of our stockholders relating to the transaction is scheduled for August 30, 2024. We continue to expect the transaction to close in the third quarter, subject to stockholder and HSR approval, and the completion of other customer-closing conditions. We're excited about closing the acquisition and bringing the MER team on board.

Kyle Ramachandran: I will now provide a brief update on the MER Acquisition. We filed our definitive proxy statement this week, and mailing of the proxy materials has begun to our SOC. A special meeting of our stockholders relating to the transaction is scheduled for August 30th, 2021. We continue to expect the transaction to close in the third quarter, subject to stockholder and HSR approval and the completion of other customary closing conditions. We're excited about closing the acquisition and bringing the MER team on board. With that said, we'd be happy to take your questions.

Speaker Change: I will now provide a brief update on the <unk> acquisition.

Speaker Change: Father definitive proxy this week and mailing has commenced the proxy materials to our socks.

Speaker Change: Meeting of our stockholders relating to the transaction is scheduled for August 30 of 2024.

Speaker Change: We continue to expect the transaction to close in the third quarter subject to stockholder and HSR approval and the completion of other customary closing conditions. We are excited about closing the acquisition and bringing the MTR team on board with that we'd be happy to take your questions.

Kyle Ramachandran: With that, we'd be happy to take your questions. Thank you.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star 0. Today's first question comes from Luke Lemoine with Paper Sandler. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session.

Luke Lemoine: We will now begin the question and answer session. To ask a question, you may press start with one on your telephone keypad. If you're using a speaker phone, we ask you, please pick up your handset before pressing the keys. Do a jar your question, please press start them too. Today's first question comes from Luke Lemoine with Piper Sandler.

To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you are using a speaker phone we ask you. Please pickup your handset before pressing the keys.

Speaker Change: So we charge a question. Please press Star then two.

Today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead.

Stephen Zingaro: Hey, good morning. Hey, you've always talked about 3Q and just kind of the interplanet for act market. You basically said you see it stabilizing. Bill, you always have a really pragmatic view. What's happening in a completion market? Wondering if you just stretch out a little bit and maybe talk about how you see 4Q unfolding and then also maybe the beginning of 25 if you have any visibility at this point. I think that right now it feels like budgets are sort of set. You've had the consolidation where you may be netting down one here, up one there. It just feels like this market has been pretty stable, and I think the election may have something to do with it, but more likely it's about capital spending from the upstream sector. So I don't see a radical change one way or another going into the first quarter of next year. You may see the gas activity picked up a little bit early next year, probably not in the fourth quarter yet, so I really don't see anything that at this point tells me we're going to have a radical shift one way or another. Okay, perfect, that's it for me, thanks. Thank you, and as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star than one. The next question today comes from Stephen Zingaro, it's people, please go ahead. Thank you, good morning everybody. I guess maybe two for me. The first on the well site, storage side, the results were obviously very good relative I think to the market. And what I was curious about is, I know you've talked to the past about kind of the potential for market share gains, given some of the new technology rollouts and the flexibility of the systems. Can you speak to that? Have you seen that?

Luke Lemoine: Hey, good morning.

Luke Lemoine: Hey, Bill, and Kyle, you both talked about 3Q and just kind of the interplay in the frack market, you know, the thing you basically said you saw it stabilizing. Bill, you always have a fairly pragmatic view of what's happening in the completion market. I'm wondering if you could just stretch out a little bit and maybe talk about how you see 4Q unfolding and then also maybe the beginning of 25, if you have any visibility at this point.

Bill: Good morning Bill.

Kyle: Kyle Hey, you once talked about three Q and just kind of the interplay in the Frac market.

Speaker Change: Thank you basically said you see it stabilizing.

Speaker Change: Bill you always have a fairly pragmatic view whats happening in the completion market wondering if you could just stretch out a little bit and maybe talk about how you see for Q unfolding and then also maybe the beginning of 'twenty five if you have any visibility at this point.

Bill Zartler: I think that, you know, right now, it feels like budgets are sort of set. You've had the consolidation where you may be netting down one here, up one there. It just feels like this market has been pretty stable, and I think the election may have something to do with it, but more likely it's about capital spending from the upstream sector. So I don't see a radical change one way or another going into the first quarter of next year.

Speaker Change: Well I think that you know right now it feels like budgets are sort of set you've had the consolidation where you may be netting down one here up on there. It just feels like this market has been pretty stable and I think the election may have something to do with but more likely it's about capital spending from the upstream sector.

Speaker Change: So I don't see a radical change one way or another are going into the first quarter next year.

Bill Zartler: You may see gas activity pick up a little bit early next year, probably not in the fourth quarter yet, so I really don't see anything that at this point tells me we're going to have a radical shift one way or another.

Speaker Change: The gas activity picked up a little bit early next year I'm, probably not in the fourth quarter, yet so I really don't see.

Speaker Change: Anything that at this point tells me, we're gonna have a radical shift one way or another.

Luke Lemoine: Okay, perfect. That's it for me. Thanks.

Speaker Change: Okay perfect. That's it for me thanks.

Speaker Change: But.

Operator: Thank you. And as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star then 1. Our next question today comes from Stephen Gengaro with SpiFu. Please go ahead.

Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press Star then one.

Steven <unk>: The next question today comes from Steven <unk> with Stifel. Please go ahead.

Stephen Gengaro: Thank you. Good morning, everybody.

Steven <unk>: Thank you good morning, everybody.

Stephen Gengaro: I guess, maybe two for me. The first... On the well site storage side, the results were obviously very good relative, I think, to the market. And what I was curious about is, I know you've talked in the past about the potential for market share gains, given some of the new technology rollouts and the flexibility of the systems. Can you speak to that? Have you seen that? And maybe on top of that, what are sort of the key markets that you would most likely see if there are any markets that kind of jump out?

I guess, maybe two from me the first.

Speaker Change: On the well site storage side.

Speaker Change: You know the results were obviously very good relative I think to the market.

Speaker Change: I was curious Brad is I know you've talked in the past about kind of the potential for market share gains given some of the new technology Rollouts and the flexibility of the systems can you speak to that and have you seen that and and maybe on top of that.

Stephen Zingaro: And maybe on top of that, what are sort of the key markets that you would most likely see that, if there are any markets that kind of jump out?

Speaker Change: What are sort of the key markets that you would most likely see that if there are any markets that kind of jumped out.

Bill Zartler: Well, I think you know what you're referring to is probably when we launched the top fill, you know, loading system, which allowed us to eliminate pneumatic trucks and bring in bigger loads. That's really positioned us well to take on business in the Rockies, and we're now doing some additional work up in the Northeast, and you know the benefits of these larger loads mean another one less, ten fewer trucks to deliver sand onto a well site, especially in those rural areas in the Northeast where the roads are narrow and it's tough to do that.

William Zartler: Well I think you know what you're referring to is probably was we launched the top fill loading system which allowed us to eliminate pneumatic trucks and bring in bigger loads. That's really positioned as well to take on business in the Rock East, and we're now doing some additional work up in the northeast and see the benefits of these larger loads means another one less 10 less trucks to deliver sand unto a well site. Especially in those rural areas in the northeast where the roads are narrow and it's tough to do that. So I do see us you know continuing to see places where that actually works, there's still been a momentum on wet sand as well. And it's been we've seen winds and loses on that and our technology continues to be positioned to take some of that with the proximity lines. So I think it's you know the market is fairly stable.

Brad: Well I think you're right.

Brad: Referring to is probably was relaunched the top so loading system, which allowed us to.

Speaker Change: Oh eliminate pneumatic trucks and bring in bigger loads, that's really positioned us well to take on business in the Rockies and we're now doing some additional work up in the northeast and see that.

Speaker Change: The benefits of these larger loads needs another one less and less trucks to deliver sand onto a wealth side, especially in those rural areas and nuts in the northeast where the roads are narrow and it's tough to do that so I do see us continuing to see places where that actually works theres still been a momentum on you know what.

Bill Zartler: So I do see us continuing to see places where that actually works. There's still been momentum on wet sand as well, and we've seen wins and losses on that, and our technology continues to be positioned to take some of that with the proximity mine. So I think it's, you know, the market is You know, like I said to Luke, it's fairly stable.

Speaker Change: Sand as well and you know it's been we've seen wins and loses on that and our technology continues to be positioned to take some of that what's the what's the proximity mines. So I think it's you know the market is.

Speaker Change: You know I consider it until it gets a little it's fairly stable I mean around the edges, we really see where we can we can win some business in and are doing so with our technology.

Bill Zartler: I mean, around the edges, we see where we can win some business and are doing so with our technology, but we're not going to see double-digit percentage changes in this business for the next couple of quarters, I don't think.

William Zartler: Around the edges, we see where we can win some business and are doing so with our technology, but we're not going to see double-digit percentage changes in this business. I don't think for the next couple of quarters. If we were to start to see a pickup around gas, export, source gas, you guys generally get a little bit of an earlier look on the completion side and prepping for that. Have you seen, or when would you expect to maybe start to see an uptick around gas activity?

Speaker Change: We're not they're not going to see double digit percentage changes in this business I don't think for the next couple of quarters.

Stephen Gengaro: Thank you, and as far as exposure to the gas basins, I'm thinking Haynesville. A, kind of where do you stand in Haynesville? And B, if we were to start to see a pickup around sort of gas export, source gas, you guys generally get a little bit of an earlier look, I think, on the completion side and kind of prepping for that. Have you seen or when would you expect to maybe start to see an uptick in gas activity?

Speaker Change: Thank you.

Speaker Change: As far as exposure to the gas basins I'm thinking of Haynesville.

And kind of where do you stand in the Haynesville and B.

Speaker Change: If if we were to start to see a pick up around sort of gas export sourced gas.

Speaker Change: You guys generally get a little bit of an earlier look I think on the on the completion side and kind of prepping for that have you seen or when would you expect to maybe start to see an uptick around around gas activity.

Kyle Ramachandran: I think I make a couple of points. I don't know that we have clear line of sight in the pickup and say the heinous line. I think Bill is very well spoken around just the flatness in the short term here, but I think what is important to highlight is the balance sheet is well prepared with a lot of torque. We've got undeployed assets that are ready to be deployed that have been upgraded for the bucket elevator compatibility. We've got a lot of torque inside of the company to be ready for an increase in activity, whether it be in the heinous bill or anywhere else.

Kyle Ramachandran: I think I make a couple of points. I don't know that we have a clear line of sight to pick up and say the Haines law.

Speaker Change: I think I'd make a couple of points.

Speaker Change: I don't know that we have clear line of sight in the pick up in say the Haynesville I think bill was very.

Speaker Change: Very well spoken around just the flatness in the short term here, but I think what is important to highlight is the balance sheet is well prepared with a lot of torch.

Kyle Ramachandran: I think Bill was very well spoken around just the flatness in the short term here, but I think what is important to highlight is the balance sheet is well prepared with a lot of torque. We've got undeployed assets or assets that are ready to be deployed that have been upgraded for bucket elevator compatibility. And so we've got a lot of torque inside of the company to be ready for an increase in activity, whether it be in Hainesville or anywhere else. All of our assets are highly mobile.

Speaker Change: We've got.

Speaker Change: Deployed assets are assets that are ready to be deployed that had been upgraded.

Sure.

Speaker Change: Bucket elevator compatibility and so we've got a lot of working inside of the company to be ready for an increase in activity whether it be in the haynesville or anywhere else all of our assets are highly mobile.

Kyle Ramachandran: All of our assets are highly mobile. We've been able to re-deploy those assets over the last 10 years, depending on where more connectivity has been stronger. As Bill alluded to, we've expanded significantly in the Rockies over the last couple of years. The Permian is still our largest base of activity, but I think what's really compelling and sits within our business is a lot of untapped earnings that could be turned on quite quickly. As we saw in the second corner, we've continued to see over multiple quarters of late. The free cash flow is really starting to build in this core well-sighted rental business.

Kyle Ramachandran: And we've been able to redeploy those assets over the last 10 years, depending on where market activity has been stronger. As Bill alluded to, we've expanded significantly in the Rockies over the last couple of years. But the Permian is still our largest base of activity.

Speaker Change: We've been able to redeploy those assets over the last 10 years, depending on where market activity has been stronger as bill alluded to meet these expanded significantly in the Rockies over the last couple of years. The Permian is still our largest base of activity, but I think that's what's really compelling and fits within our business is there's a lot of them.

Kyle Ramachandran: But I think what's really compelling and sits within our business is a lot of untapped earnings that can be turned on quite quickly. And as we saw in the second quarter, and we continue to see in multiple quarters here of late, the free cash flow is really starting to build in this core well site rental business. And so we see that continuing to be a strong driver of optionality for our company, as highlighted in what we're doing with the MER acquisition. So I think whether it's Hainesville or anywhere else, we're ready to go. We've got capacity, and we've got a motivated team that's ready to continue to grow with customers.

Speaker Change: <unk> earnings that can be turned on quite quickly.

Speaker Change: And as we saw in the second quarter and we just continue to see over multiple quarters here of late is the free cash flow is really starting to build.

Corey: This is corey.

Speaker Change: Ah well site rental business and so we see that continuing to be a strong driver.

Kyle Ramachandran: We see that continuing to be a strong driver of optionality for our company. This is what we're doing with the MBR acquisition. We're ready to go. We've got capacity, and we've got a motivated team that's ready to continue to grow with customers.

Speaker Change: [noise] Optionality for our company is just highlighting what we're getting with the <unk> acquisition. So I think within the same zone or anywhere else. We're ready to go we've got capacity and we've got a motivated team that is ready to continue to grow with customers.

Kyle Ramachandran: Thank you, Kyle. If I could just throw one more, I know this is a really early question, but when you look at the acquisition of U.S. Solica, and this sort of their sandbox product, do you think that acquisition has any impact on you guys? No. I mean, taking it private, it's the same business. I don't think that it's going to change their position in the market. Okay, great. Now I was just curious. I thought that would be your answer, but I figured I'd ask. Can I appreciate your time? Thank you.

Speaker Change: Yeah.

Stephen Gengaro: Great, thank you, Kyle. And then, if I could just throw one more.

Speaker Change: Great. Thanks, Thank you Karl and then if I could just throw in one more.

Speaker Change: Uh huh.

Speaker Change: And I know this is a really early early question, but.

Stephen Gengaro: I know this is a really early, early question, but when you look at the acquisition of US Silica and their sandbox product, do you think that acquisition will have any impact on you guys?

Speaker Change: When you look at the acquisition of U S silica and the sort of their sandbox.

Speaker Change: Do you think that acquisition has any impact on you guys.

Bill Zartler: No, I mean, taking it private. It's the same business. I don't think that it's I'm going to change their position in the market. Okay.

Speaker Change: No I mean, you've taken a thriving it's the same business I don't think that it's.

Speaker Change: I'm gonna change their position in the market.

Stephen Gengaro: Okay, great. Now, I was just curious. I thought that would be your answer, but I figured I'd ask, and I appreciate your time.

Speaker Change: Okay great.

I was just curious I thought that would be your answer, but I figured I'd ask and I appreciate your time.

Speaker Change: Thank you.

Operator: Thank you. And our next question today comes from John Daniel at Daniel Energy Partners. Please go ahead.

Speaker Change: Thank you and our next question today comes from John Daniel Daniel Energy Partners. Please go ahead.

John Daniel: And our next question today comes from John Daniel with Daniel Energy Partners. Please go ahead. Good morning. Thank you for including me.

John Daniel: Good morning. Thank you for including me. Bill and Kyle, and Yvonne, this might be a little bit premature, but if you just kind of step back and think three to five years from now.

John Daniel: Good morning, Thank you for including me.

William Zartler: Bill and Kyle, Yvonne, this might be a little bit premature, but if you just kind of step back and think three to five years from now, what portion of the M.A.R. business would you like to see tied to stuff outside all of gas? And do you think there's an opportunity long term to take that international, just your thoughts, any work that's done there? Well, I think our forecast, our time horizon view is that out of year, I think we say it's going to be 50-50, and maybe a little heavily related to the, to the data center world; those tend to be larger chunks and larger insulation.

Speaker Change: Bill and Kyle you won this might be a little bit premature, but if you just kind of step back and think three to five years from now.

Bill Zartler: What portion of the MER business would you like to see tied to stuff outside oil and gas? And do you think there's... an opportunity long-term to take that international? Just your thoughts, any work you've done there.

Speaker Change: What portion of the M. A R business, what do you like to see tied to stuff outside of oil and gas and do you think there is.

Speaker Change: And opportunity long term to take that international just your thoughts any work you've done there.

Bill Zartler: I think our forecast is, our time horizon view is that at a year, I think we say it's going to be 50-50. It may be a little heavily weighted to the data center world. Those tend to be larger chunks and larger installations. So, you know, it could be weighted heavier there. Absolutely, the growth of power globally is here, and it's here to stay. This equipment works very well in lots of places. It's got compatibility with different fuels and can handle a relatively wide range of gas compositions depending on where you need the power. So, we're not afraid to go outside, if that makes the most sense. We're, at this point, solely focused, you know, on the U.S., North America, and have a Thank you. Yeah, I would do that.

Speaker Change: Well I think our forecast isn't our time horizon view us as that out a year I think we say it's going to be 50 50.

Speaker Change: Heavily weighted to the to the data center world those tend to be larger larger chunks and larger installations. So you know to be weighted heavier there are absolutely the growth of power globally is here. Its here to stay this equipment works very well in lots of places it's Scott.

William Zartler: So, you know, it could be a little heavier there. Absolutely, the growth of power globally is here; it's here to stay. This equipment works very well in lots of places. It's got compatibility with different fuels and can handle a relatively wide range of gas composition, depending on where you need the power. So, we're not afraid to go outside if that makes the most sense. We're at this point. So, we focused in U.S., North America, and have a pretty good backlog of visibility to where the equipment will go to work, which we'll be talking about in the comments.

Speaker Change: Compatibility with different fuels and can handle Oh, yeah.

Speaker Change: A relatively wide range of gas composition, depending on where you need the power so.

Speaker Change: We're not afraid to go outside if that makes the most sense where at this point solely focused in U S North America and Hello.

Speaker Change: Pretty good backlog visibility of where the equipment will go to work, which we'll be talking about in the.

William Zartler: Once it goes.

Speaker Change: Once it closes fair enough just just curious that that's all I had thank you for including China.

John Daniel: Fair enough, just curious. That's all I had. Thank you, Frank.

Kyle Ramachandran: You know, I would just add that the M.E.R. team has a pretty extensive experience in developing various power projects globally, so that's a critical asset that they bring to the deal as well. Okay. Good to know. Thank you.

Kyle Ramachandran: John, I would just add that the MER team has pretty extensive experience in developing various power projects globally, so that's a critical asset that they bring to the deal as well.

Speaker Change: Yeah, and I would just add that the MTR team has a pretty extensive experience in developing various power projects globally.

Speaker Change: That's a critical asset that they bring to the deal as well okay, great good to know.

John Daniel: Okay, great. Good to know.

Speaker Change: Yeah.

Operator: Thank you. And our next question today comes from Don Crist with Johnson Rice. Please go ahead.

Speaker Change: Thank you and our next question today comes from Don Crist with Johnson Rice. Please go ahead.

William Zartler: And our next question today comes from Don Christ with Johnson Rice. Please come ahead. More and more guys. Just one for me on M.E.R. Since the beginning of the acquisition. Have you seen any kind of increased demand or interest amongst customers that may have been existing on the solar side? Just any kind of thoughts around demand? Has it picked up since you've announced the deal? Certainly. I mean, we clearly are in contact with a lot of folks, and we've had much dialogue going on since that acquisition about needs. The utilities continue to struggle, especially in West Texas and New Mexico, and how we're going to get the power to the installations. A lot of those are our current customers and trust our ability to get it to work.

Don Crist: Morning, guys. Just one question on MER. Since the announcement of the acquisition, have you seen any kind of increased demand or interest amongst customers that may have been existing on the Solaris side? Just any kind of thoughts around demand? Has it picked up since you announced the deal?

Don Crist: Good morning. Good morning, guys. Just one for me on M E R. Since the big announcement of the acquisition.

Don Crist: Are you seeing any kind of increased demand or interest amongst customers.

Speaker Change: That may have been existing on Soliris side.

Speaker Change: Just any kind of thoughts around demand has picked up since you've announced do you announce.

Speaker Change: Good deal.

Bill Zartler: Certainly. I mean, we clearly are in contact with a lot of folks, and we've had a lot of dialogue going on since that acquisition about needs. The utilities continue to struggle, especially in West Texas and New Mexico, and how we're going to get the power to the installations, and a lot of those are our current customers and trust our ability to get it to work. And so there has been that synergy that we talked about, I think is real.

Speaker Change: But certainly I mean, we clearly are in contact with a lot of folks and we've had much dialogue going on since that acquisition about about means.

Speaker Change: The utilities continue to struggle, especially in in West, Texas, and New Mexico, and how we're going to get the power to the installations in a lot of those are our current customers and trust our ability to get it to work in and so there has been that synergy that we talked about it I think is real.

William Zartler: And so there has been that synergy that we've talked about. I think it's real. And we bring up, you know, M.E.R. is just really in their inflection point, as I said.

Bill Zartler: And we bring up, you know, MER is just really in its inflection point, as I said. So our team and our reach, both commercially and operationally, is going to lead to a real benefit for the overall new Solaris going forward.

Speaker Change: And we bring them in.

Speaker Change: Or is just really another inflection point as I said, so our team and our reach both commercially and operationally, it's going to you're going to lead to a real benefit.

William Zartler: So our team and our reach both commercially and operationally is going to lead to a real benefit for the overall new solar is going forward. Appreciate that.

Speaker Change: For the overall, new Solaris going forward.

Don Crist: I appreciate that. And Kyle, maybe one for you. Did I hear correctly that you're still looking for HSR approval and any kind of milestones that you need to get through before you can close?

Speaker Change: I appreciate that and maybe one for you did did I hear correctly that you're still looking for HSR approval and any kind of milestones that you need to get through before you can close.

Kyle Ramachandran: And Kyle, maybe one for you. Did I hear correctly that you're still looking for HSR approval and any kind of milestone that you need to get through before you can close? Yeah, we're a couple weeks away from hearing back from the FTC regarding HSR. And we did file the definitive proxy. So that's on file. We've got the shareholder votes set. So things are progressing well here, and just a couple more milestones to get to close. Thank you. I appreciate it.

Kyle Ramachandran: Yeah, we're a couple of weeks away from hearing back from the FTC regarding HSR. And we did file the definitive proxy, so that's on file. We've got the shareholder vote set. So things are progressing well here, and just a couple more milestones to get to closing.

Speaker Change: Yeah, we're a couple of weeks away from hearing back.

Speaker Change: The FTC regarding HSR.

Speaker Change: And we did filed the definitive proxy.

Speaker Change: So that's on file we got the shareholder vote.

Speaker Change: Things are progressing well here in just a couple of more milestones to get to closing.

Don Crist: I appreciate it. I'll turn it back. Thanks, guys. Thanks, Tom.

Speaker Change: I appreciate it I'll turn it back thanks, guys.

John Daniel: I'll turn it back. Thanks, guys. Thanks, John. Thanks, John Daniel. Thank you.

Tom: Thanks, Tom.

Operator: Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to the company for any closing remarks.

Kyle Ramachandran: And this concludes our question-and-answer session.

Speaker Change: Thank you and this concludes our question and answer session I would like to turn the conference back over to the company for any closing remarks.

William Zartler: I'd like to turn the conference back over to the company for the closing remarks. I'd like to thank all of our employees, customers, and suppliers for their continued partnership, making Solaris a success over the last decade. As we think about the next 10 years, we're excited about building new relationships and delivering both innovative solutions for our current business line customers and providing solutions that our new customers will highly value. Thank you all.

Bill Zartler: Thanks, Rocco. As I mentioned in last quarter's call, this year marks Solaris' 10-year anniversary since our founding. When I look back over the last decade, I'm amazed at what we've accomplished as a team. As far as we can see, we have far exceeded our original goals that we laid out. We've identified the next leg of the business tool with MER and believe we have the right business with the right people that can help position Solaris for the next 10 years.

Rocco: Thanks Rocco.

Speaker Change: I mentioned in last quarter's call. This year Mark Soliris his 10 year anniversary since our founding.

I look back over the last decade, I'm amazed at what we've accomplished as a team as far we far exceeded our original goals that we laid out we've identified the next leg of the business school with M. A R. I believe we have the right business with the right people that can help position soliris for the next 10 years I'd like to thank all of our employees customers and suppliers for their continued partnership.

Bill Zartler: I'd like to thank all of our employees, customers, and suppliers for their continued partnership in making Solaris a success over the last decade. As we think about the next 10 years, we're excited about building new relationships and delivering both innovative solutions for our current business line customers and providing solutions that our new customers will highly value. Thank you all, and we look forward to sharing our progress with you in a few months.

Speaker Change: Soliris and success over the last decade as you think about the next 10 years, we're excited about building new relationships and delivering both innovative solutions for our current business line customers and providing solutions that are new customers, who are highly valued. Thank you all and look forward to sharing our progress with you in a few months.

William Zartler: We look forward to sharing our progress with you in a few months. Thank you, sir. Thank you.

Operator: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Speaker Change: Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation.

Operator: This concludes today's conference call. We thank you all for attending today's presentation.

Operator: You may now disconnect your lines and have a wonderful day.

Speaker Change: You may now disconnect your lines and have a wonderful day.

Speaker Change: [music].

Operator: and welcome to the Solaris 2nd quarter of 2024 earnings conference call. All participants will be in Muslim only mode. Should you meet assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded.

Yvonne Fletcher: I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investment Relations. Please go ahead. Thank you, operator.

Yvonne Fletcher: Good morning and welcome to the Solaris 2nd quarter of 2024 earnings conference call.

Yvonne Fletcher: Joining us today are 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 our previously announced acquisition of mobile energy rentals LLC, 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 Security and Exchange Commission that outlined those risks.

Yvonne Fletcher: 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. Reconciliation to comparable GAAP measures are available in our earnings release, which is posted in the news section on our website.

Yvonne Fletcher: In addition, because this transaction is subject to shareholders approval at a special meeting, this communication and other materials are subject to certain proxy solicitation rules and guidelines.

William Zartler: I'll now turn the call over to our chairman and CEO, Bill Darler. Thank you, Yvonne, and thank you everyone for joining us this morning. During the second quarter, Solaris produced strong free cash flow, returned incremental cash to shareholders, and continued to deliver value to our customers. To recap our second quarter results, we generated $74 million in revenue, $21 million in adjusted EBITDA, and $18 million in free cash flow. We returned $5 million to shareholders in dividends and recently announced a third quarter dividend of $12 per share, which will result in approximately $183 million return to shareholders through dividends and share repurchases since 2018.

William Zartler: After the quarter ended, we announced a transformative acquisition of mobile energy rentals or MER that provides Solaris within a creative entry into a new mobile distributed power product line with exposure to multiple end markets, both within and outside the oil field. Our acquisition of MER not only adds a great team and current contracted business, but also provides us with the opportunity to invest primary capital to meet visible market demand for mobile distributed power.

William Zartler: Solaris and MER are currently at exciting influence, points. Solaris is coming off a successful growth capital program where we introduce a new complimentary product offering that is helping us earn more dollars per frat crew we follow. Now if a build out of this product line is complete, we are seeing a significant inflection in free cash flow generation. Our second quarter free cash flow of $18 million is the highest quarterly cash flow we've seen in four years, and we expect the core Solaris business will continue to generate significant free cash flow in future quarters as well.

William Zartler: MER's inflection point is in its growth trajectory. MER is seeing demand growth across multiple end markets that underpins new growth investments in its mobile power generation assets. As a result, MER plans to more than triple its fleet size from roughly 150 megawatts today to approximately 500 megawatts by late next year. To execute this growth plan, MER needs access to capital, field service, and corporate infrastructure, which Solaris can provide. Additionally, Solaris is engineering and manufacturing capability provides further potential operational synergies. And our presence on one-third of the completion sites in the U.S, combined with long-standing relationship with U.S, oil and gas operators and midstream companies present attractive commercial cross-selling opportunities.

William Zartler: Turning back to Solaris' well-side equipment rental business, I'll give a brief overview of industry activity levels. During the second quarter, we saw the anticipated choppiness in U.S, drilling and completions activity we referenced in our last earnings call, mostly due to a continued activity decline in natural gas exposed basins as a result of low-gas prices. Most of this decline appears to be behind us now, and we saw stabilization and gas exposed activity and continued strength in oil basins such as the Permian. For the third quarter of 2024, we expect activity levels to be relatively flat with the second quarter.

William Zartler: We believe the MER acquisition introduces another opportunity to invest in a growing new product line at attractive return and strengthen our ability to continue returning capital to our shareholders in a longer term. The diversification and growth of our pro-former earnings stream combined with the longer term nature of the distributed power contracts should support increased earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder return programs, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital.

Kyle Ramachandran: With that, I will turn it over to Kyle for a more detailed financial review. Thanks Bill and good morning everyone. I'll start by recapping our second quarter financial and operational results, and we'll also provide a return back.

Kyle Ramachandran: Cash Nothing. Operating cash flow was $19 million. After $1 million in capital expenditures, we generated $18 million in free cash flow from which we returned $5 million to shareholders and paid down $14 million of our revolving credit facility. We ended the second quarter with total debt on our revolving credit facility of $16 million at net debt of $11 million. We ended the quarter with approximately $53 million of available liquidity. Our activity in the second quarter, as measured by fully utilized systems of 92, was down approximately 10% from the first quarter of 2024 and was in line with guidance.

Kyle Ramachandran: On a per-frag crew followed basis, total annualized contribution margin improved 6% sequentially to nearly $1.9 million, as a larger percentage of well-sights were serviced by multiple pieces of Stellaris equipment. S-GNA and the second quarter was approximately $8 million, and included non-cash stock-based compensation of $2.7 million. Excluding the impact of the property tax settlement, working capital use was neutral. As mentioned, capital expenditures in the second quarter were approximately $1 million.

Kyle Ramachandran: We continue to expect the transaction to close in the third quarter, subject to stockholder and HSR approval, and the completion of other customer-closing conditions. We're excited about closing the acquisition and bringing the MER team on board.

Kyle Ramachandran: With that, we'd be happy to take your questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press start with one on your telephone keypad.

Luke Lemoine: If you're using a speaker phone, we ask you, please pick up your handset before pressing the keys Do a jar your question, please press start them too Today's first question comes from Luke Lemoine with Piper Sandler. Please go ahead Hey, good morning Hey, you've always talked about 3Q and just kind of the interplanet for act market, you basically said you see it stabilizing Bill, you always have a really pragmatic view, what's happening in a completion market, wondering if you just stretch out a little bit and maybe talk about how you see 4Q unfolding and then also maybe the beginning of 25 if you have any visibility at this point I think that right now it feels like budgets are sort of set, you've had the consolidation where you may be netting down one here, up one there, it just feels like this market has been pretty stable and I think the election may have something to do with but more likely it's about capital spending from the upstream sector, so I don't see a radical change one where another going into the first quarter of next year, you may see the gas activity picked up a little bit early next year, probably not in the fourth quarter yet, so I really don't see anything that at this point tells me we're going to have a radical shift one way or another Okay, perfect, that's it for me, thanks Thank you, and as a reminder ladies and gentlemen if you'd like to ask a question please press star than one The next question today comes from Stephen Zingaro, it's people, please go ahead Thank you, good morning everybody I guess maybe two for me, the first on the well site, storage side, the results were obviously very good, relative I think to the market And what I was curious about is, I know you've talked to the past about kind of the potential for market share gains, given some of the new technology rollouts and the flexibility of the systems, can you speak to that, have you seen that?

Luke Lemoine: And maybe on top of that, what are sort of the key markets that you would most likely see that, if there are any markets that kind of jump out? Well I think you know what you're referring to is probably was we launched the top fill loading system which allowed us to eliminate pneumatic trucks and bring in bigger loads That's really positioned as well to take on business in the Rock East, and we're now doing some additional work up in the northeast and see the benefits of these larger loads means another one less 10 less trucks to deliver sand unto a well site Especially in those rural areas in the in the northeast where the roads are narrow and it's tough to do that So I do see us you know continuing to see places where that actually works, there's still been a momentum on wet sand as well And it's been we've seen winds and loses on that and our technology continues to be positioned to take some of that with the proximity lines So I think it's you know the market is It's fairly stable.

Luke Lemoine: Around the edges, we see where we can win some business and are doing so with our technology, but we're not going to see double-digit percentage changes in this business. I don't think for the next couple quarters. If we were to start to see a pickup around gas, export, source gas, you guys generally get a little bit of an earlier look on the completion side and prepping for that. Have you seen or when would you expect to maybe start to see an uptick around gas activity?

Luke Lemoine: I think I make a couple of points. I don't know that we have clear line of sight in the pickup and say the heinous line. I think Bill is very well spoken around just the flatness in the short term here, but I think what is important to highlight is the balance sheet is well prepared with a lot of torque. We've got undeploied assets that are ready to be deployed that have been upgraded for the bucket elevator compatibility.

Luke Lemoine: We've got a lot of torque inside of the company to be ready for an increase in activity, whether it be in the heinous bill or anywhere else. All of our assets are highly mobile. We've been able to re-deploy those assets over the last 10 years depending on where more connectivity has been stronger. As Bill alluded to, we've expanded significantly in the Rockies over the last couple of years. The Permian is still our largest base of activity, but I think what's really compelling and sits within our business is a lot of untapped earnings that could be turned on quite quickly.

Luke Lemoine: As we saw in the second corner, we've continued to see over multiple quarters of late. The free cash flow is really starting to build in this core well-sighted rental business. We see that continuing to be a strong driver of optionality for our company. This is what we're doing with the MBR acquisition. We're ready to go.

Kyle Ramachandran: We've got capacity and we've got a motivated team that's ready to continue to grow with customers. Thank you, Kyle.

Stephen Zingaro: If I could just throw one more, I know this is a really early question, but when you look at the acquisition of U.S. Solica, and this sort of their sandbox product, do you think that acquisition has any impact on you guys? No. I mean, taking it private, it's the same business. I don't think that it's going to change their position in the market. Okay, great. Now I was just curious. I thought that would be your answer, but I figured I'd ask. Can I appreciate your time?

Stephen Zingaro: Thank you.

John Daniel: And our next question today comes from John Daniel with Daniel Energy Partners. Please go ahead. Good morning. Thank you for including me.

William Zartler: Bill and Kyle, Yvonne, this might be a little bit premature, but if you just kind of step back and think three to five years from now, what portion of the M.A.R, business would you like to see tied to stuff outside all of gas? And do you think there's an opportunity long term to take that international, just your thoughts, any work that's done there? Well, I think our forecast, our time horizon view is that out of year, I think we say it's going to be 50-50, and maybe a little heavily related to the, to the data center world, those tend to be larger chunks and larger insulation.

William Zartler: So, you know, it could be a little heavier there. Absolutely, the growth of power globally is here, it's here to stay. This equipment works very well in lots of places. It's got compatibility with different fuels and can handle a relatively wide range of gas composition, depending on where you need the power. So, we're not afraid to go outside if that makes the most sense. We're at this point. So, we focused in U.S., North America, and have a pretty good backlog of visibility to where the equipment will go to work, which we'll be talking about in the comments. Once it goes. Fair enough, just curious.

William Zartler: That's all I had. Thank you, Frank.

Kyle Ramachandran: You know, I would just add that the M.E.R, team has a pretty extensive experience in developing various power projects globally, so that's a critical asset that they bring to the deal as well. Okay. Good to know.

Kyle Ramachandran: Thank you.

Donald Crist: And our next question today comes from Don Christ with Johnson Rice. Please come ahead. More and more guys. Just one for me on M.E.R, since the beginning of the acquisition. Have you seen any kind of increased demand or interest amongst customers that may have been existing on the solar side? Just any kind of thoughts around demand has it picked up since you've announced the deal? Certainly. I mean, we clearly are in contact with a lot of folks and we've had much dialogue going on since that acquisition about needs.

Donald Crist: The utilities continue to struggle, especially in in West Texas in New Mexico and how we're going to get the power to the installations and a lot of those are our current customers and trust our ability to get it to work. And so there has been that synergy that we've talked about. I think it's real. And we bring up, you know, M.E.R, is just really in their inflection point, as I said.

William Zartler: So our team and our reach both commercially and operationally is going to lead to a real benefit for the overall new solar is going forward. Appreciate that.

Kyle Ramachandran: And Kyle, maybe one for you.

Kyle Ramachandran: Did I hear correctly that you're still looking for HSR approval and any kind of milestone that you need to get through before you can close? Yeah, we're a couple weeks away from hearing back from the FTC regarding HSR. And we did file the definitive proxy. So that's on file. We've got the shareholder votes set. So things are progressing well here and just a couple more milestones to get to close.

Donald Crist: Thank you. I appreciate it.

John Daniel: I'll turn it back. Thanks, guys. Thanks, John. Thanks, John Daniel. Thank you.

William Zartler: And this concludes our question and answer session.

William Zartler: I'd like to turn the conference back over to the company for the closing remarks. I'd like to thank all of our employees, customers, and suppliers for their continued partnership making Solaris a success over the last decade. As we think about the next 10 years, we're excited about building new relationships and delivering both innovative solutions for our current business line customers and providing solutions that our new customers will highly value.

William Zartler: Thank you all. We look forward to sharing our progress with you in a few months. Thank you, sir. Thank you.

Operator: This concludes today's conference call. We thank you all for attending today's presentation.

Operator: You may now disconnect your lines and have a wonderful day.

Q2 2024 Solaris Oilfield Infrastructure Inc Earnings Call

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