Good day, and welcome to the Solaris Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President of Finance and Investor Relations. Please go ahead.

Good morning, and welcome to the Solaris second quarter 2021 earnings conference call. I'm joined today by our Chairman and CEO, Bill Zartler; and our President and CFO, Kyle Ramachandran.

Thank you, Yvonne, and thank you, everyone, for joining us today. The second quarter of 2021 was another strong quarter for Solaris. We generated a 23% sequential increase in revenue to over $35 million. Adjusted EBITDA increased 6% sequentially to $6.5 million, and we paid our 11th consecutive quarterly dividend. We ended the quarter with $46 million of cash and no debt on the balance sheet. During the second quarter of 2021, oil prices climbed from over $60 to over $70 as operators remained disciplined with supply conditions and global oil demand continued to improve. U.S. natural gas prices also improved from the $2 range to over $4. Historically, U.S. operators have been quick to ramp completions activity in reaction to similar commodity price increases. This cycle, however, we are seeing a measured industry reaction, which we believe bodes well for sustained recovery in the U.S. oil and gas market. During the second quarter, public operators maintained capital and production discipline by holding frac programs relatively steady. Private operators that add a significant completions activity in the run-up to oil prices in the $60 range have not had a significant activity response to the $70 jump. The U.S. horizontal rig count, however, is currently up over 30% from the second-quarter average, while the completions ramp remains slower. Taking an initial look at the rest of the year, we believe that operators are allocating an increased portion of remaining 2021 budgets to drilling activity. Combined with sustained higher commodity prices, this provides incentive for increased U.S. completions activity later in 2021 and through 2022, which Solaris is gearing up for with new and existing customers and technology, which I will give more detail on shortly.

Thanks, Bill, and good morning, everyone. To recap some of the numbers, during the second quarter, we generated $35 million of revenue and adjusted EBITDA of about $6.5 million. We averaged 53 fully utilized systems deployed to customers, which represents a modest sequential increase from the first quarter and over 25% higher-than-average fourth quarter 2020 levels. Total revenue increased 23% sequentially, driven mainly by an increase in last-mile services and modest growth in system activity. Over the course of the quarter, we deployed a total of 87 proppant systems, which worked with varying degrees of utilization. Our calculation of 53 fully utilized systems reflects the number of equivalent systems that generated revenue every day in the quarter, which we believe is the best measure for modeling purposes. The gap between our fully utilized and deployed systems was the highest it has ever been in Solaris' history, driven primarily by the wide space created by private operators with less consistent completion programs. Nearly two-third the current U.S. drilling activity is now private operator driven, which is the highest percentage mix we've seen in recent history.

Our first question will come from George O'Leary with TPH & Company.

Sounds like you had successful field trials with the blender. It was a cool event in March to go see it in person and spend some time with you guys. Thanks for hosting that. Just curious how discussions with customers are going with respect to the blender? And then what drives the decision to build one? And how do they -- are they giving you term or you can form some sort of contracts for you to build? And what drives the decision to build those blenders for customers?

Yes, George, the trials have gone very well. As Bill alluded to the operational performance is exceeding expectations. So we're really excited about it. Our customers are really excited about it. We obviously have one working in the field today. We expect to deliver two more by the end of the year. At this point, all three of those are not under contract. But the way we're approaching it and what we've communicated very specifically with customers is, in order to grow beyond that point, we will need commitments from customers. And those discussions have been very productive to date. Not to get ahead of it, but in '17, '18, we were built -- we had a long queue of people that were waiting through 6-packs, and we were building on order. We're definitely not there at this point. But the early momentum is starting to feel a little bit like those days because this is -- really represents differentiated technology that just isn't out there today. And so the conversation has changed from what am I picking for a sand storage system to who's going to deliver the most efficient hydrated stream to my high-pressure well site. So really constructive conversations. Still early days, but we're really excited, which, again, drove the decision to start ordering some long leads on the two additional blenders.

That's -- Kyle's got it.

Great, that's very helpful. And then, the market share gain commentary was encouraging and just one customer adding a huge difference by the end of the quarter was encouraging as well. What's kind of your strategy and the pitch there to customers to go and take market share and gain work from folks who are using computing systems?

Well, it's a mix. You still have folks out there that do have assets on balance sheet that they've been using. And I think over time, people have recognized that what we've been able to do has really provided a higher value offering in a more comprehensive manner, whether it's automation and the way the system works, whether it's software, in terms of remote monitoring or now this most recent evolution with the blender. So I think what it demonstrates is our laser focus on the low-pressure side of the well site and our team's ability to innovate there. And we're really excited about what the implications are of this new sort of evolution in the company's growth.

And I think, George, I'd add one more. It's the actual system and service that we provide. The reliability has been really good as we've come out of the slowdown. We've been able to put systems back to work and ramp the people side up correspondingly and the reliability of the systems ultra-low, we track it on a regular basis, and we actually track time to repair if there's a problem. So we're laser-focused on ensuring that our customers keep completing as fast as they want to complete.

Great. I'll sneak in one more, if I could. Simul-fracs has been a big topic as we talk with investors, investor clients. Any color on what percentage of your systems are doing work on simul-fracs just given how large well and how much sand they keep on-site? I could imagine there's good interest in deploying all systems where simul-fracs are ongoing.

It certainly changes every day depending on the mix of not only our customers but their sort of plans. Not every pad is conducive to simul-frac. Typically, it's going to require a little bit larger footprint. And just the number of wells on location are going to be a driver of that as well. But -- so I don't know if it's 10% to 20% and in any given day, it's probably within the range. And then some days, it may be higher than that.

But anecdotally, it is slowly increasing.

Our next question will come from Jon Hunter with Cowen.

So, I just wanted to ask on the activity outlook into the fourth quarter. I mean, clearly, you have some encouraging signs as you exit the third. But curious how you're thinking about a potential activity uplift in the fourth quarter. And then as it relates to 2022, we've heard some indications of a modest increase in frac activity next year. So, curious how you're thinking about the improvement in the fourth quarter and then perhaps in 2022?

We see a ramp coming. All -- rig count is a leading indicator. We have not seen recently a corresponding increase in the frac fleet count. So that's building back a DUC inventory that may have been worked down over the first half of this year. So all signs are -- and certainly, with the economics of the oil price today is a pretty good incentive to go in and complete those wells as soon as they're drilled. So it really is a timing issue, and I can't predict when beginning that ramp starts, whether it's next week or November. I think it's driven by individual capital budgets, where they are in their cycle. But certainly, looking on into next year, we see an increase coming. And we've had increased talk from our customers that they're going to need more equipment coming into the fourth quarter next year. It's really just a timing issue.

That's helpful. And then, my follow-up question is on dollars of margin per system, you had a bit of an increase from 1Q to 2Q. I'm curious, on flat activity, would you expect your margin per system to be flat as well? Or are there any other puts and takes I need to be considering as I look forward into the third quarter?

Yes. I think, for now, Jonathan, I think we're expecting it to be relatively flat. If you look at the pickup from Q1 to Q2, there we probably did $60,500 of gross profit per system. That was close to $64,000. And so that increment -- part of that was getting some storm recovery help and then the latter part of it, even though systems were flat, was really doing a lot better in our last mile business. And so assuming that we can continue that performance into Q4 -- I mean Q3, then that should translate into a flat contribution margin per system.

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

Thank you, Matt. And thank you all for listening to the call. And I thank all of our employees, customers, and stakeholders for another good quarter. All the efforts that have gone into the new product development, we really look forward to continuing executing on our core business plan and continuing to make those products and services better as well as successfully adding to our offering to connect the dots to really manage the low pressure side of the frac side. So, thank you all. And have a great day.

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