Solaris Energy (SEI) Q1 2025 Earnings Transcript

Core Insights - The average tenor of power solutions contracts has increased to over five years, reflecting a significant improvement from six months a year ago, indicating strong demand in the sector [1][19] - Solaris has secured an additional 330 megawatts of generation capacity, bringing the total expected operating fleet to approximately 1,700 megawatts, with 70% contracted [5][21] - The joint venture with a leading AI customer has been upsized to approximately 900 megawatts for an extended initial term of seven years, enhancing earnings visibility into 2033 [2][3][19] Power Solutions Business - The upsized commercial contract improves earnings visibility and reflects the growing demand for reliable power solutions, particularly in the AI industry [2][19] - Solaris's power solutions segment generated revenue from approximately 390 megawatts of capacity in Q1 2025, with expectations to increase to 440 megawatts in Q2 and 520 megawatts in Q3 [23][24] - The company anticipates annual run rate adjusted EBITDA of approximately $440 million to $465 million net to Solaris, based on current contracts and equipment orders [22] Market Demand and Opportunities - The data center market is evolving, with larger facilities requiring diverse power sources, presenting both challenges and opportunities for Solaris [6][10] - The company is actively pursuing additional contracts in various sectors, including data centers and industrial applications, to utilize the remaining open capacity [5][21][59] - Solaris's Power-as-a-Service model offers competitive pricing and reliability, appealing to customers facing regulatory challenges and power constraints [7][10] Financial Performance - Solaris reported total revenue of $126 million in Q1 2025, a 31% increase from the previous quarter, driven by growth in both power solutions and logistics segments [23] - Adjusted EBITDA for Q1 was $47 million, representing a 25% increase from the prior quarter, with power solutions contributing 55% of total segment adjusted EBITDA [23] - The company expects to maintain strong cash flow generation while investing in the growth of its power solutions business [29] Supply Chain and Manufacturing - The supply chain for power generation equipment has tightened, making it challenging to secure additional capacity, but Solaris successfully obtained 330 megawatts of turbines [5][42] - The company is bringing some manufacturing in-house to lower costs and improve returns on capital, particularly for emissions control systems [14][28] - Solaris's primary turbine vendor manufactures in the U.S., mitigating potential tariff impacts on capital expenditures [27][28] Strategic Goals and Customer Diversification - Solaris aims to diversify its customer base while securing long-term contracts, with ongoing discussions for additional projects in the oil field and data center sectors [59][61] - The company is focused on maximizing shareholder value through growth while maintaining a strong financial profile [15][71] - The management emphasizes the importance of delivering reliable power solutions quickly to enhance its reputation and attract new customers [51]