Solaris Energy Infrastructure - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered strong sequential growth: revenue $149.3M (+18% q/q) and Adjusted EBITDA $60.6M (+29% q/q), with GAAP diluted EPS $0.30 and adjusted pro forma EPS $0.34; performance was driven by rapid scale-up in Power Solutions to ~600 MW average capacity earning revenue.
• Material consensus beats: revenue beat by ~20% vs S&P Global consensus ($149.3M vs $123.7M*), adjusted EPS beat ($0.34 vs $0.182*) and EBITDA beat ($60.6M vs $52.1M*). Management raised Q3 Adjusted EBITDA guidance to $58–$63M (from $55–$60M) and set Q4 guidance at $58–$63M.
• Balance sheet/financing catalysts: $155M of 4.75% senior convertible notes; Stateline JV closed $550M senior secured loan (initial draw $72M); consolidated debt/cash of ~$535.5M/$139.0M; debt/cash attributable to SEI of ~$500.0M/$118.7M at quarter-end.
• Near-term stock narrative: Power Solutions momentum (AI/data centers, microgrids), guidance raise, and dividend continuity ($0.12 declared for Q3 2025) support sentiment; watch for logistics softness and legal headlines tied to class-action filings as risk factors.

What Went Well and What Went Wrong

• What Went Well

  • Power Solutions scaled rapidly: average MW earning revenue rose to ~600 from ~390 in Q1; segment revenue $75.6M (+53% q/q) and segment Adjusted EBITDA $45.7M (+43% q/q) on owned MW growth, leased capacity contribution, and pull-forward commissioning revenues.
  • Guidance raised: total Adjusted EBITDA guidance increased to $58–$63M for Q3 (from $55–$60M); Q4 introduced at $58–$63M, signaling sustained profitability trajectory.
  • Management tone on AI/microgrids: “Solaris delivered another quarter of strong results… prospects for continued growth in our Power Solutions segment look strong” (CEO); reiterated turnkey solutions and emissions-control progress (SCR), plus in-house monitoring app “Solaris Pulse” for efficiency.

• What Went Wrong

  • Logistics softness: fully utilized systems fell to 94 (-4% q/q) with segment revenue $73.7M (-4% q/q) and segment Adjusted EBITDA $22.7M (-13% q/q), reflecting lower commodity prices and fixed-cost absorption.
  • One-time revenue timing: Q2 benefited from start-up/commissioning revenue pull-forward that is unlikely to repeat at similar magnitude in any single quarter, tempering near-term comparability.
  • Legal overhang: multiple investor law firm releases in May point to class-action filings alleging misstatements around the MER acquisition and depreciation practices; SEI intends to defend (risk factor for sentiment).

Transcript

Operator (participant)

Gooday, and welcome to the Solaris Energy Infrastructure Inc. Second Quarter 2025 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, then two. 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.

Yvonne Fletcher (SVP Finance and Investor Relations)

Thank you, operator. Good morning and welcome to the Solaris Second Quarter 2025 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 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 outline those risks. We also encourage you to refer to our earnings supplement slide deck, which was published last night on the Investor Relations section of our website under Events and Presentations.

I would 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. Reconciliations to comparable GAAP measures are available in our earnings release, which is posted on the news section on our website. I'll now turn the call over to our Chairman and CEO, Bill Zartler.

Bill Zartler (Chairman and CEO)

Thank you, Yvonne, and thank you everyone for joining us this morning. Solaris delivered strong second quarter results across both business segments. The second quarter marks the third full quarter since introducing our Power Solutions business. We continue to grow our Power Solutions business and generate significant cash flow from our legacy Logistics Solutions business. The continued integration of the business lines demonstrates the complementary strengths of both our people and our businesses. I'll begin with an update on our Power Solutions segment. During the quarter, we added capacity with current customers and introduced new customers to our offering. If we look back to 10 months ago, when we acquired Mobile Energy Rentals, they were operating approximately 150 MW. Today, we have over 600 MW working for six different customers.

Additionally, we have contracts in place with many of these customers and others to further accelerate our activity over the course of the next several quarters as we take delivery of previously ordered new generation capacity. As a result of this commercial momentum, we are servicing an increasingly diverse set of end markets. These include microgrids focused on energy production, gas processing plants, shorter-term utility grid resiliency efforts, including synchronization with the grid to provide additional power to a customer, and data centers supporting artificial intelligence applications. Our commercial opportunities span various industries with multiple customers for projects totaling several gigawatts of opportunity. Customer feedback thus far indicates that our modular and reliable power generation equipment, coupled with its favorable emissions profile and other unique operational benefits, provide us with a competitive edge in these opportunities.

Market demand for power generation continues to accelerate as a confluence of electrification of everything theme, artificial intelligence power needs, and the reshoring of manufacturing unfolds, which in our view is likely still in its early innings. The grid continues to be challenged to address these needs, considering both time to power as well as the complex nature of the size, and in the case of artificial intelligence applications, the variability of the load demand that is being introduced. Reliability is critical to our customers. We consider modular, power-dense generation uniquely capable of addressing this requirement as operational risk is distributed across multiple appropriately sized nodes, creating layers of redundancy. For instance, a robust microgrid may integrate multiple small or mid-sized turbines with grid power or large frame turbines, potentially supplemented with energy storage solutions like batteries.

We believe this hybrid structure delivers optimal redundancy with greater inertia and spinning reserve capacity, enabling high reliabilities. Modular generation also allows customers to scale their power capacity in increments as needed. Large-scale microgrids, particularly for AI-driven data center demand, rarely require full peak power from the outset. Modular power solutions offer an effective strategy to synchronize the growth of the power supply with the growth of the data center load until reaching full data deployment, while continuing to provide additional layers of redundancy via spinning reserve capacity at scale. The regulatory backdrop has offered recent clarity in support of our distributed generation solutions. For example, Senate Bill 6 in Texas, which was recently signed into law. The new law requires enough co-locating generation for large demand loads so that they can be self-sufficient off the grid.

We have observed that this regulatory clarity is creating numerous potential commercial opportunities as industry participants continue to acknowledge the reliability that our solutions can provide both directly to the customer and also to the broader power supply transmission and regulatory ecosystem. Our current Power Solutions, which include both turbine and reciprocating generation, deliver benefits such as reduced time to power, low emissions, high power density, and operational reliability. By maintaining a generation-agnostic approach, we can tailor combinations of power solutions to best meet the specific needs of each project. We're also focused on strengthening our business by evaluating adjacent opportunities that complement our core offerings. As a recent example, our engineering, manufacturing, and operations teams collaborated to design and implement modifications to the mobile Selective Catalytic Reduction systems or SCRs to make those systems more mobile.

This enhanced mobility enables more efficient assembly, and equipment placed on-site is expected to reduce operational downtime on location. The installation of these modified SCRs began two months ago on our initial data center project, and implementation is going quite well. These proprietary modifications also enabled us to significantly accelerate the commissioning of the SCR units, highlighting another benefit of the leveraging of our organizational agility that is core to Solaris's DNA. When paired with our already low-emissions turbines, these enhanced SCRs will support customers in achieving an attractive emissions profile at the site. Another example is that we have recently utilized our in-house software and technology expertise to develop an in-house app called Solaris Pulse to enable the centralized fingertip remote monitoring of our power generation, enabling efficient operation and maintenance of our equipment.

We're also focused on other balance of plant equipment and systems that are critical to providing power to our customers in the form they require. This can include transformers, switchgears, breakers, and wiring. We've collaborated with several partners to offer customized balance of plant solutions to manage our customers' complex loads and are exploring ways to further integrate this capability in-house. We believe this turnkey approach, providing both an optimal source of generation as well as bespoke balance of plant solutions, is an opportunity for us to further differentiate our power as a service offering. We believe we are well-positioned to add value to our customers and grow both organically and inorganically. Turning to our Logistics Solutions segment. The investments we've made in our systems have helped us drive further frac efficiencies for our customers and end users, which in turn has enhanced earnings and cash flow for Solaris.

Our silo systems, when combined with a top fill, can help our customers process large volumes of sand in support of simul-frac and trimul-frac completions. As an example, we are currently working on a pad for a major E&P operator where we have 12 silos, two top fills on a leading-edge completion design job using trimul-fracs. Financially, this has had a meaningful impact on Solaris. When our Logistics Solutions business started, we offered one piece of kit, and we earned about $1 million of profit per frac crew on an annual basis. Now our leading-edge job has four different equipment systems earning closer to $4 million of profit per frac crew annually. Structurally, we see a continued reduction in the number of active frac crews required to keep oil and gas production flat.

To achieve these efficiencies, each crew will be asked to do more, and we believe our equipment is designed and built to help deliver those efficiencies. While activity during the second half of the year is likely to slow down further due to the recent softness in oil prices, we believe that we remain well-positioned to maintain or grow share as completion intensity continues to rise. With this business in cash generation and harvest mode, we believe the segment will continue to generate significant free cash flow. In summary, we are pleased with both the operational and commercial advancements achieved during the quarter. We are confident that we are establishing a robust and distinctive business position for continued growth and future opportunities. With that, I'll turn it over to Kyle.

Kyle Ramachandran (President and CFO)

Thanks, Bill, and good morning, everyone. I'll begin this morning by providing a review of our quarterly results, an overview of our updated guidance and outlook, and a recap of our recent financings and our current liquidity. During the second quarter, Solaris generated a total revenue of $149 million, which reflected an 18% increase from the prior quarter due to continued activity growth in Power Solutions, which more than offset a modest decline in Logistics Solutions activity. Adjusted EBITDA of $61 million represented a 29% increase from the prior quarter. Power Solutions contributed 67% of our total segment Adjusted EBITDA and remains on track to deliver more than 80% of our total segment Adjusted EBITDA after our on-order fleet is deployed.

During the second quarter, we formed Stateline Power LLC, a 50.1% Solaris-owned joint venture with an existing data center customer to co-own and operate approximately 900 MW at a single site. Adjusting for the 49.9% of non-controlling interest in the JV, Adjusted EBITDA attributable to Solaris shareholders was approximately $62 million. While our results are reported on a consolidated basis, which includes 100% of the JV, we believe that Adjusted EBITDA attributable to Solaris shareholders is an important metric for the investment community and our shareholders, and we plan to provide this additional profitability measure going forward. Turning now to our segment results and outlook. During the second quarter, the Power Solutions segment generated revenue from approximately 600 MW of capacity, an increase of greater than 50% from the prior quarter.

This increase was driven by increased demand from our customers, which we are meeting using a combination of new equipment deliveries as well as selective short-term sourcing of third-party power generation capacity. For the third quarter of 2025, we expect activity, as measured by average MW earning revenue, to be at least 600 MW. Segment Adjusted EBITDA for Solaris Power Solutions was $46 million, a 43% increase from the first quarter. Our order delivery schedule for the remainder of 2025 reflects fewer and new equipment deliveries before picking up again in the first quarter of 2026. This drives our expectation for segment Adjusted EBITDA contribution over the next two quarters to be modestly higher. Additionally, we benefited in the second quarter from project startup and commissioning revenue that was pulled forward due to the acceleration of capacity that are unlikely to repeat at a similar magnitude in any single quarter.

In our Logistics Solutions segment, we averaged 94 fully utilized systems, a decline of 4% from the first quarter. We expect continued oil price softness to drive lower drilling and completion activity. While we are evaluating opportunities to continue to drive new customer additions, the expected decline in market activity levels results in a forecasted fully utilized system count down approximately 10%-15% for the third quarter, with a slightly more pronounced decline in segment Adjusted EBITDA due to the impact of fixed cost absorption. Getting these factors and considering corporate and other expense results in total company Adjusted EBITDA guidance for both the third and fourth quarters of $58 million-$63 million, relatively flat from the second quarter, driven by some continued growth in Power Solutions, limited benefit from startup and commission activities, and a lower Logistics Solutions outlook.

For more details on the guidance and other corporate modeling items, such as interest expense, depreciation and amortization, tax rate, and share count, please refer to the Earnings Supplement slide deck published on our website. Turning now to a recap of our financing activity during the quarter. Solaris raised $155 million in the form of 4.75% senior convertible notes due in 2030. The proceeds from this financing, combined with operating cash from non-JV activities, are expected to cover the company's remaining capital expenditure commitments. On behalf of the JV, we closed a $550 million senior secured loan facility and subsequently drew an initial funding of $72 million. This facility is expected to cover all remaining planned JV CapEx needs to deliver and stand up a stated capacity of approximately 900 MW.

The flatter delivery schedule during the second half of 2025 also coincides with fewer required Solaris-only progress payments for our order book over the next two quarters, which will result in a moderated CapEx profile during the second half of the year in advance of final payments of equipment in 2026. We are excited about the expanding opportunity set available to Solaris. Our continued priority is to deliver strong returns on invested capital as we continue to develop our Power Solutions business while sustaining strong cash flow from our logistics operations. With that, we'd now be happy to take your questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two, and please restrict yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Stephen Gengaro with Stifel. Please go ahead.

Stephen Gengaro (Managing Director)

Thank you and good morning, everybody. I wanted to just ask for a little more detail on the 600 MW that you kind of averaged operating in a quarter versus what you actually own right now, and maybe understand how we should think about that dynamic over the back half of the year as you work to meet your customers' needs.

Kyle Ramachandran (President and CFO)

Yes, Stephen. We were able to source some additional capacity to meet customer demand in the second quarter through some third-party resources that, you know, through the MER relationships, we continue to benefit from those relationships. As we look forward to the second half of the year, we do have some of our deliveries coming in, and as those deliveries come in, some of the re-rented assets will phase out. You can kind of see that in the guidance that we provided here today where we've got a sort of flattish outlook for total megawatts working, but we've got a bit of an expansion on the affected dollars of EBITDA per megawatt in the guidance. As we look forward to 2026, we'll continue to see that work its way through as the fleet gets fed up of our own capacity and some of these third-party assets get tapered off.

I think as we look at our order book going forward here, we've got best-in-class units coming off the line here with the best emissions profile of any sort of OEMs. We've coupled them now with the SCRs out on the first data center site, and that, as we alluded to in the call, is going very well. Our fleet, you know, we're really excited about the expansion of our fleet. We were able here in the second quarter and the second half of this year to benefit from some third-party assets. As we roll out our fleet, we really think we're delivering fit-for-purpose equipment here that's going to be able to meet the necessary emissions profiles for this equipment to be out on location for a very long period of time, operating at very efficient levels.

That's sort of how we see the evolution here in the second half and going forward.

Stephen Gengaro (Managing Director)

Thanks, Kyle. That's helpful. Just so I understand it a little better, it appears, I mean, I would imagine the owned assets have got a higher EBITDA per asset deployed per fleet, as you mentioned. That should evolve. Can you tell us at the end of the quarter how much owned capacity that you had?

Kyle Ramachandran (President and CFO)

Yeah, I think it's going to be a little bit difficult quarter-over-quarter here as we take deliveries of our owned assets to get too granular without, you know, losing the forest for the trees. What I would say is we will continue to see the sort of three to four-year paybacks on our owned capacity, and that's reflective of the true underlying economics of the capital investments that we're making. It's going to work its way through the effective EBITDA margin as the re-rent comes off. Without getting too far into the weeds here, I think what we've indicated here today is an expansion in EBITDA profile per megawatt in the second half of the year as our deliveries come in.

Stephen Gengaro (Managing Director)

Great. Thank you, Kyle.

Kyle Ramachandran (President and CFO)

Thanks, Stephen.

Operator (participant)

The next question is from Dave Anderson with Barclays. Please go ahead.

Dave Anderson (Senior Equity Analyst)

Hi, good morning. Kind of along the same lines in your capacity, and I know that a lot of the focus has been on contracting your remaining capacity that comes on in 2027. I'm curious if you have plans beyond the 1.7 GW that you're going to be operating. How does the queue look today in placing additional orders with OEMs? I know Baker Hughes was talking about doubling their capacity of their NovaLT. I don't know if that necessarily fits in terms of the kit you're using. I was also just curious along those same lines about the third-party power capacity. Is that a potential M&A? Or maybe you were referring to fit for purpose, so maybe it doesn't necessarily fit that kit, but just a little bit of talk about your capacity beyond what you've already planned so far.

Bill Zartler (Chairman and CEO)

We're constantly making a buy versus build decision point on the asset quality, the age of the assets, and what we're looking at. We like the mix that we have today, and we like the order book we have today. In terms of looking forward, I think the analysis is correct that the time to deliver new equipment, if you want to order some today, is continuing to be pushed back. We're evaluating what the next move around that is. It needs to, from our perspective at this point, fall into a specific project basis to look forward to order additional equipment at this point.

Dave Anderson (Senior Equity Analyst)

On the M&A side, does that make sense or no?

Bill Zartler (Chairman and CEO)

Yeah. I wrapped that up in the build versus buy perspective. I think there is, you know, power generation equipment isn't just ubiquitous. There is a significant difference in the quality, the maintenance expense, the asset, just the overall quality and the emissions. It's all wrapped up into those decisions on what we look at in terms of our specific assets that we like to operate.

Operator (participant)

The next question is from Scott Gruber with Citigroup. Please go ahead.

Scott Gruber (Director, Oilfield Services and Equipment Research)

Thank you. Just following on the questions on the second half, you know, Q4 EBITDA probably flat here. I assume there's a bit of improvement on the power side as you continue to have your owned equipment delivered, but that would imply just a modest decline in logistics in Q4 to keep the overall EBITDA flat. Is that the right read here that the logistics decline is just modest in Q4?

Kyle Ramachandran (President and CFO)

Yeah, I think that's right. We do have some implied, you know, continued just sort of activity challenges as we look at the full second half, including in the fourth quarter. I think importantly in what we highlighted in the prepared remarks is we've been able to demonstrate on the Solaris logistics side an ability to really continue to lead the way as far as cutting-edge completion design and well-intensity. We alluded to it on the call with respect to the amount of capital that we're now deploying on leading-edge job sites. I think our guidance today reflects a macro theme with respect to frac activity. I think we've got continued torque in that business with capital that's ready to go to work with minimal sort of remaining startup expense, if you will.

There are incrementals there, but I think we've taken a conservative outlook with respect to the guidance outlined today. We do feel like that business unit has an ability to continue to gain share here as job designs get more and more intense.

Scott Gruber (Director, Oilfield Services and Equipment Research)

I appreciate that, Kyle. We recently saw another company secure a 10-year power supply agreement for a microgrid in the Permian. You have a few microgrid contracts in the oil and gas space and obviously a lot of good relationships. Can you provide some color to what you're seeing in oil and gas for microgrids and how the Ts and Cs of those contracts, pricing, duration compared to what you're seeing outside of oil and gas and data centers and elsewhere, and your appetite to build that side of the business as you continue to grow your Power Solutions.

Bill Zartler (Chairman and CEO)

Yeah, if you think about the oil and gas market that we're serving, it's the production end of this. It's the gas processing end of that. It's a bit of microgrid for those things. We're not out providing power for the frac horsepower where it's very mobile and we're moving it around. We're building stable microgrids. Those customers' credit qualities are just as good as some of the data centers, if not better in certain cases. I think we view those customers as great customers. The tenor of the pricing of it is relatively similar. We know them, and it's, you know, it is a little bit of our, you know, comfort zone in dealing with those end markets because we know the players all the way up to the top of all of those organizations and have built good relationships, and they trust us to do this for them.

As we've done this for them in the frac business, as well as now being able to provide that same thing on power and having a resume and history of actually executing and executing with high reliability for them in the market. We're relatively customer agnostic, and if it's all about pricing and tenor and the location and how well it is for us to serve that. We do like that business as well as the data center market.

Kyle Ramachandran (President and CFO)

One little anecdote I would add on top of that is clearly we're seeing all the upstream companies, all the midstream companies looking to play a significant role in the data center build-out as well. I think we're looking at it as building relationships with multiple parties across multiple industries that all are driving around the electrification of everything beam. I think whether you are a producer of molecules in the upstream world or you are a mover of molecules in the midstream world, you're looking at the data center as a pretty attractive end market. If we're building relationships with the folks that are ultimately going to play a bigger role in the data center build-out, it can be quite creative as we look at the strategic development of our customer base over multiple years.

Scott Gruber (Director, Oilfield Services and Equipment Research)

Good point.

Operator (participant)

The next question is from Derek Podhaizer with Piper Sandler. Please go ahead.

Derek Podhaizer (Senior Equity Research Analyst)

Good morning. I noticed on the presentation, it looks like you added about 70 MW into the energy market. Could you expand a little bit on where those went to, kind of the terms and payback with those? What type of kit? Are they the smaller 5.7 turbines or some of the bigger ones? Maybe some color around that.

Kyle Ramachandran (President and CFO)

Yeah, thanks, Derek. Good observation of the details there. It did go into the energy market with an existing customer, as it builds into super high quality, very large midstream operator. It's an existing relationship that we continue to really drive significant synergies through. We have executed well with them. They are continuing to view us as their partner of choice. As we look at the mix of duration and pricing, while it's not the same duration of our longer data center contract, it is that pricing that is more attractive. As Bill alluded to, it's a trade-off between duration and recurrence. As we look at sort of a decision-making process as well, we really haven't gotten into it much this morning, but we continue to be in very advanced dialogues with multiple parties around the hundreds of megawatts of opportunities to support big data center build-outs.

Those timelines look a little bit different than some of the real-time reactions that we're seeing in the Permian Basin with respect to some of the infrastructure not being able to get online due to the grid effectively being delayed. It's somewhat of a function of how the decisions are being made. I think importantly, despite putting this 60-ish oddmegawatts into the energy space, we still have significant open capacity available to meet the demands of the larger scale data centers. We've got a fleet business here today, and we're balancing holding capacity back with putting capacity to work with those that are ready to make a decision.

Derek Podhaizer (Senior Equity Research Analyst)

Yeah, no, that makes sense. Appreciate the color, Kyle. Maybe just kind of a follow-up to that. I think you have about 450 some odd megawatts uncontracted. Maybe just asking about that. When do you think we should get an announcement as far as, you know, the next data center contract? Will that be with a different customer than your customer today?

Kyle Ramachandran (President and CFO)

I think it's always difficult to predict specific timing. What I would say is our conversations are all going very well. Multiple parties, we are oversold from a discussion perspective, not from a contracted perspective quite yet. We're working through those steps, and we're seeing broadly continued acceleration. Certainly, a lot of news coming out of Pennsylvania last week on a very macro basis. SB 6, as we alluded to on the call, that's driving discussions as well. What we're seeing is continued momentum around people recognizing the benefit of our modular, scalable unit construction to support the ramp-up in the data centers. At the point with which they've really reached full build-out, there's significant benefit in having this dedicated generation available, even in the context of getting significant grid power.

I think folks are slowly but surely coming to realize that this hybrid solution with both our island mode, modular, scalable solution with superior emissions profile coupled with grid interconnect is really probably the best way to manage the high degrees of reliability that are required in a very efficient capital way.

Operator (participant)

The next question is from J.R. Weston with Raymond James. Please go ahead.

J.R. Weston (Analyst)

Yeah, hi, good morning. Just building off of some of the prepared remarks and the opportunity there to add equipment and services and power solutions, as you deepen the relationship with the customers and provide more of a bespoke power solutions offering there, how does it inform the conversation on the longer-term value proposition and the overall positioning of the business?

Bill Zartler (Chairman and CEO)

Sure. Yeah, the overall proposition, the customers are looking for high reliable power to support their needs. When they look at the ideal selection for that and the pricing of that and the control they want to have of that, especially how important it is for their operations to never lose power, you begin to, as Kyle said, with the building blocks of that. I think we mentioned that it's pairing up what we think the solution looks like. It's pairing up a combination of these small to mid-sized turbines, potentially with the grid power, generally with some level of battery system involved in there to deal with the load variability coming from the data demand itself, and either grid or large-scale kind of frame units that go together and build a robust-looking power plant that's designed, you know, bespokely for that kind of load profile.

I think that strategically, that's where this seems to be shaping up.

J.R. Weston (Analyst)

Yeah, appreciate that. Just one more for me, kind of again building off of some of the questions earlier, more about the queue here and fleet additions and build versus buy. Just as you think about the longer-term objectives of the company and maybe if and when the EBITDA guidance is achieved, how would you then look at the free cash generation potential of that phase of the business? How do you think about the dividend versus maybe opportunistic or more routable fleet growth in that phase of the business?

Bill Zartler (Chairman and CEO)

Wll, we've been through this cycle with some of our businesses, which is, you know, the build and the mining of the cash flow businesses. I think we have chosen, we've had the ability to really see at what point you put your foot on the gas pedal and spend that money for attractive returns on assets and at what point you spend that money to return it to shareholders. I think that we look forward, those decisions will be coming up here in the next year or so, and we're very well aware about how to make them.

I think we've got a pretty good track record of both delivering cash back to shareholders in this business, you know, specifically even, as well as making a decision on when you go in and build a business with some of that free cash flow that will be more attractive for the shareholders. I think that it's too early to determine that exactly, but I'll tell you that I think we do pay attention to it. We think about it, and when we get there, I hope we'll make the right decision.

Operator (participant)

The next question is from Jeff LeBlanc with TPH. Please go ahead.

Jeff LeBlanc (Director)

Good morning, Bill and team. Thank you for taking my question. I believe in the prepared remarks, you mentioned that you don't expect the Q2 capacity acceleration to repeat. Is this a function of your customer's development plans, your equipment delivery schedule, or the ability to procure additional third-party capacity? Thank you.

Kyle Ramachandran (President and CFO)

Well, quite frankly, it's probably a combination of all. As I alluded to in the second quarter, the demand was greater than we anticipated, and we were able to meet that in a very timely way. One of the things that we've proven, I think, across the history of this business is to be a very nimble group that can see the plays happening on the field and react. We've done that in multiple instances. I think certainly the earnings contribution in the second quarter with respect to being able to deliver quickly, that was a big driver for us. As we look forward, we talked about it on the prepared remarks.

I think the SCRs and our ability to take a third-party manufactured piece of kit and really custom tailor it to the job location and hit a timeline that was far more accelerated than the OEM thought we'd be able to do. We really drove that through ingenuity and using some best practices that we've developed over the years. I think we're going to continue to find ways in this business. I think we've unlocked significant option value in this business, and we're going to continue to see that unfold. It's hard to predict exactly what those options, how they're going to pay out, but I think we're finding multiple ways to win here, and we'll continue to see those opportunities.

Jeff LeBlanc (Director)

I guess along the same lines, I think in the prior remarks, you also mentioned a generation-agnostic approach to meet a customer's needs. Can you talk about the challenges related to integrating multiple types of technologies together and how we should be thinking about that moving forward?

Bill Zartler (Chairman and CEO)

The team, our engineers, the team we got from MER are very used to dealing with how do you transform this power? What does it look like? We would run, our legacy business had a significant mix of reciprocating generation in it. As we pair up for some of these jobs, the large-scale kind of two-ish megawatt reciprocating with some of the turbine business to build the color LEGO blocks, if you will, on generating the right kind of power. We've got a mix of turbines. We've been running a mix of three different kinds of three different Solar Turbines with three different GE turbines in one data center site. We expect for the next site in the joint ventures to have a mixture of different equipment as well.

I think that's one of our modes as we build this business up around our technology, around our app that we mentioned, and how we control these things. I think that's part of the edge that we're building into the business.

Operator (participant)

The next question is from Nate Pendleton with Texas Capital. Please go ahead.

Nate Pendleton (VP)

Good morning. Congrats on the strong quarter. With my first question, while I understand that the permits for longer-dated power generation are typically the responsibility of the host facility, can you talk about how much of your data center fleet today have those permits in hand?

Kyle Ramachandran (President and CFO)

Well, I think the way I would describe it is, yes, you're correct. Generally speaking, it's the owner of the land, if you will, the owner of the job site that's going to be responsible for that permitting process. We certainly play a role in that in supporting the assembly of that permit because it's going to include lots of granular details about the equipment that will be on site. The permit will specifically detail exactly what equipment is there, which obviously is good from our perspective because it sort of ties us together indirectly to the permit. With respect to where we're operating today, we are on two data centers. The first data center has received its Title V air permit, and the second one is in process.

Nate Pendleton (VP)

Got it. I appreciate the color. For my follow-up, regarding the Logistics Solutions business, it looks like activity is projected to drop a bit in Q3 as broader activity has softened. Are there any operational levers or efficiency initiatives that the team is looking at to mitigate some of the impacts there?

Bill Zartler (Chairman and CEO)

Yes, so that's obviously part of what's going on every day, ensuring that we can have the fixed costs that we, Kyle did mention a little bit on the fixed cost absorption. We're keenly aware of that, and we're managing through this without jeopardizing the quality of the business. We certainly, all of our customers, both in both sides of the business, reliability is the most important thing to them and safety. We're not jeopardizing that, but clearly focused on ensuring that we continue to deliver the right margins.

Operator (participant)

The next question is from Michael Dudas with Vertical Research Partners. Please go ahead.

Michael Dudas (Equity Research Analyst and Partner)

Good morning, Yvonne, Bill, Kyle.

Bill Zartler (Chairman and CEO)

Morning.

Kyle Ramachandran (President and CFO)

Morning.

Michael Dudas (Equity Research Analyst and Partner)

Bill, in your prepared remarks and discussion, you cited the Texas legislation. Certainly, the news out of PJM last week again continued to be surprising to the marketplace. Any thoughts on Big Beautiful Bill or how your clients and how your negotiations are maybe starting to get a little bit more clearer and accelerated given some of those dynamics, certainly in the power side, but maybe even on the energy side from your view?

Bill Zartler (Chairman and CEO)

Yeah, I think in general, the power markets are now getting the signal on pricing that had been maybe not reflective of the actual price for firm power because of the renewal aspects of some of the business. I think the PJM auction really did pull back the curtain on what the underlying cost for reliable power is or for baseload power is. As that unveils, it unravels itself, the notion that this semi, you know, bridge to permanent kind of power in smaller scale with the reliability advances from a cost perspective, it's not out of line. As that unfolds, I think it makes it much easier to see how this segment evolves in the generation. As Kyle mentioned with the gas suppliers, it does imply more gas demand.

Natural gas has only got one carbon in it, so it's a relatively clean fuel as we continue to grow gas generation in this country to support the theme of electrification of everything from data centers to reshoring of manufacturing and to enhanced gas production to supply all this. There's some level of circularity there. The notion that the country and our governments and regulatory frameworks are open up to understanding what needs to happen in an environmentally friendly way to develop the power that we need to continue to make this country competitive, I think is important. I think we're there.

Michael Dudas (Equity Research Analyst and Partner)

That's encouraging. Thanks, Bill.

Bill Zartler (Chairman and CEO)

Thanks.

Operator (participant)

The next question is from Bobby Brooks with Northland Capital Markets. Please go ahead.

Bobby Brooks (Senior Equity Research Analyst)

Hey, good morning, guys. Thank you for taking my question. Really impressive results, and it was good to see some of the open capacity contracted with the new energy customer. What I wanted to hear your thoughts on is this. When I speak to some folks in the industry, everyone clearly understands, you know, Solaris 's value proposition and its place in the market for power and data centers. It seems like folks are less enthusiastic when they realize your open megawatts don't come until, you know, second half 2026. Keeping that in mind, my logic lends me to think that it's probably more likely that a data center contract would more likely be landed in 2026 when you're closer to receiving those turbines in the back half of 2025. Does that logic make some sense, or are you seeing something different?

Bill Zartler (Chairman and CEO)

I think it makes no sense. I mean, people are talking about building nuclear plants that are delivered in the 2030s, and they're making commitments for that today. The large-scale frame units are deliveries in 2026 to 2029 that are being ordered today. The planning horizon now understands that it has to match the power. I think there are still pockets of isolated places where you can get power sooner for smaller loads and do some things. We're beginning to fill up all that spare capacity. I think as the large loads develop, there is a planning horizon out there that is well beyond what we see as our horizon. In a lot of ways, the reaction you get to having power available by early, you know, by mid 2026 and beyond is actually a surprise to the positive, not the negative.

Bobby Brooks (Senior Equity Research Analyst)

Fair enough. Appreciate that color. I'll return to the queue.

Operator (participant)

The next question is from Thomas Meric with Janney Montgomery. Please go ahead.

Thomas Meric (Director Equity Research Analyst)

Good morning, Bill and Kyle. Thanks for the time. I appreciate it. I'm curious on kind of longer-term strategies, specifically around partnerships, whether that's partnering with, you know, different generation technology developer or, you know, fuel source or, you know, frame operator, things like that, or kind of a service-type business like demand response or even a kind of a capital partnership for the financing. Does anything jump out at you from where we sit today as being very creative to the Solaris business model? That's it for me. Thanks.

Bill Zartler (Chairman and CEO)

I think we view partnerships as bringing complementary skill sets to the table, whether it's the asset base. We're in active discussions with gas producers about how to use their gas and put that together with pipeline companies and midstream assets on how we work together to use what they can control through their assets and what we can control. Discussions with customers where they want to participate in owning a little bit of this and put a little bit of capital to work in the business across the board. I think that will also play across in some of the electrical contracting installation and operations work where we've got that in a small scale in-house today, and that continues to grow and be very important to run a very high-quality, safe operation for the customers.

We need that kind of engineering and operations talent and technology that is evolving to ensure that these kind of hybrid, if you will, power plants are run as effectively and optimized as effectively as possible. I think partnerships are going to be things that will continue to happen across the board.

Operator (participant)

The next question is from Blake McLean with Daniel Energy Partners. Please go ahead.

Blake McLean (Managing Director)

Hey, good morning, guys.

Bill Zartler (Chairman and CEO)

Hey, Blake.

Blake McLean (Managing Director)

You kind of touched on it there on your last answer. I just wanted a little bit more color on how you guys are thinking about that balance of plant strategy. We know that supply chain's tight. I was looking for just maybe more color on the collaborations you just talked about on the partnership side and how you're thinking about further development of that capacity in-house and kind of what that does for you as you go to market.

Bill Zartler (Chairman and CEO)

We think it's highly complementary. It's a little bit like the strategy we have on the well side business where we're adding more activity per customer, and we control more of that with the top fill units and blenders and things. As we look at the power business, us controlling our own destiny, to some extent, with transformers and switch gear and all the software that needs to coordinate and drive all this stuff, I think all of that is stuff that we're keenly looking at, how do we build versus buy.

Kyle Ramachandran (President and CFO)

The only thing I'd add to that is I think what it also does is it opens up a wider addressable market with respect to supporting generation that is not necessarily our own, whether it's other, you know, modular solutions in our own Solaris capacity or it's grid interconnect power. Those tangential pieces of kit are relevant for likely a wider addressable market than we even see today, despite having a really attractive addressable market today.

Operator (participant)

This concludes the question and answer session. I would like to turn the conference back over to Bill Zartler for any closing remarks.

Bill Zartler (Chairman and CEO)

Thank you. Thank you, everyone, for joining us today. I'm excited about the strong execution from the Solaris team today and equally encouraged by the opportunities ahead for Solaris as we continue to grow. Our success is a testament to the dedication and hard work of our employees, the trust of our customers, and the strong partnerships with our suppliers. Thank you for being a part of the Solaris team. We look forward to sharing our progress with you in a few months.

Operator (participant)

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