Solaris Energy Infrastructure (SEI) 28 Jul 232023 Q2 Earnings call transcript

Good morning, and welcome to the Solaris Oilfield Infrastructure Second Quarter 2023 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would like now 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 2023 Earnings Conference Call. our CFO, CEO, Kyle by our Zartler; today and President Ramachandran. joined Chairman Bill and and I'm

Before and we of begin, Such our statements standard I'd we forward-looking like to remarks that comments the remind our outline public statements regarding may forward-looking reflect yesterday, along issued risks. a and and filings regarding results release make nature will the of known some that include the unknown other press recent Exchange risks. financial number cautionary Please those of with today. you Securities refer future of Commission to with

also performance. with point at contain release discussion prepared measures would presentation our information which additional The CEO, useful we be that for will website results Chairman and are financial non-GAAP a the now our and the be measures, which call over of in Bill in this turn in I is our earnings as available GAAP to substitute Reconciliations like not isolation to release, our solarisoilfield.com or section. of believe News should earnings call accordance our today's considered to I'll Zartler. comparable on under evaluating conference can posted out in GAAP.

our framework. frac of in as second and completions enhanced evident million in sequentially XXXX We by for adjusted second the to returned of fill you, of quarterly crews share to from through and became morning. another gas to nearly and of Thank were profitability continue grew share soft $X quarter dividends Industry joining generated strong AutoBlend return sequentially down $XX prices We million, EBITDA growth you, and top $XX flow Yvonne, I'm XX% thank success our quarter impact cash everyone, see quarter under activity. shareholder this technologies. repurchases us the pleased natural we to X% million. shareholders as from we free the and

fill in activity from both but over from of offset ancillary which contribution lower services. earnings able We to with the our AutoBlend as completion that the as we're top count, were sand saw well increased impact and our systems, system quarter from last trucking up contribution

new goal made enhancing Over the strategic both in our XX of we with and addressable potential. the months, earnings have investments technologies power last market

with goal to storage incremental Our sand complement customers offering. core investments is these to value provide our our that

As frac flow drive to result, and cash expand customer footprint in and higher service. us this allows our crew and per list Lower the earnings we a XX

returns deployed developing this Our on these results sand we average, covered. to every system technologies, frac the on this strategy. highlight crew Prior quarter new to we continue one X-pack to

deploying our we on our with are covered and top fill XX% expanded Today, AutoBlend frac systems, including offering, fleets. units more

EBITDA help incremental We activity. contribution, further quarter in in deployments frac new earnings happens expect that regardless will fleet the drive per third industry of frac what resulting growing equipment with

Our a ago. major units nearly success. XX driver in Today, we of field been technology the couple a to compared units the only year a has of have

trucks sand flexibility number options. through unloading customers and total the of our multiple cost more reduces with truckloads preserving equipment dumps, with as combination fuel flexibility use reliable This and belly the a high-capacity system of sand handling Our top pneumatic payloads, reducing for flexibility delivered by higher our backup. the to required industry-leading turning powerful of while provides both quickly industry-leading a trucking

short leading as provider period Our largest are filling today. sand the storage units the dump building up have in become on market a we top industry of compatible

complements offering is technology another efficiency. system and our AutoBlend increase further that electric blending our help to develops strategy Our expanded operators

we electric compared electric and blenders. with quarter. redundancy, doubled enhanced deployments, costs some quarter, automation, the even during increased our and associated improved more drive management safety and see traditional customers the profitability design cost when to continue second and smaller which average Our than the to newer built-in all from downtime In benefit helped AutoBlend the footprint,

strong a and Longer to of quarter coming in continue by demand demand the believe and we the encouraged for this also term, are for an AutoBlend frac offering strong backlog third expect opportunity profitability of continued We fleets the another quarter. year in of this next provide backlog adoption. market improved electric into

and including turbines customers AutoBlend, we integrated natural recently, several our are gas and sources their our powered same using successfully well operations, sites on More to have power grid fill top power, sand the with supply engines. systems frac

been to oil since are of pushing which inception, cost become operators gas relevant as improve have emissions electric footprint. systems XXX% and Our development lower and today electrification toward has even their more

All on-site power systems any customers' required. to modifications designed our be are of to sources virtually able of into our no with plug

In presents asking This as some We e-fleets the already advantage for opportunity has technologies. for our given cases, on-site especially demand us all to new adoption where continued the capable. or of an grows. operators for competitive a required equipment plug-in trend continue and to electric of equipment operator this will grow, a unique both believe be current requiring

of expect the complete down toward our budgeted program capital units. our back spending rate we we head half the as new for we year, slow capital As technology to

but the will capital guidance We unchanged. to of additional at for demand this continue time, reassess for signs remains units, market more our

as we flow enhanced again begin the this of capital Solaris, generating power slows. believe we will meaningful growth earning cash With

during a the to to began $X second this positive quarter see as free cash inflected million. We flow

year. have and then. at accelerate cash half of Generating XXXX dividend the expect a to We been always regular in XX has paramount Solaris' to and since flow strategy. paid dividends We initiated shareholder back in consecutive returns providing quarterly free this

our through $X.XX a authorization. repurchase shareholder year, represents per free dividend returning raise company's dividends by least our framework existing history of flow share $XX program to the X% which dividend increased in by million at cash initiated enhancing we XX% second We share, to committed for base long-term returns and this Earlier repurchases. and share our a

a XXXX, we of shares X.X% million $XXX the million ownership success growing $XX results nearly the frac in per or three return shareholders, highlights earnings of to like of XX% we in of outstanding repurchase cumulative the approximately our and of approximately showing million. in diluted far fully summarize repurchased our we've then, service. which total includes basis company's returned Since On the strategy our crew are to so I'd XXXX shares. for

We expect per profitability as we expand pad. our well to trend our higher offering

capital and Free cash forward, year's margin strong for expected be expanding completion program. this frac moving flow by of is the to growth driven an crew

in expect of year, operator to activities flatten outlook longer-term Although commodity second this the the remains healthy. half out

through and opportunistic shareholder on growing execution, delivering We share consistent operational will earnings executing return power a focused dividend repurchases. framework to our and strong continue on be our

turn to will a I that, Kyle With review. and more guidance it over for detailed financial

activity offering. rental generated We second shareholders. $XX and industry adjusted the million X% to nearly which a began by pricing saw across primarily impacted modestly decline Revenue approximately sand everyone. across $XX completions crew Bill, be storage of good the revenue; $XX as by our full and higher sequentially, a the offset X% million, of morning, in quarter sequentially, Thanks, EBITDA million begin Lower services second we quarter by of recapping returned quarter was sequential due count to frac I'll over results. basins several benefit revenue in earlier increase rig to margin declined XXXX. declined count softness our ancillary in

gross broader and from incremental sand which to top additional X% despite that cost margin and our silo fill we work incremental and pull-through fill deployments management system sand contribution saw ancillary additional completion higher AutoBlend margins and offering. EBITDA the sequentially as improved deployments AutoBlend from profit in grew The drove and equivalent strong across services, top contributed market. softness per

Before nature sand offering Solaris' the from and well our color earned of majority provide our of evolving equipment earnings some activity and our I earnings on would drivers per expanding the to give Historically, revenue of offering. like quarter, and the to system pad. our context we in the I

systems fully our on we metric. key So focused as sand utilized

As expanded more earnings system each we count particularly fully a contribution rental have to fills that offering a of our margin. utilized offers feel AutoBlend is measure we as offering relevant similar total a and systems, include top our activity,

During offset utilized AutoBlend incremental of was down both our systems, was as systems. and in fill the top total XXX decline system fully by the X% sequentially deployments frac partially was second quarter, count which activity

contribution services, the full quarter per basis we increases annualized margin of system to sequentially contribution from as first slightly XX% and during ancillary up fully our quarter. on over combination was an a utilized a Excluding from per system of trucking pricing benefited implemented the million $X the mix

utilized we as changes, contribution to expect fully the per over to expect margin the Absent year remainder remain customer flat. remain of pricing flat system any we mix significant

The of XX% $X.X primary crew sequentially well on services, our contribution margin million Solaris site having from an fully of annualized systems on a site. basis. contribution increased result trucking growth the also this utilized multiple approximately is to by per Excluding ancillary driver frac a single per

of quarter, Solaris quarter first we During in we to were crews followed XX% sites XX% compares system. the systems the a multiple or This had of approximately top the multiple either systems the the sand second fill plus of form Solaris frac had operated systems. well AutoBlend on

the We expect we increase contribution margin in despite frac the expect to year increase top activity. and frac to the remainder fill movements as in deployments crew underlying AutoBlend per of fully covered

the quarter was services hauled second from of sand million profit our improvement second up mile The services total contributed and in driver quarter, flat. $X management job in of a the last and ancillary offering in margin XX% the as cost remain XXX% of approximately approximately of During hauling relatively gross primary ancillary favorable XXXX. first over improved was quarter mix more tons

in margin. characteristics, reminder, to such low-margin hauling transportation due mines our Solaris be a distances trucking mile and changes well include can pass-through last sites drive their between harder longer and activity and revenue, to basic high equipment disproportionate in can and revenue As services, changes as which predict trucking sand

first XX% gross compared X% second example, comprised profit gross quarter quarter of in the the of quarter XXXX. services For XX% to the profit XXXX XXXX ancillary second of in and in of of total

drive XXXX, our from quarter lower closer third recap to offering ancillary tons transported our In outlook. first the mile services quarter dollar third we million. at contribution expect To last hauling around levels sand in of $X.X to total quarter

We should and flow. cash continue share technology which drive new to offerings, backlog incremental see demand our for

after industry be few in increases result, AutoBlend the netting sequentially count total a of and in by the activity systems. up the to top of our a systems continued impact completions our with expect third deployments flattening fill As we quarter system

crew $X.X third to quarter We remain million, should in excluding to and flat system second the the frac ancillary in but profit be deployments increased per improvement per in these SG&A in the when it quarter. services. was the expect expect continued flat margin contribution quarter, of we impact drive third

XXXX. of quarter EBITDA We expect adjusted in line to with second quarter roughly third be the

The see Street should are. third frac lower expected by fewer contribution. be already estimate This to but estimates margin for crews increasing is to offset services quarter frac is contribution and crew where ancillary close

capital our decrease our following flow initial capital coming build-out fill of over top significantly, significant outlook, quarters. fleet, expenditure to we yield which the should rate the expect spending cash For our

capital million. third For expenditures quarter, approximately the be we expect $XX to

We year $XX be expenditures capital continue million XXXX expect to $XX to million. to full between

was in and to shareholder and returns. flow quarter million capital expenditures cash After capital. positive $X million approximately $XX a cash cash reflected cash flow $X $XX approximately quarter. Turning Operating of source million, from of free working during million total the was the

$XX We million million borrowed our credit million $XX and of $X ended approximately with approximately resulting in facility, quarter under liquidity. cash in the

continued The to result the generation accelerated of of Therefore, significantly temporary. flow in that expect opportunistic the flow cash and and to as our be primarily return year-to-date the million credit remaining confidence million of half of of XXXX, our $XX covered borrowed first not free the we facility shareholders in the months expenditures flow. $XX to cash Our by facility to operating of covered half expenditures. on on XXXX. increase first year-to-date share of X $XX we anticipate million in We these fund our second capital majority our cash cash during $XX a of repurchases dividends million capital our borrowings operating

conclusion, are years earnings few meaningful return investments In cash over and growth last made to our the the we've shareholders. business to in enabling driving us

forward help over technology our to lower you continue earnings which that Our to focused power customers our value is expect new coming us progress improve generation, and to and technologies and what we providing. we safer, that and look automated on costs, will deployments, cash continue sharing Therefore, quarters. the help our are we are with

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

[Operator Instructions].

first Our Luke Lemoine Piper question from of Sandler. comes

to new AutoBlend a value about to better that in the look can frac previously at per year frac think When kind I And million change we fill be that. methodology, little said be is the metric, fleet would look with it at potential A still and count followed top its Kyle, you're per you derived million annualized it million talked in in and about to here $X fleet well about asset site XQ? you $X account, $X followed or million of that $X.X you year. GP at $X like if million per using the believe

provide exactly basis that's system. fully we're to providing Yes, million system $X thinking a all visibility a looks And that and what to also Luke. bit providing $X into it. the per fleet covered million frac investors more gives right, sort like. you the of just we're on to that a million this as makeup yes, context $X count little then looks We We're standpoint. is the of fleet think trying what per about way full frac earnings like But annualized roughly to from EBITDA still

next Stephen Stifel. The of question comes from Gengaro

Two for me.

First, we count would normally third off Kyle, The of our do the of got kind when You've was -- one fleets, useful. back usually. about of frac very all your That market the thanks things an into one the and assumed detail. market for fleet expectations of share that we right? for

now, fleets from think movement As market we any as your there served about perspective? that far been share as right your in has

From finally driven but share. the it. some that long wouldn't Yes, of It's a I'll we've been to electrification Bill, customers kick market elevator. hard around got call in bucket on Certainly, targeted have should technologies, pushing we in really on time that technologies majors there. off, new to for chasing new other certain and you it that be we've without a standpoint, around also really that, the chime then the we the these piece the say But capability I alluded when that. and that are is

with that, due that trucking demanding dump both market that's And we're pumpers that obviously edge just as of I share. to is that, then And blender. the us. as to real the pressure a for continues service bucket area regionally, and driven use the the which differentiator is and elevator, incremental And the from for a historically second or plug-and-play -- would be been the And solution system that's a sand well us, say, Basin Rockies piece growth market. underserved to the in just belly for up with

customers. have And continues so for the given significantly as opportunities And that those us new grow. two work look backlog, pieces really we at to to

I hit all, think it Kyle. you

spectrum? is it then talked across think about there there I'm of the And like, as per that one, are adoption. second to it about the about fleet versus systems this, who a where to the customers sharp impacts Is about guess using the the XQ. how saw to you question XQ gets the customers a you deployment want as mean you've just more frac we talk stickiness trying on And Great. rise -- I more I basis, and think

the between on belly a I load, it going one. does, pneumatic I'll answer think are truck It But Steve. rules versus is dump very local on this a difference that loads. dependent running running how truck the what with you're far does.

of truck Nomadic sand you're not And pounds to running is haul going that. XX,XXX and so to Wyoming, of for in XX,XXX instance, so

that leads regional of our ancillary are with the to technology, come using uses the customers I period the actually reliability systems the the cleaning adoption. as that can time in some of there up it and use So consistent hopefully way well terms in long all specifics as it, data, by the a very sticky. how a reliability process help product very along customer that is once goal sand mean the around for the with our to the blender benefits and of

multi-basin basins. using are the got We've customers new multiple technologies across that

final And one. sense. makes just one then That Okay.

the that was consumable we've just in price hear imagine you are their the, based some some started also there's to a of I the -- you're standard of guys in come back maybe what pickup You mentioned for XQ as sort customers -- What or kind Is just have stability you that I seeing just that feels of little that's others it's a costs guess, wrong system. activity conversations maybe and insight down. seeing from of with silo that, kind but usually on of bit You have sand of before a good word, what do. saw it perspective? like of changes into a

to do are mean the see picked of June think feels it. I look the we going May. like Well, profile at was I kind right. quarter think low you're I that's second up hair. It if a of

and feels rest same see level, think how of sort I quarter that the of in the July up. we'll shapes

flat trending to especially too completely prices fourth the commodity they are, to of talk their ahead in remain that do lower and of some quarter. general, some cost predict locking momentum. getting it's if where game, especially in 'XX maybe optimism think But there's the see, I a It's spending slightly we early and with when it really bit operations. early comes for program of some to down

way We less the them with give but pricing in In work them our we're the tend our in to tend we raise other and volatile terms not too costs times customers, downtime. of services. to to than up on good overly the not much most

relatively muted the to that compared aspects other of pricing So us with level is industry.

[Operator Mitchell Partners. from Daniel Instructions] Our of Energy comes question Sean next

hear guys Can you me?

Perfectly, Sean.

this you of asked was kind more question want if hit to little a last that I can. on bit

some not in slowdown QX, recently leading also about but a calls into the in QX. then of anecdotes on several activity accelerates the heard Just we've frac but quarter,

then systems provide And if two, that? deliver bottlenecks color up? may you chain side see terms that maybe additional just of capital can there's the have on supply you Just or want spend, left to any on from what number any in coming be to

second had your and out we first. of the we and spread question bit, it a answer the spread year, a more and it second have but build through year. the we have capital for the all I'll No, loaded, we little flat program planned out originally half

So that's track. on

ones some issues isn't we've where because that be had have it we things can very identified in with like new the generations, are to early and utilization we technology refurbishment, this we've had key we'd them on -- we as Our launched the quickly, that improve.

got capital they're we've low today to so XX customers year much ago line ones evolve, think different And refurbishment and notionally as the our with it X versions and that the coming in but refurbishment, that are see are I are refurbished off improved. the a than running

-- With in to been drifting to flat be and supply the we the significant that We've ahead not have year. our respect of for So part a it's chain. down the able like it quarter. feels market, third for for this to plan most had bit

like I things say to December, November, the predict. September as I of very think months momentum it's the October, that is this hard to or on around think is Where year falls the there's in up pick course over from -- talk next in feel the back additional nuance or as hard is three things it pick to There the momentum up does point. progresses. four

that that, out is improvements through we -- have some and the those of demand these we system but to for if bucket early field backlog is able get would because that if put way higher definitely saying the the upgrades once were in been -- is we in elevators our different count A Yes. Sean, there. of

for us of an year. So in opportunity back half that the is the

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

Thank our customers suppliers you, conclude employees, Alan. their all I'd in call to Solaris. thanking by continued for our like of and support

of new cost and operations provide. the I'm done automated technology safer, able impressed customers support demand. has And to to a incremental our deployment Our backlog this solutions we keep and in up the of benefits manufacturing helping been with team internal our with group realize how lower tremendous have job

outlook that deliver flow remain on all. safe. strategy. cash constructive return are Thank long-term confident earnings you on continue and Stay We cash and and to our the commodity we'll growth our

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

disconnect. now may You