Solaris Energy Infrastructure (SEI) 27 Oct 232023 Q3 Earnings call transcript

Good morning, and welcome to the Solaris Oilfield Infrastructure Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Emily Boltryk, Director of Finance and Investor Relations. Please go ahead.

Good morning, and welcome to the Solaris Third Quarter 2023 Earnings Conference Call.

Yvonne our Kyle CEO, Vice Ramachandran; Finance Investor are President Zartler; President today and CFO, and and Relations, us Chairman Bill and our of Joining Fletcher. our Senior

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

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

over Chairman to the CEO, Bill and Zartler. turn now I'll call our

despite quarter, the and you, bottoming the of Emily, to activity. our sequentially strongly million $XX market in quarter flow. in adjusted spending and system of for third third resulting Solaris another cash positive and this joining $XX rate We generated XX% million, over safely capital quarter us EBITDA a The you, free Thank thank flat declined count sequentially in during Solaris everyone, morning. team executed with total

under our our million consecutive pleased a to to dividend X% in and a quarter XXth framework, shareholder Board increase $XXX share $X.XX since million return approved enhanced consecutive share, dividend $X also our XXst returned over our per I'm yesterday that dividend. shareholders of representing shareholders of payments through to XXXX. returned dividends We marking

highlights. crews We as at our XXX quarter frac utilized the by third the systems followed fill top maintained the of activity we offset fully to Turning in quarter, during was drop systems. flat the deployment

by an during fully XX, increase followed down XX top systems X frac average We of than systems the Our third year-over-year lower of than X% more fill quarter, which XXX%. we second crews utilized and improved, a to third the compared quarter was was guidance. increased bottomed quarter anticipated levels quarter in while believe seasonality. and activity fourth could be average flat delivering activity slightly and be the quarter to when depending modestly on impact the sequentially industry we We current down activity from third expect has to roughly

reduce look and we and As plan from expect well overall efficiencies we ready to activity for levels, push improve Independent continue completions for and activity levels, increased we current cost. it. to of will be to into operators drilling XXXX, per

Solaris has for in culture role has driving us several innovative efficiencies and allowed a these customers. an that play our to of meet

Our current large is part that. program a and of maintenance upgrade

extra costs activity anticipated do fleet, system maintenance some respond the improvement This and with upgrades prepared is did third the during we the and took to standardization softness the of level quickly During proactive result to advantage involved on ensure functionality. of of market quarter. highest to maintenance our which equipment to Solaris in quarter, reliability

additional we our which of service with to program and demand with the enter upgraded maintenance systems, sand And it, deployed systems. could receive XX% that XXXX Solaris expect we systems market be to currently have fleets roughly XXX similar should tapering, the have multiple could frac upgrades XX proactive This with is customers. and ability

have of deployed X quarter. the utilized with which utilization over X up the we the quarter. was the We different a during was technology nearly them. top systems This fill followed from of second third XX% means on AutoBlend XX% new our of Solaris least performance continued fully at flat, frac systems additional crews The highlight

has established largest our customers payloads belly in in our fill the and trucks benefit to fill from top faster drivers system, top Our ultimately sites cost. times, storage higher Solaris Lower-XX. provider and well as lower design resulting the of Using needed site dump sand supply well truck and compatible unloading fewer

Our unique can electric supported sources. its redundancy, system only be is not but multiple power in also by

more fourth systems. While we our is program opportunities to the top see up in to quarter, fill wrapping newbuild continue deploy

to as with upgrade We capacity We XX both systems leaves roughly for from year new fill below program. the in number our through our continue which expect fully was and basins. we had XX as top in went multiple of third quarter, to end and fleet. a increase utilized deployable the This to maintenance across customers these existing units room units utilization interest us with see the

to fully next our become expect top as We few units the over improve utilized available. system fill activity more quarters

slows will our in expenditures fourth down capital As quarter, for our units fill decrease. spending the total capital growth top

a we fourth generate to significantly the free and XXXX. cash during As flow this, result more of throughout expect quarter

and a in returns XXXX, including our and said to quarterly been Solaris' dividend announced regular dividends since then. we've paramount paid have strategy. we consecutive dividend As shareholder always generating XX yesterday, providing before, have We initiated

dividends program our XX% a and returns we enhancing of through committed year, repurchases. framework free Earlier to cash existing flow returning long-term by share least shareholder this at for

framework, we reflecting this $X.XXX, returns of XX% raised increase. a part our As to dividend twice from year-over-year enhanced $X.XX

was we million this which a share shares of date. authorization, million second approximately repurchase component initiation worth The of of million repurchased $XX $XX or X have the program to

return so are crew growing highlighting by service. we I'd differentiated our in and of strategy 'XX for like in earnings far to frac results success showing our summarize our that

we mitigate and about expect upgrade continue program in the to higher to our these excited quarter, outlook incremental forward third pull maintenance to healthy we the to the are While equipment somewhat deploy temporarily costs market. and

from pad equipment our free higher as flow our benefit and per upgrades. our we and profitability expect offerings We cash trend to expand well

turn for to I'll that, detailed review. Yvonne financial it With over more a

after cash revolving in third million. good morning, our million. million of of EBITDA of cash asset used to million, sales a We reduce returned recap excess in ancillary and to quarter $X Revenue mile services our activity, of We due as pressure last nearly adjusted Thanks, generated by financial borrowings and third results. I'll and $X decline $X sequentially flow everyone. million services shareholders the saw declined rebundling lower-margin credit $XX $XX revenue, to free pumpers. over XX% quarter some we by facility Bill,

essentially additional was exposed spot fill revenue quarter outsized decline second flat the activity an deployments and certain offset the top System completions system headwinds from in from as customers.

followed flat deployments. was to softness The which drove frac top the fully second was decrease increase total frac quarter. which our a compared in fill count offset average from As X% for the in a XXX result, systems, crews our by was XX% system in activity guidance of decline, X% utilized a number we an

count to comparative sequentially. incurred Lower-XX our rig was roughly average and enhance ancillary systems. EBITDA as the declined, down sequentially and Adjusted additional For declined we XX% purposes, from maintain costs XX% services contribution

Excluding impact declined ancillary EBITDA the lower of services adjusted X%. contribution,

softness maintenance the upgrades The to demand quality. complete took anticipated As capacity system give highest advantage Bill and at efforts described earlier, of the incremental meet to us upgrade and of maintenance. temporary level we service market

XX% and on capital margin, our equipment have $X.X has systems ancillary crew an last are investment frac grown We trucking on. per profitability the of as should systems basis over per newbuilds of as become and essentially our followed from believe significantly sequentially crew benefit year-over-year rolling fill and at frac was services, crew excluding annualized the flat expanded contribution basis, top the frac presence our per deployments we a million On we forward, additional refurb available. off moving approximately

margin on for an by $X to services, trucking the annualized ancillary per cost previously. system contribution down fully excluding X% basis, when driven Our sequentially million higher referenced utilized system, approximately was primarily

approximately The in mobilizations hauled During a equipment and X% in was ancillary a of margin total profit. quarter tons the underlying XX% the driven sequentially in third to lower drop increase to ancillary quarter, and third frac an approximately in down support favorable $X maintenance mix, due million and of margin enhancements. less by decline services gross decline was services activity, contributed

Turning credit to facility $X $XX cash revolver, cash after down Including pay our our liquidity. working free with of the ended credit million and in million million availability $X $XX quarter $XX third facility. positive to of We excess cash capital $X of million expenditures returns. was We shareholder $X million was quarter asset after $X our million revolving with from total a repaying million the a cash the million $X ended use under cash under flow asset sales, used available and borrowed After we the approximately flow and revolver. and the during capital. a million cash quarter. of on Operating million $XX on in reflected sales quarter

million asset dividends $XX and sales year-to-date our covered Xx. flow cash than operating $XX Our by after year-to-date of more was million

the flow expenditures primarily to first $XX dividend, repurchases to regular and share $XX addition during cash our of We the majority our the was the million XXXX, capital fund generation of continued first XXXX. fourth not X and capital the expect half borrowed sales. of into confidence after covered significantly expenditures In on flow asset in return million of of opportunistic remaining of in the in year months by increase operating also in operating cash free facility accelerated a we cash to shareholders flow. The to result that the our quarter cash covered

to expect continue balance using sheet shareholder and excess We our strengthening towards cash returns.

that, to to our discuss outlook. call turn Kyle now With I'll over the

preliminary and morning, fourth quarter a give today good outlook Thanks, guidance our sharing and on XXXX. start Yvonne, by everyone. I'll

offerings increasing margins. for our continue demand new and to technology to strong We a see path equipment

from have the activity was in believe quarter. Our market's the we levels what improved third bottom modestly

could our in be impact sequentially from down expect fourth quarter depending flat and total seasonality. the to the on system slightly We count be

excluding from Absent trucking margin mix fourth changes, quarter contribution customer expect services. utilized any contribution be flat, per the system we significant to fully ancillary

see maintenance be to normalize, system, seasonality. potentially begins spending decrease our we per offset cost in should the a could of impact by which As

modestly seasonal assuming impacts to activity expect be contribution ancillary some trucking levels. We on flat from down sequentially, flat to services

$X.X SG&A to in the be fourth expected quarter around is million.

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

$XX XXXX we million. sequentially $XX million, to which XX% between now the be quarter, approximately to resulting $XX low expenditures For of around decrease capital roughly guided previously the range expect million, end at year million expenditures to fourth in our of is full capital and $XX

in In longer an million proceeds asset addition the to place sale no $X received we have use million. assets additional in in quarter, $X for sell third to in we the agreement

approximately be Adjusted CapEx of excluding of be net million roughly our approximately the we cash EBITDA in summarize flat, million. working capital, is changes outlook, expected should cash up significantly. to free expect $XX fourth $XX flow, To flow to be Free in quarter. quarter

We repurchase balance continue expect to dividend, to pay this look to our sheet. cash strengthen the opportunistically use and to shares,

$XX between Our for in XXXX in more and decrease initial XX% XXXX. expectation a is $XX capital reflects than which million, from our expenditures capital spending million

level operators with a This in disciplined instrumental been to The growth, operations some our as maintaining range we approach. remain last to solutions we've have of also of changing us business in that growth made getting in of investments cash our shareholders. allowing includes strategic fueling while returns nature capital frac committed the to front earnings the grow continued few years in spending address

premium place are the Our on. on and a enhance we are focused high and cost these automation, technologies areas efficiency, that safety, customers

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

from come Instructions] Sandler. Lemoine will [Operator first Our with question Luke Piper

this really frac a If of fleet Bill, million followed, XXX look you since upgraded can to as system systems do a you this 'XX kind with You where $X.X maybe had guys just But next fleet year-end that falling could followed from to XX simple do and adoption be kind million. this to months And of the per tough market are $X.X question deployed? number to $X.X head even of bit over year. follow be frac have might you variables. talked has about tech system think have in fleets systems. a million share there to I the good have kind capacity per you increased of

I think denominator -- here. it the depends on

million, you've lenders. If we if the can we're next year plus fact and put XXX got top systems, XX So to the systems think that by of XX, seeing if so fills right. I frac out see XX%, it's XX% rebound utilization $X.X we'll count, all work, you'll to for than -- in I the division XX%, that higher million, XX% $X.X have million closer $X.X do

top to the we've work. the the on be spending got point. that year manufactured at we put think this fills, the the So I really by XX on We're sort it so end that's how of slowing of will to -- in down many trends limited

Bill, Okay. think And I you then said...

that sense? Does make

here. makes Yes, I sense. that yes, multiple variables Yes. mean,

think you said top added X I you fill systems.

in XX XQ, just think that running were running I was XX. You but

being more, by kind at had you have year-end. currently XX XX. You because How you at talked about of do many September

field, XX the third context as were rapid like so the the And the manufactured throughput, run the of remarks, fourth it to enhance is Just maybe we've we're any for this realized had under in yes, offering market new prepared come And some is components in opportunities in wrapping system this September. at did there that, at the to of really number the there a just other XX, very we've up off that product, upgrade business, here quarter, But systems And manufacturing we demand. a plant cetera. In reliability, yes, there's et fair nascent. quarter. the we end here, and rate upgrades. meet certain

So be bit we're fourth number... be of we in we'll position kind this like the a that will to those the utilized the us in of a where XX the in such by that availability working of year, third that end quarter little quarter through feel allowing higher, fully drive systems and

XX trailing remember, a a Yes. utilized is And number basis. fully on

to So we're catching as and we've been releasing them, making up that.

And Got more. one just then it. maybe

'XX other flow as and probably was got aside cash I you've plans bit increases, from the think are for fleet dividend of 'XX what for anyone good that the the prepared kind for more lower CapEx 'XX, of kind a anticipated, probably than guide?

Yes. as mean, end growth. excited the million announced share we to show the We've I dividend think, sheet as of we'll opportunistic use debt balance worked I opportunities. very yesterday, to continue to $XX to that in on got, free to of well down. per of buybacks first the and And continue continue balance obviously, half evaluate We'll of those flow the quarter. trim cash then, year, the

There's developing the a program transit. opportunities fills. or the which that ground this and balance the is sheet. a terms came prudent, the allowed hard really balance us significant whether it's lot across to on in into reload we top the manufacturing of Reloading cash to come think inorganic opportunity of we Obviously, amount of sheet, balance sheet hit with organic the

I we're innovate times, seems and when to effort at opportunity our find we'll we'll continue continuing line seize that find operations. improve is Look, our Yes. R&D product to try ongoing, we the to and And a better ways evaluate stuff. think and to this, customers' really work to like

Our question Gengaro with Stifel. Stephen from will come next

you've little fourth you the guys, you about little early an first quarter. think I What tend look and talked Kyle, -- to a you bit, the think, a of I question, get some going bit into we've now heard guys in in like seeing little frac deployments? market fourth seasonality as of kind -- fleet What mean, know your activity few work. but next a you of assets maybe are what 'XX. to into can over add? far and do as a of improvement quarter about some little guidance, bit guys you back as even as recovery the the -- seeing far bit actual you what I What work, going potentially you right frac increasing. back the in are as to as just pumping talk pressure far months built I kind do

very relative basis. prices commodity been a have Yes. Obviously, supportive on

So pretty everybody positive. that's making certainly feel

out, of there's the I in frac earnings there see space. bifurcation the the are as starting think On some tremendous consolidation. obviously, side, been sort you're to And come developing

third spot there. But a work. seeing differentiation definitely up pick of those So some maybe opportunities sort activity the have quarter may we're of to had lower that

so to One that of see continue is more just pure the themes we efficiencies, doing people less.

the theme, a capital think, little on demand necessarily equipment, ultimately of that I has throughput. bit So pressure for downward total not

standpoint, as outlook. an So sort modest We cautious increase from we're is forecasting to we're the market do overall any significant 'XX. not activity it overall of think in but

market been capital able And from What our growth things is from think, XX declined months share to doesn't standpoint. volume has demonstrate, capture accounts, one grow a tower of We've ability new organic equipment. to have the we've more ton overall been mile just that in an to I able just last happened technology. business more business the over that's in our is of an through last the a

So of that's leverage we piece big a or that pretty torque do have.

make But see was pretty as months we back today. been XX the it don't We for in that quality customers. quarter capital working To the high to that ago, significantly. in service require doesn't the team here in not outside they've fourth business providing successful business driver significant our happen, in a grow increasing that's our here get of place capital, and to very look there

as So about excited well. that's opportunity we're an

of increased penetration I that hearing far fleet I'm of but fills, utilized would Are systems a in some are fleets actually followed more new was in activity. the dissect sort -- counterintuitive trying I'm if again, was you AutoBlend quarter thinking you what because frac technologies, it because I fourth have frac suggest your triangulate. as top the That's penetration of -- frac into what guidance thinking that would you to sort which followed as and of comes total of the what seems the to little down the fully

Yes.

you think I that. hit on

but implies guidance slight activity technologies offset modest the by show. we as to a reduction, new the So continue

there. pricing as year? funky -- into we pretty can site about AutoBlend, you -- And storage a strip should kind did stable when Good. right. breaking next and about good I the for think gets trend this us. them All then being this follow-up, from But services, job, of you think, And sort out Yvonne about underlying well just Okay. and and we systems of think think out we the for trends when ancillary of

just with mean, sort kicking I Yes. off we're next discussions year of customers.

talking them level next to that systems CapEx we prepared the remarks, next quarter. of But probably as forward into look we we bring OpEx to So in and the the about to are deploying up mentioned standard. significant

So I fluid. think very is message But that discussions those customers. obviously, resonating with are

next Energy John with Partners. Daniel come question Daniel will Our from

me. that how for there question. concepts market? if or you around Just one are briefly to could on touched bring to so, in Are R&D Luke's Bill, any of today? one ideas interesting guys those response quickly you And kicking you

is not, team John. ideas. talk with that's the manufacturing, tend we really we work. situation There our the quickly the cash situation opportunities The to about with until And that question commercial are or our own and have respond always wait whether we're interesting ready can them. to we'll and balance in sheet and Especially very

and I think great is -- of working last them a being that's year, quarter example from to fill going ago the having moving of that top up. X.X XX a X years XX

So go that I quickly think we makes if find something sense. can we

different if think look way it, $XX look to year. guidance, to million I a the million at for at $XX million million maintenance $XX the $XX typically us, you to CapEx a CapEx is, John,

So the CapEx real year. that is for in the budget next

Okay. ideas of much you in opportunities. those customers for fix identify? help what are you to versus sense a you And us to guys just you a have ideas a fruition, -- how bring come often we've to being by get customer it, got brought saying, to I'm as trying terms how that problem,

X/X X/X mixed. customers. coming be to probably It to I'd may probably is X/X from X/X -- say it's

ideas. problems were The comes couple other know of working and on that a I engineering pretty team. from quarter customers' we're And experienced our now R&D

Johnson Our Crist from question with Instructions] Don next will [Operator come Rice.

of on kind up demand. to wanted I follow the

you in base with on the of past. stabilized your is more demand kind now? count just it more It move through have kind it Can more customer the and it's towards deployed stabilized your loaded kind expand used talk you bit? belly feels people Can just rig of fill really you a top that as little moving around way like like of demand to that getting systems, systems. is not dump and about As feels pull the

of the customers think understand question that happy fill existing silos at solution this I future but I with part were adopted we not top Solaris the for customers and were and do see. Most I is be your that are have mean, the and several can that long-term continued unit. program that the right, have a our those least have fill top the If decided combination better customers, will we of very of their

stable I majors, by lower in operators swings but market some increasing, pretty is the So decent with over market most have the fairly slowly the little the that been and you've activity some the in think had in spot the some we've year. seen volatile of and are a are private -- levels last

are some less And maybe think so swings predictable. I that's driving the of that

crew was, yes, Well, past genesis it given days impacted in were much your a my the rig influenced and you're feels increased guess I but quarters lot by more count less feels you counts, of these offering. it like frac question like

followed Yes, is some per fleet. I are within Number revenue think frac with close the to we band. market and pretty more probably penetrating margin

question will next Stephen with a follow-up Stifel. be Our Gengaro from

When opportunities? a anything your quick recently, about the E&Ps impacts specifically Just and you general we've consolidation seen that in what share among or think one.

Yes.

will a have quick comment and sure Bill I I'm just view. here, think one

entering more there's a operators. with will, into many providers. buying consolidation, them of looking of the for sort you're sophisticated As larger And nationwide if service continued decision, you

area we've grown we've footprint. particularly an last I where XX the has in the expanded think Rockies last done, year. our been over what significantly is months,

So service through Lower-XX provider we operation. not a sort of provider. be continue seen small We're to think consolidation, I a for regional-based as a

context, M&A some in takes. that, always plays things think I the seen for of one in ways, we've favorite. and there's puts But a So different obviously,

risk in to dog and and technologies, of to and comes opportunities sometimes consolidation like bit people at sometimes so people, a cat And those different people have as it events referred win loss. or you

service balance, the we So grow I a it's larger somewhat on provider mature operators. difficult with But established to situation. think as can every handicap that are in

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

our our suppliers support conclude continued by to like I'd and Anthony. call their thanking all of our customers for Thanks, employees, of Solaris.

our done we has long-term the will in a and and continue tremendous the deliver on American growth commodity are We automated solutions reliable safe. cash remain we team cost, on realize strategy. our Our safer, Thank Stay customers outlook North of to benefits that provide. earnings helping constructive and lower confident work you.

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

You may now disconnect.