Q4 2019 Earnings Call

in listen-only

Should you need assistance, please signor 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 * then 1 month on your touch tone phone to withdraw from the question queue, please press * then two. Please limit yourself to one question and one follow-up, please note. This event is being recorded. I would not like to turn the conference over to have on Fletcher senior vice president finance and investor relations, please go ahead.

Good morning, and welcome to the Solaris fourth-quarter and full-year 2019 earnings conference call. I am joined today by our chairman and CEO 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.

I would also like to point out.

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 reconcile reconciliations to comparable gaap measures are available in our earnings release. I'll now turn the call over to our chairman and CEO Fuller. Thanks Yvonne. I'm pleased to share the results of a strong 2019 delivered by the Solaris team. Despite a challenging Market backdrop 2019 was the first name positive free cash flow for the company as we began to harvest cache from Investments made in Prior years. So I was generated over eighty million dollars of free cash flow for the year and we return to twenty-three million dollars in that box to shareholders in the form of dividends and a share repurchase program.

In December, we paid our fifth consecutive quarterly dividend which a 10 and 1/2 cents per share reflected a 5% increase over the previous dividend. We also began buying back stock under the 25 million dollars a share buyback program. We announced in December these initiatives reflect the confidence we have in Solaris ability to continue to generate through cash flow even in a sluggish growth environment.

We generate.

Our 2019 Financial results despite unprecedented efficiency gains in horizontal drilling and completion activity in 2019 that cause overall industry front Fleet count too slow in the second half year that friend was exasperated by multiple factors. First operators had a continued focus on spending with or below there within or below their operating cash flow two-week natural gas prices three weekends your prices and forth poor well performance and certain place these factors resulted in many operators slowing or halting their completion activity in the fourth quarter our fourth quarter of reflective slow down as we averaged $88 fully utilize systems in the quarter down approximately 23% from the third quarter and in line with our expectations and prior guidance.

So far in the first quarter of 2020 as we've expected a gradual pick-up in activity with average January levels in line with December average numbers with activity steadily, but modestly increasing in February. This implies that activity for the first quarter versus the fourth quarter of 2019 could be flat to down slightly which is in line with early indications from operator budget announcements for a ten to fifteen percent decrease in drilling and completion suspending in 2020 absent any other Market changes, we'd expect Solaris activity to generally follow the overall Market in 2019. We continue to improve our off things by enhancing our existing sand systems and investing in technology enhancements and continued research and development. We continue to look for ways to improve both performance of our equipment and work with our customers. Mais. Both designs and process efficiencies are Auto Hopper and the new chemical systems are examples of that both introduce new Automation and improve efficiencies to the Well site.

During the fourth quarter.

No trials continued with our new chemical systems all in the roll out of our latest version in the third quarter. We had two to three systems working for several customers and expect to continue demonstrating the value proposition of this new technology in 2020. We also made investments in our software capabilities to improve data capture and Analysis and employee development and our service quality management, which we believe will provide additional value to our customers off an important differentiators for Solaris increasing automation customer engagement and process improvements all Drive our business at helping our customers dollars go farther.

Our equipment and services provide significant value to our customers which drives a cycle of value for all of our customers and stakeholders, including our shareholders or employees and the communities we work. In fact, I'm a topic of much discussion recently. The basic concepts have been a core part of Solaris from the beginning in 2019. We introduced our first sustainability report with formal reporting on a metrics that we try we will continue to refine this disclosure going forward.

the equipment

Design manufacture and provide to our customers drives value from both environmental and socially conscious perspective our systems reduce the number of people required on location reduced truck traffic and completion time through reliability and large inventory Supply directly at the plunder in addition. Our equipment is all electric and can be tied to electric power generated on-site eliminated the need to run diesel generators off the latest developments around software and automation further these benefits by taking additional Personnel off location and reducing Trucking requirements the governance and compensation practices at Solaris have always been based on transparency and maximizing alignment. I'm proud to say that Solaris employees owned approximately 16% of the company's total shares outstanding providing direct alignment between management and shareholders are committed to providing transparency ethics and fairness and how we managed operate and report on our business and we look forward to increasing our engagement on ESP matters in the future.

that wrapping up while we cannot control the

Slowing activity in North America, we can continue to position ourselves to outperform and take advantage of the current market conditions with no data our balance sheet a healthy cash balance and continued expectations for free cash flow generation. We have many opportunities available to us to continue to grow and enhance our product offering invest in our people service quality while returning cash to our shareholders with that. I'll now turn off the tile. Thanks, Bill and good morning everyone. Do you have a fourth-quarter? We generated $63 billion dollars of Revenue adjusted ebitda of approximately $21 in positive free cash flow of approximately fifty million dollars after adjusting for the impact of deferred revenue and other charges Revenue declined 20% sequentially and adjusted ebitda declined 25% which was primarily driven by a 23% decline in the average number of fully utilized systems.

Nearly a hundred and twenty-five prompt and systems worked with varying degrees of utilization in the fourth quarter our calculation of 88 fully utilized systems reflects the number of equivalent systems that generated read every day in the quarter, which we believe is the best measure for modeling purposes for the full year 2019. We generated revenue of 242 million dollars adjusted ebitda of $113 on an average of 110 full systems and free cash flow of approximately eighty million dollars utilize systems were essentially flat tire year, but it just it even. Declined 8% due to one our margins and 2018 benefiting from a lag and ramping our cost structure to support the growth and systems that we experienced wage and to lure activity levels and Kingfisher and in software Services year-over-year as highlighted. My bill 2019 was a turning point for the company in terms of free cash flow and 29th.

I mean we generated close.

A hundred and $15 in operating cash flow, which was roughly flat with the prior-year. We made the decision to slow Capital expenditures early in the year and spend approximately thirty-five million dollars in 2019 compared to $161 in the prior-year this resulted in positive free cash flow of $80 for the 4 year of that. We distributed nearly twenty-three million or roughly 30% of free cash flow to shareholders in the form of dividends and share repurchases and use $13 to completely pay down our credit facility earlier in the year back in December 2019. Our board of directors elected to increase our quarterly dividend by 5% from $0.10 per quarter to ten point five cents per quarter as well as initiate a share repurchase program of up to twenty-five million dollars. We expect the total cash. We distribute to shareholders and twenty twenty-two increase as our new quarterly dividend should result in an annual dividend distribution of birth.

Close to twenty million dollars and twenty twenty and a large portion of the share repurchase program has been completed since the quarter-end.

Speaking of the share repurchase program since the Inception of the share repurchase program. We have spent approximately 17.7 million dollars to repurchase 1.4 million shares at an average price of $12.40, which is approximately 15% below our last Equity offering completed in November of 2017. As of last Friday. I have seven point three million dollars remaining in our authorized pool.

Turning two additional detail on the fourth quarter gross profit, excluding the impact of deferred revenue for the quarter was approximately $24 down 24% from the third quarter primarily due to the fact and fully utilize systems gross profit was also negatively impacted by a lack of fixed cost absorption with Al or activity total sg&a cost for the quarter were four point six million dollars became prior guidance primarily due to year-end accrual adjustments for the first quarter of 2020. We expect total sg&a to run closer to our five million dollar guidance.

Net income for the quarter was 20.

Twenty-three million dollars or forty eight cents per share adjusted pro forma. Net income for the Ford quarter was nine point seven million dollars or Twenty cents per share versus fifteen point two million dollars or thirty two cents per share and the third quarter as a reminder adjusted pro forma. Net income adjust for non-recurring items and also assumes the full exchange of all Class B shares for class A shares for a more comparable. Over. Presentation this quarter. We also excluded the deferred revenue impact of the 2019 contract termination at our trans loading facility as we believe this will be a better base wage comparison going for it. Please refer to our press release and she last night for a full reconciliation of adjusted pro forma. Net income operating cash flow was twenty-six million dollars in the quarter and after total Capital expenditures of approximately 2 million dollars are free cash flow in the quarter was a positive 24 million dollars. We paid close to five million dollars in dividends and spent over. Yep.

Million dollars and share repurchases in December following the announcement of our share repurchase program. We ended the quarter with approximately $67 in cash and $15 of availability that are under on credit facility our cash balance at the end of the year represented approximately a dollar forty per share of cash on hand.

turning

Alex as Bill mentioned we anticipate to fully utilize you could be flat to slightly down sequentially as operators maintain Capital spending discipline in Frank Cruz continue to get more out fishing. We expect our business to perform in line with the overall sector with identified opportunities to outperform through targeted share gains and twenty-twenty as customers continue to recognize the value of our solution over the competition. We expect to also remain disciplined on Capital spending and for our balance sheet to remain healthy. There is also no change to our prior guidance of capital spending twenty to forty million dollars in twenty-twenty even after our recent dividend raised and sharing purchased program are strong balance sheet and cash position provides significant optionality to return additional cash opportunistically and thoughtfully evaluating both organic and inorganic growth opportunities with that. We'd be happy to take your questions.

We will now begin the question-and-answer session to ask a question. You may may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw from the question, please press * then two. Please limit yourself to one question and one follow-up. The first question comes from George O'Leary of Tudor Pickering and please go ahead.

Morning guys morning George New York the capex guidance level looks you know, very very prudent in in my opinion and just thinking about what frames the lower and upper bounds of that range. Is that mostly the adoption rate of the the cem systems or is there something else in there, you know, including the upgrading of Legacy systems with new technologies that the drives that range to just want to think about how I should think about that for the year. I think you framed it pretty well George, you know, we think about they're always being a a level of Maintenance Capital expenditures required to keep the the fleet and Tip-Top shape and continue to to drive enhancements and improvements. So over the last couple of years Auto Hopper has been a big one. We've got a couple of other things down pipe line around remote monitoring of the systems that allows us to improve our preventative maintenance and drive some of those costs down. So there's definitely a level of authors.

non growth in the bottom end of the range and then as we think about flexing up towards the higher end of the

Change the levers. There are ya adoption of the system and then we've got several R&D projects that we expect to move forward in in 2020 with sort of prototypes that are embedded in that in that range as well. Certainly when we look at the fourth quarter and we take our run rate there. We're far below even even the bottom of the range that that we provided. So we think that's sort of the way to frame it up.

Yeah, that that's very helpful. And then just in the last 24 hours alone, you've had a couple of emps continue to push the drilling and completion of efficiency steam, which you guys also noted in a prepared remarks is is day and I'm thinking of you and Devin in particular just in the last 12 to 24 hours to talk about completing more lateral fee per day to your earlier point that may reduce frat crew demand, but that also seems to highlight the importance of a assist a profit management system. That's more efficient. Possibly the chemist system down the road from you guys kind of strategically Market to those customers who use different systems today those kind of targeted opportunities you spoke to. Um, how do you try to go and grab that market share strategic?

Well, I think it it it falls into our laps. Our equipment is really

Designed for high rates and so we've seen the continued through put on a daily basis of sand through our systems go up and up and up and and continue to test and how to make it more efficient with some of our thought leading customer. What do we do to ensure the safety on a Well site when things are moving as fast as they're moving in in our equipment is designed and all of our you know, new Innovations a new automation all the things around that help make it work significantly off the faster you go hand-in-hand with our customers to to look at high design. I'm going to lay out the pad and in the rest of the equipment more creatively to really optimize the efficiencies that are driven by our system which as we've harped on over the years the primary benefit of a vertical base solution like ours is the ability to offload multiple truck in parallel. And so if you look at your pad layout more creatively, there's lots of options and opportunities to drive down offload time and therefore increase the amount of throughput that you can get through age.

um in a in a period of time

Great, and then I just wanted to make sure I understood that the guidance correctly when you guys said you got for a cruise might be flattish quarter-on-quarter. Is that how we should be thinking about modeling the the first quarter from a a fully utilized system account, um perspective. I think right now that sort of the right place to start. You know, when we look at I think Bill's comments we look at the fourth quarter into the the first quarter, but sort of ramp, you know, January looks more like December February looks closer like the average of the fourth quarter. So we think you know, sort of fourth-quarter average is is the right way to think about a starting point for q1.

The next question is from John Watson of Simmons energy, please go ahead. Thank you. Good morning.

There have been reports of the saint Market in the Permian tightening. Can you comment on what you've seen on this front and maybe any impact to the Cadence of completions that you just mentioned Kyle wage more specifically if it's impacted your activity early in the quarter.

No, it's absolutely gotten tighter particularly on the 47 image of the local sin being developed in the Permian. You know, we think it's somewhat acute and and does get fixed as punch out there. But we have seen same pricing go up versus call it low teens in in second half of last year. And so we've seen that a spot basis pricing up an impact activity to be perfectly Frank. It has led to more phone calls with industry participants asking us for help in supplying but I can't say it's had an impact on the completion Cadence.

Okay, great.

Secondly, it's early days. But increasing reports of people considering pop-up mobile mines in the Permian and elsewhere. Can you talk about conception how the Solaris system would fit into that change to the the sand supply chain and if you've considered partnering any of those parties developing mobile mines

We have visited with several folks that are that are looking at that idea conceptually, you still need to handle it at the blender and high rates and high velocity so that you can handle the the completions intensity and the time trying to get, you know, ten twelve fifteen stages a day done. You need a buffer right at the Well site, so it doesn't necessarily change how you handle things actually on the Frack PAD as your buffer into the system, but it's changes a lot with the supply chain just like local mines themselves change the then pulled all that rail cost out of the out of the supply chain force and for the northern white, so I think it's another Revolution and and you know, it's some creative ideas the industry always, you know comes to to solve challenges like this. So we think it's an interesting interesting thing and we're looking forward to it.

Right. Okay, great. That's all I've got good.

Thanks guys.

The next question is from Martin. Meloy of Johnson rice, please go ahead good morning.

Could you maybe talk about some of the drivers that we should be mindful of that might impact the rental Revenue per system in 2020 and also on the cost side parental system.

Yeah, well, we think about the the the revenue or the cost per system for our customers. You know, we think about what what is it dollar port on a dollar per stage or dollar wage? Well that our customers are seeing we you know typically are charging a dollar per month basis but has the efficiencies that George alluded to from the conscious of the devil's of the world continue to generate our office hours are actually seeing, you know, a significant discount and what they're actually paying us for our service and our equipment. So that's sort of been the way we framed it up when we think about physically pricing year-over-year some of the the levers our drivers are our m&a activity among our customer base both from our pressure pumper and an operator standpoint as we see consolidation all things being equal generally speaking. The concept of volume discounts does come into play and so we can see, you know, a couple of hundred basis points of of pricing ma'am.

You know based on some of the consolidation that that we've seen.

But from a margin standpoint year-over-year, we've got some some increases in things like property taxes as our Fleet grew from 18 to nineteen month. We've we've taken some costs out of the the support structure that supports the movement of the equipment that supports the operation of the equipment. But you know, we've we've done it in a way that we don't want to get too often cut into the bone because the heartbeat of this equipment this business is organization. And what we do for our customers is in our service organization. So we we've been prudent to not go off the deep, but we are conscious of the fact that you know, year-over-year our activity level from a macro standpoint is much lower. So those are kind of the levers I think about

Okay, and then just looking at or thinking about potential inorganic opportunities, could you remind us maybe if some of the characteristics that you might be looking for?

I think we we start with our our our base business and understand that the technological protection whether it's patented or or just based on some intellectual property or or know how that we have. You know, we have a a team a great field organization who's you know focused on quality focusing and delivering the customer service and knowing our customers and and how to help them almost as a consultant on the website. So when we look for what fits into this organization, it has to be businesses or or product lines that that will match those characteristics and have you know, sort of rental based type burns on it we're looking for so we we obviously haven't found much and we continue to innovate internally, but we're we're watching closely and and there are you know, there's there's a lot of smaller things. I'm looking for liquidity small businesses out there today that that might have hoped for something different in this market is Pretty Tough. So, you know, we're watching and looking, you know closely at lots of opportunities, but as you've seen over time, we've been wage

I'm cautious about where we spend our money.

The next question is from Steven Genaro of Steve, please go ahead.

The next question is from Steven. John Stiefel. Good morning. Sorry, I was on mute. So two things. If you don't mind the first the you just talked a little bit about life margin levers. If you look at the the the rental and services in the fourth quarter, it was it was a little over 53% and I know you talked about some overhead absorption issues and some gives and takes off forward directionally. How should we think about that number going forward? Yeah, and I neglected to highlight a pretty significant point of margin will be look at Prestige basis points of margin and that's the last mile so, you know, obviously the last mile delivery of sand is something we've been doing over the last couple of years and as we've entered the first quarter that is an area of growth that we're seeing so that will have an impact on our reported gross margin percentage, but the way we model that the wage

we propose that to our customers is trying to get back to or or focused on getting back to the same profitability from a

Dollars perspective on a persistent basis. So I think we will see our our gross margin go down quarter-over-quarter due to the fact that we're doing more or less miles for our customers name is offering is a an offering that the incremental some of the incremental customers that we've been working with our asking for it. They're switching away from other bundled offerings. So they're looking for a bulb replacement. And so we've been very effective at providing that and our team is a really a great job in in providing consistent service across multiple fleets in that offering think that that actually has a meaningful movement in in margin, but again, like I said, I don't think it should materially move how we think about Eva. Profitability per system.

So I'll just to be clear when I think about that that number shows up in the system Services line, I believe and then is is that Thursday if we thought about the that service you're providing. Is there any way to quantify like said how much that was sort of two Q 3 q 4 q as we sort of try to triangulate may impact on margins.

Yeah, I think.

Honestly in the most I'd say the second third and fourth quarter of last year, it was pretty consistent as to the overall contribution and that part of our business but as we look at the first quarter there has been a step up in in the activity there. So I think the way to think about it is nineteen was sort of consistent and then there there will be a pick up here in in performing. I'm great. Thank you. And then just as a follow-on to the sort of cat backs and and cash discussion when you when you think about the cat box, I think you mentioned some of the some of the month gives and takes to getting between twenty and forty million next year. But how do you think about you know, you've worked through this share repurchase program pretty quickly. You're generating cash. I mean have there been discussions already do increase it actually think about either frame it that way or kind of the percentage of cash. You sort of expect to give give back to shareholders going forward. Yeah. I think it's a birth.

We decided to increase the dividend by 5% and we initiated the the buyback program. Obviously we initiated the $25.

$10 level with the mindset of actively being in the market and really using that to actively purchase shares. We're very pleased with the rate and Cadence that we've been able to buy back shares. I think by my math we reduce the overall share count by about 2.7% just in the last six to eight weeks that we've been doing this and I think the board meets on a quarterly basis and this the wage except of capital allocation is something we talked about every quarter and if you know, we're exhausted if we've exhausted this program by the time the board meets again, it's certainly will be up for discussion. What is the next, you know, several quarters look like from a operating and free cash flow perspective. Do we think we're continuing to build cash. And if so, what are the various options that we have to use that money? So obviously the dividend is really the only permanent use but when we look at capex and we look at BuyBacks, those are all levers that that we can pull on and and I think if we believe there's still wage,

Attractive opportunity to buy back shares at say current levels, then that may be a decision that the board makes to add more to that that reserved.

The next question is from Chris voice of Wells Fargo, please go ahead. Thank you. Good morning, if I could ask one more. So if you were to exclude the past through from Last Mile and some of the services stuff, I think in the fourth quarter, you guys said you were clearing a little bit of excess costs related to an expected rebound activity. I guess that you know, that rebound isn't really materializing and then you got a little bit of a headwind a few hundred basis points from volume discount stuff like that. Can you speak to the the margin just on the rental part of the business for profit wage the first quarter? Is that going to be lower or is there any kind of tail in from from lower costs? Yeah, I think from the rental side just pure rental margins the the drivers there are pricing and some of our fix it just like property tax. So as you know, we talked about pricing having being impacted slightly by m&a and then some of the pickup and in some of our fixed costs down.

there would be

Some degradation in that Harvest. Okay, and then I think another factor that that had an impact over the course of 2019 was also a little bit higher wear and tear given a little you know higher average age for the that those is that kind of leveled off at a stable rate at this point. Yeah, and honestly, I don't know that it showed up in the numbers but I think our maintenance spend has been pretty consistent off. So I don't it there wasn't a pickup in the fourth quarter driven by maintenance. Okay, and maybe just one last one on chemicals. So I guess you're at two or three units in a quarter. Can you speak to the Cadence of you know trials going forward in in early 2020 if you expect that number to to move up in a material way and also, you know whether off on the trial basis, I think they are earning revenue. Is that a creative to GP or is it kind of break even at this point? I think it's roughly break-even. We're putting more field support on Thursday.

to make sure that

You know our customers really know how to use it. So I call that break even but I think as far as Katie's we do feel like there's continued momentum with new folks that haven't used the equipment to it. We've had one customer continue to use it. I think since really September so we feel good about it. The Big Challenge. I think we have is if you walk into an operator today, the biggest question is, how do I save $500 a stage? Am I and so our proposition is to come in to make a slight investment to in rent this account but by doing so you're going to drive down your overall cost significantly that is clearly worked on the sand side. And then on the chemical side, we think you know as these is the internet the chemicals become a continued pinch point for operators. And so the the value proposition will continue to be our will start to really generate and be seen more clearly as in Pig.

he's go up, but it is a

Challenging point in the cycle to go in with a a new technology that on an AFP level does have a higher cost because so much of what we're replacing is Faith. In other services just like you saw in sand at one point operators had no visibility into what they paid for sand until you know, that was obviously decoupled. So, I think it's very similar in a challenge right now is just what the overall appetite is within an operator to try something new.

Again, if you have a question, please press * then 1 and as a reminder, please limit yourself to one question and one follow-up. The next question is from John Hunter of Colin, please go ahead.

Hey, good morning.

So one question I had was just on the revenue per system. We saw in system and services and we've obviously discussed the trucking piece of it. Was there any shift need to kind of larger system sizes to 9 or 12 packs that also could be contributing to that increase

No, I don't think anything material quarter-over-quarter.

Got it, and perhaps majority is still expects.

Got it, and then on kind of the activity and moving into the first and maybe the second quarter here back in October. We had some visibility just some of your customers dropping for a cruise kind of earlier earlier in the quarter. I'm wondering if you have visibility today to those Crews being picked up early in 1 Q or you know, is there visibility to the same number of Crews being picked up and in the second or third quarter maybe later in the year off?

No, I think those are the conversations were in every day and yet we are up. I'd say relative to Q4 average today and we have visibility need to you know, several folks adding cruise going forward. The visibility is happening. It didn't snap back on January 1st, but we really didn't expect it either.

The next question is from Iloilo City, please go ahead.

Take money everyone morning. So I think I I probably asked this question almost every quarter. So forgive me for being repetitive, but I'm just wondering about pricing Dynamics and and you know competitor bidding practices over the last couple of months as we exited the year and and started the New Year. I'm just wondering have those changed at all is prepper getting more Cutthroat. I know you guys have a different pricing model than your peers, but just wondering what you're hearing on the ground.

Yeah, I think the market is still in a position where there's overcapacity and so people tend to use pricing as a way to try and get grab share and put equipment to work but we've been very disciplined and in our approach and and not willing to do that due to the the model where we've set up where again as efficiencies. It created. Our customers actually paying us Less on a dollar per month. So I think that's sort of how we would frame it up. You know, the Market's been over capacity for last six years, right? So as as the market evolved from Saint Kings over their wage and excess capacity of some type of sangheili equipment. And so, you know, it's all about delivering a valuable service to the customer and if they can just see see how they justify our expenses that it works and as as they get more efficient and you do more stages a day in their more stance and through it the cost per ton, you know goes down for our customers and our goal is on top of that allowing them to do that job.

A nation where they can save money on people and help all those efficiencies improve. So you know pricing is is is ultimately you know, where the rubber meets the road but at the same time, you know, we our goal is to

Make our customer see the value that we delivered to them at least in in this time last year. We had customers leave do to lower pricing being offered elsewhere. Most of those customers came. We had a similar phenomenon in some of our customers in in the beginning of this year. And we've gotten phone calls about challenges with deliverability with inventory get inside equipment reliability very similar challenges that people have had and when they've switched away and so we think that will continue and we will be there with open arms to welcome them back, right so that kind of ties into the other question I had was just a market share you guys have maintained a pretty steady market share for the past couple of quarters. Just wondering what where do you think the opportunities could be too expensive and on the market share side, you know outside of any m&a related, you know, customer pickups or anything like that.

Well, I think we answer this question a recorder. We don't look at it market share. We look at a customer of our customer. And who who do we believe is the ideal candidate that we can help save a money off his shoes and we target those guys going forward and I think we you know, we we continue to gain traction with those that have have used other Solutions and and recognized, you know, when they get a hold of this and start using it actually does save our money and so we market share is a is a mathematical result of us chasing customers that we really look at solving the problem of our customers. Not what its marked you.

The next question is from Ryan.

Of B Riley, please. Go ahead.

Hey, good morning guys for the chemicals Fleet how many distinct customers have you developed a system with so far? And do you guys have any criteria that will determine when you'll resume expanding the fleet?

It's been multiple. I don't have the number off-hand but it's been multiple operators multiple pressure Pumpers multiple chemical providers and I think too, I mean three different basins. So that's a lot of people that touch it but they're also going on people that haven't touched it yet. So we're focused on being in front of those guys as far as growth Capital, you know, I think we'd want to see the vast majority of the equipment that we've built at this point being deployed to customers on a consistent basis and then really understand them really articulating back to us that this value proposition is really making a lot of sense for them as an example. The customer that has they've had assistance of September that's on one crew. They've got probably a half a month and maybe eight total for a cruise and so as we see people adopt this more broadly across what they're doing. I think that would be the indicator for us.

Gotcha.

Um and on the competitive side of you scene or expect any rival to launch chemical systems at their own or or maybe even Water Systems.

Nothing material that market, you know, their chemicals in water or handled on websites every day and and other forms, there's people that have added Telemetry to understand what levels are and I'm remote monitoring such that that those are those levels are broadcast, you know to the cloud and you can Envy them remotely but no nobody I don't think in a full replacement of all the assortment of pieces of equipment that are used today whether it's a unit weather is a Frac the the acid tanks the iso containers the toast that are brought out the Hoover tanks. There's I don't think anyone's approaching it in as a holistic of a manner nor in an automated remote a remote process where we're actually driving it out of the database and they're pulling chemicals based on the amount of the clean Rain On The Water side. So it's the approach that we're taking I don't think yep.

What is is really looking at? The next question is from Praveen Nair of Raymond James, please go ahead.

Hey, good morning, guys. I guess I wanted to come back to the the bundle solution question. You guys mentioned that that's increasing in prevalence. So can you update us with with how many how often you're you're doing that today? Where do you think that could go through 2020 and and just to be sure it doesn't seem like there's any Capital requirement in order to do that, but I just want to make sure that's the case.

It's still less than 10% of our activity. So it's somewhere in that five to ten per-cent I'd say and it varies sometimes, you know, we'll be out in in providing that and in the customers say you don't take that back and vice versa. So it's I wouldn't say it's hard and fast. So that's sort of where it is. I think on the increments, you know, we've on a prior call. I think I mentioned 5:00 to 20% as a potential range. I think that's still accurate where we sit today.

Okay, in terms of I think you mentioned R&D I wanted to make sure I understood correctly kind of what's going on. I assume that separate from the chemical silos wage. Should we think of these as kind of incremental changes to the business or or are you are you is there some desire to look for another Outlet of capital? I guess I'll call it but in law school like the school. Yeah. Well we talking about I think it would be outside of the campus and that's already you know, obviously out in the market working. So this is additional opportunities to improve process and equipment and drive efficiencies on location and within the supply chain. So these are uh,

things

not really publicly talking about

Yes, we have reached the end of the question and answer session. I'd now like to turn the call back over to mr. For any final closing remarks.

Thanks Katie. I'd like to close with a thank you to all of our employees for all the hard work and 2019 and do our customers for their continued partnership in 2020. We're committed to continuing our page will service is going to help all of our customers increase their efficiencies further both saving money and safety on the website. We will continue to innovate and evolve are offering to help support. You despise headwinds. I believe our culture of continuous innovation and Improvement is truly what sets us apart from our competitors, and lastly we're excited to continue to generate cash for all of our stakeholders and will continually evaluate the best options to use it. We look forward to updating you guys as a year goes on. Thanks.

The conference is now.

Included thank you for attending today's presentation. You may now disconnect.