Q1 2020 Earnings Call

Good day and welcome to the Solaris oilfield infrastructure first quarter 2020 earnings conference call all participants will be in listen-only mode. You need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. It will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher senior vice president finance and investor relations, please go ahead good morning and welcome to the club first quarter 2020 earnings conference call. I am joined today by our chairman and CEO bills and our president and CFO Kyle ramachandran before we begin I'd like to remind you of like a 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 that our earnings release and today's conference call will contain discussion of non-gaap financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with gaap reconciliations to comparable gaap measures are available in our earnings release now turn the call over to our chairman a CEO. Those are there.

Related completions continued we expect our activity will follow the overall Market.

Despite the challenging macro Outlook. I believe firmly believe that for several reasons Solaris will distinguish itself during this downturn and emerged even stronger on the other side of it first Innovation and finding wage deficiencies is fundamental to our company's culture and our team we were made on the offense during the downturn and we'll continue to innovate for our customers. We will continue to invest in our Fleet as an example phone. Now, we're continue to work and trial innovations that approved data reliability and throughput levels on the website by automating processes and removing people from the website, which ultimately will improve both safety and emergency second. We are entering the downturn with a very strong financial position a combination of a conservative balance sheet and cash on hand means we're likely not only to weather the storm that's in front of us, but also ensure that we continue supporting our customers with the highest level of service are Comfort company has operated in a downturn before and we continue to innovate and when new customers then off.

And we intend to do the same this time around.

Third wheel focus on controlling what we can control including our cost structure. We've always operated Solaris with a very lean cost organizational structure, but we've found additional ways to reduce our spending including reducing headcount across the country loading salaries negotiating with suppliers and vendors and reducing Capital spending. We've had to make some very tough decisions. One of the toughest has been to reduce our Workforce by more than 50% off. We know that maintaining our financial discipline available cash and a debt-free balance sheet won't sure Solaris has flexibility to take advantage of this downturn. We have our eyes wide open looking for potential businesses and technologies that will calm and enhance our current business. Finally. We will remain focused on generating value for our shareholders cumulatively before entering the current downturn. We returned approximately $59 in cash to shareholders December of 2018 while maintaining a debt-free balance sheet and cash on hand.

We're also not wavering on our commitment to ESG on the environmental side. We recently renewed some of our energy contracts. We now have a commitment to purchase green energy. We also have begun installing remote sensors on generators that will enable us not only to report emissions, but also potentially reduce emissions by enhancing our preventative maintenance program and improved safety by reducing the number of truck trips two locations. Speaking of s t r t r. I r metrics have continued their downward Trend and we have achieved record lows for the company on the governance front. We continue to maintain a conservative balance sheet and management and employees owned approximate 16% of the company which directly aligns our interests with the shareholders last but not least the equipment. We designed manufactured provider our customers drives value from both environmental and a socially conscious perspective our systems reduce. The number of people required on location produced truck traffic and completion time through reliability and large inventory Supply directly at the blender. In addition to our equipment is all-electric home.

Be tied to electric power generated on-site eliminating the need to run diesel generators our latest R&D developments around software and automation further these benefits by taking additional Personnel off location and reducing Trucking requirements.

To summarize while the extent and duration of this downturn is out of our control. We will focus on what we can control running as lean and Nimble as we can ensuring our customers received exceptional service and improving our offering to be ready to service the customers when they come back.

With no doubt our balance sheet and a healthy cash balance with continued expectation 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 in a service quality while also returning cash to shareholders with that. I'll now turn the call over to Kyle.

Thanks, Bill and good morning. Everyone during the first quarter. We generated 48 million dollars of Revenue adjusted ebitda of approximately $18 and positive free cash flow of approximately eleven million the average 83 fully utilize systems deployed the customers which represents a 6% sequential decline excluding the impact of deferred revenue and other charges wage increase 6% sequentially driven by an increase in Last Mile Services, which is a large Trucking component at passing margins and offset by reduction in the total number of systems deployed adjusted ebitda declined 13% sequentially primarily driven by the reduced number of fully utilized systems, which drove lower cost absorption nearly a hundred and twenty four problem systems worked with varying degrees of utilization in the first quarter our calculation of 83 fully utilized systems reflects the number of equivalent systems that generated Revenue every day in the quarter, which we believe is the best measure from

modeling purposes now

Into additional detail on the first quarter gross profit for the quarter was approximately $21 down 12% from the fourth quarter after excluding the impact of deferred revenue primarily due to the decrease employee like systems gross profit was also negatively impacted by a lack of cost absorption as cost reduction lab the activity decreases that began in March excluding bath expense in the ketchup benefit of renegotiating 20/20 professional fees total sg&a cost for the quarter were approximately five million dollars in line with prior guidance for the second quarter of 2020. We expect total sg&a to be in the range of 424 and 1/2 million dollars.

During the quarter we generated a gaap net loss of 19.1 million or sixty five cents per share. This net loss included approximately 48 million dollars in non-cash impairment losses that resulted from risks and uncertainties associated with the significant reduction in demand for oil data covid-19 and actions by oil producers. Globally approximately 38 million of this impairment was related to the complete package off of our team picture translator facility in Oklahoma while the remainder related to Goodwill inventory and other assets as a reminder, we built the Kingfisher Transit facilities under 7-year take-or-pay contract that was ultimately canceled between the agreed cash consideration for the contract termination and the cumulative green contribution of the facility. We have recoup virtually all of our original investment say, yes.

Adjusted pro forma. Net income for the first quarter was 14.8 million or 32 cents per share vs. 9.7 million or Twenty cents per share in the fourth quarter off as a reminder adjusted performing that just for not returning items. And also it seems the full exchange of all Class B shares for class A shares for more competitive. Over. Presentation wage refer to our press release issued last night for a full reconciliation of adjusted pro forma net operating cash flow is approximately twelve million dollars and a quarter and after total of capital expenditures of a project 1 million dollars are free cash flow with a positive $11 for the quarter during the quarter our accounts receivable balance increased primarily due to the increase in Last Mile truck and service jobs that I referred to earlier. We returned a total of $13 to shareholders in the quarter including approximately five million dollars in dividends and approximately twenty-seven million dollars in New Jersey.

repurchases which includes an additional five million dollar authorization made by the company's board in late February

Sherry purchases were made as part of a program which is completed in mid-march. There's no share repurchase authorization currently remaining.

We ended the quarter with approximately $46 in cash the decrease in the $66 in cash at the end of the year was primarily due to the completion of our share repurchase program as well as purchase of working capital referred to previously.

Working capital to begin to unwind as activity continues to decline in the second quarter. Although the page will likely be slow given the current environment.

Fact we have already seen some benefit in a working capital release as of April 30th. We had approximately fifty five million dollars of cash on the balance sheet, which reflects approximately $9,000 increase over the March 31st balance and over a dollar twenty per share of available cash. We also continue to have fifty million dollars of available under our undrawn credit facility.

22 our Outlook as Bill mentioned we anticipate the full utilize crack crew cab could be down between 75 and 85% sequentially as operators adjust their budgets and Thursday levels to the significant reduction in oil demand and commodity prices. We expect our business to conform in line with the overall sector with identified opportunities to outperform targeted share games as activity normalizes and as customers continue to recognize the value of partnering with Solaris, including a cycle of continuous innovation and a balance sheet with staying power.

So we're cutting costs as quickly as we can. We do expect activity will fall faster than we can keep up with on the cost side getting the second quarter. We've reduced our total operating costs by at least 50% from q1 Level, which is primarily driven by a Workforce reduction of greater than 50% However, due to a lag and cost reductions relative to the pace of activity the client we expect profitability will decline significantly more than Revenue in the second quarter even. Could be even flat to slightly negative. However, we expect to remain free cash flow positive as we benefit from the dead unwind of working capital.

In the meantime, we will continue to look for ways to build flexibility into our cost structure for what is hopefully a short-lived will and completion activity.

Some of the cost measures we are considering could include the possibilities of furloughs new work schedules and more creative vendor and Resource Management. We are entering this downturn with a debt-free balance sheet and more than fifty million dollars of catch which leaves us with over a hundred million dollars of available liquidity this position provides significant optionality to opportunistically and properly evaluate the organic eggs and inorganic growth opportunities while also continuing to return cash to shareholders with that. We'd be happy to take your questions.

We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys and to withdraw your question, please press * then two. Once again, it is started in one to ask a question. Our first question today will come from a Larry P P H & Company, please. Go ahead.

Call Devon.

Morning, George. I just wanted to that that last comment I thought was interesting that you made Kyle, you know, you guys do have a pristine balance sheets in a big net cash position and sometimes it is good to play offense while everyone else is playing defense. So just curious as you look out of the growth landscape both from an organic and inorganic standpoint what you see out there that potentially interest you and and which buckets maybe you would stay away from or which buckets, you know, don't interest you to the extent. There's something you wouldn't want to put push into may be thinking about think the second part is probably the easiest which is what we want to stay away from, you know, we've always stayed away from anything. I'll just say commoditize, um, you know, fundamental business has been working with customers, um partnering with them to innovate around taking costs out of their operations making their operations more efficient. So I think that's where we see the opportunity wage.

Without a organic and inorganic basis. So from an R&D standpoint, we continue to innovate on our products added new products have more in the pipeline and that'll be a fundamental component of our business from during downturns. Um opportunities get created to find new ways to cut costs to remove things that you thought were necessary and just change the way your operating. So from an organic standpoint. We're we're very excited about that component from an inorganic standpoint. You know, we've always had our eyes wide open. We've been very cautious the only notable transaction. I think we've done the last couple of years was the real Tronics acquisition which brought with it tremendous software capabilities that we can close today. So I think from an inorganic standpoint we look at things that can help Drive our our current Baseline of business, but then also diversify the revenue stream. We recognize

Something more Diversified we're going to be very cautious about it. And as I said, we we've been looking at it for I guess really since the beginning of of the company's Foundation, but we do believe that your life, you know from a balance sheet perspective from a cash flow perspective. We're really well positioned here and there's going to be a lot of distress. There's no doubt about it both on the private side as well as the public side. We've been through a lot of Cycles, It shows to build this company with virtually no leverage. I think that's going to play out. Well for us certainly won't be the case for everybody in in in the business. And so we'll use that to our advantage.

All right, that's super helpful Kyle and then nice cashbuild free-cash-flow number during the corridor sounds like April working capital was helpful again wage completions activity is down $75 85% and then who knows what happens in that in the last two quarters of the year? There's some talk of kind of a cessation of the Frack holiday at some point people actually adding some activity back late in the year, but it's is there more to do on the working capital front that can kind of help keep you guys free cash flow positive and then just talk a little bit about the the variable cost nature of your business. And in what you guys can do on the on the cost front to maintain kind of margins and um and free cash flow generation ability off. So I'm free cash flow. I think yes, we do see an unwind as mentioned on the prepared remarks. They're of of some working capital and in our country receivable obviously wage.

Um, you know times are challenged and certain companies are going to reduce our slow down their pay Cycles. But we do feel like that that will be an unlock, um, that will drive free-cash-flow. Here's the remaining remaining part of the Year despite, you know, significant reduction activity from a cost structure also noted, you know, our cost structure is quite low. If you look at just like comparative basis across the industry, you know, it's a specialty rental business, whereby we don't have large cruise staffed on a permanent basis to to be on location for seven. We do have a a team of technicians and maintenance folks and controls individuals that are out every day. I'm locations, but they're kind of moving around so we've we have very often a bit of that and that's been some of the obviously very difficult decisions. We've had to make as a team to reduce that Workforce, but clearly, you know, as activity comes down it's prudent for us to yep.

Our next question today will come from Jacob Weinberg of Credit Suisse, please go ahead.

Hey, good morning. You guys are obviously talking about a very strong Decline and activity next quarter, but I'm curious on your customer conversations that you've been having them around the second half of the year to to the rear having any or customers indicating or any any customers really indicating to you a willingness to pick Cruise back up in the second half or birth. Nobody just looking out that far at this point.

I think we're obviously having discussions most important discuss right now or the near-term and I think people are keeping their eyes what's going on from a macro standpoint, you know, we've got a table of a significant supply-demand imbalance, um, the the return of the demand pieces TBD, we're starting to see some some good signs here and you know, Texas and we're opening up early today. So until that demand component comes back this the the macro supply-demand imbalance is going to obviously challenged a return of activity, but that being said we are seeing significant reductions in production, you know, obviously globally we're seeing customers shut-in Wells some of the the wells are completing today are am not getting put on production. So yeah, people are obviously optimistic and hopeful around what the second half of the year looks like from a oil standpoint from a gas standpoint. We're seeing birth

Um, I guess stickiness in terms of activity overall, but I think just in general it's it's going to be a bit of weight and feel.

Got it, that that's helpful. And then I guess also I guess in the current environment and everything just falling it might be pretty tough, but it's being stabilized. I think this environment helps or hurts your ability to gain traction with with the can systems.

Intuitively, it feels like it should help because again, it's about reducing individuals on location. It's about reducing supply chain costs. It's it's still a question of in a completion Engineers 10 things to do today is is this going to be on his list. We're dealing with customers that are laying off a significant amount of their Workforce. So it does create an opportunity to potentially talk to some different individuals within a company around different value propositions. So I think Innovation does in general happen during times like this, you know, if we look back at the history of our business, we really inflected in early 16 late fifteen in terms of the adoption of the saint system. So as far I think these are the windows where you can get your foot in the door and people are willing to try something a little differently, you know, you go back 6 months ago and completions into junior primary focus off.

Getting as well as completed on time. And on budget on time is obviously less of a a concern right now. So as far as if

A nation that are indeed people are willing to try new things and at this point in Cycles.

Our next question today will come from Martin meloy of Johnson rice, please go ahead.

Good morning. Hey Marty, Marty Marty. You spoke in your prepared remarks a little bit about potentially gaining customers during the downturn. Could you maybe elaborate some more on the competitive Dynamics right now and and your expectations as far as potentially gaining customers and wage, you know, I I know that there are some other players in the the mobile profit Market that are less well capitalized than you are.

Yeah, and I think the other thing is, you know, we're going to continue to innovate in this time. And so by doing so I think we continue to build a better competitive offering and so I think that's one of them as we think we can we can gain share so we're not just going to sit in the downtown and and wait for activity to pick back up. We're going to continue to demonstrate to customers additional ways to get more efficient than what we've done historically. So I think that that's a component of it. Obviously there's a fair amount of financial distress, but we're not going to use that as as r r m o r m o is going to be around the activity that offense that we can play and it could even include some of the stuff George asked about and m&a so we're kind of positioned to start looking at things that could be bolt-ons that all of a sudden make are offering them more attractive to somebody that historically may not have been as interested in in Solaris.

Thank you.

Our next question today will come from John Hunter of Colin, please go ahead.

Hey, good morning morning. So, can you talk about you know clearly? There's there's this steep activity decline in the second quarter. Can you talk about how April shaped up versus the first quarter average and and maybe how many systems you have working today?

Yes, I think we went back to the previous earnings call. We talked about February being up over January and January looking more like December and February 8th of November and we expected march to look like um, October, you know, that clearly didn't happen. We started to see a pretty significant drop-off inactivity, um in March, you know come in on on a Monday and by Tuesday, you know, somebody was saying, you know by the end of the month they would they were going to be shut down for the foreseeable future. So the drops really were pretty fast and furious month throughout March, I would say, you know, April directionally looks like if we hold that April levels, we're sort of at the the bottom end or the low end of the seventy-five 85% decline. So I think we're kind of already very much there, but um don't have a ton of dead.

It's a differently I think we're kind of at that bottom of the range and we've got visibility around being able to hold there. But I think there's obviously risk going forward and that's why I had the The Wider range.

where I would

Right by the bottom, but I think maybe I the Lesser reduction not the lower end of the range clarify correct right off and then just on pricing. I mean, I know, you know, you're offering a such a small piece of the overall well cost for an operator, but I imagine nothing's really came in from pricing declines in this market. So did that end kind of what are you seeing on the pricing side from your customers? Yeah, just anecdotally I would say, you know, nothing is immune from our cost structure either every dollar counts for us. So we're going after the retail on our side as well. But I mean, yes, you're right. It is a small overall on it, but nothing goes unforeseen. Um, when when oil prices have dropped like they have, you know, the fundamentals of what we do haven't changed though, you know at the end of the day what we thought

For is a overall reduction for our customers in there total cost to deliver sand to complete their Wells Etc. You know that that sort of been our approach we have proactively reached out to virtually every customer. We've touched over the last couple of years to to be in front of them with here's what we're doing during the downturn. Um, you know, we're going to continue to innovate as I mentioned looking to drive down costs for our customers. We're not reducing, you know, the maintenance or the coverage of the service quality. So that remains very important job, you know, we've got the staying power as we we discussed but I think when we look at pricing what we continue to do is try to be winning with our customers and activity and what we think about them is the more a customer uses us the lower their prices in general we like that trade-off. So that's kind of how we've approached it is, you know, we'd like to be or dedicated partner and doing something.

You know, let's look at this pricing range. So I think you know, we saw a little bit of a directional reduction in the overall rental rates. And the first quarter it will probably see a little bit more in the second quarter as the overall mix and took gets updated but I don't think it's something we're leading with it's more about being proactive to say to our customers. Look we know you're you're feeling a lot of pain. Um, let's let's partner

And that you know really to be honest that has been received quite favorably by most of our customers.

Our next question today will come from Steven digennaro. Let's see. Please go ahead. Good morning. Hope everybody's doing well.

the

I guess just one thing I wanted to hit on and this maybe I maybe a stretch but I was curious. If you'd seen this. Do you think I mean your systems I believe lead to less people at the Well site, especially with with relative to The Container. I solutions that you've seen has been any talk about the benefits that going forward. I mean, obviously everybody's still a large Integrated Service companies to talk about Automation and limiting people at the Well site. Have you have you had discussions along those lines or is that something that's come up?

Yeah, that's a that's a constant discussion and it's effectively, you know, a combination of our operating cost structure versus a competitive offer, you know operating cost structure as well as a safety issue and a complexity issue on a website. So I think that has been a universal difference between a containerized solution and a vertical solution, you know since day one. So those are you know constant conversations I think is off the industry begins to rent back up and the severe layoffs that we've seen of people over the last month or so it you know, the labor force in the US is obviously significant wage that today but I think that turns around relatively rapidly across the country. And as that does the question is how challenge will be our our industry be and and rehiring folks that have been let go and a month. How does that play into the The Comeback and the need for labor and does our system with lower labor requirements, especially specialized labor, you know dealing with forklifts and moving things around. How does that correct?

And how easy is it to rent those back up vs. Ramping our system up. So I think we do have a a significant Advantage there.

Thank you. And then just just quickly. I don't think there is but when you when you look at idling equipment and ultimately reactivating is there much cost to that for you know, it's Trucking and and we're you know, we're preventatively looking at all of our systems and using this opportunity to to clean them up change the oil have them ready to go do it do any damage. They've been a lot of them in the system and out in full full booty for several years now and it's time to a little bit of time to bring them in and and Shining them up a little bit and make sure that the all of the where parts are ready to go off, you know, if I looked at our our our small Capital expectations going to be on some work on the systems, but you know, we're using some of our labor to do that and do that as efficiently as possible in the down. So the cost of to bring them back on order is very very low there there were working one day if you parked in, you know out in Carlsbad, they're not going to have any damage and be ready to go and and

You know four or five months when things turn around.

Okay, great. Thank you. Thanks, dear.

Our next question today will come from Chris boy of Wells Fargo, please go ahead. Thanks. Good morning. I was wondering if you could give an update on the chemical systems. The number that have been converted to the advanced design at this point and whether you have any operating today.

so

We you know, we provided some of those numbers in the past. I don't think they've changed. So we're not deploying any incremental Capital today into those systems in the first quarter. We had a couple of them running today. I don't believe we have any running we have looked actually in some alternative uses still around obviously the oil field for those systems intermediary storage for chemicals for for other applications outside of just completions at the Well site. So that's kind of update there. I think to the prior question. We're still off in front of customers talking about the value proposition and I think you know again during this downturn it does represent an opportunity to put those out

Okay. Yeah, I mean that that dovetails in the next thing was going to ask, you know, when a company takes a threat holiday. I suppose it's a chance for them to re-evaluate everything they're doing and come back with a fresh set up post the holiday and bragging. So is there any specific kind of approach you're taking to that in terms of trying to be in front of people during this and kind of suggest the value proposition for chemicals or switching to wage? Um, you know the province I was some other Solutions just curious whether you expect that to be a Tailwind or if there's anything special to think about there.

We certain to the to the distraction point we have you know, all of our our commercial sales folks, you know focused 100% on their customers to the extent that can we're not dropping a lot of breakfast off the phone now. We're on the phone with them talking about him trying to develop are you know, the real economic proposition that's behind, you know, the combination of our system and the chemical system across the board as well as the month offering so, you know, we are not we have not stopped playing offense and will continue to do though. We're we're we have new new things to go in and present to them around around some wage scales and some measurement tools and some additional automation features that we continue to add to the system. So we're in front of them with new ideas in our sales guys are on a on a regular basis.

Great. Thank you.

Our next question will come from Ian MacPherson of Simmons, please go ahead. Hey, thanks. Good morning. Kyle. I wanted to ask if we don't know really when and where the trough is, but assuming we get near the trough, uh by by the end of this quarter in the summertime and it's not a lot less than 80% down from from March with would put by that point when your cost reductions catch up with the suddenness of the revenue reductions. Do you think that you could stabilize at wage modestly positive ebitda bubble in the back half of the year once your costs and in in sales have have have leveled together or is it still going to be a struggle to defend positive Eva. And that scenario do you think

yeah, I think they

Is some level of fixed costs obviously being a public company. Um, so there's some notion there and there's you know X number of systems required to be working to cover that computer off but to the extent, you know, this is protracted and prolonged look again continue to keep beating up the cost structure. We're not we're not going to stop I'd say we really done two different wage reductions in in spend. I would say and to the extent further needed, you know, the team is prepared to do that. So, yes, we will continue to right-size the the business for what the Top Line looks like but we are you know position from a balance sheet standpoint to be patient and not be penny-wise here again going back very earlier comments. We're here for the long run and you know, we do this as an opportunity, so we don't want to you know cut too deep into the into the bone such that we're not able to take advantage of what to your point. Yep.

A lot of other companies choose. They got to remain Break Even or their doors closed and so we've got a little bit of a an advantage there to play.

Understood. Thanks and then my other question just to be a little bit kooky. But just given the suddenness of the cessation inactivity. Is there any significant amount box and uh at well sites that's Sheltering in place and you know, as as a renter of storage where you have maybe some stickiness to unintended profit storage box over, you know, the course of this quarter. I wouldn't call it material ironically the Kingfisher we got obviously some sand in silos of black people thought there'd be more activity up in Oklahoma and and and that hasn't happened. So there's some forward staging occurring there.

And again, if you would like to ask the question, please press * then 1 or next question today will come from Jason please. Go ahead. Hey, good morning was curious as you you kind of continue to talk about the balance sheet. I'll you know with the dividend you obviously completed the repurchase of the shares. But how do you think about the dividend as you go through these you known a couple of months or quarters?

Well, we're we're obviously looking closely at that and and talking to our board about what we do. We you know stand by our desire to continue to you know, return money to shareholders. We've got a lot of flexibility around Thursday we're going to do what we feel is is appropriate for the next quarter looking, you know, looking out a couple of quarters in anticipating what what activity looks like. Okay, and and then also just off the balance sheet being in such great shape and And discussing m&a, you know would would there be larger opportunities which would put leverage on the balance sheet or or are you thinking still more like the deals you've done in the past where they're you know a relatively small and you kind of fold in in in your current balance sheet. That's a great question. I think we we have looked at that. I think we are as you guys can tell from from our history and our position. We're in a fairly diverse. It would have to be something that had tremendous potential tremendous protection for us to get comfortable, you know borrowing in this environment to to do much but you know Will Smith.

Every opportunity is unique and you know, we're focused on that.

Up City, please. Go ahead.

Hey morning, everyone morning. Just just have a question on if we see Associated gas production come down and places like West Texas and we actually see smoke coming out of this downturn. We see some more demand for actual gas Wells being drilled. Just wondering what if you guys have have looked into I don't think you have a very large footprint out east with um, and and I'm not sure that that silos are used a lot in the Marcellus and you guys looked into, you know talking to some customers out in the Marcellus or the Haynesville about about Silas doors that you may not have, you know, previously talked to just wondering about your strategy on that front.

Yeah, the the history honestly is some of the first systems every used were out in Northeast. So some of the original systems manufactured and sold were sold to a pressure pumping a company that took the Northeast specifically because of the small pads to put a concentrated level of profit on a small location. There's nothing more efficient than a vertical Silo. So it'd be very advantageous to some of the challenges up in the Northeast are on the movement from Wellesley to website but that being said they're moving drilling rigs Etc. So it's it hasn't been prohibited always had a presence there. Um, and yes going into the the challenged oil backdrop. We we are repositioning. Um some of our commercial time and efforts found both the Haynesville as well as the Marcellus so get it's not somewhere. We have not been or we're not able to go. It's just somewhere where it hasn't been as busy for us give birth.

The rapid activity growth in in the oil plays on the last couple of years and you know, the activity well designed as well as the prophet loading and some of the oil plays were were more advantageous for us to to be going after because some of the value propositions were hired. But when we look at the Northeast things like three packs, we we've run a lot of three packs because sometimes loadings are smaller. So definitely an area where we expect to continue to put focus on and and extend the current presence that we already have and how many silos do you ask? How long did you actually have in those plays at the moment and I imagine it's it's not it doesn't cost a lot of money to move one of these things from West Texas now and you know quite quite frankly several years ago. We took off several out because we were short another Basin. So yeah, they we have wheels and we we do move so that's not really an issue directionally. I'd say the gas plays probably dog.

Resent 20 to 25% of our our current deployments. Okay. Thanks very much. They say if everyone. Thanks.

Our next question will come from Brian sing Sophie Riley fer please go ahead.

Hey, good morning guys. Good morning, just to come back to pricing for a second for a system that remain deployed. Do you think that your pricing is remain somewhat more stable because you charged on a monthly basis versus other services that charge by the day or maybe price paid.

Yeah.

That that's been historically the case the the volume-based pricing is generally been more variable and again back to the rental model as you get more efficient you benefit from the fixtures rental cost so wouldn't they translate that fix rental costs into a dollar per ton or a dollar per stage or a dollar per? Well, the numbers have been coming down because of the efficiencies. So yeah, I think that that business model that partnership model provides alignment and therefore stick more stickiness.

our next question today will come from

Gotcha. And then can you just comment on a differences? You might see and customer Behavior based on the type of customer whether it be a major a smaller than to Europe for a service company?

I mean that's that's a complicated question because we can analyze it in a lot of different ways. I think the most relevant probably point right now is obviously, you know, the majors generally, um have a diversified asset base and and they may have you know Downstream, um elements in their business such that they walk in, you know, still continue to not be completely fully levered to what's going on in in the oil Land. So I think the majors are probably better Jeff positioned to withstand some pain here, but then again, there's lots of independence with incredibly successful business models and asset basis and balance sheets that were really great. I think the challenge right now is going to be how the finance your business and how you had your production and how how are you going to weather this storm? So whether you're an independent or major, that's sort of God.

Academic in some ways and I think in general the larger Majors probably unbalanced probably have a stronger position.

But one element, your question was about the mix between service and and operator business and I think the the you know, as there's such turmoil in such Dynamics with capital spending budgets and timing of that in the operator wage. It gets extremely difficult for the service guys to plan. So I think that the nature of the the pressure pumping is is is unless there's a really long term relationship in place with the operator. They're planning is a second derivative of what the operators are doing there for a little bit less certain than one would more volatile and difficult to plan for but I think everybody is in a state of a little bit of you know, what are we doing and and re-planning for the rest of the year?

And ladies and gentlemen, this will conclude our question-and-answer session at this time. I'd like to turn the conference back over to Bill's artwork for any closing remarks. Thanks Allen. I'd like to close with a thank you to all of our employees for the continued commitment and execution of the business to our customers for their continued partnership over this difficult. While we're clearly not through Thursday and its numerous lasting impacts on all of us. The team should be extremely proud of what we've been able to do and keep the business live in the industry functioning during this during this troubled times. Our operations wage in Ewing without interruption to provide hopefully essential services to our customers a high level of service there and to our suppliers and shareholders. We remain committed to helping our customers further increase efficiency safety and savings on Wells by continuing to innovate are offering our products during this downtime and thank you all and stay safe.

The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.