Q2 2020 Solaris Oilfield Infrastructure Inc Earnings Call
[music].
Good morning, everyone and welcome to the Solaris oil field infrastructure and 2022nd quarter earnings Conference call.
All participants will be in listen only mode.
She need assistance, placing all conference specialist that pricing to Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call ever do you have on Fletcher Senior Vice President Finance and Investor Relations Ma'am. Please go ahead.
Good morning, and welcome to the Solaris second quarter claims Funny earnings Conference call I'm joined today by our chairman and CEO Stills art, LER, and our president and CFO Kyle Rohit Chandra before we begin I'd like to remind you of our standard cautionary remarks regarding forward looking nature of some of the statement.
Certainly well make today such forward looking statements may include comments regarding future financial results and reflect the number of known and unknown risks.
Please refer to our press release issued yesterday, along with other recent public filings with the Securities Exchange Commission that outline desperate.
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 gap.
Reconciliations to comparable GAAP measures are available in our earnings release.
Now I'll turn the call over to our chairman and CEO silver.
Thank you your bonds and thank you everyone for joining US today, we hope that everyone continues to remain healthy and stage as a global cobot 19 pin debit persists.
Second quarter was the most challenging yet in the company's history as a public company experience to 76% sequential reductions in a number of our systems deployed to customers global Cobot pandemic drove a severe fall off in both commodity demand and prices, resulting in swift and extraordinary reduction in activity by the oil and gas industry.
The industry's response was particularly felt by those of us exposed to the completions part of the value chain as operators began curtailing production insignificantly slowing or halting fracking operations.
Despite these extreme circumstances I'm very proud that our team took immediate action that enabled the company to produce the breakeven adjusted EBITDA in another quarter of positive free cash flow and what we believe was the bottom of the cycle.
During the second quarter swears generated $9 billion in revenue adjusted EBITDA of negative $400000 or six consecutive quarter of positive free cash flow and paid our seventh consecutive quarterly dividend. Despite the very challenging market.
So there's team achieved all of this wall learning to work remotely adapting to the organizational change and continuing to service our customers innovate and operate safely.
I mentioned on our last call that we're uncharted territory and that continues to be true today, the ultimate pace and level of recovery are still unknown as we expect the bulk of oil and gas operators will remain disciplined and stick to the development budgets. They laid out at the onset of dependent. It. However, we are encouraged to see many of our customers resumed a modest level completions.
As activity in recent weeks expect activity in the third quarter to be up 35% to 45% over the second quarters. If these levels hope.
Our plan for navigating this downturn is unchanged, where again by controlling what we could and adjusted our cost structure to match. The current level of activity by reducing head count was one of the toughest decisions. We had to make we also looked more creatively at our cost structure and found ways to reduce costs that were more structural in nature. For example, we took out some of the overhead layers in or or.
Organization, and then sort several functions both at the field and support levels. These are changes that should allow us to remain lean and efficient even as activity comes back.
As operators were making plans to come back to work we for focused on staying in front of them highlighting our commitment to continued improvements in service quality and innovation. We believe our ongoing focus on technology innovation and service will help differentiate our offering during this challenging time.
We remain focused on helping our customers improve the efficiencies of their hydraulic fracturing operations.
While we were no longer building their systems, we're continuing to work on our pipeline of system enhancements and new products. Our software offering is one example, this or customers crave and rely on the valuable supply chain and activity information, we provide them to help them operate as efficient as possible.
Our Solaris lens offering continues to rollout upgrades and new capabilities that allow customers to see more information and analysis in real time.
We've also made system improvements that will help our customers tractors and use data by stage and well with increased accuracy.
Our focus on cash generation remain strong and we've made efforts at every level the organization to make sure our collections remain strong and no one necessary cashes spent.
The focus combined with our debt free balance sheet has allowed us to continue sharing or excess cash with shareholders or cash balances unchanged from the beginning of the year, which means.
All of the over $30 million cash flow, we've generated year to date has been returned to shareholders, our free cash flow and strong balance sheet allowed us to maintain our dividend payment at tended to have cents per share during the second quarter quarter, which we saw nearly 80% reduction in property activity.
Our conservative approach to our balance sheet provides us with the flexibility to be measured in our capital allocation philosophy and avoid the need to potentially overreact short term changes in the industry landscape.
Our investors, where the predominant source of funding during the Buildout of our company and sharing excess cash with them remains an important focus for us.
We also continue to make progress on our E.S.G. transparency with investors last year, we launched the do sustainability website. The coming weeks you can expect her first sustainability report to be published on our website.
We look forward to further engagement with the investment community and our customers on how we can be more transparent and he has to be friendly in the future to summarize well the extent and duration of this downturn is out of our control we have and will focus on what we can control running as lean and as nimble as possible, ensuring our customers receive exceptional and dependable service.
As an improving our offering to service our customers with no debt on our balance sheet and a healthy cash balance with continued expectation for cash flow generation. They have many opportunities available to us to continue to grow and enhance our product offering is best in our people and service quality. While also returning cash to shareholders with that I'll now turn it over.
Carl.
Thanks, Bill and good morning, everyone. During the second quarter, we generated over $9 million of revenue adjusted EBITDA of negative 0.4 million and positive free cash flow of approximately $22 million. We averaged 20 fully utilize systems deployed to customers, which represents 76% sequential decline.
Total revenue declined 80% sequentially driven by a reduction in activity as well as a reduction in last mile services, which has a large trucking component I pass through margins, while we aggressively cut costs throughout the quarter adjusted EBITDA declined to breakeven at fixed costs were absorbed over a smaller activity level in some variable costs.
Cuts lag the drop in revenue.
It totaled 63 proppant system worked with varying degrees of utilization in the second quarter. Our calculation of 20 fully utilize systems reflects the number of equivalent systems that generated revenue everyday in the quarter, which we believe is the best measure for modeling purposes.
Average rental revenue per system in the quarter declined approximately 13% due to a combination of lower pricing and mix impact.
We believe our pricing is bottoming for the time being a full quarter impact of the revised pricing should result in an average revenue per system decrease of 3% to 5% in the third quarter relative to the second.
Beginning in the second quarter, we moved estimated credit losses out of the S. Una line to the other operating expense line to give you a closer reflection of her as she nave run rate.
Total actually in a cost for the quarter were approximately $4 million inclusive of noncash stock based compensation.
For the third quarter of 2020, we expect total as she need to be approximately flat at $4 million inclusive of the normal quarterly expensing of noncash stock compensation.
During the quarter, we generated a GAAP net loss of $5.5 million or 20 cents per share.
Adjusted pro forma net income for the second quarter was negative $7 million or 16 cents per share.
As a reminder, adjusted pro forma net income I just for nonrecurring items and also seems a full exchange of all class B shares for class a shares for a more comparative period over period presentation.
Please refer to our press release issued last night for a full reconciliation of adjusted pro forma net income.
Operating cash flow was approximately $23 million in the quarter. After total capital expenditures of approximately 1 million our free cash flow was a positive $22 million for the quarter during the quarter, our accounts receivable balance decreased 77% as our team made substantial progress on cash collections.
We returned a total of approximately $5 million to shareholders in the second quarter in the form of dividends, which was flat with the prior quarter.
Since the company turned positive free cash flow in early 2018, approximately $63 million or roughly half of the cumulative free cash flow has been returning to shareholders in the form of dividends and share repurchases.
We ended the quarter with approximately $64 million of cash on the balance sheet.
The increase from the $46 million a cash at the end of the first quarter was primarily due to accounts receivable collections and partially offset by a decrease in our payables and accrued liabilities.
Now turning to our outlook as Bill mentioned, we anticipate that fully utilized U.S. frac crew count could be up between 35 and 45% sequentially in the third quarter as many operators you resume a modest level of completions activity.
We expect our business perform in line with the overall sector with identifying opportunities to outperform through targeted share gains 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.
As activity improves modestly in the third quarter, we expect EBITDA should improve slightly.
The large working capital benefit in the second quarter should not repeat and we believe working capital could have a neutral to slightly negative impact on cash during the quarter. We also expect to remain disciplined on capital spending we're narrowing our guidance for capital spending for the full year 2022 between five and $10 million compared to our previous guide.
For $10 million or below.
Our debt free balance sheet and more than $60 million, a cash provide slash the opportunity to excel during this downturn, while preserving optionality to opportunistically and thoughtfully evaluate both organic and inorganic growth opportunities. While also returning cash to shareholders with that we'd be happy to take your questions.
Ladies and gentlemen at this time will begin the question answer session.
Yes. Good question you May Press Star then one using a touchstone telephone.
You are using a speaker phone we do ask you. Please pick up your handset before pressing the keys.
The which all your questions you made press star and Sue.
Once again that a star and then once ask your question.
This time, a pause momentarily to assemble the roster.
[noise] [noise] and our first question today comes from George O'leary from TPH and company. Please go ahead with your question.
Morning, they'll morning call more in Georgia.
Yes.
Just curious you said Bill I think you said you thought underlying frac activity might be up 35% to 45%. If these levels hold here and just to make sure.
I'm understanding that right is that if frac spread activity is flat kind of where we sit today at the end of July or kind of the increases month over month or similar from that made a June June to July July and August timeframe.
No I think the former is correct, we're sitting at that level today I'm. Obviously, it was a very low base to come off of so percentages. Some really large but were there today in and if they hold to where we are today through the quarter, then we'll see those kinda increases.
Okay, Great and that's that's well understood regarding coming off of the low base, but that that's that help hopeful and maybe potentially offer some upside. If August is a isn't up month and then Kyle you said EBITDA to improve slightly I wondered if you could give us some more context around what slightly.
And to you all that we can do the math in the model, but just to make sure not missing any moving parts and on the cost side or anything like that what is slightly into you guys.
Yeah, I think again on a percentage basis. It it may look significant but permanent I'm really low base and with small.
Negative EBITDA on the second quarter, two somewhat positive and in the third quarter is when we see it yeah from a cost standpoint, we brought down a lot of costs at the end of the first quarter and in the second quarter I'm. So we're operating at a lower cost environment.
So we're going to benefit from that as we look at revenue, increasing and not necessarily needing that layer in any additional DNA or even at the direct cost line item.
There may be some additional costs into field level, but it wont be up nearly at the level that the revenues expected to be up so you will see margin expansion, but again.
What we're not looking at yeah, a return of say Q1 profitability levels. Its it's up significantly combo are still coming off a very low base.
Got it it's Super hub <unk> sneak one more in if I could and it's a longer when I apologize, but [laughter] spin struggling with you've heard a lot of services companies. So far this.
Earning season talk about Q4 and worried about the typical seasonal slowdown.
And yeah I'm, just curious why you would.
Stop and start why you start activity in the third quarter, and then stop it in the fourth quarter absent some sort of exaggerated factor that sends crude oil back down again, I realize weather can kick and there are some holidays, but I would imagine folks aren't going to mind working through the holidays at this point. So just curious what your dialogue is with customer.
There's around.
Q4, 20, and if they're actually indicating to you all that there's going to be a slowdown in the fourth quarter or this is just kinda Oh fs conservatism PTSD from the last six years and disconnect Crazy activity that we've had how's that customer dialogue.
Yeah, I think the there isn't much dialogue with it other than most customers you know upset the remaining budgets for the year, it's really going to be highly sensitive on the price oil I think you're viewing.
We continue to see it remain in the in the low Fortys that we we probably don't see this the seasonal fall off that we have in the past, but it's you know it's it's highly probable and I think you hit the nail that had a little bit here. It's it's we don't know people are willing to work. The obviously service pricing is down significantly and so.
Taking a you know Walt wall those expect 2021 to start really ramping back up and they want to take advantage of the lower prices and good either continue to drill some wells were completed ducks, you know through the fourth quarter.
And our next question comes from John Hunter from Cowen. Please go ahead with your question.
Hey, Bill and Kyle good morning.
Morning region.
So wondering on.
The Capex guidance.
Five to 10 million for the year that that implies a little bit.
Of an uptick in spending in the second half versus the first so just wondering you know what what exactly you're looking to invest and then what's what's driving the increase there.
Well and we haven't do we go ahead go.
Oh I'd say is yeah, we're not building any additional San systems are not really kind of systems. We are doing enhancements on the same systems. Just some of that is rolling through the Capex line today and as we've alluded to in the past more a culture of innovation and and tinkering and coming up with new ways to improve processes.
So we're still continuing to invest.
In those projects and that's flown through the first half of the year.
There would be a little bit more that spend in the second after the air but I think the the reason we brought the guidance in the five to 10 versus under 10 with just to try and provide a little bit of a narrower range there, but we're not anticipating significant increases in capex at this point.
Got it I appreciate that and then.
My second question is just related to mix that you noted in the prepared remarks can you talk about how you know whether that's customer mix or systems working on some kind of standby type right or how did that impact margin and the second quarter and how does that fall into the third.
Corridor.
It it's all the above so we went proactively to our customers. During this challenging quarter and said you know how can you for price how can we work constructively with you to help you achieve your goals and some of the thing you hit on which is looking at standby days looking at a revised.
Rate structure and some of the way to think about it is we set volume.
Based pricing with a lot of our customers and when we saw Frac count you know come down.
70, 80% those pricing bands, where it somewhat no longer relevant. So if you had an operator that was running you know 10, frac crews and they were down that too. They may have received a pricing discount I'd say eight or 10 crews. So yeah. There was no visibility to being able to get back there and we still wanted to create the key.
Culture, where the volume weighted pricing is a strategy we use to capture all of the work of I have a operator or pressure pumpers. So it was sort of rightsizing that piece of it and then yes as they were bigger gaps in activity on the standby rate provides an ability for us to keep systems with customers.
Versus having them returned to us. So you know the kind of break down on all those different components is not something probably will get too deep into but it was just sort of any equally weighted mix is probably the best way to think about at this stage.
Got it. Thank you and are you able to say whether those standby type systems are.
Are they margin neutral or how do they can parents are kind of what you're doing on on an average basis.
You know, there's really no direct costs associated with them, so and it's it's in margin neutral, yes, that's probably a good way to put it plus revenue, obviously, but there's really nice costs associated with it.
Great Thanks drilling costs.
Even in fixed costs like property tax insurance et cetera, and overhead piece.
[noise] and our next question comes from Jacob Jacob Lundberg from Credit Suisse. Please go ahead with your question.
Hey, good morning, guys.
<unk> I'm curious if you guys could just sort of speak to your takeaways from running your business through this very stressed environment. In Q2. So you guys have always run a really lean organization, but I'm curious if there any insights with respect to efficiencies or anything else on that you think could enable and even more streamlined or.
More efficient organization as activity recovers Bill you hit on a couple of these earlier in your prepared remarks, but I'm just curious if we could flesh that out a little more.
Yeah, I mean, obviously, we would love to not be paying rent in an office building right now, but it's a you know it's it's a different world you know I think the team has really rallied around near the use of you know.
Sitting in sitting at your home and being on as in color. Microsoft teams call in enforcing with a culture of a really a lot of collaboration around making things better improving service quality understanding where and.
When we have an issue or downtime or problem with the system. We spend a lot of time root cause analysis figuring that out and working with our customers to make sure that we don't cause them any problems and so the culture of course is something that is.
Core to the business and it's a lot more difficult to do remotely I think Fortunately we have the the team that you know is cutting some some of this older folks get used to using.
The technology that we have over the last four or five months has been been pretty amazing the remarkable what I. The way. The team is function from a from a back office and from public reporting perspective, and all the all the hard work that it certainly helps to grind out you know in an office has all been done ahead of schedule and on time and and without.
So its just to.
I think a testament to how it is how how this all shakes out over the next you know six months to year you know its nobody it's anybody's guess, but with we've just made sure that what we can control, which is our business a more we're getting it done and we'll continue to get it done.
Okay.
That's helpful and then it as operators kind of start getting back to work or are you starting have conversations around efficiency as opposed to to just price and if so do you do you think this this activity recovery that you've kind of spoken to here because this provide an opportunity to start up such put some kind of systems back out to work you think.
I think it does number one our conversation with our customers is always about efficiency in the value proposition that we offer price we hope prices. The secondary conversation that we delivered value that the prices are easily justifiable. So you know our focus has really been on efficiencies. We do have one chemical system out right now I think the that dialogue.
Continues and will continue I think the general value proposition in the in the the making their supply chain more efficient and making the well site operations safer cleaner more organized is something that that that system provides and and you know I think these down terms.
Well people hunker in at first I think when you're coming out of it. It's really is a focus on how are we going to do this better how do we get more efficient and what are the what are the kind of equipment and processes that we can use as an operator or pressure pumper to make our operations more efficient Wes Wes you know less people intensive you know the auto Hopper has has as gained.
Market share if you will in our in our fleet as as things are ramped up it is working and I think are customers see the ultimate value in and making their operations more efficient by by automating more and using that tool and so those are the kind of things that I think c., we see coming out of the downturns that when you first go into.
<unk> everyone's hairs on fire cutting as fast as you can I think coming out of it. It's a it's a measured how do we get more efficient how do we complete these wells better going out of it I think we're sort of in that phase right now.
The only thing I'd add to that is you know as to the downturn and then customer discussions yeah. We did obviously good.
Very responses in bringing down our cost structure and but the other thing that we pivoted to very quickly is office often is in not only the quality and efficiencies in our products provide but we're also set up from a capital standpoint to thrive in this kind of environment. We've got.
Liquidity available to invest in R&D, we got liquidity available to look at on M&A transactions and importantly, as a management team. We're not spending any time really focused on on our balance sheet, Tom or at least addressing issues around our balance sheet.
So it just allows us to be very focused during this downturn with fewer people on that team being remote it does had its challenges, but but we're focused on on the priorities.
Ladies and gentlemen, once again, if you would like to ask a question. Please press star and anyone to remove yourself from the question can you give me a press star and too.
Our next question comes from Ian Macpherson from Simmons. Please go ahead with your question.
Thanks, Good morning.
Boring, Kyle Hi, <unk> as as.
[noise] pull out of the ditch here in the third quarter, you. So total activity up.
35, 45% and obviously all of the basins aren't aren't behaving the same so there would be the footprint of could which is activity will look.
Quite a bit different more concentrated in the in stronger basins in the second half than they did in the first quarter can you speak how that would impact your systems, and whether you see that beneficiary or or or headwinds from that based on the redistribution of activity as we come out.
Well I think one or our system our system performs really well and insignificantly adds more value in the larger frac jobs, and I think the 10000 foot lateral and and you know 2500.
Pounds per foot kind of kind of wells that were seeing are more concentrated in the Permian basin than they are in other basins and so I think we you know we're gonna see a little bit more pick up you know in those areas first and I think we're saying that.
Okay and add to that.
Okay. I'd add is you know we are to Bill's point, we are operating in virtually every basin, but the Permian is or our largest based activity. So the sort of ramp up that we've seen activity has been broad base, but it has.
In more heavily weighted in the Permian than anywhere else.
Got it.
Thanks, and then you know Kyle when you're talking about the EBITDA improvement in the third quarter. It it's.
Perhaps too difficult for some modeling incurred are going away just because we're dealing with small unstable numbers, but every year, particularly that you were.
Incremental margins going forward I forget who maybe a work they will baseline of revenue you, but your incremental EBITDA margin.
Durable improvement over what they would have been otherwise before we went through the [noise].
Streamlining exercises of the past few months so you have any.
[noise], maybe logarithms, if you compare with it because of how you think about EBITDA incrementals into may be a continued steady improvement into next year.
Well I don't think in there's any modeling challenge that you're not up to the task force or give yourself [laughter], but no theres just no I think two things. One is we have been down the cost structure. So we we've taken out some layers in the organization I'm to more streamline that we.
We started at such a high gross margin.
Structure to begin with that we didnt have a ton this squeeze out but I think we are set up to.
To benefit from margin expansion with a lower cost structure going forward.
Yeah, I would currently creek so.
If I could squeak in squeeze in one more.
So we had a big working capital benefit on recruit pass the second quarter and that's it that's you spoke to the.
Expectations going forward being less.
Influenced by that so.
I'm, just curious with regard to the doctor and around the dividend if there were bumping around plus or minus free cash flow.
Before the dividend for maybe Werent, two or three more quarters before act before the business begins to structurally improved exactly because her heart burn with dividend sustainability, if you need to lead over cash balances.
By a quantum or.
Would you in the board if we'd be comfortable too.
If the dividend where it is and draw down cash interest in this area were free cash flow to modestly negative for a quarter or too.
I I think that the board will make the decision you know and on a quarter by quarter basis, but as as we see activity in a ramping up and looking forward I think we'll make make a judgment call on that I think we we do believe that the dividends important feature in our stock in and had the cash to pay it back.
Leave it will be generating enough going forward and continue to pay it but it'll be a quarter by quarter decision.
And our next question comes from JB Lowe from Citi. Please go ahead with your question.
Hi, Good morning, guys morning amount.
One one to circle back real quick to to John's question on on the mix and pricing kind of dynamics I I imagine that mix shifts was pretty big drag into two do you expect that mix is actually going to continue to be a drag in threeq, you or is it actually going to be more Pos.
For the but the pricing dynamics are such that you think revenue per fleet, it's still going to be down in Threeq, just wondering about the puts and takes there.
Yeah, I think the commentary provided in the prepared remarks summarizes kind of all of it we talked about the blended implied rental rates being down 13% you can kind of do that math and then we gave some guidance around what we think Q3 it looks like so I think you know.
The puts and takes a blended within that that guidance.
Gotcha.
My other question is.
Just on kind of R&D efforts going forward.
You can system I imagine, it's something that.
Conversations are going to be much more constructive around as things get cut back up and running but.
I guess can you guys get give any hints that what you're working on its kind of the next step in and efficiency gains whether it be another piece of equipment. The software aspect data analytics, just kind of what's what's your kind of main focus right now and what do you think is going to be the next step.
Yes.
All the above what we're we're working on all the above I mean, I. Obviously, you know our number one priority is making our system and evolving the core base that system and making a deliberate information make it automated helped deliver as much values, we can to the well side and so that's that's the number one priority we are working on things.
I hope it and help help at work better.
But we are we are working on their chemical system and its evolution as well as some other stuff that we're not talking about yet.
Okay, Great and then Kyle you touched on M&A briefly.
Even though you bill but.
You know, what's the type of a business that you guys would be looking at.
It wouldn't would it just be strictly on on the software side or would you guys look for something.
You know you know chunkier kind of.
Acquisition to look at any cuts kind of color there would be great.
Well I can say, we're definitely not empire builders, we're very focused on return on capital and.
I think them the most likely outcome of any M&A transaction would be something that fits right into what we're doing today not not a big step out it's certainly possible, but I think we view ourselves and sort of experts and what we do and if there are opportunities to add some bolt ons that can help enhance our offering diverse.
Hi, offering provide additional died of customers that that's where that lies and that can be a as you said it very small software business.
We did that in late 2017, when you bought rail Tronics and we've integrated that that into our business can you use that today and then but it also could be you know a piece of equipment that fits right into what we're doing that perhaps provides better visibility into into the quality and various materials.
Going into the Prac or measurements that can help our operating as my operate more efficiently. So I think it's all the above than you know where.
We're in.
We're open to it all but we're very disciplined to allow and I think you're one of the things even talking about recently is there's there's a handful of companies in our position today with in our space small oilfield services companies with public currency cash on the balance sheet no debt you haven't seen a ton of M&A and I think that's.
Partially driven by the discipline of these companies I'm, whereas you know in years past we've seen more.
More more M&A and step out basis than what we're seeing today.
So there's a few of us that are here ready to do something but we're also happy with the businesses that we have today. So we may see.
Less M&A and just more attrition I'm going forward here and business has that become potentially absolutely on a we recognize there's an overall smaller addressable market for the near future combination of structural oversupply or should demand and commodities. But then also just do the efficiencies and capital quick.
Once again, if you would like to ask your question. Please press Star and then one so it's all your questions you May press star it too.
Our next question comes from Chris away from Wells Fargo. Please go ahead with your question.
Thanks, Good morning.
Right I just want to Chris.
I'm wondering if you can comment on the competitive landscape. So that's kind of volatility that we're teaching and disruption obviously crews out the value of ramping silos versus owning them, but it now at this point some of your competitors are distressed than maybe not maintaining their equipment or the services as well you guys him.
It's actually likely to gain share going forward just based on the stress that that might be putting on other parts of the system.
I think all things being equal, yes, I think that the notion that you know if you as an operator higher service provider and they run into financial distress as the operator, you run the risk that you've got suppliers of your suppliers are filing liens on your wells and that neck and.
Create some issues on your side as the operation I think the sustainability the viability of your supply chain not only from financial but also even from an S.G. standpoint.
I think all operators are digging more into not in getting close to the details saving a dollar here with a vendor that has some other issues could create bigger all in cost for you as the operator, So I think there's that component of it and then the other pieces from an R&D standpoint, I do believe we can to.
Turning to be in the cutting edge of pushing the alcohol, Florida, what can be done better in the San handling space I'm, so it positions us very well.
Okay that makes sense. Thanks, and then a follow up I'm wondering if you can give us an update on the integrated last mile offerings I do expect that to grow on the way up out of that kinda Troughed here and do you think there's any opportunity to improve the economics of providing that service clearly you know if you're in him he you're very.
Cool that if you haven't made commitments for her silos or sand. If you have flexibility that provided by third party, you're able to you know.
Move your cost structure seamlessly without taking hits you know can you know if asked managed to charge the some of the flexibility that the allowing you to enjoy.
So as far as overall activity, it's bounced around during the year I'd say today, we're we're probably at about 10% of our business of our system try there are working on last mile jobs, and that's probably in the higher end, where it's been.
As to the structural nature of it you know we have not layered our business from the capital or from a personnel standpoint, with a bunch of fixed cost or asset. So we haven't gone out and bought trucking capacity. So we can track for it with partners that we've worked with for a lot of.
A lot of tons I'll say.
We moved a lot of tens of these partners. So we've got the flexibility in it as well and on the sand side generally speaking, we really havent been involved in that component the operators that have been purchasing that directly. So I think from a structure standpoint, we protected ourselves pretty well and then from a a return standpoint or from an echo.
I'll make standpoint that models, all driven by the efficiency on location. So our people going to pump more tons are less tons per day going forward and as they pump more tons, if you're you're exposed to the variable model, which the last mile is it does provide for actually it probably enhanced economics versus.
The pure rental business. So it's it's got its puts and takes if you're working for an operator or pumper, that's running into some troubles in a particular maam you may not pump as much sand in there for the comparable rental margins may be lower but then there are other periods, where yeah, we're actually able to benefit from an operator and a pump or really.
Being in sync and knocking a bunch of stages out so it it does have a little bit more variability associated with it but we've set up I think our structure to ride that wave.
Yeah.
A little little twist to that as we continue to work with our you know pneumatic carrier partners as well to improve the payload per per truck and I think the payload that we're seeing that we're getting one you're really focused on how to maximize that.
Is signet, there's been significant improvements in the handling the volume tons per load in the pneumatic versus as compared to the relative difference with the belly jobs and so I think that we're saying that narrow that gap narrow significantly by paying attention to it making some improvements are actually in their equipment on the trucking side.
Thanks for taking my questions.
And ladies and gentlemen, with that will end today's question and answer session. At this time I'd like to turn the conference call back over to those are there for any closing remarks.
Thanks, Jamie I'd like to close with the thank you to all of our employees for their continued commitment and hard work during these troubled times.
Our business continues to to execute.
We thank our customers for their continued support of us and willingness to the let us work with them to help solve their problems and that's an important relationship that we value and we're not through this virus and and clearly the lasting work habits and changes that were all making in our lives are very important in structurally but we.
We're very proud of how it's been handled so far and how I think we can continue to handle doesn't allow our company's business to function at the level that is functioning.
Operations continue without interruption, we provided central services to our customers employees approach suppliers and shareholders and we remain committed to helping our customers continue to increase their efficiency savings that safety on well site by continuing to innovate and evolve our offering despite all of these headwinds. Thank you all have a great day stay safe.
Ladies and gentlemen that does conclude today's conference call with you. Thank you for joining you may now disconnect your lines.