Q4 2023 Solaris Oilfield Infrastructure Inc Earnings Call

Operator: Good morning and welcome to the Solaris Q4 2023 earnings conference call. All participants will. They signal a lift by pressing the star key followed by zero.

Good morning, and welcome to the Solaris Q4, 2023 earnings Conference call.

All participants.

Yeah.

These signals.

By pressing the star key followed by zero.

Operator: After today's presentation, there 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 of Finance and Investor Relations.

After today's presentation there'll be an opportunity to ask questions. Please.

Please note this event is being recorded.

I would now like to turn the conference over to Yvonne Fletcher Senior Vice President of Finance and Investor Relations. Please go ahead.

Yvonne L. Fletcher: Good morning, and welcome to the Solaris fourth quarter 2023 earnings conference call. Joining us today are our chairman and CEO, Bill Zartler, 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.

Good morning, and welcome to the Solaris fourth quarter 2023 earnings Conference call.

Yesterday, our our chairman and CEO, Eldar, <unk>, and our president and CFO Kyle Ramachandran.

Before we begin I'd like to remind you of our standard cautionary remarks regarding the overlooking nature of some of the statements we will make today.

Yvonne L. Fletcher: 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, which 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. However, the presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

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.

Yvonne L. Fletcher: Reconciliations to Comparable Gap Measures are available in our earnings release, which is posted in the news section on our website. I'll now turn the call over to our Chairman and CEO, Bill Zartler. Thank you, Yvonne, and thank you, everyone, for joining us this morning.

Reconciliations to comparable GAAP measures are available in our earnings release.

It's in the news section on our website.

I'll now turn the call over to our chairman and CEO Don R. R.

Thank you Don and thank you everyone for joining US. This morning 2023. It was another strong year for Soliris as we deploy more systems generated positive free cash flow and continue to return cash to shareholders recapping our results for the full year, we generated $293 million in revenue 97.

William A. Zartler: 2023 was another strong year for Solaris as we deployed more systems, generated positive free cash flow, and continued to return cash to shareholders. Here are our results. For the full year, we generated $293 million in revenue, $97 million in adjusted EBITDA, and $26 million in free cash flow. In the fourth quarter of 2023, we generated $63 million in revenue, $21 million in adjusted EBITDA, and $16 million in free cash flow. We returned a total of $47 million to shareholders in the form of buybacks and dividends and completed two dividend raises during the year. During the last couple of years, we made investments in new products that have created new earnings power and accretive cash flow generative capability. During the fourth quarter, we wrapped up our planned investments in these product lines, which enabled us to drive a significant increase in our free cash flow. In the fourth quarter, we converted 76% of our adjusted EBITDA into free cash flow.

And adjusted EBITDA and $26 million of free cash flow.

In the fourth quarter of 2020, we generated $63 million in revenue $21 million and adjusted EBITDA and $16 billion of free cash flow.

We returned a total of $47 million to shareholders in the form of buybacks and dividends and completed two dividend raises during the year.

During the last couple of years, we made investments in new products that have created new earnings power and accretive cash flow generative capabilities.

During the fourth quarter, we wrapped up our planned investments in these product lines will enable us to drive a significant increase in our free cash flow.

In the fourth quarter, we converted 76% of our adjusted EBITDA into free cash flow we used.

William A. Zartler: We expect an even stronger free cash flow conversion in 2024 as our new product lines generate returns and our pace of growth capital spending slows significantly. Earlier in 2023, our confidence in this coming inflection drove us to enhance our shareholder returns program. We announced an enhanced framework in March 2023 to return at least 50% of free cash flow to shareholders over the long term, and we have delivered on that commitment over the last 12 months. During 2023, we raised our per share dividend twice, representing an increase of approximately 15% in 2023 and 20% since we started paying a dividend in 2018. We also announced a $50 million share repurchase authorization, 26 million of which we exercised in 2023 to repurchase over 3 million shares.

Back in even stronger free cash flow conversion in 2024.

Lines generate returns.

Patients those capital spending slows.

Yeah.

Earlier in 2023, our competition is coming inflection robust to enhance our shareholder returns program, we announced an enhanced framework in March of 2023 to return at least 50% of free cash flow to shareholders over the long term.

We have delivered on that commitment over the last 12 months.

During 2023, we raised our per share dividend twice, representing an increase of approximately 15% in 2023 and 20% since we started paying a dividend in 2018.

We also announced a $50 million share repurchase authorization $26 million of what we exercised in 2023 repurchased over 3 million shares.

William A. Zartler: In total, our 2023 return to shareholders, including dividends and share repurchases of $47 million, represents over 13% of our market capitalization and will return over 100% of our free cash flow to shareholders as we borrow on our revolving credit facility in early 2023 to opportunistically repurchase shares. Yesterday, we also announced that our board has approved a first quarter 2024 dividend of $0.12 per share and that we repurchased an additional $1.1 million in shares for approximately $8 million so far this year. This equates to an additional $13 million in shareholder returns, for another approximately 4% of our current market cap that has been or is scheduled to be returned to shareholders in the first quarter of 2024. Pro forma for these additional first-quarter shareholder returns, Solaris has cumulatively returned over $170 million through dividends and share repurchases since we began to return capital to shareholders during the fourth quarter of 2018.

Total, our 2023 return to shareholders, including dividends and share repurchases of $47 million.

Represent over 13% of our market capitalization.

Turning it over 100% of our free cash flow to shareholders as we borrowed on our revolving credit facility in early 2023 opportunistically repurchase shares.

Yesterday, we also announced that our board has approved a first quarter 2024 dividend of <unk> 12 per share and that we repurchased an additional $1 1 million in.

Shares for approximately $8 million. So far this year. This equates to an additional $13 million in shareholder returns or another approximately 4% of our current market cap that has been or is scheduled to be returned to shareholders in the first quarter of 'twenty before.

Pro forma for these additional first quarter shareholder returns Soliris has cumulatively returned over $170 million through dividends and share repurchases. Since we began to return capital to shareholders during the fourth quarter of 2018.

This represents approximately half of our current market cap and essentially 100% of our through cycle free cash flow as we consistently return cash to shareholders every quarter. Since then including during the Covid induced downturn and during our recent growth couple of years.

As we look into 2024, we expect a continued maturation of both of our business in the U S shale industry shareholder returns are certainly a large part of this maturation date, but I would also like to discuss a few other key industry themes that we believe soliris is positioned well.

North American oil production continues to reach record levels. Despite the use of pure oil rigs and frac crews as operators continue to find the operating efficiencies.

William A. Zartler: This represents approximately half of our current market cap and essentially 100% of our through-cycle free cash flow as we consistently return cash to shareholders every quarter since then, including during the COVID-induced downturn and during our recent growth capital years. As we look into 2024, we expect a continued maturation of both our business and the U.S. shale industry. Shareholder returns are certainly a large part of this maturation theme, but I would also like to discuss a few other key industry themes that we believe Solaris is positioned well for. North American oil production continues to reach record levels despite the use of pure oil rigs and frack crews as operators continue to find operating efficiency.

We expect operators to continue to look for ways to increase well productivity and do more with less.

As a partial offset to this efficiency trend drilling and completion intensity continues to grow to offset production declines.

But a shift from a core the lower tier resource development.

This intensity comes in the form of more sand up moving on a per day or per hour basis.

Never seen in this industry.

Our high throughput systems directly address and continuously support this growth and flat rate and intensity.

For example, our Taco systems combined with upgrades, we made to our San system to provide a powerful combination of our reliable and industry, leading sand handling equipment. These upgrades helped reduce the total delivered cost of sand for our customers by reducing the number of truckloads required through her payloads and turning trucks quicker.

More recently, we've come up with additional innovations to our existing technology that have helped our customers increase the amount of sand offloaded per hour.

William A. Zartler: We expect operators to continue to look for ways to increase well productivity and do more with less. As a partial offset to this efficiency trend, drilling incompletion intensity continues to grow to offset production declines that can be exacerbated by a shift from a core to lower tier resource development. This intensity comes in the form of more sand moving per day or per hour than we've ever seen in this industry.

Also over the last couple of years. Our systems have also successfully supported the completion of simultaneous well frac jobs known as subtle fracs. We've always believed that the entire raw material supply chain or low pressure side or the wealth side holds tremendous opportunity for efficiency improvements.

And the complementary measure it and software tools are keys to unlock these process improvements.

That's right intensity grows it remains clear that service providers, such as Solaris to offer reliable safe high throughput raw material handling solutions will be key to help operators maximize their capital and operational efficiency initiatives and provide a safe environment to do so.

William A. Zartler: Our high throughput systems directly address and continuously support this growth in frac rate and intensity. For example, our top fill systems, combined with upgrades we've made to our sand system, provide a powerful combination of reliable and industry-leading sand handling equipment. These upgrades help reduce the total delivered cost of sand for our customers by reducing the number of truckloads required through higher payloads and turning trucks quicker. More recently, we've come up with additional innovations to our existing technology that have helped our customers increase the amount of sand offloaded per hour. Also, over the last couple of years, our systems have also successfully supported the completion of simultaneous well frack jobs known as silo fracks. We've always believed that the entire raw material supply chain for the low pressure side of the well site holds tremendous opportunity for efficiency improvements.

As another example, they use a closer proximity to drive additional efficiencies has grown over the last 12 months most prominently in the Permian basin. The savings on last mile trucking is the most predominant economic driver and the ability to maximize payload on leasehold roads when using bombed out trucks can also significantly and produce savings.

Well the opportunity set is still relatively small compared to total sand consumed in the market, we're working with our customers to execute on these opportunities.

Another theme continuing to grow in the markets is the electrification of oil and gas development.

Largely seen this play out and the growing demand for electric Frac fleets, our systems have been 100% electric since inception, and her design ready to plug and play into the same power sources, our customers are using to supply their electric or traditional rock operations, including Repower turbines and natural gas powered engines.

<unk> continues to fit the bill as operators are asking for or even requiring all electrical equipment to drive lower costs higher reliability and reduced emissions.

And finally consolidation at both the operator and service company level continues to be a theme in the maturing U S shale landscape operators can gain significant efficiencies by executing the development plans are larger contiguous acreage blocks. Likewise service providers are finding to grow scope and leverage operate.

William A. Zartler: Our equipment and the complementary measurement and software tools are keys to unlock these process improvements. As price intensity grows, it remains clear that service providers such as Solaris, who offer reliable, safe, high-throughput raw material handling solutions, will be key to helping operators maximize their capital and operational efficiency initiatives and provide a safe environment to do so. As another example, the use of closer-proximity sand to drive additional efficiencies has grown over the last 12 months, most prominently in the Permian Basin. The savings on last-mile trucking is the most predominant economic driver, and the ability to maximize payload on leasehold roads when using bottom-drop trucks can also significantly produce savings.

And financial synergies across multiple product lines. Today, Soliris is primarily used internal investments to grow our scope, while we have not been a direct participant in consolidation at Mercury's yet we continue to look for the right fit that would enhance our cash flow and shareholder returns profile keep our balance sheet healthy complement our culture.

Yeah.

I'd like to summarize by highlighting the 2023 was an exciting development for Soliris regain its good traction at earnings from new products, new customers through our overall system deployment and began to see conversion of our strategic investments over the last couple of years into meaningful free cash flow generation.

And our shareholder return framework this past year by increasing our per share dividend twice to 12 cents a share representing an approximately 15% increase from 2022 bonds and returning $26 million in the form of share repurchases as part of our $50 million authorization.

The higher amount of free cash flow in 2020 for sure.

She'd give solaris ability to add value by increasing liquidity, reducing revolver borrowings growing sustained shareholder returns.

Training, our healthy balance sheet participating in consolidation of the remaining ready for the future potential organic growth opportunities with strong cash position with that I will turn it over to call for a more detailed financial review.

William A. Zartler: Well, the opportunity set is still relatively small compared to total sand consumed in the market, but we're working with our customers to execute on these opportunities. Another theme continuing to grow in the markets is the electrification of oil and gas development. We have largely seen this play out in the growing demand for electric frac fleets. Our systems have been 100% electric since inception and are designed ready to plug and play into the same power sources our customers are using to supply their electric or traditional frac operations, including grid power, turbines, and natural gas-powered engines.

Thanks, Bill and good morning, everyone I'll start with recapping, our fourth quarter financial and operational results.

Operating cash flow was $24 million after $7 million in capital expenditures, which came in below our guidance of $10 million, we generated $16 million free cash flow, we returned $6 million to shareholders, which was made up of our 12 cent per share quarterly dividend and the repurchase of about 1 million.

Sure.

He used excess cash to reduce our revolving credit facility borrowings by $7 million, resulting in a $30 million remaining balance together with $6 million in cash at year end net debt declined to $24 million from $34 million and that's very corner.

William A. Zartler: Our equipment continues to fit the bill as operators are asking for or even requiring all electric equipment to drive lower costs, higher reliability, and reduce emissions. And finally, consolidation at both the operator and service company level continues to be a theme in the maturing U.S. shale landscape. Operators can gain significant efficiencies by executing development plans on larger, contiguous acreage blocks.

We ended the year with approximately $47 million of available liquidity.

Our activity in the fourth quarter as measured by fully utilized systems was down 5% sequentially to 103 systems compared to our original expectations of a flat comp from the third quarter due to weaker than anticipated industry activity. We followed it averaged 64, frac crews, which was down 4%.

From 67, Frac crews all in the third quarter.

As highlighted in Bill's commentary, we're continuing to see more stages pumped and more lateral feet completed per day, which has reduced the overall number of frac fleets required to meet market demand.

Kyle S. Ramachandran: Likewise, service providers are combining to grow scope and leverage operational and financial synergies across multiple product lines. Today, Solaris has primarily used internal investments to grow its scope. While we have not been a direct participant in consolidation and mergers yet, we continue to look for the right fit that would enhance our cash flow and shareholder returns profile, keep our balance sheet healthy, and complement our culture of innovation. I'd like to conclude by highlighting that 2023 was an exciting development year for Solaris. We gained significant traction and earnings from new products and new customers through our overall system deployment and began to see conversion of our strategic investments over the last couple of years into meaningful fleet-free cash flow generation. We strengthened our shareholder return framework this past year by increasing our per share dividend twice to $0.12 a share, representing an approximately 15% increase from 2022 levels, and returning $26 million in the form of share repurchases as part of our $50 million authorization.

Contribution margin per fully utilized system, including ancillary trucking services was flat sequentially at just over $1 billion.

Yes.

On a per Frac crew followed basis total contribution margin was also flat sequentially at $1.7 million annualized.

SG&A in the fourth quarter totaled $7 $2 million and included noncash stock based compensation $1 $8 million net interest expense was zero point $9 billion.

Turning to our first quarter and initial full year outlook.

Following the initial build out of our top you'll see our capital spending rate has decreased significantly, which we expect will continue to yield significant free cash flow throughout 2024.

For 2024, we expect total capital expenditures to be less than $15 million or less than $4 million per quarter.

Using current consensus estimates for the first quarter. This puts our capital expenditures at roughly 15% of adjusted EBITDA and using current consensus estimates for full year 2020 for adjusted EBITDA and our current market capitalization, our guidance for capital expenditures, resulting in roughly 25% free cash flow.

Yield excluding any impact from working capital.

Our capital expenditure guidance for the year largely reflects maintenance levels of spending.

Kyle S. Ramachandran: A higher amount of free cash flow in 2024 should give Solaris the ability to add value by increasing liquidity, reducing revolver borrowings, growing sustained shareholder returns, maintaining our healthy balance sheet, participating in consolidation, and remaining ready for the future potential organic growth opportunities with a strong cash position. With that, I will turn it over to Kyle for a more detailed financial review. Thanks, Bill. And good morning, everyone.

Does include some level of continued development capital spending as we remain committed to working with operators to create solutions that address the changing nature of Frac operations. While also maintaining a disciplined approach. However, our main focus will be on value added system maintenance and upgrades.

Because the majority of growth capital projects and ongoing system enhancements are done using our internal engineering and manufacturing capabilities, we have the flexibility to quickly cost effectively addressed our customers' initiatives.

Kyle S. Ramachandran: I'll start with a recap of our fourth quarter financial and operational performance. Operating cash flow was $24 million. After $7 million in capital expenditures, which came in below our guidance of $10 million, we generated $16 million in free cash flow. We have returned $6 million to shareholders, which was made up of our $0.12 per share quarterly dividend and the repurchase of about $1 million a share. We used excess cash to reduce our revolving credit facility borrowings by $7 million, resulting in a $30 million remaining balance. Together with $6 million in cash at year-end, net debt declined to $24 million from $34 million in the third quarter.

Adjusted EBITDA in the first quarter of 'twenty 'twenty four is expected to be up roughly 10% sequentially, which is approximately in line with current consensus estimates.

We expect industry activity and our system count to be up modestly from seasonal lows in the fourth quarter and to be relatively stable from that on our year to date activity levels are up slightly from the fourth quarter and we continue to have the availability to meet customer demand for all of our technology offerings that could drive additional growth.

We also expect total contribution margin per fully utilized system to be modestly higher in the first quarter sequentially due to improved pricing modestly lower system cost as a system upgrades and maintenance being pulled forward in the third quarter tapered into the fourth quarter and incremental contribution from system deployments.

Kyle S. Ramachandran: We ended the year with approximately $47 million of available liquidity. Our activity in the fourth quarter, as measured by fully-utilized systems, blew down 5% sequentially to 103 systems, compared to our original expectations of a flat system cost from the third quarter due to weaker than anticipated industry activity. We followed an average of 64 frac crews, which was down 4% from 67 frac crews followed in the third quarter.

We expect contribution from ancillary last mile logistics services to be flat sequentially.

SG&A in the first quarter is expected to be flat sequentially at around seven $2 million for modeling purposes. We expect the total pro forma tax rate to be roughly flat at 26% and the pro forma fully dilutive share count to also be flat at $44 3 million shares in Q1 repurchases.

Should offset planned issuances related to annual stock based compensation.

Similar to prior years, we anticipate the heaviest use of cash from working capital to be in the first quarter and subsequent quarters typically showing a reduction we.

Kyle S. Ramachandran: As highlighted in Bill's commentary, we're continuing to see more stages pumped and more lateral feed completed per day, which has reduced the overall number of frac fleets required to meet market demand. However, total contribution margin per fully utilized system, including ancillary and trucking services, was flat sequentially at just over $1 million a year. On a per frac crew followed basis, total contribution margin was also flat sequentially at $1.7 million annualized. SG&A in the fourth quarter totaled $7.2 million and included non-cash stock-based compensation of $1.8 million. The net interest expense was $0.9 million.

We expect a similar to modestly higher working capital draw in the first quarter of 2024 as compared to the first quarter of 2023, which was a use of approximately $8 million.

As in prior years. This includes the payment of annual cash bonuses and other annual cash outflows such as property taxes.

Net of adjusted EBITDA, roughly 10% higher sequentially and sub $4 million in capital expenditures, we expect positive free cash flow of approximately $10 million to $15 million in the first quarter.

As our capital spending is expected to remain relatively low for the rest of the year, we anticipate generating significant free cash flow for the remainder of the year after the seasonally higher working capital use of cash in the first quarter.

Kyle S. Ramachandran: Turning to our first quarter and initial full-year outlook. Following the initial build-out of our top-filled fleet, our capital spending rate has decreased significantly, which we expect will continue to yield significant free cash flow throughout 2025. For 2024, we expect total capital expenditures to be less than $15 million, or less than $4 million per quarter. Using current consensus estimates for the first quarter, this puts our capital expenditures at roughly 15% of adjusted EBITDA.

To summarize our first quarter outlook adjusted EBITDA is expected to improve by roughly 10% sequentially that.

And that was capex of less than $4 million and a seasonally higher working capital draw, we expect free cash flow to be between 10 and $15 million already in 2024, we have purchased approximately $8 million in shares as part of our repurchase authorization and announce our 12 cents per share in dividends for the first quarter.

We expect to use any excess cash to continue to strengthen our balance sheet and opportunistically repurchase shares.

Kyle S. Ramachandran: And using current consensus estimates for full year 2024 adjusted EBITDA and our current market capitalization, our guidance for capital expenditures results in a roughly 25% free cash flow yield, excluding any impact from working capital. Our Capital Expenditure Guidance for the year largely reflects maintenance levels of spending, though it does include some level of continued development capital spending as we remain committed to working with operators to create solutions that address the changing nature of frac operations while also maintaining a disciplined approach. However, our main focus will be on value-added system maintenance and upkeep.

Before we open the call for questions I'd like to reiterate that we have spent the last couple of years, making strategic organic investments that are driving earnings and cash flow growth and have enabled us to grow cash returns to shareholders.

Now that this growth capital program is meaningfully tapering down we believe 'twenty 'twenty four will be an exciting year and showcasing the strength and cash flow generating capability of our expanded service offerings.

All else equal we believe our investments will enable us to deliver stronger earnings power and cash flow resilience moving forward as compared to prior cycles.

We will continue to focus on sustaining and growing our shareholder returns program, increasing our liquidity strengthening our balance sheet and executing on the right organic and inorganic opportunities that enhance our return on capital.

Kyle S. Ramachandran: Because the majority of growth capital projects and ongoing system enhancements are done using our internal engineering and manufacturing capabilities, we have the flexibility to quickly and cost-effectively address our customers' initiatives. Adjusted EBITDA for the first quarter of 2024 is expected to be up roughly 10% sequentially, which is approximately in line with current consensus estimates. We expect industry activity and our system count to be up modestly from seasonal lows in the fourth quarter and to be relatively stable from then on. Our year-to-date activity levels are up slightly from the fourth quarter, and we continue to have availability to meet customer demand for all our technology offerings that could drive additional growth. We also expect total contribution margin per fully utilized system to be modestly higher in the first quarter sequentially due to improved pricing, modestly lower system costs as system upgrades and maintenance will be pulled forward in the third quarter, tapered into the fourth quarter, and incremental contribution from system deployment. We expect contribution from Ancillary Last Mile Logistics Services to be flat, without a sponge. SG&A in the first quarter is expected to be flat sequentially at around $7.2 million.

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

We will now begin the question and answer session to ask a question.

Jay You May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

The first question is from Stephen <unk> of Stifel. Please go ahead.

Oh, Thanks, good morning, everybody.

Yeah.

I guess the first one for me is just around there was there were some M&A announced this morning in the.

In the Permian with two Frac sand suppliers.

Just curious if there's how you think about that maybe any impact on the business given I mean, especially given what one or two players are putting together on the doing the express side.

Well I think as we've been consistent with the industry is pretty fragmented it need some level of consolidation.

And how and what that looks like over the course of the next year, it's hard to say I think so yeah.

They're different businesses, yet complementary in certain ways with alone the proximity mines at all by the Hi, crush team, which are which are great assets in the ER. The Atlas runs a great operation a great mine and I think putting the two together makes a lot of sense, where we do.

They're a little business with with Atlas today, and hope that continue some of it driven by customer some of it driven by just the logistics efficiencies for our system.

The jobs in the Delaware.

Great, Thanks, and what and when we when we think about obviously, you're you've spent a lot of growth capex in here.

Kyle S. Ramachandran: For modeling purposes, we expect the total pro-forma tax rate to be roughly flat at 26%, and the pro-forma fully dilutive share count to also be flat at 44.3 million shares, and Q1 repurchases should offset planned issuances related to annual stock-based compensation. Similar to prior years, we anticipate the heaviest use of cash from working capital to be in the first quarter, with subsequent quarters typically showing a reduction. We expect a similar to modestly higher working capital draw in the first quarter of 2024 as compared to the first quarter of 2023, which was a use of approximately $8 million. As in prior years, this includes the payment of annual cash bonuses and other annual cash outflows, such as property.

Well positioned going into 'twenty four.

Where do you see as far as sort of a you know idle equipment in and how should we think about you know what.

The percentage of all of our traditional systems that have <unk>.

One of the new technologies attached to it as we evolve through 2024.

I believe we said last quarter that we had roughly a rig systems available to put to work that had been upgraded on the sand silo side and I think we're running in the neighborhood of 60 to 55.

Available on the top health systems to combine with that so and so that means we can roughly do you don't have to a little bit greater than half of our silo systems could run with top fills for a total if you looked at it from a total system count that as 150 and kind of the total capacity perspective at this point.

With that have been driving without all without much without really any capital.

Kyle S. Ramachandran: Net of adjusted EBITDA roughly 10% higher sequentially and sub-$4 million in capital expenditures, we expect positive free cash flow of approximately $10 to $15 million in the first quarter. As our capital spending is expected to remain relatively low for the rest of the year, we anticipate generating significant free cash flow for the remainder of the year after the seasonally higher working capital use of cash in the first quarter. To summarize our first quarter outlook, adjusted EBITDA is expected to improve by roughly 10% sequentially, net of CapEx of less than $4 million and a seasonally higher working capital draw. We expect free cash flow to be between $10 and $15 million.

Yes.

Great and then just one final one for me when we think about sort of the underlying pricing.

In the business and I guess for both sides, both new technology sort of traditional Oh, we pretty stable right now or what are you seeing on the pricing side.

Yeah, we're pretty stable if you recall our model really is monthly rental type for our systems and so to the extent that we provide our customers with the ability to move much more volume through our system over the course of a month, they actually lower their costs, even in a rising cost environment with us I think that if you looked at the actual commodity of sand.

If you look at the public announcements, thus far sand pricing.

In a stable environment seems to be dropping somewhat because we've seen additional capacity in it and you know if you had a flat frac crew crowd, you're still growing sand demand as we talk about a text easily we've seen sand demand go up it's just a matter of bell.

Kyle S. Ramachandran: Already in 2024, we have purchased approximately $8 million in shares as part of our repurchase authorization and announced our 12 cents per share dividends in the first quarter. We expect to use any excess cash to continue to strengthen our balance sheet and opportunistically repurchase shares. Before we open the call for questions, I'd like to reiterate that we have spent the last couple of years making strategic, organic investments that are driving earnings and cash flow growth and have enabled us to grow cash returns to shareholders. Now, this growth capital program is meaningfully tapering down.

How much capacity additional capacity could come online to beat that.

Great. Thanks for the details.

Okay.

Again, if you would like to ask a question. Please press Star then one.

Seeing no other questions I would like to turn the conference back over to Mr. Bill <unk> for any closing Oh I'm sorry, we do have one question that just joined us.

It's from John Daniel of Daniel Energy Partners. Please go ahead.

Sorry, guys I thought I didn't realize I forgot thank you for including me.

Bill you called out innovation in the prepared remarks that that's been sort of a key characteristics for Soliris I'm. Just curious if you could speak to opportunities out there whereby you could pursue small tuck in deals which would bring additional innovation that you could go quickly expand and obviously I'm not looking for any names, but just.

Kyle S. Ramachandran: We believe 2024 will be an exciting year in showcasing the strength of the cash flow generating capability of our expanded service offering. All of us equal, we believe our investments will enable us to deliver stronger earnings power and cash flow resilience moving forward as compared to prior cycles. We will continue to focus on sustaining and growing our shareholder returns program, increasing our liquidity, strengthening our balance sheet, and executing on the right organic and inorganic opportunities that enhance our return on capital.

What is the opportunity set.

Well, there's as I mentioned, there are a lot of opportunities both on the low pressure side to manage the supply chain of this Ah yeah.

I will take the technologies around very efficient and reliable, but ultimately the pumping hours per day have increased dramatically and anything you can do around that well site to prevent or enable the operator to run nearly 24 hours a day.

Operator: 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 press star then one on your touchtone phone.

Or where you can improve it so technologies around that technology is around ensuring that all of the pinch points could be bad as yourself that were.

Seriously evaluating.

Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Stephen Gengaro of Stifel. Please go ahead. Thanks. Good morning, everybody.

Okay does that something I mean, this is kind of a dumb question. So I apologize, but this is that more intriguing to you than trying to do the bigger transformative deal.

Well I think they're all they're all attractive to us I think all of them are real and they are really just around higher technology high touch high service quality with it you know well, we're not actually running as much equipment as we are making sure that it is reliable and serviceability and that we've got a strong engineering team at.

Stephen Gengaro: I guess the first one for me is just around the fact that there was some M&A announced this morning in the premium with two Fraxan suppliers and just curious if you think about that and any impact on the business given, I mean, especially given what one of the two players is putting together on the Dune Express. Well, I think, as we've been consistent with, the industry is pretty fragmented and needs some level of consolidation. And how and what that looks like over the course of the next year. It's hard to say. I think it was a, you know, those are different businesses yet complementary in certain ways with the low the proximity minds developed by the Hydrofresh team, which are great assets, and Atlas runs a great operation and a great mind. And I think putting the two together makes a lot of sense.

Yeah digital team to help ensure that both we can deliver alongside with the basic equipment is the measurement of the control of the flow of that information back to systems today that for remote operations for data analysis, we can provide all of that information to our customers in a way that helps them make their operations better.

Okay fair enough. Okay. Thank you frankly to me.

Yeah.

This will conclude our question and answer session I would like to turn the conference back over to Mr. Bill <unk> for any closing remarks.

Thank you Andrea I'd like to conclude our call by thanking all of our employees for their tremendous hard work in 2023, I'd also like to thank our customers and suppliers for their continued support and Soliris. We are encouraged by the results of this past year and look forward to continuing to make strides, helping our operator customers well site efficiency and productivity.

William A. Zartler: I mean, we did a little business with Atlas today and, you know, I hope that continues. Some of it driven by customers, some of it driven by just the logistics efficiencies of our system for the high-capacity jobs in Delaware. Great. Thanks. And when we when we think about, obviously, you're, you've spent a lot of growth cap action here, well positioned going into 24. Where do you sit as far as idle equipment is concerned?

Activity as well as continuing to execute and grow and enhance our shareholder return program. Thank you all and we look forward to sharing our progress with you in a few months stay safe.

Okay.

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

[music].

William A. Zartler: And how should we think about, you know, the percentage of traditional systems that have one of the new technologies attached to them as we evolve through 2024? I believe we said last quarter that we had roughly 100 systems available to put to work that had been upgraded on the sand silo side, and I think we're running in the neighborhood of 60, 55 to 60 available on the top fill systems to combine with that. And so that means we could roughly do, you know, half to a little bit greater than half of our silo systems could run with top fills for a total of, if you looked at it from a total system count, that's 150 in kind from a total capacity perspective at this point.

Yeah.

[music].

Yeah.

[music].

William A. Zartler: That's what we're getting ready without much, without really any capital going. Great And then just one final one for me, when we think about some of the underlying pricing in the business, and I guess for both sides, both new technology and sort of traditional, are we pretty stable right now, or what are you seeing on the pricing side? We're pretty stable. If you recall, our model really is a monthly rental type for our systems, and so to the extent that we provide our customers with the ability to move much more volume through our system over the course of a month, they actually lower their costs, even in a rising cost environment with us. I think that if you look at the actual commodity of sand and you look at the public announcements thus far, sand pricing in a stable environment seems to be dropping somewhat because we've seen additional capacity.

William A. Zartler: And at a flat fruit crowd, you're still growing sand demand as we talk about intensities. We've seen sand demand go up. It's just a matter of how much additional capacity can come online. Great Thanks for the details. Thank you. Again, if you would like to ask a question, please press star, then 1. If there are no other questions, I would like to turn the conference back over to Mr. Bill Zartler for any closing remarks. Oh, I'm sorry.

William A. Zartler: We do have one question that just joined us. It's from John Daniel of Daniel Energy Partners. Please go ahead. Sorry guys, I thought I had cued in and realized I had forgotten.

John Daniel: Thank you for including me. Bill, you called out innovation in your prepared remarks, that that's been sort of a key characteristic for Solaris. I'm just curious if you could speak to opportunities out there whereby you could pursue small tuck-in deals which would bring additional innovation that you could quickly expand. Obviously, I'm not looking for any names, but just what is the opportunity set?

William A. Zartler: Well, as I mentioned, there are a lot of opportunities on the low pressure side to manage the supply chain of this, developing the technologies around them to be very efficient and reliable. But ultimately, the pumping hours per day have increased dramatically.

William A. Zartler: Anything you can do around that well site to prevent or enable the operator to run, you know, nearly 24 hours a day is where you can improve. And so technologies around that, technologies around ensuring that all of the pinch points can be managed are stuff that we're seriously evaluating. Okay, does that something, I mean, this is kind of a dumb question, so I apologize, but is that more intriguing to you than trying to do the bigger transformative deal? Well, I think they're all attractive to us.

Yeah.

[music].

William A. Zartler: I think our real edge is around higher technology, high touch, and high service quality. We're not actually running as much of the equipment as we are making sure that it is reliable and serviceable. And that we've got a strong engineering team and a digital team to help ensure that alongside the basic equipment, we can deliver alongside the measurement and the control and the flow of that information back to systems today so that for remote operations, for data analysis, we can provide all of that information to our customers in a way that helps them make their operations better. Fair enough.

John Daniel: Okay. Thank you for including me. This will conclude our question and answer session. I would like to turn the conference back over to Mr. Bill Zartler for any closing remarks. Thank you, Linnea.

William A. Zartler: I'd like to conclude our call by thanking all of our employees for their tremendous and hard work in 2023. I'd also like to thank our customers and suppliers for their continued support of Solaris. We are encouraged by the results of this past year and look forward to continuing to make strides, helping our operator customers improve well-site efficiency and productivity, as well as continue to execute and grow and enhance our shareholder return program. Thank you all, and we look forward to sharing our progress with you in a few months. Stay safe. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. www.

Operator: SolarisOilfield.com www.solarisoil.com www.solarisoilfield.com Thank you for watching and please Like, Subscribe, & Comment on where we head to next! www.solarisoil.com Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. www.solarisoil.com www.solaris.com Solaris Copyright 2019 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent, www.solaris.org www.solaris.org www.SolarisOilfield.com, Copyright 2019 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. Thank you for watching. Please subscribe.

Okay.

[music].

Operator: See you next time, www.plastics-car.com www.solarisoil.com www.solaris.com www. SolarisOilfield.com Copyright 2019 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. BF-WATCH TV 2021, www.solarisoil.com Subs by www.zeoranger.co.uk

Yeah.

[music].