Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solaris Oilfield Infrastructure Inc (SOI, Financial) generated $74 million in revenue, $21 million in adjusted EBITDA, and $18 million in free cash flow for the second quarter.
- The company returned $5 million to shareholders in dividends and announced a third quarter dividend of $0.12 per share.
- The acquisition of Mobile Energy Rentals (MER) is expected to provide accretive entry into a new mobile distributed power product line with exposure to multiple end markets.
- Solaris Oilfield Infrastructure Inc (SOI) has a strong balance sheet with $53 million of available liquidity and reduced its revolving credit facility debt by $14 million.
- The company has a significant inflection in free cash flow generation, with the second quarter free cash flow being the highest in four years.
Negative Points
- US drilling and completions activity showed choppiness, particularly in natural gas-exposed basins due to low gas prices.
- Activity levels for the third quarter of 2024 are expected to be relatively flat compared to the second quarter.
- The number of fully utilized systems was down approximately 10% from the first quarter of 2024.
- The company experienced a decline in the average number of frac crews followed, from 64 in the first quarter to 56 in the second quarter.
- Solaris Oilfield Infrastructure Inc (SOI) is still awaiting HSR approval and shareholder vote for the MER acquisition, which introduces some uncertainty.
Q & A Highlights
Q: Bill and Kyle, you both talked about 3Q and just kind of the interplay in the frac market. I think you basically said you see it stabilizing. Bill, you always have a really pragmatic view, what's happening in the completion market. Wondering if you could just stretch out a little bit and maybe talk about how you see 4Q unfolding and then also maybe the beginning of '25, if you have any visibility at this point?
A: (William Zartler, CEO) Right now, it feels like budgets are sort of set. You've had the consolidation where you may be netting down one here up one there. It just feels like this market has been pretty stable. I don't see a radical change one way or another going into the first quarter of next year. You may see the gas activity pick up a little bit early next year, probably not in the fourth quarter yet. So I really don't see anything that at this point tells me we're going to have a radical shift one way or another.
Q: The first, on the wellsite storage side, the results were obviously very good relative, I think, to the market. And what I was curious about is, I know you've talked in the past about kind of the potential for market share gains given some of the new technology rollouts and the flexibility of the systems. Can you speak to that? Have you seen that? And maybe on top of that, what are sort of the key markets that you would most likely see that if there are any markets that kind of jump out?
A: (William Zartler, CEO) As we launched the top fill loading system, which allowed us to eliminate pneumatic trucks and bringing bigger loads, that's really positioned us well to take on business in the Rockies. We're now doing some additional work up in the Northeast and see the benefits of these larger loads means another 10 less trucks to deliver sand onto a wellsite. So I do see us continuing to see places where that actually works. There has still been a momentum on wet sand as well. Our technology continues to be positioned to take some of that with the proximity mine.
Q: As far as exposure to the gas basins. I'm thinking Haynesville and a, kind of where do you stand in the Haynesville and b, if we were to start to see a pickup around sort of gas export, source gas, you guys generally get a little bit of an earlier look, I think, on the completion side and kind of prepping for that. Have you seen or when would you expect to maybe start to see an uptick around gas activity?
A: (Kyle Ramachandran, CFO) I don't know that we have a clear line of sight into pickup in the Haynesville. But I think what's important to highlight is the balance sheet is well prepared with a lot of torque. We've got undeployed assets or assets that are ready to be deployed that have been upgraded for the bucket elevator compatibility. We've got a lot of torque inside of the company to be ready for an increase in activity, whether it be in the Haynesville or anywhere else. All of our assets are highly mobile and we've been able to redeploy those assets over the last 10 years, depending on where market activity has been stronger.
Q: When you look at the acquisition of US Silica and the sort of their sandbox product. Do you think that acquisition has any impact on you guys?
A: (William Zartler, CEO) No. I mean taking it private, it's the same business. I don't think that it's going to change their position in the market.
Q: If you just kind of step back and think three to five years from now, what portion of the MER business would you like to see tied to stuff outside of oil and gas? And do you think there's an opportunity, long term, to take that international?
A: (William Zartler, CEO) Our forecast is that out a year, it’s going to be 50-50. It may be a little heavily weighted to the data center world. Absolutely, the growth of power globally is here, it's here to stay. This equipment works very well in lots of places. It's got compatibility with different fuels and can handle a relatively wide range of gas composition depending on where you need the power. So we're not afraid to go outside if that makes the most sense.
Q: Since the announcement of the acquisition, have you seen any kind of increased demand or interest amongst customers that may have been existing on the Solaris' side?
A: (William Zartler, CEO) Certainly. We clearly are in contact with a lot of folks, and we've had much dialogue going on since that acquisition about needs. The utilities continue to struggle, especially in West Texas and New Mexico and how we're going to get the power to the installations and a lot of those are our current customers and trust our ability to get it to work. So there has been that synergy that we talked about, I think it's real.
Q: Did I hear correctly that you're still looking for HSR approval and any kind of milestones that you need to get through before you can close?
A: (Kyle Ramachandran, CFO) Yes, we're a couple of weeks away from hearing back from the FTC regarding HSR and we did file the definitive proxy. So that's on file. We've got the shareholder vote set. So things are progressing well here and just a couple of more milestones to get to closing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
