Solaris Energy Infrastructure, Inc. Class A

Good day and welcome to the Solaris Oilfield Infrastructure First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, Finance and Investor Relations. Please go ahead.

Yvonne Fletcher Good morning and welcome to the Solaris first quarter 2020 earnings conference call. I am joined today by 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. Such forward-looking statements may include comments regarding future financial results and reflect a number of known and unknown risks. Please refer to our press release issued yesterday, along with other recent public filings with the Securities and Exchange Commission that outline those risks. I would also like to point out that our earnings release and today's conference call will contain discussion of non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release. I'll now turn the call over to our Chairman and CEO, Bill Zartler.

Thank you, Yvonne, and thank everyone for joining us today. We hope that you and your families are staying healthy and safe amidst the global coronavirus pandemic. We have seen a near instantaneous crumbling of global oil demand like no time in history. We won't reiterate the statistics that you all have now heard numerous times nor will we try to predict the tenor of this event. We do, however, believe this is an event, not a permanent change. Many lives, however, will be permanently altered and the way in which we go about our daily activities will undoubtedly be different in ways we cannot predict yet. We at Solaris have ensured the safety of our employees and their families and continue to keep the business functioning at its highest levels. Now I'll turn to our recent results. I'm pleased to share the details of another strong quarter delivered by the Solaris team. During the first quarter, Solaris generated nearly $48 million in revenue, $18 million of EBITDA, our fifth quarter of positive free cash flow, and paid our sixth consecutive quarterly dividend, despite a challenging market environment that was amplified toward the end of the quarter by the start of the global pandemic. I've been working in our great industry for more than 30 years and it's safe to say we're in uncharted territory. The combination of geopolitical and COVID-19 related pressures on the global supply demand balance for oil and related products have resulted in severely depressed prices. As a result, oil and gas operators have significantly reduced development budgets and activity. These reductions began in March and have accelerated into the second quarter with many operators going to zero frack crews and shutting in production as storage for liquid products becomes challenged around the world. As a result, we expect to see completion activities in U.S.-based land decline between 75% and 85% in Q2 from Q1 levels. As much as the oil-directed completion activity is deferred, while some dry gas-directed and leasehold-related completions continued, we expect our activity will follow the overall market. Despite the challenging macro outlook, I firmly believe that for several reasons Solaris will distinguish itself during this downturn and emerge even stronger on the other side of it. First, innovation and finding ways to create efficiencies is fundamental to our company's culture and our team. We remain on the offense during the downturn and will continue to innovate for our customers. We will continue to invest in our fleet. As an example, even now we are continuing to work and trial innovations that improve data, Thank you for joining us. We continue to innovate and win new customers then, and we intend to do the same this time around. Third, we will focus on controlling what we can control, including our cost structure. We have always operated Solaris with a very lean cost and organizational structure, but we have found additional ways to reduce our spending, including reducing headcount across the company, lowering salaries, negotiating with suppliers and vendors, and reducing capital spending. We've had to make some very tough decisions. One of the toughest has been to reduce our workforce by more than 50%. We know that maintaining our financial discipline, available cash, and a debt-free balance sheet will ensure Solaris has flexibility to take advantage of this downturn. We have our eyes wide open looking for potential businesses and technologies that will complement and enhance our current business. Finally, we will remain focused on generating value for our shareholders. Cumulatively, before entering the current downturn, we returned approximately $59 million in cash to shareholders since December of 2018 while maintaining a debt-free balance sheet and cash on hand. We are also not wavering on our commitment to ESG. On the environmental side, we recently renewed some of our energy contracts. We now have a commitment to purchase green energy. We also have begun installing remote sensors on our generators that will enable us not only to report emissions but also potentially reduce emissions by enhancing our preventative maintenance program and improve safety by reducing the number of truck trips to location. Speaking of safety, our TRIR metrics have continued their downward trend and we have achieved record lows for the company. On the governance front, we continue to maintain a conservative balance sheet and management and employees own approximately 16% of the company, which directly aligns our interests with the shareholders. Last but not least, the equipment we design, manufacture, and provide to our customers drives value from both an environmental and a socially conscious perspective. Our systems reduce the number of people required on location, reduce truck traffic and completion time through reliability and large inventory supply directly at the blender. In addition, our equipment is all electric and can be tied to electric power generated on site, eliminating the need to run diesel generators. Our latest R&D developments around software and automation further these benefits by taking additional personnel off location and reducing trucking requirements. To summarize, while the extent and duration of this downturn is out of our control, we will focus on what we can control, running as lean and nimble as we can, ensuring our customers receive exceptional service and many more. Thank you for joining us.