Solaris Energy Infrastructure, Inc. Class A

Good morning, everyone, and welcome to the Solaris Oilfield Infrastructure 2020 Second Quarter Earnings Conference Call. All participants will be in a 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 also note today's event is being recorded. At this time, I'd like to turn the conference call over to Yvonne Fletcher, Senior Vice President of Finance and Investor Relations. Ma'am, please go ahead.

Good morning and welcome to the Solaris Second 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 you everyone for joining us today. We hope that everyone continues to remain healthy and safe as the global COVID-19 pandemic persists. The second quarter was the most challenging yet in the company's history as a public company. We experienced a 76% sequential reduction in the number of our systems deployed to customers. The global COVID 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 and significantly 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 a break-even adjusted EBITDA and another quarter of positive free cash flow at what we believe was the bottom of the cycle. During the second quarter, Solaris generated $9 million in revenue, adjusted EBITDA of negative $400,000, are six consecutive quarter of positive free cash flow and paid our seventh consecutive quarterly dividend despite the very challenging market. The Solaris team achieved all of this while 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 are in 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 the pandemic. However, we are encouraged to see many of our customers resume a modest level of completions activity in recent weeks and expect activity in the third quarter to be up 35% to 45% over the second quarters if these levels hold.

Our plan for navigating this downturn is unchanged.

We began by controlling what we could and adjusted our cost structure to match the current level of activity. Our reducing headcount 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 and natural. For example, we took out some of the overhead layers in our organization and insourced 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 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 are no longer building new systems, we are continuing to work on our pipeline of system enhancements and new products. Our software offering is one example of this. Our 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 roll out upgrades and new capabilities that allow our customers to see more information and analysis in real time. We've also made system improvements that will help our customers track their sand use data by stage and well with increased accuracy. Our focus on cash generation remains strong and we have made efforts at every level of the organization to make sure our collections remain strong and no unnecessary cash is spent. The focus Combined with our debt-free balance sheet has allowed us to continue sharing our excess cash with shareholders. Our cash balance is unchanged from the beginning of the year, which means all of the over $30 million of 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 10.5 cents per share during the second quarter, the quarter in which we saw a nearly 80% reduction in our operating 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 to short term changes in the industry landscape. Our investors were the predominant source of funding during the build out of our company and sharing excess cash with them remains an important focus for us. We also continue to make progress on our ESG transparency with investors. Last year we launched a new sustainability website. In the coming weeks you can expect our 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 ESG-friendly in the future. To summarize, while 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 and 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, We have many opportunities available to us to continue to grow and enhance our product offering, invest in our people and service quality, while also returning cash to shareholders. With that, I'll now turn it over to Kyle.

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 utilized systems deployed to customers which represents a 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 at pass through margins. While we aggressively cut costs throughout the quarter, adjusted EBITDA declined to break even as fixed costs were absorbed over a smaller activity level and some variable cost cuts lagged the drop in revenue. A total of 63 profit systems worked with varying degrees of utilization in the second quarter. Our calculation of 20 fully utilized systems reflects the number of equivalent systems that generated revenue every day in the quarter, which we believe is the best measure for modeling purposes. The average rental revenue per system in the quarter declined approximately 13% due to a combination of lower pricing and mixed impact. While we believe our pricing is bottomed 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 SG&A line to the other operating expense line to give you a closer reflection of our SG&A run rate. Total SG&A costs for the quarter were approximately $4 million, inclusive of non-cash stock-based compensation. For the third quarter of 2020, we expect total SG&A to be approximately flat at $4 million, inclusive of the normal quarterly expensing of non-cash stock compensation. During the quarter, we generated a gap net loss of $5.5 million, or $0.20 per share. Adjusted pro forma net income for the second quarter was negative $7 million, or $0.16 per share. As a reminder, adjusted pro forma net income adjusts for non-recurring items and also assumes 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 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 2019, approximately $63 million, or roughly half of the cumulative free cash flow, has been returned 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 of 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 the fully utilized USFRAC crew count could be up between 35% and 45% sequentially. in the third quarter as many operators resume a modest level of completion of activity. We expect our business to perform in line with the overall sector with identified 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 are narrowing our guidance for capital spending for the full year 2020 to between $5 and $10 million, compared to our previous guidance for $10 million or below. Our debt-free balance sheet and more than $60 million of cash provide Solaris 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, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. If you are using a speakerphone, we do ask you please pick up your hand step before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. At this time, we'll pause momentarily to assemble the roster. And our first question today comes from George O'Leary from TPH & Company. Please go ahead with your question.

Morning, Bill. Morning, Kyle. Morning, George. 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 if kind of the increases month over month are similar from that May to June, June to July, July to August timeframe?

No, I think the former is correct. We're sitting at that level today. obviously it was a very low base to come off of so percentages sound really large but we're there today and if they hold to where we are today through the quarter then we'll see those kind of increases.

Okay great and that's well understood regarding coming off of the low base but that's helpful and maybe potentially offers some upside if August is an up month. And then Kyle you said Ibadatu improved Slightly, I wondered if you could give us some more context around what slightly means to you all. We can do the math and the model, but just to make sure I'm not missing any moving parts on the cost side or anything like that. What does slightly mean to you guys?

I think, again, on a percentage basis, it may look significant, but from a A really low base of a small negative EBITDA in the second quarter to somewhat positive in the third quarter is where we see it. From a cost standpoint, we brought down a lot of costs at the end of the first quarter and in the second quarter. 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 to layer in any additional G&A or even at the direct cost line item There may be some additional costs at the field level, but it won't be up nearly at the level that the revenue is expected to be up. So we will see margin expansion. But again, we're not looking at a return of, say, Q1 profitability levels. It's up significantly, but we're still coming off a very low base.

Got it. That's super helpful. I'll sneak one more in if I could. and it's a longer one, I apologize, but just been struggling with, you've heard a lot of services companies so far this earnings season talk about Q4 and worried about the typical seasonal slowdown and I'm just curious why you would stop and start, why you would start activity in the third quarter and then stop it in the fourth quarter absent some sort of exogenous factor that sends crude oil back down again. I realize weather can kick in. 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 customers around Q420 and if they're actually indicating to you all that there's going to be a slowdown in the fourth quarter or if this is just kind of OFS Conservatism, PTSD from the last six-ish years of this kind of crazy activity that we've had. How's that customer dialogue?

Yeah, I think that there isn't much dialogue with it other than most customers have set the remaining budgets for the year. It's really going to be highly sensitive on the price of oil. I think if we continue to see it remain in the low 40s that we've We probably don't see the seasonal fall off that we have in the past, but it's highly probable, and I think you hit the nail on the head a little bit here. We don't know. People are willing to work. Obviously, service pricing is down significantly, and so while those expect 2021 to start really ramping back up, they may want to take advantage of the lower prices and go ahead and either continue to drill some wells or complete some ducts through the fourth quarter.

And our next question comes from John Hunter from Cowan. Please go ahead with your question.

Hey, Bill and Kyle. Good morning. Good morning. Good morning, John. So wondering on the CapEx guidance, $5 to $10 million for the year, that implies a little bit of an uptick in spending in the second half versus the first. So just wondering what exactly you're looking to invest in and what's driving the increase there? Go ahead, Kyle.

All I'd say is we're not building any additional sand systems. We're not building any chem systems. We are doing enhancements on the sand systems. Some of that is rolling through the CapEx line today. As we've alluded to in the past, we're a culture of innovation and tinkering and coming up with new ways to improve processes. We're still continuing to invest in those projects, and that's flown through the first half of the year. There will be a little bit more of that spend in the second half of the year, but I think the reason we brought the guidance into 5 to 10 versus under 10 was 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. My second question is just related to mix that you noted in the prepared remarks. Can you talk about how, whether that's customer mix or systems working on some kind of standby type rate, how did that impact margin in the second quarter and how does that flow into the third quarter?

It's all of the above. So we went proactively to our customers during this challenging quarter and said, how can we work constructively with you to help you achieve your goals? And some of the things 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 frack count come down and many others. So, you know, we've been working on that. We've been working on that. Operator or Pressure Pumper. So it was sort of right-sizing that piece of it. And then, yes, as there were bigger gaps in activity, the standby rate provides an ability for us to keep systems with customers versus having them return to us. So, you know, the kind of breakdown of all those different components is not something probably we'll get too deep into, but it was just sort of an Equally weighted mix is probably the best way to think about it 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 compare to kind of what you're doing on an average basis?

You know, there's really no direct cost associated with them. So it's margin neutral. Yeah, that's probably a good way to put it. It's less revenue, obviously, but there's really not any costs associated with it.

Great. Thanks, Bill and Kyle.

Other than fixed costs like property tax, insurance, et cetera, and the overhead piece.

And our next question comes from Jacob Lundberg from Credit Suisse. Please go ahead with your question.

Hey, good morning, guys. Good morning, Jake. 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 are any insights with respect to efficiencies or anything else that you think could enable an even more streamlined or 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 different world. I think the team has really rallied around the use of sitting at your home and being on a Zoom call or a Microsoft Teams call and forcing with a culture of really a lot of collaboration around making things better, improving service quality, understanding where and When we have an issue or a downtime or a 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 that 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 team that is some of us older folks getting used to using The technology that we have over the last four or five months has been pretty amazing and remarkable. The way the team has functioned from a back office and from a public reporting perspective and all the hard work that it certainly helps to grind out in an office has all been done ahead of schedule and on time and without error. It's just a testament to how this all shakes out over the next six months to a year. It's anybody's guess, but we've just made sure that what we can control, which is our business, we're getting it done and we'll continue to get it done.

Okay, that's helpful. And then as operators kind of start getting back to work, are you starting to have conversations around efficiency as opposed to just price? And if so, do you think this activity recovery that you've kind of spoken to here Does this provide an opportunity to start to put some chem systems back out to work, you think?

I think, number one, our conversation with our customers is always about efficiency and the value proposition that we offer. We hope price is a secondary conversation. We deliver in value that the price is easily justifiable. So our focus has really been on efficiencies. We do have one chemical system out right now. I think that that dialogue is continues and will continue. I think that the general value proposition in the making the supply chain more efficient and making the well site operations safer, cleaner, more organized is something that that system provides. And I think these downturns, while people hunker in at first, I think when you're coming out of it, it really is a focus on how are we going to do this better? How do we get more efficient? And what are the One of the equipment and processes that we can use as an operator at Pressure Pumper to make our operations more efficient, less people intensive. The auto hopper has gained market share, if you will, in our fleet as things are ramped up. It is working and I think our customers see the ultimate value in making their operations more efficient by automating more and using that tool. and so those are the kind of things that I think we see coming out of the downturns that when you first go into it, everyone's hair's on fire cutting as fast as you can. I think coming out of it, 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 as to the downturn and then customer discussions, we did obviously get, we're very and many more. M&A Transactions, and importantly, as a management team, we're not spending any time really focused on our balance sheet 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 the team. Being remote, it does have its challenges, but we're focused on the priorities.

Ladies and gentlemen, once again, if you would like to ask a question, please press star and then one. To remove yourself from the question queue, you may press star and two. Our next question comes from Ian McPherson from Simmons. Please go ahead with your question.

Thanks. Good morning. Good morning, Ian. Kyle, hi. As we pull out of the ditch here in the third quarter, you said total activity up 35%, 45%. Obviously, all of the basins aren't behaving properly. The same. So the footprint of collisions activity will look quite a bit different, more concentrated in the 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 any net beneficiary or headwinds from that based on the redistribution of activity as we come out?

Well, I think our system performs really well and significantly adds more value in the larger frack jobs. And I think that the 10,000-foot lateral and 2,500 pounds per foot kind of wells that we're seeing are more concentrated in the Permian Basin than they are in other basins. And so I think we're going to see a little bit more pickup in those areas first, and I think we're seeing that. I don't know if you had anything to add to that.

The other thing I'd add is, you know, we are, to Bill's point, we are operating in virtually every basin, but the Permian is our largest base of activity. So the sort of ramp-up that we've seen in activity has been broad-based, but it has been 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's perhaps too difficult for us to model it Thank you very much. maybe logarithms that you could share with us in terms of how you think about EBITDA incrementals into maybe a continued sustained improvement into next year.

Well, I don't think, Ian, there's any modeling challenge that you're not up to the task force, so give yourself some credit there. But in all seriousness, no, I think two things. One is we have leaned out the cost structure, so we've taken out some layers in the organization. We started at such a high gross margin structure to begin with that we didn't have a ton to squeeze out, but I think we are set up to benefit from margin expansion with a lower cost structure going forward.

Yeah, I would certainly think so. If I could squeeze in one more, obviously we had a big working capital benefit on one free cash in the second quarter, and that's You spoke to the expectations going forward being less influenced by that. I'm just curious with regard to the doctrine around the dividend. If we're bumping around plus or minus free cash flow before the dividend for Maybe one, two, three more quarters before the business begins to structurally improve. Is that any cause for heartburn with dividend sustainability if you need to lean on the cash balances by a quantum? Or would you and the board, I think, be comfortable to keep the dividend where it is and draw down cash in a scenario where free cash flow dips modestly negative for a quarter or two?

I think that the board will make the decision on a quarter-by-quarter basis, but as we see activity ramping up and looking forward, I think we'll make a judgment call on that. I think we do believe that the dividend is an important feature in our stock and have the cash to pay it and believe that we'll be generating enough going forward to 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.

Hey, morning, guys. Morning, Yvonne. I wanted to circle back real quick to John's question on the mix and pricing kind of dynamics. I imagine that Mix Ships was a pretty big drag in 2Q. Do you expect that Mix is actually going to continue to be a drag in 3Q or is it actually going to be More positive, but the pricing dynamics are such that you think revenue per fleet is still going to be down in 3Q. Just wondering about the puts and takes there.

Yeah, I think the commentary we 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 looks like. So I think, you know, the puts and takes are blended within that guidance.

Gotcha. My other question is just on kind of R&D efforts going forward. The chem system, I imagine, is something that conversations are going to be much more constructive around as things get back up and running. But I guess, can you guys give any hints at what you're working on as kind of the next step in efficiency gains, whether it be another piece of equipment, the software aspect, data analytics? just kind of what's your kind of main focus right now and what do you think is going to be the next step? Yes. All of the above.

We're working on all the above. I mean, obviously, you know, our number one priority is making our system and evolving the core base of that system and making it deliver information, make it automated, help deliver as much value as we can to the well side. And so that's the number one priority. We are working on, you know, things to help it. and help it work better. But we are working on the 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, or maybe that was you, Bill, but what's the type of business that you guys would be looking at? Would it just be strictly on the software side or would you guys look for something You know, a chunkier kind of acquisition to look at. Any kind of color would be great.

Well, I can say we're definitely not empire builders. We're very focused on return on capital. And I think the most likely outcome of any M&A transaction would be something that fits right into what we're doing today. Not a big step out. It's certainly possible, but I think we view ourselves as sort of experts in what we do. And if There are opportunities to add some bolt-ons that can help enhance our offering, diversify our offering, provide additional value to customers. That's where that lies. And that could be, as you said, a very small software business. We did that in late 2017 when we bought Railtronics. And we've integrated that into our business and continue to use that today. But it also could be a piece of equipment that fits right into what we're doing that perhaps provides better visibility into the quality of various materials going into the prac or measurements that can help our operators operate more efficiently. So I think it's all of the above and we're open to it all, but we're very disciplined as well. And I think one of the things we've been talking about recently is 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, whereas in years past, we've seen more M&A on 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 going forward here in businesses that become potentially obsolete on a, we recognize as an overall smaller addressable market for the near future. Combination of structural oversupply versus demand in commodities, but then also just through the efficiencies of capital equipment.

Once again, if you would like to ask a question, please press star and then one. So with all your questions, you may press star and two. Our next question comes from Chris Voigt from Wells Fargo. Please go ahead with your question.

Thanks. Good morning. Good morning, Chris. Good morning, Chris. I'm wondering if you can comment on the competitive landscape. So this kind of volatility that we're seeing and disruption obviously proves out the value of renting silos versus owning them. Now, at this point, some of your competitors are distressed and maybe not maintaining their equipment or their services as well as you guys can. Do you expect to be likely to gain share going forward just based on the stress that this might be putting on other parts of the system?

I think all things being equal, yes. I think the notion that if you, as an operator, hire a service provider and they run into financial distress, as the operator, you run the risk that you've got and many more. all in cost for you as the operator. So I think there's that component of it. And then the other piece is from an R&D standpoint, I do believe we continue to be on the cutting edge of pushing the envelope forward of what can be done better in the sand handling space. So it positions us very well.

Okay, that makes sense. Thanks. And then to follow up, I'm wondering if you can give us an update on the integrated last mile offerings. Do you expect that to grow on the way up out of this kind of trough here? And do you think there's any opportunity to improve the economics of providing that service? Clearly, you know, if you're an EMP, you're very thankful that if you haven't made commitments for silos or sand, if you have flexibility that's provided by a third party so you're able to, you know, move your cost structure seamlessly without taking hits, Can OFS manage to charge for some of the flexibility that they're allowing EMPs to enjoy?

As far as overall activity, it's bounced around during the year. I'd say today we're probably at about 10% of our systems are working on last mile jobs. And that's probably on the higher end of where it's been. As to the structural nature of it, we have not layered our business from a capital or from a personnel standpoint with a bunch of fixed costs or assets. 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 tons, I'll say. We've moved a lot of tons with these partners. So we've got the flexibility in it as well. and on the sand side, generally speaking, we really haven't been involved in that component. The operators have been purchasing that directly. So I think from a structure standpoint, we've protected ourselves pretty well. And then from a return standpoint or from an economic standpoint, that model is all driven by the efficiency on location. So are people going to pump more tons or less tons per day going forward? And as they pump more tons, if you're exposed to the variable model, which the last mile is, It does provide for actually probably enhanced economics versus the pure rental business. So it's got its puts and takes. If you're working for an operator or a pumper that's running into some troubles in a particular month, you may not pump as much sand and therefore the comparable rental margins may be lower. But then there are other periods where we're actually able to benefit from an operator and a pumper really being in sync and knocking a bunch of stages out. So it's 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, and I'd add a little twist to that is we continue to work with our pneumatic carrier partners as well to improve the payload per truck. And I think the payload that we're seeing, that we're getting when you're really focused on how to maximize that, there's been significant improvements in the handling, the volume, Thank you for taking my questions. And ladies and gentlemen, with that, we'll end today's question and answer session. At this time, I'd like to turn the conference call back over to Bill Zartler for any closing remarks. Thanks, Jamie. I'd like to close with a thank you to all of our employees for their continued commitment and hard work during these troubled times. Our business continues to execute. We thank our customers for their continued support of us and willingness to let us work with them to help solve their problems. And that's an important relationship that we value. We're not through this virus and clearly the lasting Work habits and changes that we're all making in our lives are very important and structurally, but we're very proud of how it's been handled so far and how I think we can continue to handle this and allow our company and business to function at the level that it's functioning. Our operations continue without interruption. We provide essential services to our customers, employees, suppliers, and shareholders, and we remain committed to helping our customers continue to increase their efficiency, savings, and safety on WellSight by continuing to innovate, and of all our offering despite all of these headwinds. Thank you all and have a great day and stay safe.

Ladies and gentlemen, that does conclude today's conference call with you. Thank you for joining. You may now disconnect your lines.