SOI (2020 - Q2)

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. [Operator Instructions] 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. Yvonne F

Good morning. And welcome to the Solaris second quarter 2020 earnings conference call. I’m 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.

Than k you, Yvonne, and thank, everyone, for joining us today. We hope that everyone continues to remain healthy and safe as a global COVID-19 pandemic persist. The second quarter was a 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. 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 breakeven adjusted EBITDA and another quarter of positive free cash flow and 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. Our six consecutive quarters 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’re 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, expect activity in the third quarter to be at 35% to 45% over the second quarter’s 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. By 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 structure on nature. For example, we took out some of the overhead layers in our organization and in source 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’re 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 continue to rollout 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 integration remains strong and we’ve 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 $1005 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 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 the 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 and 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 we’ll 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 24 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 past year margins. While we aggressively cut costs throughout the quarter, adjusted EBITDA declined to breakeven as fixed costs were absorbed over a smaller activity level and some variable cost cuts lagged the drop in revenue. A total of 63 proppant 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 mix impact. While we believe our pricing is bottom 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 quarter. Beginning in the second quarter, we moved estimated credit losses out of the SG&A line to the other operating expense lines 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 GAAP 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, adjusted 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 a full reconciliation of adjusted pro forma net income. Operating cash flow was approximately $23 million in the quarter, after total capital expenditures of approximately $1 million, our free cash flow was a positive $22 million for the quarter. During the quarter our accounts receivable balance decreased 77%, as our team made substantial progress on cash collections. We returned a total of approximately $5 million to shareholders in the second quarter in the form of dividends, which was flat with the prior quarter. Since the company turned positive free cash flow in early 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 in 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 U.S. frac crew account could be up between 35% and 45%, sequentially, in the third quarter, as many operators resume a modest level of completion 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 discipline on capital spending. We’re narrowing our guidance for capital spending for the full year 2020 to between $5 million and $10 million, compared to our previous guidance for $10 million or below. Our debt free balance sheet and more than $60 million in 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.

[Operator Instructions] And our first question today comes from George O’Leary from TPH & Company. Please go ahead with your question.

Good morning, Bill. Good morning, Kyle.

Good morning, George.

Hi, George.

I am 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 more recent today, at the end of July, or if kind of the increase is 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 help hopeful and maybe potentially offer some upside if August isn’t up month. And then, Kyle, you said, EBITDA to improve slightly, I wondered if you could give us some more context around what slightly means to you all. We could 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 is slightly mean to you guys?

Yeah. I think, again, on a percentage basis, it may look significant, but for a really low, basically small negative EBITDA on the second quarter to somewhat positive in the third quarters 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 costs 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. How about 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 exoticness factor that since crude oil back down again, I realized weather can kick in, there are some holiday, 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 Q4 ‘20 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 if that’s conservatism, PTSD from the last six years, eight years of this kind of crazy activity that we’ve had. How is that customer dialogue?

Yeah. I think that there isn’t much dialogue with it other than most customers set the remaining budgets for the year. It’s really going to be highly sensitive on the price of oil. I think if you continue to see it remain in the low 40s. That 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, it’s -- we don’t know people are willing to work that obviously service pricing is down significantly and so, taking it, while those expect 2021 to start really ramping back up and they may want to take advantage of the lower prices and go ahead and either continue to drill some wells or complete some ducks through the fourth quarter.

And our next question comes from Jon Hunter from Cowen. Please go ahead with your question.

Hey. Bill and Kyle, good morning.

Good morning.

Good morning, Jon.

So, wondering on the CapEx guidance $5 million to $10 million for the year. That implies a little bit of an uptick in spending in the second half versus the first half. So just wondering what exactly you’re looking to invest in and what’s driving the increase there?

Well, we haven’t said…

Yeah. We haven’t did…

Go ahead, Kyle.

All I would say is, we’re not building any additional sand system. We’re not building a chem. Systems. We are doing enhancements on the sand system, so some of that is rolling in the CapEx line today. As we’ve alluded to you in the past, we’re a culture of innovation and tinkering and coming up with new ways to improve processes and so we’re still continuing to invest in those projects and that’s flown through the first half of the year. There’ll be a little bit more that spend in the second half of the year. But I think the reason we brought the guidance in the $5 million to $10 million versus under $10 million, we’re just 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. Appreciate that. And then my second question is just related to mix that 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 practically to our customers during this challenging quarter, and said, how can we work prac -- 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 frac count come down 70%, 80%, those pricing bands were somewhat no longer relevant. So if you had an operator that was running 10 frac crews and they were down to two, they may have received a pricing discount at, say, eight or 10 crews. So there was no visibility to be able to get back there. And we still wanted to create a culture where the volume weighted pricing is a strategy we use to capture all of the work of an operator or pressure pumpers. So it was sort of right sizing that piece of it. And then, yes, as there were bigger gaps and activity, the standby rate provides an ability for us to keep systems with customers versus having them returned to us. So, 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 they margin neutral or how do they compare it to kind of what you’re doing on on an average basis?

There’s really no direct costs associated with them. So it’s margin neutral.

Yeah. That’s probably a good way to put it. Plus revenue, obviously, but there’s really no costs associated with it.

Great. Thanks.

Other than our fixed costs -- other than fixed costs, like, property tax, insurance, et cetera, in 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, Jac.

Good morning, Jac.

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. You guys have always run a really leaner 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 you 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 in -- sitting at your home and being on a Zoom call or Microsoft Teams call and enforcing with a culture of really a lot of collaboration around, making things better, improving service quality, understanding when we have an issue or a downtime or a problem with the system, we spent 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 gotten some of us older folks getting used to use the technology that we have over the last four months or five months has been pretty amazing and remarkable. And the way the team is function from a back office and from public reporting perspective and all the hard work that it certainly helps to grind out in an office is all been done ahead of schedule and on time and without error. So it’s just, I think, a testament to how it is, how this all shakes out over the next six months to a year. It’s nobody -- it’s anybody’s guess, but we have 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 it does. Number one, our conversation with our customers is always about efficiency and the value proposition that we offer. And price, we hope price is a secondary conversation. We delivered 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 dialogue continues and will continue. I think that the general value proposition in the making the supply chain more efficient and making the wellsite operations safer, cleaner, more organized is something that system provides. And I think these downturn while people hunker in at first, I think, when you’re coming out of it, it’s really is a focus on how are we going to do this better? How do we get more efficient? And what are the kind of equipment and processes that we can use as an operator or pressure pumper to make our operations more efficient, less people intensive. The AutoHopper has as gained market share, if you will, in our fleet as things are ramped up. It’s just 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 see -- we see coming out of the downturns that. And we first go into it, everyone’s hair’s on fire, cutting as fast as you can, I think, coming out of it is a measured. How do we get more efficient? How do we complete these worlds better going out of it and 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 are very responsive in bringing down our cost structure. But the other thing that we’ve pivoted to very quickly is offense. The offense is in not only the quality and efficiency that our products provide, but were also set up from a capital standpoint to thrive in this kind of environment. We’ve got liquidity available to invest in R&D. We’ve got liquidity available to look at 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.

[Operator Instructions] Our next question comes from Ian Macpherson from Simmons. Please go ahead with your question.

Thanks. Good morning.

Good morning, Ian.

Kyle, hi. As [Technical Difficulty] pulled out of the ditch here in the third quarter, you said, total activity up 35%, 45%. Obviously, all of the basins aren’t behaving the same. So there’s -- the footprint of completions 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 to how that would impact your systems and whether you see any net beneficiary or headwinds from that based on the redistribution of activity has we come out?

I think, our system performs really well and insignificantly adds more value in the larger frac jobs. And I think 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 -- we’re going to see a little bit more pickup in those areas first, and I think, we’re seeing that. Kyle, do you have anything to add to that.

Okay. I’d add is, we are -- to those 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 activity has been broad based, but it has been more heavily weighted in the Permian than anywhere else.

Got it. Thanks. And then, Kyle, when you’re talking about the EBITDA improvement in the third quarter, it’s perhaps too difficult for us to model in traditional ways, just because we’re dealing with small unstable numbers. But it would seems to be that your incremental margins going forward as we get to maybe a more stable baseline of revenues. Your EBIT -- your incremental EBITDA margin should have some durable improvement over what they would have been otherwise before we went through the streamlining exercises of the past few months. So, do you have any maybe logarithms that you can 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 you something to take there. But in all seriousness, yeah, no, I think, two things. One is, we have leaned out the cost structures, so we’ve taken out some layers in the organization to more streamline that. 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 squeak in -- squeeze in one more. Obviously, we had a big working capital benefit on free cash for the second quarter and that’s you spoke to that expectations going forward being less influenced by that. So I’m just curious with regard to the doctrine around the dividend, if we are 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 say, be comfortable to keep the dividend where it is and drawdown 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 important feature in our stock and have the cash to pay it and believe it will be generating than us going forward to continue to pay it. But it’ll be a quarter-by-quarter decision.

And our next question comes from J.B. Lowe from Citi. Please go ahead with your question.

Hey. Good morning, guys. Good morning, Yvonne.

Good morning.

I wanted to circle back real quick to Jon’s question on the mixing pricing kind of dynamics. I imagined that mix shift 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 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 issue guidance around what we think Q3 looks like. So I think, the puts and takes are blended within that guidance.

Gotcha. My other question is just on kind of R&D efforts going forward. Now, 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 is 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, I obviously, 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 wellsite and so that’s the number one priority. We are working on 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, maybe that was you, Bill. But what’s the type of business that you guys would be looking at? It would it just be strictly on the software side or would you guys look for something chunkier kind of acquisition to look at, any kind of color there would be great?

Well, I can say, we’re definitely not empire builders. We’re very focused on return on capital. And I think 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 offering, provide additional value to customers that that’s where that lies. And that could be a, as you said, a very small software business. We did that in late 2017. We bought Railtronix and we’ve integrated that into our business and continue to use that today. And then, but it also could be a piece of equipment that fits right into what we are doing that, perhaps, provides better visibility into the quality of various materials going into the frac or measurements that can help our operators operate more efficiently. So I think it’s all the above and we’re open it all, but we’re a 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 within our space, small oilfield services, companies with public currency, cash on the balance sheet, no debt. We 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 and businesses that become potentially absolutely on a -- we recognize as an overall smaller addressable market for the near future, combination of structural over supply versus demand and commodities, but then also just through the efficiencies of capital equipment.

[Operator Instructions] Our next question comes from Chris Voie 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. But it -- now at this point, some of your competitors are distressed and maybe not maintaining their equipment or their services well as you guys can. You’ve actually 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 suppliers of your suppliers filing liens on your wells and that can create some issues on your side as the operator. So I think the sustainability and viability of your supply chain, not only from financial, but also even from an ESG standpoint. I think all operators are digging more into that and getting close to the details. Saving $1 here with a vendor that has some other issues could create bigger all-in cost for you as the operator. So I think there’s that component of it and then the other 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 the 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 year? And do you think there’s any opportunity to improve the economics of providing that service? Clearly, if you’re an E&P, 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 move your cost structure seamlessly without taking hits. Can OFS manage to charge for some of the flexibility that they’re allowing E&P to do it?

Yeah. As far as overall activity, it’s bounced around during the year. I’d say, today, we’re probably at about 10% of our business. Of our systems rather are working on last mile jobs and that’s probably the higher end of where it’s been. As to the structural nature of it, we have not layered our business from the 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, with a lot of tons of 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 had -- 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 our people going to pump more tons or less tons per day going forward and as they pump more ton, if you’re exposed to the variable model, which the last mile is, it does provide for actually, it probably enhanced economics versus the pure rental business. So it’s 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 way.

And I will add a little twist to that, as 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 is sign -- there’s been significant improvements in the handling the volume tons per load in the pneumatic versus as compared the relative different with the belly dumps. And so, I think, that -- we’re seeing that gap narrowed significantly by paying attention to it and making some improvements actually in the equipment on the trucking side.

Thanks for taking my questions.

Sure.

[Operator Instructions] And ladies and gentlemen, with that we will 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 are 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 and 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 wellsite by continue to innovate and evolve our offering despite all of these headwinds. Thank you all and have a great day. Stay safe.

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for joining. You may now disconnect your lines.