Solaris Energy Infrastructure Inc (SEI) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Solaris Oilfield Q3 2017 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I'd now like to turn the conference over to Kyle Ramachandran. Mr. Ramachandran, you may begin.

Thank you, operator, and thank you for joining Solaris' Third Quarter 2017 Conference Call.

I'm joined today by our Founder and Chairman, Bill Zartler; our CEO, Greg Lanham; our Chief Operating Officer, Kelly Price; and our Vice President of Commercial Strategy, Jonathan Scheiner.

Before we begin our call today, we would like to caution listeners that some of the statements today will be forward-looking statements. 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 on November 2, 2017, and the Form 10-Q filed yesterday, along with other recent public filings with the Securities and Exchange Commission that outline those risks.

I would like to point out then our earnings release and in today's conference call, we have discussed and will refer to adjusted EBITDA, which is a non-GAAP measure of operating performance. We use adjusted EBITDA to measure operating performance over various periods, exclusive of certain items, such as costs associated with our current capital structure that reflect our underlying operating performance. Our earnings release provides a reconciliation of adjusted EBITDA to net income, the nearest GAAP financial measure. With that said, I'll now turn the call over to our Founder and Chairman, Bill Zartler.

Thank you, Kyle, and welcome to Solaris' Third Quarter 2017 Earnings Conference Call. This morning, I will kick off with an update on our business and provide some color on the trends that we are seeing in the industry today. In the third quarter, our Mobile Proppant Management Systems continue to gain market share. We ended the quarter with 59 systems in our fleet all deployed to customers. That compares to 24 systems at the end of the third quarter of 2016. As of today, we have 68 systems in our fleet, which we believe represents the industry's leading market share for the next-generation proppant-handling solutions. Based on our estimated 375 operational frac fleets in the U.S., we have approximately 18% market share.

The expansion of our business is a testament not only to our manufacturing operations teams but also the commercial adoption of our technology largely driven by the simple fact that we improve the supply chain handling of proppant and at the wellsite. The continued use of high volumes of proppant and the desire to frac efficiently underpin the value out of our systems to our customers.

The industry continues transitioning towards manufacturing style development across U.S. basins with more frequent and larger multi-well pads and zipper fracking operations. We see this trend continuing. The industry both E&P operators and pressure pumpers are looking for innovative solutions to help improve their well-level economics, complete wells on time, and/or below budget and efficiently manage their labor requirements. Our industry-leading footprint to storage ratio allows our customers to pre-fills or stage volumes directly on the wellsite right at the blender before fracking operations begin. This buffer of 2.5 million pounds helps manage the volatility of the consumption side of the equation, as well as the delivery side of the proppant. Several customers are in the queue awaiting additional systems to be used as 12 packs. We're about 5 million pounds of sand or proppant, can be prefilled prior to running the first stage. Additionally, our real-time inventory management system PropView provides critical information to improve the dispatching of trucks and, therefore, drives improved truck utilization.

The development at our Kingfisher facility in Oklahoma is a natural extension of what we are doing on the wellsite. The SCOOP/STACK plays have been some of the most compelling well-level economics in the industry. But relative to the Midland and Delaware basins, they lack the scale of infrastructure required to efficiently develop the play. We're putting a large buffer in the heart of the play, which will reduce trucking distances to the wellsite and transportation cost. In addition, pairing together critical supply chain data through the transload all the way to the wellsite through our PropView application will drive continued efficiencies across the supply chain for our customers. We believe the integration of key supply chain buffers in real-time inventory data are critical to ensuring the industry can continue to economically develop the U.S. onshore oil and gas plays going forward.

With that, I'll turn it over to Greg to discuss the operational highlights from the third quarter.

Thanks, Bill. Good morning, everyone. During the third quarter, we delivered 15 new systems to the fleet, ending the quarter with a total of 59 systems. The increase in our fleet size, growing customer demand, and industry activity levels led to a record 4,564 revenue days during the third quarter, a 202% year-over-year increase and a 35% sequential increase versus second quarter 2017. During the third quarter, we were effectively fully utilized.

Customer demand for our systems has risen due to increased well completion activity, increased proppant usage on average per well, an addition to the increased awareness and the advantages of our proven technology.

During the third quarter, we continue to have a well-balanced customer mix. Approximately 62% of our revenue was sourced from E&P operators and approximately 38% was from pressure pumping companies. We're very proud of our blue chip customer base and look forward to continuing to grow with our existing customers, as well as add new customers. We remain busy with some of our most active customers. During our last update call in August, 30 of our systems were deployed to our top 4 customers. Today, we have 41 systems deployed to those same customers, which represents an increase of more than 35%.

Adding our fifth most active customer to the analysis, we have a total of 48 systems or 70% of our current fleet deployed to our top 5 customers. This allocation mix is driven by our focus on partnering broad capitalized and active operators and competitively positioned pressure pumpers. Our top customers are typically responsible for the procurement and management of proppant as they see firsthand the value proposition of our technology. Our most active operating areas continue to be the Midland and Delaware basins where we have 41 systems deployed. This is followed by the Eagle Ford with 13 systems, the SCOOP/STACK with 7 systems, the Haynesville with 5 systems and finally, the Marcellus/Utica with 2 systems.

Since deploying our first system, we continue to refine and improve the offering. We are very excited to announce the deployment of our first system with our non-pneumatic loading option. Our non-pneumatic setup allows our customers to continue to roll out the benefit of our system's multiple unloading points that can be used simultaneously while increasing trucking flexibility by accessing the belly-dump trailer fleet. We're also excited to announce that we recently termed up a portion of our fleet with customers for the next 12 to 14 months. We believe our customers' desires to term up our wellsite proppant management systems demonstrates the belief by our customers that our technology works and is the preferred solution.

Regarding outlook. We expect to deliver an additional 6 to 8 systems in the fourth quarter, bringing the total to 74 to 76 systems by the end of this year. Our order book remains solid through the end of the year and well into 2018.

One of the ways we've been able to scale up and rapidly grow market share over the last 12 months has been the inherent design of our system, which does not require a significant number of personnel to operate it. Our systems are typically operated by a single individual and that person is usually an employee of the pressure pump or on-site. Our personnel supervised the rating up-and-down of our systems, and performed preventive maintenance in the field and generally trained up our customers to operate the equipment on their own. We typically hire only one new field technician for every new system we deploy in the field.

Our systems are plug-and-play with existing wellsite infrastructure. Once sand is offloaded into our silos, the sand is delivered directly to the blender at the touch of a button. No ancillary equipment or movement is required. Sand is gravity-fed on to our electrical-powered belts, which are controlled from our rugged touch-screen control panel. As completion activity continues to increase, one of the biggest challenges our industry faces is hiring experienced personnel.

We believe our proppant management systems are unique in the minimal amount of personnel required to maintain 2.5 million pounds or 50 truckloads at the blender. This allows us to scale quickly with demand.

I'll now provide an update on our Kingfisher facility. We kicked off construction on the facility in August. Construction is going according to schedule, with rail being laid and initial construction commencing on the silo path. First profit through the facility will occur in early 2018. We remain engaged with numerous third parties, including a mix of operators, pressure pumpers and proppant suppliers who are interested in terming up capacity at the facility. As mentioned in our press release, our proprietary inventory management system, PropView, continues to gain traction. Our customers are using PropView to improve visibility across their supply chain. We are seeing our operator and pressure pumping customers utilize the platform as well as third-party trucking firms. We believe establishing a lead in the data integration is key to positioning our business to continue to gain market share.

I'll close my prepared remarks with a comment on our view of the rest of the year and 2018 industry activity levels. In recent weeks, we've seen the industry's most widely tracked activity metric, U.S. onshore rig count, begin to flatten out and over the course of the last couple of weeks, actually declined, albeit modestly. As the industry pushes for capital discipline, we believe the need for our technology and service offerings only increase. Our business is driven by secular trends in the industry since starting the business in 2014, we have grown in a severely contracted operating environment.

We believe that if U.S. onshore completion activity remains at current levels, we will continue to grow our business and increase market share.

We save our customers' money, reduce complexities around delivering ever-increasing volumes of proppant down our wellbore and improve safety at the wellsite. We continue to transition from new technology to an incumbent solution.

With that, I'll turn the call over to Kyle for more detailed financial review.

Thanks, Greg. In the third quarter, we achieved a number of record operational and financial results, including 4,564 revenue days, $18.5 million of revenue to adjusted EBITDA of $11.2 million. Similar to our prior call, this morning, I will focus on providing a comparison of our third quarter 2017 results to our second quarter 2017 results as we view that comparison as most relevant. For those interested in comparing our year-over-year third quarter results in more detail, I would point you to our 10-Q that was filed with the SEC yesterday.

Revenue for the third quarter increased 38% to a record $18.5 million from $13.4 million in the second quarter. This increase was primarily due to a 35% increase in the number of revenue days, driven by an increase in our fleet size, as well as growing customer adoption of our patented technology. Gross profit, defined as total revenue less both the cost of proppant system rental and the cost of proppant system services excluding depreciation and amortization expense, increased 37% to a record $14 million compared to $10.2 million in the second quarter, primarily due to higher revenues and operating activity. Selling, general and administrative expenses costs and salaries, benefits and payroll taxes increased to $4.1 million from $3.3 million in the second quarter. This increase was driven primarily by our continued transition to a public company, including increased headcount and bonus accruals and increased noncash compensation.

Net income for the quarter was $7.4 million versus $1.1 million in the second quarter. Adjusted EBITDA increased to a record $11.2 million, an increase of more than 50% versus the second quarter, reflecting the factors previously discussed.

Total capital expenditures for the quarter were approximately $28 million and year-to-date of $49 million. As previously disclosed, we have increased our system outlook for 2017 to 74 to 76 systems in the fleet by the end of the year. And we've increased our 2017 forecasted capital expenditures to between $85 million and $95 million. These strategic capital investments are designed to capture rising customer demand and to grow future earnings and cash flow. I'll wrap up by outlining our liquidity position. We ended the third quarter with a cash balance of $54 million and $20 million available under our undrawn credit facility for total liquidity of approximately $74 million.

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

(Operator Instructions) And the first question comes from Jim Wicklund with Crédit Suisse.

You talked about terming up customers, which is always a good thing. I'm just curious, you've got so many systems with your top 5. Are you terming them up with your good customers or new customers? And can you talk about the approximate term? We've heard a lot of industry, a lot of business segments right now don't want to term up because pricing is low. You don't have that issue. And how much of a discount do I get if I term up for a year or 2?

Well, it's a couple of things. In terms of terming them up, we're -- on the wellsite silos, it's a -- as we mentioned, it's 12 to 14 months in that range, the number of the customers are a bit of both, so it's new customers and existing customers. And don't forget, on Kingfisher, we have a 7-year contract out there with a customer as well, so we actually got visibility across a lot of fronts. So -- and I think the third part of your question was on pricing. And we're not -- it's more or less to get into the queue, not necessarily giving a discount on the terming up of the contract so that's how we're doing it. There's really no discount, that's just basically guaranteeing customers access to our equipment.

The other thing, Jim, this is Kyle. As far as pricing goes. And this is sort of getting ahead of the question likely, but we're going out and haven't gone out to all of our customers with outlining 2018 pricing we have various arrangements of folks today between 6 and 12 months as to setting pricing and as we've talked about in the past, this is the natural evolution of that as those terms roll off.

You're in an enviable position, most companies are trying to get term, you're -- actually have people asking for it. That's nice. You talked about 12 packs. Some of your customers are asking for 12 packs. We're hearing that demurrage is back after being gone for a couple of years, that can't hurt you guys. How many 12 packs do you really expect to have out there by the end of '18? I know that's a crystal ball kind of question, but is that going to be a rapidly increasing part of your business or a couple of one-offs?

Earlier in the year, I would say probably -- we're looking at probably 6 in the first quarter. Towards the end of '18 we hope that will continue to grow, so you're probably looking at double digits by the end of the year.

Okay, that's good. And then last one, if I could. On Kingfisher, you talked about the one 7-year contract. How much of your capacity does that contract involve? And how much of Kingfisher do you want to have contracted? And how much do you want to have available for spot? Because that's a different business than the silos.

Yes, well what we said in the past, so this facility is sitting on 300 acres. It's highly scalable. The initial construction is really 1/3 of the true footprint capacity of the facility. We've got an ability to add 2 additional loop trains -- loop tracks rather and multiple additional storage areas. And we really give a minimum volume of this contract. We think it represents about 50% of the capacity of that initial phase. So in other words, lots of additional capacity there. And then, your point on spot is actually -- is totally spot on. We've got a great contract in place today with a great customer. Not everyone in the market is going to be prepared to lock into something that long. And so we're going to be opportunistic and make sure we have capacity to take some of that spot business. And when those guys aren't out terming capacity, that will likely result in higher pricing.

That's a nice way to gain the system. And one last one, if I could, 62% of your revenues are from E&P, 38% from oilfield service, which way do you see that skewing over the next year?

I mean, it's hard to put a fine pin to it. We think it -- they both kind of grow in lockstep, but we really do like the mix of customers that we have. We try to highlight it there, but our top 5 customers today have a significant number of our systems and that's what really excites us, which is this adoption of this technology across groups' total activity. And so those are the types of customers that we continue to target on the new customer front. And so that will continue to be a mix of pressure pumpers, as well as operators.

And the next question comes from Waqar Syed with Goldman Sachs.

My question relates more to G&A. Kyle, could you provide us some more guidance for G&A going forward? And there were some items that you broke out separately in the adjusted EBITDA? Could you guide on which of those IPO bonuses that you're going to base compensation expenses? What do you expect to be recurring going forward?

Yes. Thanks, Waqar. So on IPO bonuses that in the third quarter was really the recognition of expense-related to some restricted stock that was issued in the IPO. So that was worth 12-month restricted stock. So that will still be in the next couple of quarters, we still see that $600,000 roll forward. And then, in terms of stock-based compensation expense, as we continue to grow our team, that likely will increase, and we want to make sure our employees are incentivized and all the interests are aligned. So I think we have about $800,000 in the third quarter and I'd see that going to probably $1 million in the fourth quarter. And then, as far as the sort of cash G&A, I think, the third quarter is sort of representative of where we are today. And the business is growing, so we would expect to see that to kind of continue to grow. But not in any significant manner. And we do have a very scalable business but, I think, wherever we are today, the third quarter really represents a good starting point.

Okay. And then on the fleet that you have been able to put on term of 12 to 14 months, could you guide us what proportion of the fleet has been termed up?

At this point, we're not going to point -- get to that number really because we're in those discussions with customers today. But we will -- as we get more advanced with finalizing all those discussions with the majority of our customers, we may be able to be in a position to sort of articulate where that sits.

Okay. And then just one last question. Your run rate of about 6 systems in month, can that be increased further up? Or that's kind of the limit? And number 2, if you were to scale it down, how quickly you could do that?

We're going to stick it around that 6 number right now because it helps us from the standpoint of keeping quality control and making sure that we're able to manage the supply chain well. So the second part of your question, that's 4 internally completely sourced and then we have components that are coming in, which give us an incremental, too. So we do have a lot of flex in that number. So if we were to get in a situation, we wanted to scale that down, we can do it pretty quickly. But we wanted to stick with the existing footprint of our manufacturing facility and just add capacity by outsourcing so that way gives us the most flexibility as possible.

And the next question comes from John Daniel with Simmons.

Just 2 for me. Greg, you guys noted in the release that you are in discussions with tenants interested in obtaining capacity at Kingfisher. As you look at that potential tenant list, how many of them use the current Solaris silo system and what are the cross-selling opportunities for you?

Well, I would say that it's -- our current customer is a -- we're always talking about who signed up there, a current utilizer and, in fact, a big customer. So -- but we also see that as opportunity for additional cross-selling. Others that we're -- it's a bit of a mix. We've got a lot of negotiations going on. We're in the process of getting to some finalized documentation. And some are existing users and some are going to be new -- potentially new users, so we're kind of -- we're using that as -- it's a good leveraging point because we're actually able to organically grow some new customers because the touch points we've got through the facility. I know we've got existing customers who are talking to us as well. So it's been a really positive outcome for us so far.

Yes. John, this is Bill. One other comment to that, that I think is important to note is the integration of the PropView system and the supply chain management from the wellsite with our system, combined with inventory management and scheduling of trains and all the things that happened at the transload. So we are finalizing the development of a complete integrated system from wellsite back that we'll be able to provide that information, which may see -- the metal part of this business is very sticky because what people need is the way to plan better the supply chain.

Right, okay. This one might be a stretch. But as regional sand production expands, it would seem -- that's presumably a growth factor for the railroad guys. Do you see any interest on the part of the railroads to work with folks like you? And if so, what opportunities that could present down the road?

Well, we've seen -- the railroad has been very -- on our facility is very cooperative, very engaged so far. And I'm not sure how much of that is due to regional sand competition or just because it's a uniquely positioned facility in an underserved market. But all I can say is, they've been very cooperative, and we're moving ahead on schedule, which was a very aggressive time line, but we are able to meet all those marks so far and in part, the cooperation we're getting from the railroad.

Okay. Just, well, I'm going to squeeze one more. You mentioned, obviously, the 12-pack options are growing. Is there a different pricing strategy for someone who gets a 12-pack versus the 6-pack?

John. No, it's effectively just renting 2 systems.

And the next question comes from James West with Evercore ISI.

This is Blake on for James. More of a thematic one for me. You guys mentioned during the road show potentially stepping out into water and chemicals, with logistics getting tight as they are, and you guys benefiting from it on the part of the sand. Any progress in expanding perhaps horizontally into that arena, talks with maybe some of the wellsite, water containment guys and developing more bundled solution?

Yes, Blake. It's Bill. We do have water silos that are out rented today that is a big part of this business. We have not spent a whole lot of time and additional R&D effort to perfect that. But obviously, frac tanks are relatively inexpensive. We think the silos enable a big footprint savings on our wellsite. We have been and are actively looking at how to better provide equipment for handling of chemicals at wellsite. That R&D effort is ongoing. It's been somewhat back-burned based on the development of our belly-dump system, which we are very excited to have out there now. And that's going to take in the bulk of our R&D effort over the last couple of quarters. But we are evaluating that, and continue to evaluate the ways we can use our technology and talents in the company to create a broader offering, if you will.

And the next question comes from Jud Bailey with Wells Fargo.

The question on your cadence of building 6 systems per month through 2018. Is there a way or can you frame what percentage of those -- do you have visibility on how many of those are already committed to customers? Or you feel confident or already going to go on lease with the customer in 2018?

Sure. We've mentioned before that -- well, I guess, we're getting towards the end of '17 right now but we're certainly fully committed there, and I would say well into '18 as we go on. And it depends a lot on a couple of things. We are still seeing increased demand on 12-pack configurations so that's something honestly that we have to factor into the calculus. Secondly, it's just been as we've gone out and talking about new pricing strategy, the customers were starting to get a better understanding what their demands are. But so far in '18, we're seeing really strong demand.

Okay. And my follow-up is on Kingfisher. When you guys first announced the transaction with one E&P, it sounds like you're starting to sign up more customers. Mistake me if I'm wrong, but the initial revenue numbers you guys cited were just for that one customer. Is there any update you can provide on the profitability or revenue outlook for Kingfisher or a way to think about that relative to the initial release you guys sent out?

Jud, this is Kyle. No, we have not come out with any additional guidance, so your numbers are right. And I think what we have said here is, we are in advanced discussions with several parties and definitive documentation and once we are positioned to have that wrapped up and completed, we will be certainly out and informing you guys as to how you should be looking at the opportunity there. So nothing has changed in a concrete way whereby we'd be providing any different guidance at this stage.

Okay. I got one more, if I could. So it sounds you have one system out with the non-pneumatic setup. Can you give a little bit of color on kind of demand for that product versus the pneumatic? And is there a risk of cannibalizing at some point that more customers want the belly-dump feature and don't use the pneumatic systems? Or is it too early to tell how that could ultimately shake out? Or all those non-pneumatic systems, will they be truly additive to the overall -- what you have in the fleet?

The way I'll answer that is, we'd still contend that most of the readily available way to move sand and oil and gas industry is through pneumatic trucks. So we think there's always going to be a need for a system that can readily handle lots of pneumatic trucks inefficiently. So that's what our system does, and what's really unique about what we're doing is we're maintaining that flexibility but now giving our customers an ability to access another set of trucks, that is belly-dump trucks. So I don't know that, we will see folks abandon pneumatics just given the prevalence of them. And then the other thing is, the way we've designed our non-pneumatic, and I think it's really, the way anyone would design it, you just won't have the same number of offloaded points. And that's what's really unique about what we're doing, with 6-pack in the 18 or 20 for unloading points. So I think that will allow us to continue to see the need for pneumatics going forward.

And I think an important point to the cannibalization question is that the non-pneumatic belly-dump unloading options doesn't change the fundamental silos setup. So there is no -- it's an additional piece of equipment associated with a set of silos. So you don't lose the basic functionality of the 6-pack anyway, so there's no real cannibalism, it's just an additive feature.

And John, I just want to quickly circle back on the Kingfisher comment. While I said we didn't have any additional firm capacity, we are contemplating putting in additional spot rail for nominal CapEx. But again, like I said earlier, there are other participants in the market ready to term up so we want to be able to take their capacity even if it means on a spot basis.

And the next question comes from Jason Wangler with Imperial Capital.

We're just curious if you could talk, now you've outsourced quite a few systems. I think just the cost differences if you're seeing any or if you're still building them at about the same costs that you did when you were internal.

Nothing really new on the cost structure. We've been able to maintain the certain numbers that we've outlined in the past from a capital standpoint. We have gone out and secured Tier 2 generators for all of our manufacturing capacity next year. And that's really the key component in the supply chain that we want to make sure that we have.

And the next question comes from Martin Malloy with Johnson Rice.

My first question is just on the competitive environment, maybe you could talk a little bit about the demand for your system versus some of the other solutions out there that containerize or that tighten system? I suspect from your comments about customers looking to enter into term contracts to get in queue. The demand hasn't waned at all?

This is Greg. Yes, good question. And just relative to competition in general, I will say that we have certainly been surprised by the movement of the industry to adapt with what I'll call old and new technologies. And so I get -- we were really happy that we upped our cadence of our build rate. And we did, so we could meet that demand. So I think that's why you've seen us move pretty aggressively and gained some share. Also, we've got a lot of new enhancements that are going on, whether it's our PropView on inventory management system and Kingfisher so we feel good about where we're at. We feel good that we upped our cadence, our manufacturing cadence where we have been and we've also been able to benefit from a nominal rapid adoption in new technologies. So all in, I think, that it's been a positive for us albeit it has gone a little bit quicker than anticipated.

And the next question comes from Praveen Narra with Raymond James.

I just want to follow up on Jud's question on the belly dumps. What kind of turnaround times are you seeing or unload times are you seeing for the belly dumps?

This is Kelly Price here. Right now, we're seeing approximately 20 minutes. But what I would -- previously said with -- is the fact that the unit's in its infancy. So we're still working to some more efficiencies out of it. So we will continue to dial that in. We're open between the 15- to 20-minute mark, but we'll see just how -- where it ends up by the time we get to more time to play with the unit.

Okay, perfect. And then, just one more. In terms of your top customers, you mentioned the top 4, top 5. What do think your market share is within those top customers' proppant management systems?

Praveen, I think it's a mix. As I think about those customers, there are some where I take a certain basin, for example, with that customer and in New Mexico and in South Texas and in -- we believe it to be 100%. We have other instances where our customer has maybe 20 or 30 operating frac fleets today. And we may only have 10 systems with them because of our current capacity, but plans to keep [here] are rolling up. And then on the operator who is in multiple basins and we may be with them, and only take 2 or 3 of the basins. Those are opportunities to continue to grow with them. And I think that's what you've seen, the anecdote we sort of laid out in the prepared remarks was the increase in those top 4 customers were about 35% quarter-on-quarter. That was a mix of them sort of tweaking activity, as well as us continuing to add capacity to meet their baseline demand.

And the next question comes from Mike Breard with Hodges Capital.

Have you ever been so successful with your silo-type system, are you seeing any others trying to get into a similar silo-type delivery system?

Well, as I mentioned, there is some competition out there. But we feel good about where we're at in terms of being able to meet market demand where we certainly have the largest market share out there. There are -- there's really not any that has the same business model as us, it's having a rental model in place that -- and that way, we're able to enhance the offering quite a bit. Rather than just sell a piece of steel. So we really -- there might be some that have a very similar-looking type of system. But at the same time, the business models are different and the offerings are quite different.

(Operator Instructions) And the next question comes from [Shawn Boyd] with [Newmark Capital].

I just want to hit the operating expenses for a second. We're running around $5.8 million in the quarter and I understand the roughly $700,000 in there. But what I didn't get on earlier was that coming back at us for the next couple of quarters? Or should we think about the run rate thinking about $5 million a quarter now?

Do you mind just repeating the beginning of your question? I wasn't exactly following.

Sure, Kyle. Looking at quarterly operating expenses and specifically in your SG&A and DNA. I'm looking at $5.8 million now up third quarter. But of course, we have the $694,000 in IPO comp expense, et cetera. What I didn't catch earlier is how much of that we will see again in the next quarter or 2? Or does that all go away? So quarterly operating expenses here in the December quarter and going forward, that's where I'm going.

No, I don't think you'll see it going down. The IPO bonus that I mentioned, that's a restricted stock that's going to continue to divest over the next couple of quarters, so that doesn't go away.

Okay. And what kind of growth should we think about on the operating expenses going into and through '18?

Well, I think on DNA, I think that kind of serves as the modeling convention. We are adding some month and we're building a $40 million capital project in Kingfisher so that will, obviously, continue to grow. But from a G&A perspective, we have a very scalable business as we've mentioned in the past. And we operate in a very lean manner. So it will increase as we continue to add to the team but modestly.

Okay. And if I could for my next, I just want to turn to PropView for a second? How important is PropView to your solution? And really what I'm thinking of is, does that bring new customers over the line and help them kind of pull the trigger on adopting your solution? Or is it more of the service that existing customers are just really happy with how they are kind of able to kind of optimize their usage over time and so it sort of keeps them. Just -- I just need to understand more on the benefit of PropView?

I would -- Greg, jump in here a second. But I would say, it's absolutely the major selling point. It's a true differentiator today relevant to what else is available in the market. We've had aha moments with several customers whereby Dave said, it would just be great if we could see what kind of inventory we had available at the well site and that's a great segue for us to say, "Well, let me tell you about PropView." And I think that's a real differentiator.

Yes. I mean, we've got -- we've mentioned over 120 users right now, independent users, which is growing considerably on a weekly basis. So we're starting to see a lot of traction there, a lot of adoption and again, it's just helping the customers manage their supply chain much, much better, and much more efficiently and save money. So it is something that's -- it's a combination of both in terms of, it brings in new customers but also we've got existing customers. We're kind of now seeing the benefits of it and starting to utilize it a lot more. So it's a bit of -- I hate to answer your question, it's a bit of both, but in this case, it is really.

Got it. And so given that you've only got 68 systems out there, is this 120? Are we double counting? Or is this a -- you've got roughly twice the number of users on PropView than you do have on silo systems out there.

Let me just clarify. What we meant by more than 120, those are actual individuals who have accounts and they're logging on and accessing the data. So if a customer has a system, we will go to them and say who would you like to have access to this data? Who can use these to help you run your business? And so depending on the customer, that can be the supply chain management group, it can be the procurement group, it can be the transportation group, it can the logistics group, it can be the completions engineer, it runs the whole gamut.

And as that was the last question. I would like to return the call to management for any closing comments.

All right. Thanks, everyone. I appreciate your time this morning. And looking forward to continuing to build our business and deliver results for all our shareholders. So have a great day.

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