Solaris Energy Infrastructure Inc (SEI) 2019 Q4 法說會逐字稿

Good morning, and welcome to the Solaris Oilfield Infrastructure Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Yvonne Fletcher, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good morning, and welcome to the Solaris Fourth Quarter and Full Year 2019 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.

Thanks, Yvonne. I'm pleased to share the results of the strong 2019 delivered by the Solaris team despite a challenging market backdrop. 2019 was the first year of positive free cash flow for the company as we began to harvest cash from investments made in prior years. Solaris generated over $80 million of free cash flow for the year, and we returned $23 million of that cash to shareholders in the form of dividends and a share repurchase program.

In December, we paid our fifth consecutive quarterly dividend, which at $0.105 per share reflected a 5% increase over the previous dividend. We also began buying back stock under the $25 million share buyback program we announced in December. These initiatives reflect the confidence we have in Solaris' ability to continue to generate free cash flow even in a sluggish growth environment.

We generated our 2019 financial results despite unprecedented efficiency gains in horizontal drilling and completion activity in 2019 that caused overall industry frac fleet count to slow in the second half of the year. That trend was exacerbated by multiple factors. First, operators had a continued focus on spending with or below their -- within or below their operating cash flow; two, weak natural gas prices; three, weak NGL prices; and fourth, poor well performance in certain plays.

These factors resulted in many operators slowing or halting their completion activity in the fourth quarter. Our fourth quarter results reflect this slowdown as we averaged 88 fully utilized systems in the quarter, down approximately 23% from the third quarter and in line with our expectations and prior guidance.

So far in the first quarter of 2020, as we've expected a gradual pickup in activity with average January levels in line with December average numbers with activity steadily but modestly increasing in February. This implies that activity for the first quarter versus the fourth quarter of 2019 could be flat to down slightly, which is in line with early indications from operator budget announcements or a 10% to 15% decrease in U.S. drilling and completion spending in 2020. Absent any other market changes, we'd expect Solaris activity to generally follow the overall market.

In 2019, we continue to improve our offerings by enhancing our existing sand systems and investing in technology enhancements and continued research and development. We continue to look for ways to improve both performance of our equipment and work with our customers to maximize both designs and process efficiencies. Our AutoHopper and the new chemical systems are examples of that, both introduced new automation that improve efficiencies to the well site.

During the fourth quarter, field trials continued with our new chemical systems following the rollout of our latest version in the third quarter. We had 2 to 3 systems working for several customers and expect to continue demonstrating the value proposition of this new technology in 2020.

We also made investments in our software capabilities to improve data capture and analysis, and employee development in our service quality management, which we believe will provide additional value to our customers and are important differentiators for Solaris.

Increasing automation, customer engagement and process improvements, all drive our business by helping our customer's dollars go farther. Our equipment and services provide significant value to our customers, which try to cycle the value for all of our customers and stakeholders, including our shareholders, our employees and the communities we work in.

While ESG has become a topic of much discussion recently, the basic concepts have been a core part of Solaris from the beginning. In 2019, we introduced our first sustainability report with formal reporting on ESG metrics that we track. We will continue to refine this disclosure going forward.

The equipment we design, manufacture and provide to our customers drives value from both an environmental and socially conscious perspective. Our systems reduce the number of people required on location, reduce truck traffic and completion time through reliability and large inventory supply directly at the blender.

In addition, our equipment is all-electric and can be tied to electric power generator on-site, eliminating the need to run diesel generators. Our latest developments around software and automation further these benefits by taking additional personnel off location and reducing trucking requirements.

Governance and compensation practices at Solaris have always been focused on transparency and maximizing alignment. I'm proud to say that Solaris employees own approximately 16% of the company's total shares outstanding, providing direct alignment between management and shareholders. We are committed to providing transparency, ethics and fairness in how we manage, operate and report on our business, and we look forward to increasing our engagement on ESG matters in the future.

Now wrapping up. While we cannot control the slowing activity in North America, we can continue to position ourselves to outperform and take advantage of the current market conditions. With no debt on our balance sheet, a healthy cash balance and continued expectations for free cash flow generation, we have many opportunities available to us to continue to grow and enhance our product offering, invest in our people, service quality while returning cash to our shareholders. With that, I'll now turn it over to Kyle.

Thanks, Bill, and good morning, everyone. During the fourth quarter, we generated $63 million of revenue, adjusted EBITDA of approximately $21 million and positive free cash flow of approximately $24 million.

After adjusting for the impact of deferred revenue and other charges, revenue declined 20% sequentially, and adjusted EBITDA declined 25%, which was primarily driven by a 23% decline in the average number of fully utilized systems.

Nearly 125 proppant systems worked with varying degrees of utilization in the fourth quarter. Our calculation of 88 fully utilized systems reflects a number of equivalent systems that generated revenue every day in the quarter, which we believe is the best measure for modeling purposes.

For the full year 2019, we generated revenue of $242 million, adjusted EBITDA of $113 million on an average of 110 fully utilized systems, and free cash flow of approximately $80 million. Utilized systems were essentially flat year-over-year, but adjusted EBITDA declined 8% due to: one, our margins in 2018 benefiting from a lag in ramping our cost structure to support the growth in systems that we experienced; and two, lower activity levels in Kingfisher and in software services year-over-year.

As highlighted by Bill, 2019 was a turning point for the company in terms of free cash flow. In 2019, we generated close to $115 million in operating cash flow, which was roughly flat with the prior year. We made the decision to slow capital expenditures early in the year and spent approximately $35 million in 2019 compared to $161 million in the prior year. This resulted in positive free cash flow of $80 million for the full year. Of that, we distributed nearly $23 million or roughly 30% of free cash flow to shareholders in the form of dividends and share repurchases and used $13 million to completely pay down our credit facility earlier in the year.

In December 2019, our Board of Directors elected to increase our quarterly dividend by 5% from $0.10 per quarter to $0.105 per quarter as well as initiate a share repurchase program of up to $25 million. We expect the total cash we distribute to shareholders in 2020 to increase as our new quarterly dividend should result in an annual dividend distribution of close to $20 million in 2020 and a large portion of the share repurchase program has been completed since the quarter end.

Speaking of the share repurchase program. Since the inception of the share repurchase program, we have spent approximately $17.7 million to repurchase 1.4 million shares at an average price of $12.40, which is approximately 15% below our last equity offering completed in November of 2017. As of last Friday, we had $7.3 million remaining in our authorized pool.

Turning to additional detail on the fourth quarter. Gross profit, excluding the impact of deferred revenue for the quarter, was approximately $24 million, down 24% from the third quarter primarily due to the decrease in fully utilized systems. Gross profit was also negatively impacted by a lack of fixed cost absorption with the lower activity.

Total SG&A costs for the quarter were $4.6 million, below prior guidance primarily due to year-end accrual adjustments. For the first quarter of 2020, we expect total SG&A to run closer to our $5 million guidance.

Net income for the quarter was $25.3 million or $0.48 per share. Adjusted pro forma net income for the fourth quarter was $9.7 million or $0.20 per share versus $15.2 million or $0.32 per share in the third quarter. As a reminder, adjusted pro forma net income adjusts for nonrecurring items and also assumes the full exchange of all Class B shares for Class A shares for a more comparative period-over-period presentation.

This quarter, we also excluded the deferred revenue impact of the 2019 contract termination at our transloading facility as we believe this will be a better base comparison going forward. Please refer to our press release issued last night for a full reconciliation of adjusted pro forma net income.

Operating cash flow was $26 million in the quarter. And after total capital expenditures of approximately $2 million, our free cash flow in the quarter was a positive $24 million. We paid close to $5 million in dividends and spent over $3 million in share repurchases in December following the announcement of our share repurchase program.

We ended the quarter with approximately $67 million in cash and $50 million of availability under our undrawn credit facility. Our cash balance at the end of the year represented approximately $1.40 per share of cash on hand.

Turning to our outlook. As Bill mentioned, we anticipate the fully utilized U.S. frac crew count could be flat to slightly down sequentially as operators maintain capital spending discipline and frac crews continue to get more efficient. We expect our business to perform in line with the overall sector with identified opportunities to outperform through targeted share gains in 2020 as customers continue to recognize the value of our solution over the competition.

We expect to also remain disciplined on capital spending and for our balance sheet to remain healthy. There is also no change to our prior guidance of capital spending of $20 million to $40 million in 2020.

Even after our recent dividend raise and share repurchase program, our strong balance sheet and cash position provide significant optionality to return additional cash to shareholders while opportunistically and thoughtfully evaluating both organic and inorganic growth opportunities. With that, we'd be happy to take your questions.

(Operator Instructions) The first question comes from George O'Leary of Tudor, Pickering, Holt.

The CapEx guidance level looks very prudent in my opinion. And just thinking about what frames the lower and upper bounds of that range, is that mostly the adoption rate of the chem systems or is there something else in there, including upgrading of legacy systems with new technologies that drives that range too? Just want to think about -- how I should think about that for the year?

I think you framed it pretty well, George. We think about there always being a level of maintenance/nongrowth capital spending required to keep the fleet in tiptop shape and continue to drive enhancements and improvements.

So over the last couple of years, AutoHopper has been a big one. We've got a couple of other things in the pipeline around remote monitoring of the systems that allows us to improve our preventative maintenance and drive some of those costs down. So there's definitely a level of, I'll just call it, nongrowth in the bottom end of the range.

And then as we think about flexing up towards the higher end of the range, the levers there are adoption of the chem system. And then we've got several R&D projects that we expect to move forward in 2020 with sort of prototypes that are embedded in that range as well. Certainly, when we look at the fourth quarter and we take our run rate there, we're far below even the bottom of the range that we provided. So we think that's sort of the way to frame it up.

Great. That's very helpful. And then just in the last 24 hours alone, you had a couple of E&Ps continue to push the drilling and completion efficiencies theme, which you guys also noted in your prepared remarks.

As they -- and I'm thinking of Concho and Devon, in particular, just in the last 12 to 24 hours, talk about completing more lateral feet per day. To your earlier point, that may reduce frac crew demand, but that also seems to highlight the importance of a proppant management system that's more efficient, possibly the chem system down the road.

How do you guys kind of strategically market to those customers who use different systems today, those kind of targeted opportunities you spoke to, how do you try to go and grab that market share strategically?

Well, I think it falls into our laps. Our equipment is really designed for high rates. And so we've seen the continued throughput on a daily basis of sand through our systems go up and up and up and continue to test how to make it more efficient with some of our thought-leading customers. And what do we do to ensure the safety on a well site when things are moving as fast as they're moving and our equipment is designed in all of our new innovations, new automation, all the things around that help make it work significantly better the faster you go.

We're working hand-in-hand with our customers to look at pad design, how can they lay out the pad and the rest of the equipment more creatively to really optimize the efficiencies that are driven by our system. Which, as we've harped on over the years, the primary benefit of a vertical-based solution, like ours, is the ability to offload multiple trucks in parallel.

And so if you look at your pad layout more creatively, there's lots of options and opportunities to drive down offload time and, therefore, increase the amount of throughput that you can get through a system in a period of time.

Great. And then I just want to make sure I understood the guidance correctly. When you guys said you thought frac crews might be flattish quarter-on-quarter, is that how we should be thinking about modeling the first quarter from a fully utilized system count perspective?

I think right now, that's sort of the right place to start. When we look at -- I think to Bill's comments, when we look at the fourth quarter into the first quarter, the sort of ramp, January looks more like December, February looks closer like the average of the fourth quarter. So we think sort of fourth quarter average is the right way to think about a starting point for Q1.

The next question is from John Watson of Simmons Energy.

There have been reports of the sand market in the Permian tightening. Can you comment on what you've seen on this front? And maybe any impact to the cadence of completions that you just mentioned, Kyle? And more specifically, if it's impacted your activity early in the quarter?

No, it's absolutely gotten tighter, particularly on the 40/70 mesh, the local sand being developed in the Permian. We think it's somewhat acute and does get fixed. There's plenty of capacity out there. But we have seen sand pricing go up versus, call it, low teens in, call it, second half of last year. And so we've seen the spot basis pricing go up. We haven't seen it impact activity to be perfectly frank. It has led to more phone calls with industry participants asking us for help in supplying. But I can't say it's had an impact on the completion cadence.

Okay. Great. Secondly, it's early days, but increasing reports of people considering pop up mobile mines in the Permian and elsewhere. Can you talk about conceptually how the Solaris system would fit into that change to the sand supply chain and if you've considered partnering with any of those parties developing mobile mines?

We have visited with several folks that are looking at that idea. Conceptually, you still need to handle it at the blender in high rates and high velocity, so that you can handle the completions intensity and the timing on trying to get 10, 12, 15 stages a day done. You need a buffer right at the well site.

So it doesn't necessarily change how you handle things actually on the frac pad as you buffer into the system, but it changes a lot with the supply chain, just like local mines themselves change the -- then pulled all that rail cost out of the supply chain for sand for Northern White. So I think it's another evolution and some creative ideas, and the industry always comes to solve challenges like this. So we think it's an interesting thing, and we're looking forward to it.

The next question is from Martin Malloy of Johnson Rice.

Could you maybe talk about some of the drivers we should be mindful of that might impact the rental revenue per system in 2020? And also on the cost side per rental system?

Yes. When we think about the revenue and the costs per system for our customers, we think about what is the dollar per ton or dollar per stage or dollar per well that our customers are seeing. We typically are charging a dollar per month basis.

But as the efficiencies that George alluded to from the Conchos and the Devons of the world continue to generate, our customers are actually seeing a significant discount in what they're actually paying us for our service and our equipment. So that's sort of been the way we've framed it up.

When we think about specifically pricing year-over-year, some of the levers or drivers are M&A activity among our customer base, both from a pressure pumper and an operator standpoint. As we see consolidation, all things being equal, generally speaking, the concept of volume discounts does come into play. And so we can see a couple hundred basis points of pricing movement based on some of the consolidation that we've seen applied.

From a margin standpoint, year-over-year, we've got some increases in things like property taxes as our fleet grew from '18 to '19. We've taken some costs out of the support structure that supports the movement of equipment, that supports the operation of the equipment, but we've done it in a way that we don't want to get too deep and cut into the bone because the heartbeat of this equipment, this business, is organization and what we do for our customers is in our service organization.

So we've been prudent to not go too deep, but we are conscious of the fact that year-over-year, our activity level from a macro standpoint is much lower. So those are kind of the levers I think about.

Okay. And then just looking at or thinking about potential inorganic opportunities, could you remind us maybe of some of the characteristics that you might be looking for?

Well, I think we start with our base business and understand the technological protection, whether it's patented or just based on some intellectual property or knowhow that we have, we have a team, a great field organization who is focused on quality, focused on delivering the customer service and knowing our customers and how to help them almost as a consultant on the well site.

So when we look for what fits into this organization, it has to be businesses or product lines that will match those characteristics and have sort of rental-based type returns on it for what we're looking for. So we obviously haven't found much, and we continue to innovate internally, but we are watching closely.

And there are -- there's a lot of smaller things, looking for liquidity, smaller businesses out there today that might have hoped for something different, and this market is pretty tough. So we're watching and looking closely at lots of opportunities. But as you've seen over time, we've been very careful and cautious about where we spend our money.

The next question is from Stephen Gengaro of Stifel.

Sorry, I was on mute. So two things, if you don't mind. The first, the -- you just talked a little bit about different margin levers. If you looked at the proppant, the rental and services in the fourth quarter, it was -- I think it was a little over 53%. And I know you talked about some overhead absorption issues and some gives and takes going forward. Directionally, how should we think about that number going forward?

Yes, and I neglected to highlight a pretty significant point on margin. When we look at percentage basis points of margin, and that's the last mile. So obviously, the last mile delivery of sand is something we've been doing over the last couple of years. And as we've entered into the first quarter, that is an area of growth that we're seeing.

So that will have an impact on our reported gross margin percentage. But the way we model that, the way we propose that to our customers is trying to get back to or focus on getting back to the same profitability from a dollars perspective on a per system basis. So I think we will see our gross margin go down quarter-over-quarter due to the fact that we're doing more last mile for our customers.

That bundled offering is an offering that the incremental -- some of the incremental customers that we've been working with are asking for it. They're switching away from other bundled offerings. So they're looking for a bundled replacement. And so we've been very effective at providing that.

And our team has done really a great job in providing consistent service across multiple fleets in that offering. But so I think that actually has a meaningful movement in margin. But again, like I said, I don't think it should materially move how we think about EBITDA profitability per system.

So Kyle, just to be clear, when I think about that, that number shows up in the proppant system services line, I believe. And then is that -- if we thought about that service you're providing, is there any way to quantify, like sort of how much that was sort of 2Q, 3Q, 4Q as we sort of try to triangulate the impact on margins?

Yes. I think honestly in the most of, I'd say, the second, third and fourth quarter of last year, it was pretty consistent as to the overall contribution in that part of our business. But as we look at the first quarter, there has been a step-up in the activity there. So I think the way to think about it is '19 was sort of consistent. And then there will be a pickup here in the first quarter.

Great. And then just as a follow-on to the sort of CapEx and cash discussion. When you think about the CapEx -- I think you mentioned some of the gives and takes to getting between $20 million and $40 million next year.

But how do you think about you've worked through this share repurchase program pretty quickly, you're generating cash. I mean have there been discussions already to increase it? How should we think about -- either frame it that way or kind of the percentage of cash you sort of expect to give back to shareholders going forward?

Yes. I think in the fourth quarter, we decided to increase the dividend by 5%, and we initiated the buyback program, obviously. We initiated the $25 million level with a mindset of actively being in the market and really using that to actively purchase shares.

We're very pleased with the rate and cadence that we've been able to buy back shares. I think by my math, we reduced the overall share count by about 2.7% just in the last 6 to 8 weeks that we've been doing this. And I think the Board meets on a quarterly basis. And this -- the concept of capital allocation is something we talk about every quarter.

And if we're exhausted -- if we've exhausted this program by the time the Board meets again, it certainly will be up for discussion as to what does the next several quarters look like from an operating free cash flow perspective? Do we think we're continuing to build cash? And if so what are the various options that we have to use that cash?

So obviously, the dividend is really the only permanent use. But when we look at CapEx and we look at buybacks, those are all levers that we can pull on. And I think if we believe there is still an attractive opportunity to buy back shares at, say, current levels, then that may be a decision that the Board makes to add more to that reserve.

The next question is from Chris Voie of Wells Fargo.

If I could ask one more on the rental margin. So if you were to exclude the pass-through from last mile and some of the services stuff, I think in the fourth quarter, you guys said you were carrying a little bit of excess costs related to an expected rebound in activity. I guess, that rebound isn't really materializing.

And then you've got a little bit of a headwind of a few hundred basis points from volume discounts, stuff like that. Can you speak to the margin, just on the rental part of the business for proppant, in the first quarter, is that going to be lower or is there any kind of tailwind from lower costs?

Yes. I think from the rental side, just pure rental margin, the drivers there are pricing and some of our fixed costs like property tax. So as we talked about pricing having -- being impacted slightly by M&A and then some of the pickup in some of our fixed costs, there would be some degradation in that margin.

Okay. And then I think another factor that had an impact over the course of 2019 was also a little bit higher wear and tear, given little higher average age for the silos. Has that kind of leveled off at a stable rate at this point?

Yes. And honestly, I don't know that it showed up in the numbers, but I think our maintenance spend has been pretty consistent. So I don't -- there wasn't a pickup in the fourth quarter driven by maintenance.

Okay. And then maybe just one last one on chemicals. So I guess you were at 2 to 3 units in the fourth quarter. Can you speak to the cadence of trials going forward in early 2020, if you expect that number to move up in a material way? And also whether on the trial basis, I think they are earning revenue, is that accretive to GP or is it kind of breakeven at this point?

I think it's roughly breakeven. We're putting more field support on it to make sure that our customers really know how to use it, so I'd call that breakeven. But I think as far as cadence, we do feel like there is continued momentum with new folks that haven't used the equipment that are new to it. We've had one customer continue to use it, I think, since early September.

So we feel good about it. The big challenge, I think, we have is, if you walk into an operator today, the biggest question is, how do I save $500 a stage on my AFE. And so our proposition is to come in to make a slight investment to rent this equipment, but by doing so you're going to drive down your overall cost significantly. That has clearly worked on the sand side.

And then on the chemical side, we think as the intensities continue to go up, the chemicals become a continued pinch point for operators. And so the value proposition will continue to be -- or will start to really generate and be seen more clearly as intensities go up. But it is a challenging point in the cycle to go in with a new technology that on an AFE level does have a higher cost because so much of what we're replacing is embedded in other services, just like you saw in sand.

At one point, operators had no visibility into what they paid for sand until that was obviously decoupled. So I think it's very similar. And our challenge right now is just what the overall appetite is within an operator to try something new.

(Operator Instructions) The next question is from Jon Hunter of Cowen.

So one question I had was just on the revenue per system we saw in system and services, and we've obviously discussed the trucking piece of it. Was there any shift to kind of larger system sizes to 9 or 12 packs that also could be contributing to that increase?

No, I don't think anything material quarter-over-quarter.

Got it.

The vast majority are still 6 packs.

Got it. And then on kind of the activity moving into the first and maybe the second quarter here. Back in October, we had some visibility to some of your customers dropping frac crews kind of earlier in the quarter. I'm wondering if you have visibility today to those crews being picked up early in 1Q. Or is there visibility to the same number of crews being picked up in the second or third quarter or maybe later in the year?

No. I think those are the conversations we're in every day. And yes, we are up, I'd say, relative to Q4 average today. And we have visibility to several folks adding crews going forward. So the visibility is happening. It didn't snap back on January 1, but we really didn't expect that either.

The next question is from J.B. Lowe of Citi.

So I think I probably ask this question in almost every quarter, so forgive me for being repetitive. But I'm just wondering about pricing dynamics and competitor bidding practices over the last couple of months as we exited the year and started the new year. I'm just wondering, have those changed at all? Is pricing getting more cutthroat? I know you guys have a different pricing model than your peers, but just wondering what you're hearing on the ground.

Yes, I think the market is still in a position where there's overcapacity. And so people tend to use pricing as a way to try and grab share and put equipment to work. We've been very disciplined in our approach and not willing to do that due to the model where we've set up where, again, as efficiencies get created, our customers are actually paying us less on a dollar per well basis. So I think that's sort of how we would frame it up.

The market has been overcapacity for the last 6 years, right? So as the market evolves from sandkings over, there's been excess capacity of some type of sand handling equipment. And so it's all about delivering a valuable service to the customer. And if they can just see how they justify our expenses, then it works.

And as they get more efficient and you do more stages a day, you move more sand through it, the cost per ton goes down for our customers. And our goal is, on top of that, allowing them to do that, add automation where they can save money on people and help all those efficiencies improve. So pricing is ultimately where the rubber meets the road, but at the same time, our goal is to make our customers see the value that we deliver to them.

And we -- and this time last year, we had customers leave due to lower pricing being offered elsewhere, most of those customers came back. We had a similar phenomenon in some of our customers in the beginning of this year, and we've gotten phone calls about challenges with deliverability, with inventory on-site, equipment reliability, very similar challenges that people have had when they've switched away. And so we think that will continue, and we will be there with open arms to welcome them back.

Right. So that kind of ties into the other question I had was just on market share, you guys have maintained a pretty steady market share over the past couple of quarters. Just wondering what -- where do you think the opportunities could be to expand on the market share side, outside of any M&A-related customer pickups or anything like that?

Well, I think we answer this question every quarter. We don't look at market share, we look at it customer-by-customer, and who do we believe is the ideal candidate that we can help save them money on their completions. And we target those guys going forward.

And I think we continue to gain traction with those that have used other solutions and recognize when they get a hold of this and start using it, it actually does save them money. And so we -- market share is a mathematical result of us chasing customers. And we really look at solving the problem for our customers, not its market share.

The next question is from Ryan Pfingst of B. Riley.

For the chemicals fleet, how many distinct customers have you developed a system with so far? And do you guys have any criteria that will determine when you'll resume expanding the fleet?

It's been multiple. I don't have the number off hand, but it's been multiple operators, multiple pressure pumpers, multiple chemical providers in I think 2 -- I mean 3 different basins. So there's been a lot of people that touched it, but there also have been a lot of people that haven't touched it yet. So we're focused on being in front of those guys.

As far as growth capital, I think we want to see the vast majority of the equipment that we've built at this point being deployed to customers on a consistent basis and then really articulating back to us that this value proposition is really making a lot of sense for them.

As an example, the customer that has had assistance in September, that's on one crew, they've got probably half a dozen, maybe 8 total frac crews. And so as we see people adopt this more broadly across what they're doing, I think that would be the indicator for us.

Got you. And on the competitive side, have you seen or expect any rivals to launch chemical systems of their own or maybe even water systems?

Nothing material in the market. Chemicals and water are handled on well sites every day in other forms. There's people that have added telemetry to understand what levels are and remote monitoring such that those levels are broadcast to the cloud and you can view them remotely.

But nobody I'm thinking a full replacement of all the assortment of pieces of equipment that are used today, whether it's a chem add unit, whether it's a frac bed to acid tanks, the iso-containers, the totes that are brought out, the [hoover] tanks.

There's -- I don't think anyone is approaching it in as holistic of a manner nor in an automated remote process where we're actually driving it out of the data van, they're pulling chemicals based on the amount of the clean rate on the water side. So it's -- the approach that we're taking, I don't think anyone is really looking at.

The next question is from Praveen Narra of Raymond James.

I guess I wanted to come back to the bundled solution question. You guys mentioned that that's increasing in prevalence. So can you update us with how many -- how often you're doing that today? Where you think that could go through 2020? And just to be sure, it doesn't seem like there's any capital requirement in order to do that, but I just want to make sure that's the case.

It's still less than 10% of our activity. So it's somewhere in that 5% to 10%, I'd say, and it varies. Sometimes, we'll be out and providing that, and the customers will say, "You know, we're going to take that back and vice versa." So it's -- I wouldn't say it's hard and fast. So that's sort of where it is. I think on the increments, we've -- on a prior call, I think I mentioned 5% to 20% as a potential range. I think that's still accurate where we sit today.

Okay. In terms of I think you mentioned R&D, I wanted to make sure I understood correctly, kind of what's going on. I assume that's separate from the chemical silos, and should we think of these as kind of incremental changes to the business? Or are you -- is there some desire to look for another outlet of capital, I guess, I'll call it, but another stool -- leg to the stool?

Yes. When we talk about R&D, I think it would be outside of the chem systems, that's already obviously out in the market working. So this is additional opportunities to improve process and equipment and drive efficiencies on location and within the supply chain. So these are things that we're not really publicly talking about -- yet.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mr. Bill Zartler for any final closing remarks.

Thanks, Kate. I'd like to close with a thank you to all of our employees for all the hard work in 2019 and to our customers for their continued partnership.

In 2020, we're committed to continuing our high level of service that's going to help all our customers increase their efficiencies further, both saving money and safety on the well site. We will continue to innovate and evolve our offering to help support you despite the market headwinds. I believe our culture of continuous innovation and improvement is truly what sets us apart from our competitors.

And lastly, we're excited to continue to generate cash for all of our stakeholders, and we'll continually evaluate the best options to use it. We look forward to updating you guys as the year goes on. Thanks.

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