Solaris Energy Infrastructure Inc (SEI) 2020 Q4 法說會逐字稿

Good day, and welcome to the Solaris Fourth Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions) Please note, today's 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, ma'am.

Thanks, Rocco. Good morning, and welcome to the Solaris Fourth 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, which is posted on our website at solarisoilfield.com under the News section.

I'll now turn the call over to our Chairman and CEO, Bill Zartler.

Thank you, Yvonne, and good morning, and thanks, everyone, for joining us today. 2020 was without a doubt the most challenging year in our company's history and I'm proud of how the Solaris team managed through it. 2021 appears to start off with an interesting twist. And we want to make sure that all of your families and friends are safe following last week's unprecedented cold weather, resulting in loss of power and water for many members of our community.

While much infrastructure is operational, again, the full impact of this weather event are still not completely known as many people wait to repair damage to homes and property and many still do not have access to clean running water. We have overcome so much over the last several years. And we will work with our employees, customers and communities to earn -- ensure a quick return to normal.

Our team reacted swiftly in 2020 to the U.S. completion activity. It came close to a halt earlier in the year and then quickly ramped back up during the back half of the year. We got leaner, adapted to evolving work environments, continued to innovate and, most importantly, we continued to provide the highest level of service quality to our customers and did so safely. As a result, we produced another year of positive free cash flow, maintained a debt-free balance sheet and continued to pay our shareholders a steady dividend.

Completions activity in the Lower-48 during the fourth quarter benefited from improved commodity prices. We saw WTI recover from the mid-$30s per barrel to close to $50 and a subdued frac holiday that we typically experience between Thanksgiving and the end of the year.

Solaris deployed 42 systems on a fully utilized basis during the fourth quarter, a 24% sequential increase. We generated a 23% sequential increase in revenue to over $25 million. Adjusted EBITDA increased 55% sequentially to approximately $5 million. We generated our eighth consecutive quarterly positive free cash flow. And we paid our ninth consecutive quarterly dividend. We ended the year with $60 million of cash and no debt.

So far, in the first quarter of 2021, commodity prices have continued to climb, supporting continued completion activity and increases in the rig count. As we look at the remainder of the year, activity levels will be driven by multiple factors, including the ultimate pace of economic recovery, potential regulatory changes and the resulting supply/demand balance in oil and gas. We expect continued financial discipline for most public company operators despite fluctuation in commodity prices as they continue prioritizing balance sheets and dividends as well as digest recent M&A activity.

The U.S. shale industry continues to mature. From consolidation to the continual pursuit of operational excellence, our industry is focused on continuing to safely produce reliable and economical energy for our country in many areas of the world. With this maturation, we see increases in efficiency as a way for Solaris to bring value to its customers.

From data optimization to lowering carbon footprint to optimizing operational efficiency, we're excited about many of the technologies being utilized by our customers today. Lean manufacturing is at the core of any mature industry. And U.S. shale development began with transitioning from single-well drilling and completions to multi-well pads.

Then came the transition from plug-and-perf completions done and sequenced to zipper fracs. In zipper fracs, we perform operations on 2 wellbores in parallel, perforating 1 wellbore while fracturing the other wellbore and then alternating stage by stage.

Now we're seeing the next step change in simul-fracs. During simul-frac operations, we are fracturing 2 separate wellbores at the same time. The net result of this evolution is more stages completed per day, more sand pumped per day and significantly reduced nonpumping or idle time. We've been on a number of these jobs recently and have helped our customers achieve record levels of sand throughput per day.

While simul-fracs most likely won't work on every pad and for every operator, we are seeing an increasing number of operators try them. We believe our technology is well positioned to benefit should this trend continue as having a large, reliable buffer of sand, chemical and water supply and the delivery capabilities become even more important when 2 wells are at stake.

As operators look to reduce their overall carbon footprint, we have seen an increase in electric frac fleets. As a reminder, our equipment has always been 100% electric. And for several years, we have integrated directly with electric frac fleets tying into the same power used by the pump trucks, eliminating the need for generators and diesel fuel, reducing emissions, noise and further improving overall reliability and cost.

The industry's push for increased reliability, efficiency and lower cost has a direct tie to our sustainability goals. Sustainability to Solaris means being equally committed to all facets of ESG. This includes not just lower cost and carbon footprint on the environmental side but also continuing to improve Solaris' social aspects such as improving affordable energy and access and giving back to the community. As last week's extreme weather event has shown, access to reliable and affordable energy is a basic requirement for society to flourish. And only a balance of multiple energy types can ensure that.

Governance is equally important to us as over 18% of our company is held by insiders, which creates a strong alignment with our fellow shareholders. I hope we've shown good capital stewardship to our investors through our capital discipline and strong support of shareholder returns, including through our dividend throughout this past cycle. I look forward to continued engagement with all of our stakeholders on our sustainability progress.

I'll turn it over to Kyle next, who will expand further on what we are working on to help further these goals.

Thanks, Bill, and good morning, everyone. From our beginning, our focus has always been on improving operations on the low-pressure side of a well site, where sand, water and chemicals are stored.

We saw bottlenecks there 7 years ago, which created a catalyst to start Solaris. Over the course of the last 7 years, we have continued to identify additional challenges and opportunities for Solaris to innovate. Today, I'd like to introduce our latest disruptive innovation.

Our engineering team has designed and our manufacturing team has built a patent-pending technology that extends our traditional equipment from a storage solution to a hydrated delivery system, replacing a traditional blender as we know it. The industry has improved blenders over the years but the basic design and function hasn't changed in 40-plus years. We're reducing both the physical and human footprint through innovative design and automation, freeing up space and location and driving costs down for our customers.

At a high level, we have built the first true sand to mixing system that sits directly under our traditional 6 pack of sand silos. The unit will immediately combine water, sand and chemicals and deliver a pressurized slurry to the frac missile, eliminating the traditional blender with problematic sand screws and hydraulics. Like all of our equipment, it is all electric and operated either automatically and/or remotely. In addition, true to our roots, it has multiple redundancies to ensure reliability and maximum uptime.

The new delivery system will also further reduce fugitive dust on location as sand is immediately mixed with water. Dust on location has become an increasing focus for the industry particularly due to the increasing amount of sand pumped per day during simul-fracs and the industry's continuing move to regional sands, which at times have been found to have higher levels of turbidity and potential dust. In our traditional setup, our AutoHopper technology also eliminates the need for a person stationed at the blender hopper.

We've completed initial testing of the delivery system at a sand mine. And we expect to begin field trials with one of our key customers in the coming weeks. We've not yet determined the final commercial model for this new technology. But we thought it was important to show you some of what we've been working on and towards.

We will be highlighting the newest addition to our full suite of innovative equipment during Solaris Technology 2021, a 2-day open house in early March in Midland that will be outdoors and allow for plenty of opportunity to social distance and stay safe. Please reach out to us if you are interested in attending.

With that, I'll now hand it over to Yvonne for a more detailed financial review.

Thanks, Kyle. To recap some of our numbers, during the fourth quarter, we generated over $25 million of revenue, adjusted EBITDA of nearly $5 million and positive free cash flow of approximately $4 million. We averaged 42 fully utilized systems deployed to customers, which represents a 24% sequential increase. Total revenue increased 23% sequentially driven by an increase in activity as well as an increase in last-mile services, which, as a reminder, has a large trucking revenue component that can be multiples higher than the rental contribution from a typical system that contribute similar margins on a dollar basis.

Over the course of the quarter, we deployed a total of 85 proppant systems, which worked with varying degrees of utilization in the fourth quarter. Our calculation of 42 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.

For full year 2020, we generated revenue of $103 million and adjusted EBITDA of nearly $26 million on an average of 45 fully utilized systems. In response to the industry downturn, we reduced capital expenditures for the year to about $5 million compared to $35 million spent in 2019. Our CapEx in 2020 went predominantly towards design enhancements to our existing systems as well as some of the new product developments Kyle highlighted.

Operating cash flow was approximately $44 million. And after total capital expenditures of approximately $5 million, our free cash flow was a positive $39 million for the year. We returned a total of approximately $46 million to shareholders in 2020, $19 million in dividends, which was flat with the prior year despite the downturn, and nearly $27 million in share repurchases earlier in the year.

We ended the year with approximately $60 million in cash, which was down slightly from $61 million in the third quarter following the fourth quarter dividend payment of $4.8 million.

Turning to our outlook. Solaris' systems deployed in January were up approximately 15% from fourth quarter 2020 levels. As noted by other North American oil and gas service companies, last week's weather event will have an impact on first quarter financials.

Many completion jobs in the Texas basins were initially delayed by a week. And we are now seeing that slip another week in some cases as bottlenecks in the supply chain continue to get worked out. Assuming a return to normal activity levels in the next week, we expect our activity to be up in the 10% to 20% range in the first quarter.

Total SG&A costs for the fourth quarter were approximately $4.3 million, inclusive of noncash stock-based compensation. For the first quarter of 2021, we expect total SG&A to be between $4.5 million to $5 million, inclusive of the normally quarterly expensing of noncash stock compensation.

For full year 2021, we expect our capital spending to be in the range of $5 million to $10 million compared to $5 million in 2020. We expect spending to be similarly focused on system enhancements, software development and new technology.

Looking into 2021, we are excited about our prospects as a company and an industry. We made investments during the downturn and are entering 2021 with an enhanced product offering. We've shown capital discipline by maintaining our commitment to our dividend through cycle while maintaining a debt-free balance sheet and a strong cash balance. We have evaluated many M&A opportunities but have not yet found the right fit that matches both our strategic and return threshold. We will continue to opportunistically and thoughtfully evaluate both organic and inorganic growth opportunities. And we remain committed to returning cash to shareholders.

With that, we will be happy to take your questions.

(Operator Instructions) Today's first question comes from George O'Leary with TPH & Company.

On the new technology rollout that replaces or removes the blender from the well side, it seems like size is fairly important here and you guys found a way to make this thing smaller if it fits underneath those silos. I wonder if you could talk a little bit more about kind of what this looks like and what the -- how you came up with the idea to displace that blender. And I know you haven't done the field trials yet. But thoughts around reliability given the blender can often be one of the most problematic components on the well site.

Well, I think your last sentence, George, was exactly what drew us to evaluating what are the most problematic, unreliable pieces of equipment on the well site. That's sort of how the company started. And visiting jobs and being out there, half the time, you'll see a backup blender sitting in the parking lot next door as close as possible because you know it's going to be a problem.

And what we did was sort of took a blank look at our system, how it fits, what works together and created a blender system that replaces the belt. So the 2 most unreliable pieces are the blender and the belt systems. And so we put the blender as mixing tubs between the sets of silos, replacing that belt and allowing fluid flow to that minimized movement.

And the way the pumps are set up, you've taken away the rotating piece of the blender screw, all those delivery mechanisms where reliabilities are problems. And we replaced that with another setup. And that's all we'll say on details on it yet. But that's the way it's worked and it's, so far, worked reliably.

Obviously, we're going to need to put millions and millions and millions of pounds of sand through it to ensure that it's there. But all the work we've done on it so far is very promising.

One other point on the footprint. The simul-frac trend is an interesting one from a number of perspectives. The footprint challenges exist in the sense that operators don't want to expand their footprints. It's more money, right? So you lose some of the efficiency in the simul-frac. But you've got more equipment out there. You've got more pumping horsepower.

And so what we've been able to do is continue to compress the footprint between water, sand, chemicals and now this mixing system to further allow more pumps to get in and to service those simul-fracs.

Got it. That's very helpful. And then sticking with that simul-frac topic, simul-fracs and dual fracs clearly increasing as a share of the overall completions pie. If you thought about how many wells your systems were on where you were seeing simul-frac 6 or 12 months ago versus where you sit today, could you frame that in any broad brush strokes for us?

It's up. One of the things we always talk about is there's multiple different approaches to simul-fracs. So I don't think anyone has really ironed out what the standard setup looks like. One of the challenges is certain pads of 3 or 5 or 7 wells, not nice, clean even numbers like 4 and 8 that don't drive nearly as much sort of benefit when you look at a simul-frac.

So it's starting to gain more and more momentum. We've seen a couple of operators who previously had never done them tried them this year. So it's definitely something that's gaining momentum. But from a quantification standpoint, I don't think we have enough data points to say that X percent of our work is on simul-fracs because it does tend to flow where we'll be at one pad with a customer where it is a simul-frac. The next pad, it may not be.

Okay. Fair enough. That's helpful. And then just thinking about the trajectory of U.S. frac spread count across the year, February weather-related issues across the U.S. but most acutely in Texas aside and if we assume commodity prices kind of hang in where they are, there seemed to be 2 schools of thought. One that frac spread count rises up really quickly early in the year and then just kind of flattens out as guys are chasing flat and exit -- to exit production this year. And then another school of thought that next year, there's going to be some growth on the table filling the back half. You have to start ramping to achieve that growth in 2022.

I guess what do you see and what are you hearing from customers? How do you think about that kind of medium-term frac spread count beyond just the next quarter?

Well, I think if we kind of look at it from a high-level budget, so we kind of look at operator budgets, we do see continued increase in activity this year, at least capital spending on the margin. When we look at frac fleets, it's got multiple dynamics where you've got efficiencies that go against sort of the growth in capital spending.

But I think when most were putting their budgets together, they certainly weren't thinking about $60 oil and probably not $3 gas. So I think the commodity is very constructive. I think there's just a ton of pent-up demand that's going to support the overall supply/demand component on the commodity.

So I mean I think we feel excited about the rest of the year. There will be -- as we kind of mentioned in the prepared remarks, operators will be disciplined. But we feel like there are some green shoots out there.

And our next question today comes from Jon Hunter of Cowen.

So along that same line of questioning, I guess I'm curious with the commodity price being a little bit more constructive. Have you had conversations with your customers different than initial discussions were in perhaps November and December as you plan for the 2021 year?

I think it's a net increase. I mean I think we have seen folks more interested. I think it's a little bit of a spread between the private and the public. But even the large guys are looking at this price deck. And what may have been a 2022 completion plan may be moving up to the third and fourth quarter 2021. And all really depends on what happens to the pricing here. But there is an increase. Obviously, gas prices where they are, maybe ending the season with very low inventories, will be constructive on the gas-only drilling as well.

And then one on the guidance for activity for the first quarter, up 10% to 20% with January tracking up 15%. Is the thought that the March exit is equivalent to where we were in January? Or is there anywhere -- any way you can help me think about those bookends of 10% to 20%?

Yes. the bookends are really driven by the last 10 days or so. We were out in Midland, I don't know, 10 days back before the storm hit Houston. And then we started to see things slow down and that's obviously persisted. And it's not as easy as just turning everything back on. The supply chain does take a bit of time to ramp the sand mines. Many of them had limits on how much gas they can consume to drive sand. So we'll see some tightness there.

So the supply chain is a little bit tight. And trucking probably is going to have some pockets of challenges here ramping back up. So I think that's sort of the range we provided in guidance.

Historically, when we've had these weather events, our business really has not been impacted nearly as much as you'd see on, say, a more stage count-driven business. But our business has grown in the last-mile piece, as we've talked about for many quarters. And so that business obviously is driven on a tons pumped metric. So when we've got jobs that are down for a week, obviously, there's not a whole lot of tons being pumped.

So I think that's sort of why we're providing the range. This -- had the weather event not happened, I think we talked about January being up 15%. And we feel like the quarter is, weather aside, evolving very well. So I think that our guidance would have looked a little bit different if we hadn't seen that weather event. So again, that's -- we're still early on and trying to figure it all out. But that's why we provided the range.

That's helpful, Kyle. And then last one for me is just on your cash flow outlook for the year and, I guess, cash after the dividend. So you gave us this $5 million to $10 million of CapEx. Is the thought that you'll adjust your CapEx levels such that you can remain cash-generative or at least cash neutral in 2021? Or how are you thinking about that?

I think it ultimately depends on the success in capital -- new capital spending is where our swing is going to be. I think we're not managing necessarily that cash. We're managing to whether we have a product that we want to spend money on. And so we have started to ramp up spending on some of these new developments. And so that's the swing greater than probably anything else at this point in time.

And our next question today comes from Stephen Gengaro with Stifel.

Just curious on a similar vein. When we think about the new technology, and I think you guided CapEx of $5 million to $10 million this year, how much of that is targeted at developing the new technology? And how much is sort of maintenance levels?

Last year was $5 million and we spent a little bit on new technology, so the technology that's being rolled out here in March. A lot of the capital was spent last year. So you can think about the $5 million level having a mix of both.

But I think when we think about flat this year, year-over-year, most of that will be in the nongrowth perspective. So the increment from the $5 million to $10 million, I think, is where the growth piece would be.

Great. And then there was at least one customer that came out and sort of talked about the benefits of silos as far as sand mitigation recently. When you think about your market share, your pricing structure, has there been much change there as things have evolved?

And maybe along those same lines, when you think about this new technology, do you think it captures more revenue at the well site, which clearly it does? But do you think it affects your share going forward?

It is too early to tell on how that impacts share. I think we have a high share with the electric frac fleets today. And I think that's a real target market for the new blender because it fits so well in that setup and minimizes footprint. But I think looking forward at market share and economics, I mean, we have -- our pricing has been relatively muted in terms of volatility in the service market.

So we have hopefully done a really good job with our customers, sustaining data at a level that we're not moving pricing up and down as much as some more commoditized products have and kept it pretty steady. So I don't suspect that we're going to try to create a whole lot of price increases throughout the year. I think we've got plenty of capacity and we want to put it to work. We want to provide a good job for the customer. We want them to be there with us in the next downturn, whenever that is. Hopefully, it's 2040 but we'll see.

And our next question today comes from Ian MacPherson with Simmons.

I also wanted to ask about your new blending system. I would imagine there could be some friction points as you're -- whenever you're displacing incumbent. The pressure pumpers have a capital-intensive fleet set up.

And so I wonder how you -- where you see your -- obviously, you're well aligned on the electric fleet side. And this seems to be a problem solver for more congested simul-frac well sites. But where do you see your natural sort of alliance and friction points as you look to penetrate with this?

I'll start and maybe let Kyle finish. But if you go back 7 years ago, every silo displaced a piece of capital equipment that a pumper owned. So we've seen the evolution of providing better equipment, more reliable, safer equipment on the well site that actually add some value.

So we think there's a value add there. As we mentioned, we haven't fully defined the business model and the revenue model and the structure of that yet with our customers and we're going to be working through that. But I think we believe that fundamentally, equipment that saves people, saves energy, saves and improves reliability will have a place in the chain of fracking.

And I think we spent the last year having lots of discussions with operators and pumpers around this technology. And a year ago, the cadence was, "That looks really interesting." And this is mainly from the pumpers, "That looks really interesting. But I've got a lot of blenders of my own that I'm going to be focused on getting worked."

Over the last year, those blenders have continued to work. And like anything else, it's incurred a lot of maintenance and sort of maintenance capital to keep it going.

And so as we've rolled this out and given people the update of, "Here it is. We've actually built it. This isn't theoretical. And here are the capabilities of it," and they're seeing their business evolve with more and more sand being consumed and the need to condense footprint, I think people are much more interested in seeing the benefits and figuring out how they can work well with us.

So the commercial model will be worked out in due course. But I think it's an innovative piece of technology. And the industry is recognizing that innovation is key to success.

Very interesting. Kyle, I wanted to ask you a follow-up also regarding the outlook for your margin incrementals as we continue to ramp higher. During the last cycle, from '17 into mid- '19 when revenues were growing pretty consistently, your through-cycle EBITDA incrementals were a little north of 50%. And then as we've been coming off the bottom in the past couple of quarters, we've seen them 33%, 35%, I think.

Irrespective or separate from the new technology and what that might do to the business, but just on the current business, do you think the opportunity to get back into 50% EBITDA margins as we get some more momentum behind the business is a plausible aspiration?

Yes. Thanks, Ian. Yes. I think the business has evolved. And so when we looked at the '17 to '18 sort of time period, we didn't do any last-mile work. The last-mile business, generally speaking, has, call it, a 10% to 12% margin because of the large trucking component.

So I think it's hard to really look at where we are today and say that, on an EBITDA percentage basis, we would look like we did back then because the business has evolved and we're doing more things. So I think that becomes a challenge.

But one of the things I would hit on is we've got a really lean cost structure. We've figured out ways to do maintenance and remote sort of insights into our operations that allow us to run the business more intelligently with fewer people required to do the same amount of work. So I think we're making those kind of investments. But the peak-over-peak EBITDA margins are challenging because the business has just evolved.

Yes. That makes sense. I was going to ask one more if there's time. This has already been teased in Q&A a little bit. But the 10% to 20% activity increase in Q1, could you pro forma that for us? Excluding the recent weather impacts, would have it been 5 or 10 points higher? Or would you take a stab at that?

Well, I think what we talked about is January was up 15%. And so -- from a pro forma, I think we're still trying to sort out what the weather impact will be because it's not quite done yet, to be perfectly frank.

Our next question today comes from J.B. Lowe with Citi.

Just quickly on the -- I mean I know that you guys are pretty careful about messaging your technology initiatives to the Street. So it's good to hear that -- the new piece that you guys have coming out.

I'm just wondering, when you're going to customers or when you were talking to customers about this potential new technology, what was the pitch? Was it on a downtime reduction effort? Was it more strictly in the footprint side? What's kind of like the pitch? If you could put some numbers around what types of, like, downtime reduction potential this thing could have when you're talking to your customers, that would be helpful.

We're not pitching numbers at this point. I mean this is an idea. This is mechanically much more sound than the old way of doing things. We've removed a bunch of pieces of equipment in the process that are reliability challenges. And so that in and of itself helps. It does shrink footprint.

That's an important driver. But that -- it's not as important, I think, as having something that removes people, that's more automated and is much more reliable. Really, those benefits are pretty outstanding when you -- when you sort of look through it. And obviously, we have a lot more data to gather on what that does on the well side.

And back to the plan of lean manufacturing, I mean it's just logical if you look at what's going on today. We're loading silos, putting them on belts then delivering it into a hopper that then has conveyors that move it into a tub. We're just kind of eliminating a lot of the steps.

So the pitch is basically, "Why are we doing all this?" and, "Let's do it in a more efficient and reliable way." So I think it resonates well.

Okay. I look forward to hearing more about that. Next one is just on the M&A front. I know you guys don't necessarily want to discuss exactly what you're looking at. But maybe just a sense of which direction you're kind of looking at in terms of potential acquisitions.

Is it more well site equipment? Is it more on the software side? I know, Kyle, you mentioned that last mile is becoming a bigger piece. Is that something that you guys would look to expand into? Just wondering if you could talk about that a little bit.

I think it's all of the above and it hasn't -- we're clearly selective of what we look at. And it needs to be at the right price or something we can't build ourselves or recreate. But it's all of the above. We like to improve the low pressure side of the well site activity. We like to improve our ability to manage the logistics and supply support for that piece of that.

And all of that wrapped up into, "How do you do that?" whether it's acquiring additional technologies, whether it's acquiring additional businesses and skill sets from other companies that make sense tucking into the platform. But we're still -- they need to have the right return profile before they do anything.

Okay. Great. And then last one for me is just on the chemical systems. Any update there? How does this -- how does the chemical system kind of combine with -- or does it combine with the new piece of technology? Just any update on that front would be great.

Yes. No, I think it does combine well. The notion that we're running all of this remotely ties well into the chemical system as well as the delivery system. So I think they do go well together.

And just for an update, we've had a couple -- as we have had for a number of quarters working for customers, again, continue to really like the value proposition.

One little piece I'll add and it was, I think, picked up maybe in the 10-K. But we built a couple of water silos last year. When we acquired the business in 2014, there were 1 set of 3 water silos. And they've kind of been on the back fence for most of the history of the company. But probably 12, 18 months ago, we put them back out. And we built a couple last year.

And so it's, again, condensing footprint, providing a hydrostatic head to the well site that allows you to use your pumping capacity more efficiently. And so that's something that we've got our eyes on. And so again, we've always talked about water, sand, chemicals and now blending them all. And so that's kind of interesting to watch as well.

Just to clarify on that. When we say built, we really mean converted. So what you'll see in the K is we have 165 sand systems now and 2 sets of water silos and then 14 chems.

And our next question today comes from Thomas Curran with B. Riley Securities.

Are there any aspects of this new blending system that should enable or create the potential to leverage Solaris Lens in new ways?

Absolutely. I mean the data support in what we deliver and how you manage that is all in the same platform. So the Solaris Lens is monitoring and tracking activity now at the blender level. And feedback through the densitometers and ways to ensure that we're getting accurate blending, all of that is coming through the same data platform.

Great. And then turning to the competitive landscape, what recent changes or trends would you highlight on the private side? Have you seen private silo and box rivals, especially smaller ones, start to reactivate or market more assets, pursue consolidation in pursuit of critical mass? Just what would you highlight that you've seen happening on that side?

I mean there obviously hasn't been a ton, not seeing really a lot of consolidation. We saw one provider go through their Chapter 11 process. The innovations that we're seeing, people are continuing to try and get more and more sand per truck load, I think that become -- that continues to become -- or that continues to be a factor of how you drive trucking efficiency. How do you turn trucks more quickly, that continues to be a theme.

And we've seen people use pricing -- continue to use pricing in different ways. I mean, anecdotally, we picked up some work because another provider got more aggressive with pricing, which was, in some ways, constructive for us to see in the marketplace. But our economics are not -- do not require us to drive up pricing to make a good return. So we have seen a little bit on the margin.

And our next question today comes from Chris Voie with Wells Fargo.

Just one more question on how the new blender interacts with the chemical systems. Will you need to have a chemical silo for this to work? Or will it work with conventional systems as well?

No. It will work with conventional systems as well.

Okay. Got it. And then...

Some of the efficiencies around eliminating people, making the well site safer and more condensed are obviated when you go to a more traditional chemical system.

Got it. Okay. And then do you expect to invest more in chemical systems this year as well? I mean the CapEx budget is not much higher. You didn't invest much in it last year. Just curious if you expect that to grow at all.

No. I mean I think we're well supplied today for kind of our current level of activity. We'd have to see a pretty significant increase in the adoption rate before we deploy any additional capital there.

Okay. That's helpful. And if I can just sneak one more in. The growth of plus 10% to 20% this quarter, can you maybe describe how that's looking across basins? Is the vast majority of that growth in the Permian? Is it a little spread out? Just curious for some color there.

I think it's pretty well distributed. I think it's based on a commodity, right? So we're seeing oil and gas perform well. So when we look at East Texas, Louisiana, the Northeast, those basins are performing well.

But yes, I mean, the Permian has been our largest basin for a very long time and it continues to be. And so we are benefiting from the growth. That has picked up there as well.

And our next question comes from Samantha Hoh with Evercore ISI.

Quick question just about the private operators. Are you seeing any discernible trends in terms of their aggressiveness in the oil levers versus the gas basins? And I was also wanted to just see if Bill could elaborate on his comments about the spread between large and private operators and potentially the larger guys getting more involved in 3Q.

Well, I think there's -- it's all anecdotal information at this point on what people's plans are for the course. I think the commodity price has certainly -- maybe gone up a little quicker than certain people thought it would. And so it's raised my brows. And some of the big guys have really had plans to be very quiet this year -- steady, maybe not quiet. We're a bit steady and that there may be incrementally here, you may make some sense to add something towards the last half of the year versus in 2021.

I think that we have seen a quicker increase in the private activity than the bigger operators. I think that's just general speed at reaction time and how quick some of the small and very active midsized folks react to pricing and do it quickly. And so we've seen a mix of that.

But it is a cost that -- it's reacting to the gas market in anticipation of that. It's reacting to the oil market across the board. And obviously, all of -- none of our customers are exactly alike and they all react to different things differently.

Okay. And then the other question I had, had to do with your ability to convert some of your proppant silos into water and such. Curious if the new blenders require the existing proppant systems to be converted as well.

I guess, more intensely, I'm just kind of curious of what to expect during this trial period. Is there a sense of how long that's going to run? Is there digital technologies built into the trial, that you can actually see the blenders working and analyze it remotely as you're running through the trial? There's sort of expectations in terms of being able to actually get this new blender system to be converted to revenue potentially before mid- or year end.

I won't address the last one. We hope it will convert to revenue. But the system is designed to replace and be in a position where our current belts are, the belts that are between the silos. And so it will change the utilization, obviously. The silos themselves, there's no change that needs to be made whatsoever. We've designed it to fit neatly within the way that the current silos are unloaded onto that belt. They'll unload right into a blender, which eliminates a dust point and an atmospheric point on the sand.

So the way it fits, there's no capital required to change the silos whatsoever. In fact, we'll be using a little bit less of our equipment in the future. This was designed with all of the sensing technology and all the data delivery technology and feedback with the equipment to run it through the same platform that we're currently running it today as well, which you can run in the data van.

Along with that, the tracking mechanism and the data that we gather with the Solaris Lens and our integration with the Amazon Web Services platform to allow our customers to track and see that data, cut and parse it and do the research and studying that they want to do with what happened in that particular wellbore, that is still -- will be unchanged. In fact, it's significantly enhanced because there's a lot more data being dumped into that storage.

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Zartler for any final remarks.

Thank you, Rocco. I'd like to finish by thanking all of our employees and partners for your perseverance and adaptability this year. It clearly didn't end as 2021 has started off with its own challenges. The results in the company wouldn't be possible without the team, both inside and outside. Solaris has emerged from this year in a very strong position to help continue to have our customers drive innovation on their well sites.

We know, at times, it certainly feels like oil and gas is extremely unpopular with the media and political landscape. We all know that we're critical to the world's sustainability. Oil and gas not only enables new technology such as renewable energy even be possible, but our continued push as an industry to drive efficiency and improvements in our environmental positions directly helps our customers lower the cost and carbon footprint of oil and gas, which helps make energy more affordable and accessible to more people around the world. I'm proud of the role that Solaris plays in that.

Thank you all and stay safe. Have a great day.

And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.