We're right now with a company that hasn't been to our conferences before, so I think you're going to hear a new and pretty compelling story in just a moment. Before I turn it over, though, I would like to remind everyone, I know you've heard this before but if you do have questions, we will have some time permitting at the end.
You press that Q&A button at the bottom of your screen, and you type in the question, and we're going to get to absolutely as many as we can. I think we are going to have some time to do so. We're just waiting for a little bit for our presenters to enter the room, and then we'll get things started. If you want to just wait, give it about 10 or 15 seconds. We'll be good to go here. Let me see. Oh, and they are here.
With that, we are joined by Solaris Oilfield Infrastructure. The ticker is SOI. Pleased to be joined by President and CFO Kyle Ramachandran. With that, everyone, let me turn it over to you. Thanks for being here.
Great. Thanks, Steve a nd thanks for having us today. We look forward to visiting with more of you in this new group. We're really happy to be at Sidoti today as our first time. So we started Solaris in 2014 around a theme of ever-growing intensity around well site completions a nd really, our foray into that was around sand consumption.
F or anyone that follows the space well, the sheer amount of sand being pumped every day on well sites across the U.S. has increased at a rapid rate over the last 10+ years, a nd we've really been a beneficiary of that. So fundamentally, we provide storage of sand on well sites across the U.S. through vertical storage in the form of silos. We manufacture the equipment ourselves. It's all designed in-house a nd we provide the repair and maintenance on the equipment, move it from site to site.
We've traditionally capitalized the business very conservatively through equity, so we've got a tremendous balance sheet. We have been a leader in shareholder returns. We have returned roughly $180 million over the last five years. Five+ years. We initiated a dividend in the fourth quarter of 2018, have continued to pay that, increased it three times without any cuts.
We have a shareholder buyback program in place, which we've been very active over the last 15 months in the market, buying back shares. Pretty unique part of this story is management ownership. So day-to-day management owns roughly 20% of the company. A lot of the team here are founding members.
I've been with the business since day one a nd it's a story we're very proud of. Adding in our board of directors, insiders roughly own 40% of the company. So that's pretty unique across really any public companies.
I think we're especially aligned with people, with our shareholders, broadly speaking. We have spent the last two years, 2022 and 2023, reinvesting into our fleet, which we'll get into in just a moment. That capital program has been completed in the fourth quarter of last year. Over the last six months or nine months, we've really inflected on cash flow.
We are generating significant cash flow. I think in the first quarter, we were roughly $15 million of free cash flow, and we expect that to continue here as our capital program has wound down. We're really benefiting from the growth capital we put into the business over the last couple of years. Quickly, we've reoriented our presentation to really be around the returns that we have actually done. This isn't theoretical. These are actual results that we've provided to shareholders.
So roughly 50% of our free cash flow will go back to shareholders. We've made that commitment over the last two years. We've been greater than 50%. Again, there's great alignment among management, the board, and shareholders. So we've done that in the form of buybacks and dividends.
Again, the dividend has been very consistent, as you can see in the dark green bar here, roughly $20 million a year. We've kept that number flat effectively by buying back shares a nd so the light green reflects the reduction in our share count over time, which has allowed us to grow the dividend to $0.12 a share on a quarterly basis, $0.48 on an annual basis, but keep the same amount of cash leaving the company for dividends flat. When we peer ourselves out, historically, we've been very focused on North American oilfield services companies.
We recognize that we compete for capital with a much broader universe of companies. So as you'll see here, we've included large-cap E&Ps, small-cap OFS companies here in the U.S., large-cap OFS, and then mid-cap E&Ps. S o on a relative basis, we are significantly higher in terms of returns to shareholders relative to the market cap of our business.
So we think there's a lot of sort of value embedded in the stock in that area. T hen on the right side, similar analysis just on a distribution of dividends versus buybacks. So through cycle is something we talk a lot about with investors. In the 2017 through 2019 cycle, we were building out our fleet of storage assets. We completed that build-out in 2019. We reached peak cash flow of, call it, $120 million.
Obviously, through COVID, a lot of that came offline, and we started to harvest working capital. The business certainly slowed down significantly. During that period of time, we slowed down growth capital, and we really didn't spend any growth capital between 2019 and the end of 2021. In 2022 and 2023, we did spend some capital as I alluded to.
We have been able to get back to roughly 20% less EBITDA versus prior cycle in a market where our addressable market defined as frac fleets has been reduced by more than 50%. Just to say that again, we're generating 20% less cash flow than we were prior cycle on a market that's contracted by more than 50%.
So we've been able to do that by innovating and adding new calorie count to the business, which we'll get to here in just a moment. So through cycle, we've really been able to demonstrate the return of earnings. The last point there is we've maintained roughly a third market share over the last 5-6 years in that market that has evolved.
T hen finally, the dividend, this is just going back to the prior slide, which is relative to peers in the space, we've been the most consistent payer of a dividend. So the left side here is the growth capital that we've spent in 2022 and 2023. We think about the business having roughly $10-$15 million of annual spend on enhancement capital, not growing the fleet. It's not maintenance spend, but rather enhancing the assets that we have.
T hat's just ongoing investment that we make to ensure that our assets perform as best as they can and continue to improve the offering. But again, that wrapped up on a growth perspective at the end of 2023. So we spent roughly $130 million in growth capital. That's done. A s we roll forward here, our capital expenditures this year will be down 75%-ish relative to the prior couple of years.
So that obviously is inflecting on significant cash flow. Hit the point earlier, but from a relative leverage standpoint, the only reason we have debt today is we bought back a stock pretty aggressively last year ahead of the free cash flow inflection b ut we expect the $25 million of debt that we have today to be paid off here in 2024.
A gain, just to beat the point on the head here, free cash flow yield is critical. We think we are really well- positioned to generate significant cash flow this year a nd our current dividend yield is roughly 5.5%, which screens very attractively. Taking a step back, what we do, so the core legacy offering was the middle set of white silos there.
So you see six silos. And so those silos store 2.5 million pounds of sand. In a single day, we may pump 15 million pounds of sand. So we will turn over those silos 6 x in a day, which is just a tremendous amount of volume. So it's all about being highly reliable. We measure uptime. In the reverse, we measure downtime. So we don't really focus on what our uptime rate is. We focus on what is our downtime.
W hen we look at it on a percentage basis, our uptime historically is roughly 99.8%. So it's really not really worth analyzing that. We really focus on where are the issues and where have we been down and why. So our organization is very focused on nonproductive time and ensuring that our customers are not experiencing that.
Today, on locations, we may see customers pumping 23+ hours per day. So there really is no time for any hiccups along the way. The left side of the page is our latest innovation, which is where the growth capital went in over the last two years a nd that was in the manufacturing and deployment of what we call a top-fill loading system.
Effectively, what that is, is a bucket elevator that takes the sand from the ground, lifts it to the top of the silos, and then we have two articulating belts that go to each of the silos. What this does, it allows us to use the trucks all the way on the left side of the page. That's a grain or belly dump truck that drives over the ramp, unloads in, call it, three minutes, and drives away and is going to the mine to get filled again.
So what that allows us to do is turn trucks very quickly and, secondly, carry a significantly higher payload. Historically, our system would have utilized trucks that offload in roughly 40 minutes and carry 48,000 pounds of sand. Trucks we're using today are offloading in three minutes, and they're carrying 55,000+ pounds of sand. So we're getting significantly higher payloads, faster turns.
It's all reducing the amount of trucking required to perform the job, which is accruing to significantly reduced costs to our customers. This has allowed us to effectively double the EBITDA that we generate per well site while still delivering lower costs for our customers. So this is true economic rent that's being created through innovation.
So we are really a leader of innovation and thought on what we call the low-pressure side of a well site. The high-pressure side of the well site is where the traditional pressure pumpers exist, where you've got a lot of the horsepower, the high-pressure iron, well heads, etc. We're really experts today on the low-pressure side of the well site.
A point on that, if we look at the growing asset base of frac fleets today, the frac fleets themselves are probably flat to down, but there is actually growth embedded in those numbers. T he growth is coming through electric frac fleets. So between Halliburton, ProPetro, Liberty, ProFrac, Evolution, all the growth dollars that pressure pumpers are putting in their business, for the most part, are going towards electric frac fleets. They're having to invest lots and lots of money into getting themselves electrified.
Our business, our product, our solutions have been 100% electric from day one. We don't require any incremental capital to use distributed power generated on site to run our equipment. So today, we're running our equipment off-grid. We're running it off turbine distributed power. We're running it off reciprocating engines that are on location providing distributed electricity.
That's a real edge that we have relative to our competition. Most of our competition relies on diesel-powered either forklifts or some sort of yellow iron that is not electric, nor do they really have any path towards getting to an electric solution at any point in time. So real edge there. W hen we look at where our market share has grown, it's with customers electing for the electric solution. Highlighting as a summary, we are uniquely positioned as a true disciplined spender of capital, returner of capital.
Shareholder returns are key to our focus as a company. As employees, every employee at Solaris owns stock. That's pretty unique. Every employee gets a grant at the beginning of the year all the way down to our field technicians a nd frequently, they're asking us about the dividend, which is just great alignment to see.
We've had a tremendous track record around shareholder returns, and we'll continue to do that. We've got a very unique position from an insider ownership perspective. We've got a tremendous balance sheet that gives us flexibility to invest in the business organically as we've done over the last couple of years.
We don't have any anticipated near-term growth opportunities from an organic standpoint, but we're always evaluating, and our balance sheet provides us with the flexibility to pursue those if we identify those. We've been a consistent performer in the field with our customers, which is really something that's allowed us to continue to grow and evolve the business. So with that, I think we hand it back over.
Great. Thanks so much, Kyle. We have about 15 minutes remaining. So if anyone has some questions, you press that Q&A button at the bottom of your screen, and we'll get to as many as we can.
Kyle, just to kick it off for people who maybe are more generalists and are unfamiliar exactly with this portion of the business, just to put it in perspective, as we've gone through this earnings season, we continue to hear more and more about longer and longer laterals in the Permian 3 miles, 4 miles +. Just to give that perspective, how much sand in pounds is going into that kind of a well?
Yeah. I mean, so the way we think about sand intensity is measured on a lateral foot basis, so per lateral foot. S o I think anywhere from 2,500-3,500 pounds per lateral foot is where the market is. So that's-
You're talking about, for perspective, you're talking about multiple route truck deliveries for one well, and then they're going to be doing multiple wells.
Yeah. So I mean, we're seeing 200-300 truckloads of sand per day just to keep up with the jobs. Yeah. So yeah, I'd say just maybe at 2,000 pounds per lateral foot at 17,500 feet, that's a 35 million-pound well.
So that's crazy.
W e used to think about 20 million-pound wells as sort of the upper end. But what's changed is what you said. Laterals have changed. So we're working for a customer that's going to be doing a 44-well pad, 44 wells. Each of them will be 3.5 miles long. So when you put 800,000 lateral feet.
So when you think about that, your delivery system, anything that cuts hours, minutes out of the delivery of that proppant per well and over multiple wells, the cost savings can be substantial.
Yeah, a nd the biggest piece right now is two pieces. One is the uptime. So they're really targeting 24-hour pumping days.
Yeah, 24-hour pumping days. No downtime, no waiting on sand, no waiting on any equipment being down. T hen the second piece is the trucking side of this. The bucket elevator top load system that we've built has allowed us to introduce new value that the only person losing out in that is probably the trucking carriers. The operators are winning by paying less for trucking, and we're winning by generating great returns on the incremental capital that we've deployed.
It's also allowed us to pull through some of our unutilized sand systems into new market share. So this new technology has allowed us to start working for certain operators, large-scale operators that historically we had not worked for when our system was 100% pneumatic.
Wow. We actually are filling in the question queue right now. So let me kick it off with the first question we see. Obviously, we know U.S. land is in the condition it is this year. We are down in terms of at least rig count. How's that? We've seen pricing be affected in certain end markets. How is it affecting your area, your group?
Yeah. It's a great question. Our model is a little different than a lot of other service models. We typically rent our equipment on a monthly basis. So if a customer goes from pumping 20 hours a day to 24 hours a day, they're going to be paying a lot of their other service providers incrementally for that. For our line of business, our model, they don't pay us anything extra.
So we actually were able to increase pricing on a per-month rental rate basis at the beginning of the year a nd our customers, when they look at it year- over- year, they're actually paying less per well for our stuff.
Because they're pumped because it's more round the clock?
They're pumping more. It's more efficient. They're pumping more hours. Exactly. So again, back to a win-win, we're able to show rising rates for our returns, but then also a total cost of ownership from our customers is actually declining.
We have a question about complementary services. What would you consider? Would you ever get into sand delivery?
So we actually are in the sand delivery business today. We do it for roughly 10% of our systems, but we do it on an asset-like basis. So we don't own any trucks. We don't have any drivers b ut we will go out and contract with third parties to provide an all-in delivered solution to our customers.
We've developed internal software to manage that process. We have a group internally that manages the ebbs and flows of running all of those trucks b ut we do it in a very asset-light business. So it gives us an opportunity to capture a little bit more margin for a little value-added service.
Without taking the risk of?
Exactly. Yeah. Trucks are great. Drivers, not so much. T he reality is the market always seems to find capacity. It can be tight from time to time, and you may have opportunities to arbitrage that b ut in general, we've been better served to not own that capacity, not have to own that capacity.
Right. Fair. Obviously, a lot of the talk is around operator consolidation. How are you dealing with it? Are you seeing that to be a risk over the next multiple quarters? A lot of companies are trying to cite, "Well, we're on the buy. We work with the buyer, so it's great for us," or whatever.
Yeah. I mean, I think if you're—so we're a third of the market. So there's no world that exists where we're only going to work for the buyers in transactions. We work for everybody. So I wouldn't be so flippant to say we only work for buyers. What I would say is, I think in general, the buyers tend to be people that are focused on better solutions like electric frac fleets.
S o when they think about the pro forma supply chain and how they're sourcing, generally speaking, they're going for service providers that are of a larger scale that can provide a wider range of options in multiple basins. So we're uniquely positioned that we're in every basin.
T hen I think our asset base aligns with where the consolidators are going, which is longer laterals, bigger pads where you need the most reliable, most efficient solution. So the one-off mom-and-pops, quite frankly, are not as motivated around the efficiencies.
They're motivated around timing the market and pushing production as hard as they can to show rates so that people are buying that, and then activity falls off from there. So I think what we've seen on balance is day one of a transaction, sometimes we're losing out, but other times, or in other times, we're winning in those but when we are losing out we do see that over time they tend to transition to solutions that look like ours.
Understood. Turning to the cash flow story, with the reduced CapEx, we do have a question about your plans to pay down debt b ut I would want to add to that question, given that you have pretty significant dividend coverage moving forward without significant CapEx plans, what are you thinking about cash flow beyond debt repayments?
Yeah. The dividend and debt repayment are sacrosanct. I think we bought back some stock at $7 a share, roughly, in the early part of Q1. We're being value-sensitive around that. We also have taken the view that we've had this debt, and it just sort of lingers, and we'd like to get the monkey off the back. At 8%, it's not free money anymore.
So we'd like to reload the balance sheet because the balance sheet does give us flexibility, as we highlight on this page here, to pursue both organic and inorganic opportunities. S o we don't want to be in a position where we don't have that as an option, or we've constrained that option because we've been so myo pically focused on buybacks.
We think structurally, buybacks make a ton of sense, and we will continue to be in the market around that b ut we've got multiple avenues to use the cash. A gain, we've highlighted 50% of free cash flow going back to shareholders in the form of buybacks and dividends. The dividend is only $20 million. So that leaves either room for increase in dividend, special dividend, or buybacks.
Gotcha. This leads right into this question, which is, it is a cyclical industry. This year, views of a flattish rig count. When you're dealing with this kind of volatility, how do you plan for long-term growth?
Well, just to quickly hit on it from a not necessarily growth, but we have a very low operating cost structure. So relative to other companies of our size from an EBITDA perspective, we've got 350 employees. So we are a very low-headcount business, and we manage some of that piece with contractors. So we are able to flex that up and down. That is a really unique thing about our business. We're not carrying a massive overhead burden.
When we think about growth broadly, we are supportive and believe that the gas markets will strengthen over time as LNG demand and global demand around gas improves and the U.S. becomes the marginal producer, or at least in that mix.
So we think activity can improve from here. We are a believer very much in the structural efficiencies in the marketplace around frac efficiencies. So we don't think we ever get back to this sort of 400 world of frac fleets b ut we do see some level of upside, is it 10%-20% from here? So there's some level of just embedded growth there.
We've got unutilized assets that can go to work today to generate incremental cash flow. So that's the most immediate, doesn't cost us anything, tremendous rate of return growth story. T hen outside of that, we're really uniquely positioned with a clean balance sheet, public currency, tremendous market share to be an acquirer of other businesses that are looking for their permanent home.
They may have a unique technology within a private company context that is looking for their permanent home outside of, say, a private equity owner a nd we may be the right platform for them to grow that business. I don't think we're going to be in the marketplace looking for commoditized services just for growth for growth's sake.
We tend to like things that have some sort of technological edge that give us- we like the idea of buying something that's proven but requires either growth capital, growth focus, pro forma that allow us to sort of buy down a purchase multiple in an inorganic case.
Gotcha. Solaris has been around long enough that you've seen a pretty significant evolution of proppant usage. I mean, ceramic proppant was still somewhat popular when you guys were founded. Then they switched to Midwestern sand, and now we've seen this progression to more local sand, which cuts costs from rail costs and such. Do you have to make changes in the business structure as the source of proppant shifts?
Historically, we have not. The only modification is what we're seeing now is the latest marginal production is wet sand a nd so in order to use our system for wet sand, we do have to make some modest capital modifications to the equipment.
But the equipment handles it. We just have to make some tweaks to the bottom of the silo effectively to allow the sand to come out because the wet sand can do the cleaning. But for the most part, no, we've been very agnostic to the source of sand, and that's given us a lot of flexibility.
Okay. In terms of the remainder of the year, any thoughts on how you see the market playing out? The general view is flat rig count. There could be in the gassier plays, there could still be a little bit of downside. 2025, we start seeing things get better again. Do you take a view of market, or are you more reactive?
Yeah. No, I think those are all consistent with the way we think about it. I think what we are seeing is bifurcation in service providers. ProPetro announced last week, maybe this week, a multi-year contract with XTO for 2 of their electric fleets a nd so if you're on the right side of that equation, I think you can actually grow market share here.
W e've got overcapacity in the pumping market, especially if we're in a flat to declining market activity. So those that are going to accrue the market share are those with the better assets, and those are typically the electric solutions. So yeah, we don't have a whole lot of different view on market, but we do think there's ways for certain providers to perform outside of those fundamentals.
When I think about who your customers are, can you provide a little bit of explanation whether it's the service providers, the frac fleet operators, or is it the actual E&P, or is it a mix just so we understand?
Yeah. It's absolutely a mix. EOG has been our largest customer for eight years. We're on basically every frac fleet that EOG runs across the country. They are an operator that likes to break up the supply chain and source each one themselves. We have other operators that we've worked for for a very long time where they don't do that, but they spec us into their RFQ, and we come through the pressure pumper.
T hen on a third basis, we have pressure pumpers that like to pull us along in their bidding process. So we work for everybody. We also work for some really one large sand company. So we're really just uniquely positioned as an agnostic provider of this specialized equipment. We don't own the sand. We don't own the pumping, which is where the big dollars are. We allow all of that to kind of work efficiently.
Any change on either side that could be? I mean, we know the U.S. Silica going private. Does any transactions like that have an effect on you?
I don't think so. We're believers that sand needs consolidation. Hi-Crush was acquired by Atlas earlier this year, I presume. The take-private of U.S. Silica will translate into somewhat of a breakup of the company and then a consolidation with the spun-off sand piece, yeah, frac sand piece, rather.
So we're believers in that. A ll in all, we structurally see sand pricing more supply relative to demand coming to the market. So we're believers in lower for longer on sand prices just structurally. S o that's supportive to our business.
Great. Covered a lot of ground in a half hour. Got about a minute left. Let me turn it over to you, Kyle. Anything you want to cover or any closing thoughts you want to leave everybody?
Yeah. Yeah. Only closing thoughts. Really appreciate everyone's time. Look forward to meeting with folks. We have a really unique small business here that's done a tremendous job of returning cash to shareholders. We're going to continue to do that. We've got a lot of embedded options within our current asset base that can generate a lot of torque as well as a unique team that can go and look at lots of different things.
Great. Kyle Ramachandran and the team from Solaris Oilfield Infrastructure, SOI is the ticker. Hope everybody found it as informative as I did, and I hope everyone enjoys the remainder of the conference. Thanks, everybody. Thanks, Kyle.
Thank you.