Nov 1, 2018   SOURCE: BusinessWire

Solaris Oilfield Infrastructure Announces Third Quarter 2018 Results

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) (“Solaris” or the “Company”), a leading independent provider of supply chain management and logistics solutions designed to drive efficiencies and reduce costs for the oil and natural gas industry, today reported financial results for the third quarter 2018.

Third Quarter 2018 Financial Review

Solaris reported net income of $26.4 million, or $0.49 per diluted Class A share, for third quarter 2018, compared to net income of $21.4 million, or $0.40 per diluted Class A share, in second quarter 2018 and net income of $7.4 million, or $0.12 per diluted Class A share, in third quarter 2017.

Adjusted EBITDA for third quarter 2018 was $36.5 million, an increase of $6.5 million compared to second quarter 2018 and an increase of $25.3 million from third quarter 2017. A description of adjusted EBITDA and a reconciliation to net income, its most directly comparable GAAP measure, is provided below.

Adjusted pro forma net income for third quarter 2018 was $24.0 million, or $0.51 per fully exchanged and diluted share, an increase of $4.3 million and $0.09 per fully exchanged and diluted share from second quarter 2018 and an increase of $18.6 million and $0.38 per fully exchanged and diluted share compared to third quarter 2017. A description of adjusted pro forma net income and a reconciliation to net income attributable to Solaris, its most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are provided below.

Revenues were $56.7 million for third quarter 2018, an increase of $9.5 million, or 20%, compared to second quarter 2018, and an increase of $38.2 million, or 207%, compared to third quarter 2017.

During third quarter 2018, the Company generated 11,848 revenue days, the combined number of days that its systems earned revenue during the quarter, a 20% increase from second quarter 2018, and up 159% compared to third quarter 2017. Customer demand and adoption rates for Solaris’ systems continue to grow as proppant consumption and intensity increase across the industry and customers realize the benefits of Solaris’ technology.

Capital Expenditures and Liquidity

Driven by strong customer demand and continued customer adoption of its products and services, the Company invested $38.8 million during third quarter 2018, which included adding 24 mobile proppant management systems to the fleet, ending the quarter with 146 systems. These investments help address rising customer demand and are expected to drive future earnings and cash flow growth for Solaris.

As of September 30, 2018, the Company had approximately $64.1 million of liquidity, including $2.1 million in cash and $62.0 million of availability under its credit facility, net of $8.0 million of outstanding borrowings.

Operational Update and Outlook

Solaris ended October 2018 with 152 mobile proppant management systems deployed in the rental fleet. The Company’s most active operating areas continue to be the Delaware Basin, Eagle Ford Shale and Midland Basin, followed by the SCOOP/STACK formation, the Marcellus/Utica Shale, the Haynesville Shale, the Rockies and the Barnett Shale. The Company’s systems are highly mobile and can be deployed quickly in response to customer demand.

Based on current industry activity levels, the Company believes it has approximately 1/3 of overall U.S. market share which represents the leading share for mobile proppant handling solutions. Secular increases in proppant consumption rates, supply chain disruptions and logistics complexities continue to drive demand for Solaris’ products and services. Based on its current manufacturing outlook, the Company expects to end the fourth quarter with 160 to 162 mobile proppant management systems and three mobile chemical management systems in the fleet. Solaris continues to enhance its supply chain management offerings through software development, automation and additional products and services.

Solaris’ Chairman and Chief Executive Officer Bill Zartler commented, “Our growth in the third quarter of 2018 highlights the value we provide to our customers as they manage growing complexities around manufacturing-type operations such as multi-well pad developments and zipper fracs. While we are not immune to the temporary completion headwinds in the lower-48, including infrastructure bottlenecks and budget exhaustion, we believe Solaris will continue to outperform overall industry activity levels by providing innovative, reliable, safe and cost saving solutions to our customers.”

Conference Call

The Company will host a conference call to discuss its third quarter 2018 results on Thursday, November 1, 2018 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time). To join the conference call from within the United States, participants may dial (844) 413-3978. To join the conference call from outside of the United States, participants may dial (412) 317-6594. When instructed, please ask the operator to be joined to the Solaris Oilfield Infrastructure, Inc. call. Participants are encouraged to log in to the webcast or dial in to the conference call approximately ten minutes prior to the start time. To listen via live webcast, please visit the Investor Relations section of the Company’s website, http://www.solarisoilfield.com.

An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately seven days. It can be accessed by dialing (877) 344-7529 within the United States or (412) 317-0088 outside of the United States. The conference call replay access code is 10124512. The replay will also be available in the Investor Relations section of the Company’s website shortly after the conclusion of the call and will remain available for approximately seven days.

About Solaris Oilfield Infrastructure, Inc.

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) manufactures and rents mobile equipment that drives supply chain and execution efficiencies in the completion of oil and natural gas wells. Solaris’ patented mobile proppant management systems are deployed in many of the most active oil and natural gas basins in the United States, including the Permian Basin, the Eagle Ford Shale, the STACK/SCOOP formation, the Marcellus and Utica Shales, the Haynesville Shale, the Rockies and the Barnett Shale. Solaris’ high-capacity transload facility in Kingfisher, Oklahoma serves customers with operations in the STACK/SCOOP formation. Additional information is available on the Solaris’ website, www.solarisoilfield.com.

Website Disclosure

We use our website (www.solarisoilfield.com) as a routine channel of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under SEC Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.

None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated by reference into, or deemed to be a part of, this Current Report on Form 8-K or will be incorporated by reference into any other report or document we file with the SEC unless we expressly incorporate any such information by reference, and any references to our website are intended to be inactive textual references only.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of forward-looking statements include, but are not limited to, statements we make regarding management changes, the outlook for the operation of our Kingfisher Facility, current and potential future long-term contracts and our future business and financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to the factors discussed or referenced in our filings made from time to time with the SEC. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

           

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2018 2017 2018 2018 2017
Revenue
Proppant system rental $ 42,031 $ 15,062 $ 35,127 $ 104,563 $ 34,560
Proppant system services 12,053 3,416 9,937 29,499 7,631
Transloading services 2,000 — 1,397 3,847 —
Proppant inventory software services   602     —     694     1,950     —  
Total revenue 56,686 18,478 47,155 139,859 42,191
Operating costs and expenses
Cost of proppant management system rental (excluding $4,133, $1,523 and $3,359 of depreciation and amortization for the three months ended September 30, 2018 and 2017 and June 30, 2018, respectively, and $10,128 and $3,748 of depreciation and amortization for the nine months ended September 30, 2018 and 2017, respectively, shown separately) 1,949 641 1,683 5,050 1,588
Cost of proppant management system services (excluding $347, $129 and $305 of depreciation and amortization for the three months ended September 30, 2018 and 2017 and June 30, 2018, respectively, and $889 and $283 of depreciation and amortization for the nine months ended September 30, 2018 and 2017, respectively, shown separately) 13,906 3,933 11,679 34,691 8,640
Cost of transloading services (excluding $529 and $10 of depreciation and amortization for the three months ended September 30, 2018 and June 30, 2018, respectively, and $544 of depreciation and amortization for the nine months ended September 30, 2018, shown separately) 597 — 535 1,464 —
Cost of proppant inventory software services (excluding $193 and $193 of depreciation and amortization for the three months ended September 30, 2018 and June 30, 2018, respectively, and $598 of depreciation and amortization for the nine months ended September 30, 2018, shown separately) 191 — 167 614 —
Depreciation and amortization 5,328 1,742 3,984 12,514 4,276
Salaries, benefits and payroll taxes 2,182 2,942 3,169 7,972 5,687

Selling, general and administrative (excluding $126, $90 and $117 of depreciation and amortization for the three months ended September 30, 2018 and 2017 and June 30, 2018, respectively, and $355 and $245 of depreciation and amortization for the nine months ended September 30, 2018 and 2017, respectively, shown separately)

1,687 1,176 1,123 4,690 3,653
Other operating expenses   56     (38 )   19     1,752     3,770  
Total operating cost and expenses   25,896     10,396     22,359     68,747     27,614  
Operating income 30,790 8,082 24,796 71,112 14,577
Interest expense, net (116 ) (27 ) (71 ) (271 ) (71 )
Other expense   —     (32 )   —     —     (119 )
Total other income (expense)   (116 )   (59 )   (71 )   (271 )   (190 )
Income before income tax expense 30,674 8,023 24,725 70,841 14,387
Provision for income taxes   4,237     617     3,277     9,541     1,137  
Net income 26,437 7,406 21,448 61,300 13,250
Less: net (income) loss related to Solaris LLC — — — — (3,665 )
Less: net income related to non-controlling interests   (13,418 )   (6,027 )   (10,851 )   (31,754 )   (8,049 )
Net income attributable to Solaris $ 13,019   $ 1,379   $ 10,597   $ 29,546   $ 1,536  
                   
Earnings per share of Class A common stock - basic (1) $ 0.49   $ 0.13   $ 0.40   $ 1.13   $ 0.14  
Earnings per share of Class A common stock - diluted (1) $ 0.49   $ 0.12   $ 0.40   $ 1.12   $ 0.14  
 
Basic weighted average shares of Class A common stock outstanding (1) 26,197 10,100 25,541 25,216 10,100
Diluted weighted average shares of Class A common stock outstanding (1) 26,329 10,563 25,711 25,380 10,552
 
(1) – Represents earnings per share of Class A common stock and weighted average shares of Class A common stock outstanding for the period following the initial public offering (“IPO”).
       

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
September 30, December 31,
2018 2017
Assets
Current assets:
Cash $ 2,077 $ 63,421
Accounts receivable, net 34,578 12,979
Prepaid expenses and other current assets 8,473 3,622
Inventories   8,575     7,532  
Total current assets 53,703 87,554
Property, plant and equipment, net 269,033 151,163
Goodwill 17,236 17,236
Intangible assets, net 4,735 5,335
Deferred tax assets 26,588 25,512
Other assets   1,529     260  
Total assets $ 372,824   $ 287,060  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,993 $ 5,000
Accrued liabilities 15,408 15,468
Current portion of insurance premium financing 874 —
Current portion of capital lease obligations 35 33
Other current liabilities   75     —  
Total current liabilities   22,385     20,501  
Senior secured credit facility 8,000 —
Capital lease obligations, net of current portion 162 179
Payables related to Tax Receivable Agreement 52,866 24,675
Other long-term liabilities   663     145  
Total liabilities   84,076     45,500  
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued and outstanding — —
Class A common stock, $0.01 par value, 600,000 shares authorized, 26,607 issued and 26,516 outstanding as of September 30, 2018 and 19,026 issued and 19,010 outstanding as of December 31, 2017 266 190
Class B common stock, $0.00 par value, 180,000 shares authorized, 20,110 shares issued and outstanding as of September 30, 2018 and 26,811 issued and outstanding as of December 31, 2017 — —
Additional paid-in capital 126,251 121,727
Retained earnings 33,182 3,636
Treasury stock (at cost), 91 shares and 16 shares as of September 30, 2018 and December 31, 2017, respectively   (1,410 )   (261 )
Total stockholders' equity attributable to Solaris and members' equity   158,289     125,292  
Non-controlling interest   130,459     116,268  
Total stockholders' equity   288,748     241,560  
Total liabilities and stockholders' equity $ 372,824   $ 287,060  
     

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

For the Nine Months Ended
September 30,

2018 2017
Cash flows from operating activities:
Net income $ 61,300 $ 13,250
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,514 4,276
Loss on disposal of asset 222 451
Stock-based compensation 3,140 2,097
Amortization of debt issuance costs 218 35
Deferred income tax expense 9,000 1,059
Other 651 (19 )
Changes in assets and liabilities:
Accounts receivable (21,599 ) (5,033 )
Prepaid expenses and other assets (3,667 ) (3,625 )
Inventories (8,575 ) (6,675 )
Accounts payable 441 4,504
Accrued liabilities   3,894     2,679  
Net cash provided by operating activities   57,539     12,999  
Cash flows from investing activities:
Investment in property, plant and equipment (125,013 ) (49,015 )
Proceeds from disposal of asset (6 ) (34 )
Investment in intangible assets   160     —  
Net cash used in investing activities   (124,859 )   (49,049 )
Cash flows from financing activities:
Payments under capital leases (21 ) (20 )
Payments under insurance premium financing (841 ) —
Payments under notes payable — (451 )
Proceeds from stock option exercises 932 —
Payments related to purchase of treasury stock (1,140 ) —
Proceeds from borrowings under the senior secured credit facility 8,000 3,000
Repayment of senior secured credit facility — (5,500 )
Proceeds from pay down of promissory note related to membership units — 4,303
Payments related to debt issuance costs (1,014 ) (111 )
Proceeds from issuance of Class A common stock sold in initial public offering, net of offering costs — 111,075
Distributions paid to unit and option holders — (25,818 )
Other   60     —  
Net cash provided by financing activities   5,976     86,478  
Net increase (decrease) in cash (61,344 ) 50,428
Cash at beginning of period   63,421     3,568  
Cash at end of period $ 2,077   $ 53,996  
Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment $ 501 $ 492
Property and equipment additions incurred but not paid at period-end 6,309 3,135
Financing:
Insurance premium financing 1,552 —
Accrued interest from notes receivable issued for membership units — 109
Cash paid for:
Interest 118 96
Income taxes 314 45
 

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION — ADJUSTED EBITDA
(In thousands)
(Unaudited)

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus (i) depreciation and amortization expense, (ii) interest expense and (iii) income tax expense, including franchise taxes. We define Adjusted EBITDA as EBITDA plus (i) unit-based compensation expense and (ii) certain non-cash charges and unusual or non-recurring charges.

We believe that our presentation of EBITDA and Adjusted EBITDA provides useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of Net income to EBITDA and Adjusted EBITDA for each of the periods indicated.

       
Three months ended Nine months ended
September 30,     June 30, September 30,
2018     2017 2018 2018     2017
 
Net income $ 26,437 $ 7,406 $ 21,448 $ 61,300 $ 13,250
Depreciation and amortization 5,328 1,742 3,984 12,514 4,276
Interest expense, net 116 27 71 271 71
Income taxes (1)   4,237   617     3,277   9,541   1,137  
EBITDA $ 36,118 $ 9,792 $ 28,780 $ 83,626 $ 18,734
IPO bonuses (2) — 617 307 896 4,046
Stock-based compensation expense (3) 338 795 939 2,200 1,172
Non-recurring cash bonuses (4) — — — 1,679 —
Change in payables related to tax receivable agreement — (83 ) — — (83 )
Loss on disposal of assets 51 41 23 77 451
Non-recurring organizational costs (5) — — — — 348
Other (6)   —   36     —   —   36  
Adjusted EBITDA $ 36,507 $ 11,198   $ 30,049 $ 88,478 $ 24,704  

_______________________________________

 
(1) Federal and state income taxes.
 
(2) One-time cash bonuses of $3,100 in the nine months ended September 30, 2017, stock-based compensation expense related to restricted stock awards with one-year vesting of $617 and $307 for the three months ended September 30, 2017 and June 30, 2018, respectively, and $896 and $946 for the nine months ended September 30, 2018 and 2017, respectively, that were granted to certain employees and consultants in connection with the IPO.
 
(3) Represents stock-based compensation expense of $338, $685 and $939 for the three months ended September 30, 2018 and 2017 and June 30, 2018, respectively, and $2,200 and $904 for the nine months ended September 30, 2018 and 2017, respectively, related to restricted stock awards with three-year vesting, and $110 and $268 for the three and nine months ended September 30, 2017, respectively, related to the options issued under our long-term incentive plan.
 
(4) Certain performance-based cash awards paid in connection with the purchase of Railtronix upon the achievement of certain financial milestones.
 
(5) Certain non-recurring organization costs in 2017 associated with our IPO.
 
(6) Non-recurring transaction costs in the three months ended September 30, 2017.
 

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION — ADJUSTED PRO FORMA NET INCOME AND ADJUSTED PRO FORMA
EARNINGS PER FULLY EXCHANGED AND DILUTED SHARE
(In thousands)
(Unaudited)

Adjusted pro forma net income represents net income attributable to Solaris assuming the full exchange of all outstanding membership interests in Solaris LLC not held by Solaris Oilfield Infrastructure, Inc. for shares of Class A common stock, adjusted for certain non-recurring items that the Company doesn't believe directly reflect its core operations and may not be indicative of ongoing business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding Solaris LLC Units, after giving effect to the dilutive effect of outstanding equity-based awards.

When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that the Company believes are useful measures to evaluate performance period over period and relative to its competitors. By assuming the full exchange of all outstanding Solaris LLC Units, the Company believes these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income attributable to Solaris as a result of increases in its ownership of Solaris LLC, which are unrelated to the Company's operating performance, and excludes items that are non-recurring or may not be indicative of ongoing operating performance.

Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net income and earnings per share, as determined under GAAP. While these measures are useful in evaluating the Company's performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income attributable to Solaris. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with GAAP financial results. A reconciliation of adjusted pro forma net income to net income attributable to Solaris, the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.

       
Three months ended Nine months ended
September 30,     June 30, September 30,
2018     2017 2018 2018     2017
Numerator:
Net income attributable to Solaris $ 13,019 $ 1,379 $ 10,597 $ 29,546 $ 1,536
Adjustments:
Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests(1) 13,418 6,027 10,851 31,754 8,049
IPO bonuses (2) — 617 307 896 4,046
Non-recurring cash bonuses (3) — — — 1,679 —
Loss on disposal of assets 51 41 23 77 451
Non-recurring organizational costs (4) — 36 — — 348
Income tax expense   (2,465 )   (2,570 )   (2,092 )   (5,622 )   (5,942 )
Adjusted pro forma net income $ 24,023   $ 5,530   $ 19,686   $ 58,330   $ 8,488  
Denominator:
Weighted average shares of Class A common stock outstanding - diluted 26,329 10,563 25,711 25,380 10,552
Adjustments:
Assumed exchange of Solaris LLC Units for shares of Class A common stock (1)   20,781     32,726     21,560     21,843     32,683  
Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding - diluted   47,110     43,289     47,271     47,223     43,235  
Adjusted pro forma earnings per fully exchanged share - diluted $ 0.51   $ 0.13   $ 0.42   $ 1.24   $ 0.20  
 
(1) Assumes the exchange of all outstanding Solaris LLC Units for shares of Class A common stock at the beginning of the relevant reporting period, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests.
 
(2) One-time cash bonuses of $3,100 in the nine months ended September 30, 2017, stock-based compensation expense related to restricted stock awards with one-year vesting of $617 and $307 for the three months ended September 30, 2017 and June 30, 2018, respectively, and $896 and $946 for the nine months ended September 30, 2018 and 2017, respectively, that were granted to certain employees and consultants in connection with the IPO.
 
(3) Certain performance-based cash awards paid in connection with the purchase of Railtronix upon the achievement of certain financial milestones.
 
(4) Certain non-recurring organization costs in 2017 associated with our IPO.