Solaris Oilfield Infrastructure Announces Fourth Quarter and Full Year 2018 Results

Fourth Quarter and Full Year 2018 Highlights

  • Net income of $86.0 million, or $1.59 per diluted Class A share, for
    the year ended December 31, 2018; net income of $24.7 million, or
    $0.47 per diluted Class A share, in fourth quarter 2018
  • Adjusted EBITDA of $123.4 million for the year ended December 31,
    2018; adjusted EBITDA of $34.9 million in fourth quarter 2018
  • Ended the year with 160 proppant management systems and 3 chemical
    management systems in the rental fleet
  • Declared a regular quarterly dividend of $0.10 per share on December
    6, 2018

HOUSTON–(BUSINESS WIRE)–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 fourth quarter and full year 2018.

Full Year 2018 Financial Review

Solaris reported full year 2018 net income of $86.0 million, or $1.59
per diluted Class A share, compared to full year 2017 net income of
$22.5 million, or $0.27 per diluted Class A share. Adjusted pro forma
net income for the full year 2018 was $79.6 million, or $1.69 per fully
diluted share, an increase of $58.5 million and $1.21 per fully diluted
share from full year 2017 pro forma net income. 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 diluted share
are provided below.

Adjusted EBITDA for the full year 2018 was $123.4 million, an increase
of $83.4 million compared to full year 2017. A description of adjusted
EBITDA and a reconciliation to net income, its most directly comparable
GAAP measure, is provided below.

Revenues were $197.2 million for the full year 2018, an increase of
$129.8 million, compared to 2017.

During 2018, the Company generated 40,526 revenue days, the combined
number of days that its systems earned revenue during the year, a 142%
increase compared to 2017. The increase in revenue days were driven by
an increase in customer demand and adoption for Solaris’ systems as
consumption and intensity of proppant increased across the industry.

Fourth Quarter 2018 Financial Review

Solaris reported net income of $24.7 million, or $0.47 per diluted Class
A share, for fourth quarter 2018, compared to net income of $26.4
million, or $0.49 per diluted Class A share, in third quarter 2018 and
net income of $9.2 million, or $0.13 per diluted Class A share, in
fourth quarter 2017. Adjusted pro forma net income for fourth quarter
2018 was $21.6 million, or $0.45 per fully diluted share, a decrease of
$2.4 million and $0.06 per fully diluted share from third quarter 2018
and an increase of $12.7 million and $0.25 per fully diluted share
compared to fourth quarter 2017. A description of adjusted pro forma net
income and a reconciliation to net income attributable to Solaris, its
most directly comparable generally accepted accounting principles
(“GAAP”) measure, and the computation of adjusted pro forma earnings per
fully diluted share are provided below.

Adjusted EBITDA for fourth quarter 2018 was $34.9 million, a decrease of
$1.6 million compared to third quarter 2018 and an increase of $19.7
million from fourth quarter 2017. A description of adjusted EBITDA and a
reconciliation to net income, its most directly comparable GAAP measure,
is provided below.

Revenues were $57.3 million for fourth quarter 2018, an increase of $0.7
million, or 1%, compared to third quarter 2018, and an increase of $32.1
million, or 127%, compared to fourth quarter 2017.

During fourth quarter 2018, the Company generated 11,155 revenue days,
the combined number of days that its systems earned revenue during the
quarter, a 6% decrease from third quarter 2018, and up 82% compared to
fourth quarter 2017. Revenue days were down sequentially in fourth
quarter 2018 due to reduced industry activity levels, which resulted
from seasonal customer spending declines and commodity price volatility.

Capital Expenditures and Liquidity

The Company invested $36.1 million during fourth quarter 2018, which
included adding 14 mobile proppant management systems and introducing 3
mobile chemical management systems to the fleet. For full year 2018,
capital expenditures totaled $161.1 million, which included the addition
of 83 mobile proppant management systems and 3 mobile chemical
management systems, and the completion of the Kingfisher Facility. These
investments help address customer demand for Solaris’ products and
services and are expected to drive future earnings and cash flow growth
for Solaris.

As of December 31, 2018, the Company had approximately $82.1 million of
liquidity, including $25.1 million in cash and $57.0 million of
availability under its credit facility, net of $13.0 million of
outstanding borrowings. Subsequent to year end, the Company repaid all
of its outstanding borrowings under its credit facility with cash on
hand.

Operational Update and Outlook

Solaris ended December 2018 with 160 mobile proppant management systems
and 3 mobile chemical management systems in the rental fleet. Based on
current industry activity levels, the Company believes it has
approximately 1/3 of overall U.S. wellsite proppant storage market share
which represents the leading share. The Company expects to end the first
quarter 2019 with 163 mobile proppant management systems and 10 mobile
chemical management systems in the rental fleet.

Solaris’ Chairman and Chief Executive Officer Bill Zartler commented,
“Over the course of 2018 we outperformed overall industry activity
levels, including more than doubling our fleet size and introducing
several new products and enhancements. These new introductions,
including the industry’s first silo-based chemical management systems
and complete automation of our mobile sand systems, will provide
additional growth potential for Solaris. Our solutions reduce labor
requirements and improve wellsite safety for our customers, which is
critical for success during this time of commodity price uncertainty and
upstream capital spending discipline. We will continue to innovate and
be thought leaders in driving this efficiency for our customers, and at
the same time will exercise capital discipline in our business – only
deploying capital when we think we can generate an attractive return for
our shareholders.”

Quarterly Cash Dividend

On December 6, 2018, the Company announced that its Board of Directors
had declared its first quarterly cash dividend of $0.10 per share of
Class A common stock, which was paid on December 27, 2018 to holders of
record as of December 17, 2018. A distribution of $0.10 per unit was
also approved for holders of units in Solaris Oilfield Infrastructure,
LLC (“Solaris LLC”).

Conference Call

The Company will host a conference call to discuss its fourth quarter
and full year 2018 results on Thursday, February 28, 2019 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 at 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 10127929. 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 and mobile chemical 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 Bakken Shale. 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 the Securities
and Exchange Commission’s (the “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 Year Ended
December 31, September 30, December 31,
2018 2017 2018 2018 2017
Revenue
System rental $ 39,083 $ 20,093 $ 42,031 $ 143,646 $ 54,653
System services 13,511 4,906 12,053 43,010 12,537
Transloading services 4,236 2,000 8,083
Inventory software services   507     205     602     2,457     205  
Total revenue 57,337 25,204 56,686 197,196 67,395
Operating costs and expenses
Cost of system rental (excluding $4,792, $2,044 and $4,133 of
depreciation and amortization for the three months ended December
31, 2018 and 2017 and September 30, 2018, respectively, and $14,920
and $5,792 of depreciation and amortization for the years ended
December 31, 2018 and 2017, respectively, shown separately)
2,180 1,033 1,949 7,230 2,627
Cost of system services (excluding $385, $178 and $347 of
depreciation and amortization for the three months ended December
31, 2018 and 2017 and September 30, 2018, respectively, and $1,274
and $461 of depreciation and amortization for the years ended
December 31, 2018 and 2017, respectively, shown separately)
15,942 5,544 13,906 50,633 14,184
Cost of transloading services (excluding $410 and $529 of
depreciation and amortization for the three months ended December
31, 2018 and September 30, 2018, respectively, and $954 of
depreciation and amortization for the year ended December 31, 2018,
shown separately)
778 76 597 2,242 76
Cost of inventory software services (excluding $196, $42 and $193 of
depreciation and amortization for the three months ended December
31, 2018 and 2017 and September 30, 2018, respectively, and $794 and
$42 of depreciation and amortization for the years ended December
31, 2018 and 2017, respectively, shown separately)
183 191 797
Depreciation and amortization 5,908 2,359 5,328 18,422 6,635
Salaries, benefits and payroll taxes 2,411 3,522 2,182 10,383 9,209
Selling, general and administrative (excluding $125, $95 and $126 of
depreciation and amortization for the three months ended December
31, 2018 and 2017 and September 30, 2018, respectively, and $480 and
$340 of depreciation and amortization for the years ended December
31, 2018 and 2017, respectively, shown separately)
1,685 1,424 1,687 6,375 5,077
Other operating expenses   75     153     56     1,827     4,126  
Total operating cost and expenses   29,162     14,111     25,896     97,909     41,934  
Operating income 28,175 11,093 30,790 99,287 25,461
Interest expense, net (103 ) (26 ) (116 ) (374 ) (97 )
Income pursuant to Tax Receivable Agreement       22,939             23,022  
Total other income (expense)   (103 )   22,913     (116 )   (374 )   22,925  
Income before income tax expense 28,072 34,006 30,674 98,913 48,386
Provision for income taxes   3,420     24,762     4,237     12,961     25,899  
Net income 24,652 9,244 26,437 85,952 22,487
Less: net income related to Solaris LLC (3,665 )
Less: net income related to non-controlling interests   (11,767 )   (7,137 )   (13,418 )   (43,521 )   (15,186 )
Net income attributable to Solaris $ 12,885   $ 2,107   $ 13,019   $ 42,431   $ 3,636  
                   
Earnings per share of Class A common stock – basic (1) $ 0.47   $ 0.13   $ 0.49   $ 1.60   $ 0.28  
Earnings per share of Class A common stock – diluted (1) $ 0.47   $ 0.13   $ 0.49   $ 1.59   $ 0.27  
 
Basic weighted average shares of Class A common stock outstanding (1) 27,050 15,120 26,197 25,678 12,117
Diluted weighted average shares of Class A common stock outstanding
(1)
27,162 15,508 26,329 25,829 12,482

(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)
 
December 31, December 31,
2018 2017  
Assets
Current assets:
Cash $ 25,057 $ 63,421
Accounts receivable, net 39,746 12,979
Prepaid expenses and other current assets 5,492 3,622
Inventories   10,470     7,532  
Total current assets 80,765 87,554
Property, plant and equipment, net 296,538 151,163
Goodwill 17,236 17,236
Intangible assets, net 4,540 5,335
Deferred tax assets 24,624 25,512
Other assets   1,454     260  
Total assets $ 425,157   $ 287,060  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 9,127 $ 5,000
Accrued liabilities 12,658 15,468
Current portion of deferred revenue 12,990

Current portion of capital lease obligations 35 33
Other current liabilities   515      
Total current liabilities   35,325     20,501  
Senior secured credit facility 13,000

Deferred revenue, net of current portion 12,468

Capital lease obligations, net of current portion 154 179
Payables related to Tax Receivable Agreement 56,149 24,675
Other long-term liabilities   633     145  
Total liabilities   117,729     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,
27,091 issued and 27,000 outstanding as of December 31, 2018 and
19,026 issued and 19,010 outstanding as of December 31, 2017

271 190
Class B common stock, $0.00 par value, 180,000 shares authorized,
19,627 shares issued and outstanding as of December 31, 2018 and
26,811 issued and outstanding as of December 31, 2017
Additional paid-in capital 126,347 121,727
Retained earnings 43,317 3,636
Treasury stock (at cost), 91 shares and 16 shares as of December 31,
2018 and 2017, respectively
  (1,414 )   (261 )
Total stockholders’ equity attributable to Solaris and members’
equity
  168,521     125,292  
Non-controlling interest   138,907     116,268  
Total stockholders’ equity   307,428     241,560  
Total liabilities and stockholders’ equity $ 425,157   $ 287,060  
       
 
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
For the Year Ended December 31,
2018 2017
Cash flows from operating activities:
Net income $ 85,952 $ 22,487
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 18,422 6,635
Loss on disposal of asset 318 498
Stock-based compensation 3,861 3,701
Amortization of debt issuance costs 296 51
Change in payables related to Tax Receivable Agreement (23,022 )
Deferred income tax expense

12,277

25,652
Other 620 (28 )
Changes in assets and liabilities:
Accounts receivable (26,766 ) (8,469 )
Prepaid expenses and other assets (686 ) (3,273 )
Inventories (10,470 ) (7,532 )
Accounts payable 4,469 4,224
Accrued liabilities

2,614

5,805
Deferred revenue   25,458      
Net cash provided by operating activities   116,365     26,729  
Cash flows from investing activities:
Investment in property, plant and equipment (161,079 ) (93,912 )
Cash paid for Railtronix® acquisition (5,000 )
Investment in intangible assets (6 ) (72 )
Cash received from insurance proceeds   540      
Net cash used in investing activities   (160,545 )   (98,984 )
Cash flows from financing activities:
Payments under capital leases (28 ) (27 )
Payments under insurance premium financing (1,275 )
Payments under notes payable (451 )
Proceeds from stock option exercises 932
Payments related to purchase of treasury stock (1,146 )
Proceeds from borrowings under the senior secured credit facility 13,000 3,000
Repayment of senior secured credit facility (5,500 )
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
Proceeds from issuance of Class A common stock sold in November
Offering, net of offering costs
44,684
Distributions paid to unitholders (25,818 )
Proceeds from pay down of promissory note related to membership units 5,256
Distribution and dividend paid to Solaris LLC unitholders and Class
A common shareholders
(4,713 )
Other   60      
Net cash provided by financing activities   5,816     132,108  
Net increase (decrease) in cash (38,364 ) 59,853
Cash at beginning of period   63,421     3,568  
Cash at end of period $ 25,057   $ 63,421  
Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment $ 688 $ 668
Property and equipment additions incurred but not paid at period-end 3,909 7,765
Issuance of shares in acquisition 4,505
Financing:
Insurance premium financing 1,552
Accrued interest from notes receivable issued for membership units
Cash paid for:
Interest 281 104
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) stock-based compensation expense and (ii) certain non-cash
items and extraordinary, unusual or non-recurring gains, losses or
expenses.

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     Year ended
December 31,     September 30, December 31,
2018     2017 2018 2018     2017
 
Net income $ 24,652 $ 9,244 $ 26,437 $ 85,952 $ 22,487
Depreciation and amortization 5,908 2,359 5,328 18,422 6,635
Interest expense, net 103 26 116 374 97
Income taxes (1)   3,420   24,762     4,237   12,961   25,899  
EBITDA $ 34,083 $ 36,391 $ 36,118 $ 117,709 $ 55,118
IPO bonuses (2) 581 896 4,627
Stock-based compensation expense (3) 720 1,039 338 2,920 2,211
Non-recurring cash bonuses (4) 1,679
Change in payables related to Tax Receivable Agreement (22,939 ) (23,022 )
Loss on disposal of assets 76 47 51 153 498
Non-recurring organizational costs (5) 348
Other (6)     107         143  
Adjusted EBITDA $ 34,879 $ 15,226   $ 36,507 $ 123,357 $ 39,923  
(1)   Federal and state income taxes, including $22,637 related to the
United States federal income tax legislation enacted in Public Law
No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the
“Tax Act”) in the year ended December 31, 2017.
 
(2) One-time cash bonuses of $3,100 in the year ended December 31, 2017
and stock-based compensation expense related to restricted stock
awards with one-year vesting of $581 for the three months ended
December 31, 2017 and $896 and $1,527 for the years ended December
31, 2018 and 2017, respectively, that were granted to certain
employees and consultants in connection with the IPO.
 
(3) Represents stock-based compensation expense of $576, $1,012 and $275
for the three months ended December 31, 2018 and 2017 and September
30, 2018, respectively, and $2,713 and $1,918 for the years ended
December 31, 2018 and 2017, respectively, related to restricted
stock awards with three-year vesting, $144 and $63 for the three
months ended December 31, 2018 and September 30, 2018, respectively,
and $207 for the year ended December 31, 2018 related to restricted
stock awards with one-year vesting, and $27 and $293 for the three
months and year ended December 31, 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 2017.
 
 

Contacts

Yvonne Fletcher
Senior Vice President, Finance and Investor
Relations
(281) 501-3070
IR@solarisoilfield.com

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