Business context and reporting period
Solaris Oilfield Infrastructure, Inc. (SOI) filed this unaudited Form 10-Q for the quarter ended March 31, 2023. The company designs and manufactures equipment and provides field support, last-mile logistics and software for oil and gas well completions. Results are compared with the three months ended March 31, 2022; interim results are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $82.7 million | $56.9 million | +45% |
| Operating income | $14.9 million | $7.4 million | +$7.5 million |
| Net income | $11.9 million | $5.7 million | +$6.2 million |
| Net income attributable to Solaris | $7.6 million | $3.5 million | +$4.1 million |
| Diluted EPS | $0.23 | $0.11 | +$0.12 |
| Adjusted EBITDA | $25.1 million | $15.7 million | +$9.4 million |
| Cash from operating activities | $16.8 million | $6.3 million | +$10.6 million |
| Cash used in investing activities | $18.8 million | $11.5 million | +$7.3 million |
Operating margin was approximately 18.0%, compared with 13.0% a year earlier. Cost of services, excluding depreciation and amortization, was 64% of revenue versus 66%. Management attributed growth primarily to higher activity and updated pricing; fully utilized mobile proppant systems increased to 92 from 75.
Financial position and capital allocation
At March 31, 2023, cash and cash equivalents were $2.2 million, current assets were $86.0 million and current liabilities were $55.3 million. Credit Agreement borrowings were $26.0 million, versus $8.0 million at year-end 2022; the weighted-average interest rate was approximately 7.87%. Total liabilities were $162.6 million, including a $71.5 million Tax Receivable Agreement liability. Property, plant and equipment, net, was $313.3 million.
Capital expenditures were $18.9 million in the quarter. Cash declined by $6.7 million to $2.2 million, reflecting investment, share repurchases and dividends, partly offset by operating cash and $18.0 million of net borrowings. The company repurchased and retired 1.641 million Class A shares for $14.4 million, averaging $8.80 per share, under a $50 million authorization; $35.6 million remained. The quarterly Class A dividend was $0.11 per share.
Outlook, risks and other material items
- Management said operating cash flow, cash on hand and available credit were expected to meet cash needs, including capital expenditures, working capital and dividends, for the next 12 months and beyond. No quantitative earnings or revenue guidance was provided.
- Management noted commodity-price volatility, lower natural gas prices, inflation, supply constraints, industry capital discipline and customer consolidation as factors that could affect activity and demand. It said new products, pricing and growth in fully utilized systems had supported earnings, but future activity and demand remain uncertain.
- On April 28, 2023, after quarter-end, the company amended its credit facility, adding $25 million to increase the facility to $75 million while retaining an accordion feature for up to $100 million total capacity. As of May 3, the company reported approximately $34.5 million available to draw. The facility matures April 26, 2025; the amendment also modified certain covenants and introduced a reducing-revolver feature. The company reported compliance with covenants at quarter-end.
- Disclosure controls were concluded to be ineffective because of a material weakness in IT general controls for a third-party system supporting last-mile logistics financial reporting. The company reported no resulting financial-statement misstatements and was pursuing remediation.
- The company is appealing a property-tax exemption ruling against it and had accrued $3.1 million. An adverse resolution could materially affect results or cash flows.
- Customer concentration remains relevant: three customers represented 13%, 12% and 11% of Q1 revenue; one customer represented 13% of receivables at quarter-end. Related-party revenue was $4.9 million, and contingent payments of up to $4.0 million under certain service arrangements may be due through 2024.
Important facts for investors to verify
- Whether the company sustains revenue growth and margins as industry activity, pricing and product adoption evolve.
- Actual liquidity and borrowing availability under the amended facility, its revised covenants and scheduled reductions.
- Progress and testing of remediation for the disclosed IT-control material weakness.
- Potential cash and earnings impact of the property-tax appeal, the Tax Receivable Agreement and related-party commitments.
- Capital spending, share repurchases and dividends relative to operating cash generation and the low quarter-end cash balance.