Solaris Oilfield Infrastructure, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The filing entity is Solaris Oilfield Infrastructure, Inc. (SOI), which consolidates Solaris LLC; non-controlling interests reduce earnings attributable to SOI shareholders. The company supplies specialized equipment, field services, last-mile logistics and software for oil and gas well completions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $92.3m | $49.4m | $236.0m | $113.2m |
| Operating income (loss) | $14.0m | $2.0m | $31.7m | $(2.1)m |
| Net income (loss) | $11.5m | $1.4m | $25.5m | $(2.4)m |
| Net income (loss) attributable to Solaris | $7.4m | $0.9m | $16.4m | $(1.5)m |
| Adjusted EBITDA (non-GAAP) | $23.9m | $7.7m | $60.7m | $20.3m |
- Revenue rose 87% in Q3 and 108% for the nine-month period, primarily on higher activity and new products. Fully utilized mobile proppant systems averaged 94 in Q3 2022 versus 59 in Q3 2021; for the nine-month periods, the figures were 84 versus 55.
- Cost of services, excluding depreciation, was 70% of revenue in Q3 and 69% year to date, compared with 78% and 73% in the prior-year periods. Operating margin was approximately 15.1% in Q3 and 13.4% year to date, versus 4.1% and negative 1.9%, respectively.
- Q3 diluted earnings per Class A share were $0.22 versus $0.03; nine-month diluted earnings were $0.49 versus a loss of $0.06.
- Operating cash flow for the first nine months was $43.9m, versus $11.7m. Investing cash outflow was $57.8m, mainly reflecting $59.5m of property and equipment investment; financing cash outflow was $12.2m. Cash flow after investing outflows was negative $13.9m. Cash declined $26.1m to $10.4m.
Balance sheet and liquidity
- At September 30, 2022, cash was $10.4m, current assets $95.7m and current liabilities $60.8m. Accounts receivable, including related-party receivables, totaled approximately $71.1m.
- Debt under the revolving credit agreement was $6.0m, with $44.0m of stated availability under the $50.0m commitment. The facility matures in April 2025; the weighted-average rate on outstanding borrowings was approximately 5.61%. The company reported covenant compliance.
- Total liabilities were $147.4m, including a $72.6m Tax Receivable Agreement liability. Stockholders’ equity totaled $312.7m.
- The company paid $0.105 per Class A share in quarterly dividends; distributions and dividends totaled $14.7m in the first nine months.
- Management stated that cash, operating cash flow and available borrowings should provide sufficient liquidity for the next 12 months and beyond. Purchase obligations of approximately $18.8m were expected within 12 months.
Changes, outlook and risks
- Management attributed growth to increased industry activity and product-led demand. It noted fully utilized systems grew 49% since Q4 2021, outpacing the 31% increase in the U.S. land rig count since the start of 2022.
- Outlook remains exposed to oil and gas price volatility, inflation, supply-chain constraints, capital discipline, customer consolidation, possible economic slowdown, regulation and geopolitical disruption. WTI declined from above $110 per barrel in July to $80 in September 2022. No specific financial guidance was provided.
- A Texas court ruled against the company in a property-tax exemption dispute. Solaris intends to appeal and accrued $3.1m; an adverse final outcome could materially affect results or cash flows.
- Customer concentration is notable: one customer represented 23% of Q3 revenue and 23% of receivables at quarter-end. Related-party transactions included $13.6m of revenue for the first nine months and contingent payments of up to $4.0m tied to minimum revenue thresholds through 2024.
- After quarter-end, the company signed a 10-year Houston office lease with approximately $13.9m of future rent and building operating costs.
- Other unusual items included $3.1m of property-tax contingency expense year to date. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the property-tax appeal changes the $3.1m accrual or creates additional exposure.
- Whether elevated utilization and revenue growth are sustainable given customer capital discipline, commodity volatility and potential consolidation.
- Receivables collection and customer concentration, particularly the customer representing 23% of quarter-end receivables.
- Planned returns and capital spending relative to cash generation, $44.0m of stated revolver availability, and the new lease and purchase commitments.
- The assumptions supporting realization of deferred tax assets and the $72.6m Tax Receivable Agreement liability.