Solaris Oilfield Infrastructure, Inc. — Q1 2024 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Solaris designs and manufactures oilfield completion equipment and provides wellsite support, logistics and software services, primarily in U.S. basins.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $67.9 million | $82.7 million |
| Operating income | $10.0 million | $14.9 million |
| Net income | $7.3 million | $11.9 million |
| Net income attributable to Solaris Inc. | $4.3 million | $7.6 million |
| Class A diluted EPS | $0.14 | $0.23 |
| Adjusted EBITDA | $22.7 million | $25.1 million |
| Operating cash flow | $16.9 million | $16.8 million |
Revenue fell 18%, mainly due to lower last-mile tonnage and average fully utilized systems of 102 versus 118. Cost of services declined 25% to $39.9 million; it was 59% of revenue versus 64%. Depreciation and amortization rose 18% to $9.9 million, while SG&A increased 23% to $8.0 million. Operating margin was approximately 14.7% versus 18.0% (derived from reported figures).
Liquidity, debt and capital allocation
Cash was $3.4 million at March 31, 2024. Credit-facility borrowings were $30.0 million, with up to $37.5 million additionally available; the company reported compliance with all facility covenants. Management says cash, operating cash flow and available borrowing capacity should cover needs for the next 12 months and beyond. The filing estimates approximately $2.5 million of interest over the next 12 months if borrowings remain at $30.0 million, plus $0.1 million of commitment fees.
Investing cash outflow was $3.3 million, including $3.4 million of property and equipment investment, versus $18.8 million of investing outflow a year earlier. Financing cash outflow was $15.9 million, including $8.1 million of program repurchases, $3.6 million of Class A dividends and $1.6 million of distributions to non-controlling holders. The company repurchased 1.11 million shares under its $50 million authorization at an average $7.30 per share; $15.4 million remained authorized. The Tax Receivable Agreement liability was $71.5 million, including $2.7 million current.
Outlook, risks and notable items
- Management expects 2024 revenue and profitability to track U.S. drilling and completion activity. Low natural-gas prices and industry efficiency gains may weigh on activity, partly offset by stable oil-directed activity.
- Full-year 2024 capital expenditures are expected to be below $15 million, over 75% below 2023; management expects the reduction to support higher cash flow. Q1 fully utilized systems averaged 102, roughly flat with 103 in Q4 2023; management cited modest pricing gains and new services as supporting sequential operating-profit growth of over 8%.
- Management cited commodity-price volatility, geopolitical disruption, inflation, interest rates, supply constraints, customer consolidation and customer defaults among risks. Three customers generated 14%, 12% and 11% of Q1 revenue; two customers represented 12% and 11% of period-end receivables.
- A Texas appellate court ruled on April 18, 2024, in the company’s favor on most disputed property-tax exemptions. The company had accrued $3.1 million at quarter-end; an adverse final outcome following a possible further appeal could materially affect results or cash flows.
- Masaba Inc. sued the company in February 2024 alleging intellectual-property infringement. Solaris says it will defend the claims; it cannot predict the outcome or estimate a possible loss.
- The company reclassified $3.0 million of equipment from assets held for sale to property, plant and equipment after changing its sale plan. It recorded a $0.3 million credit-loss provision in Q1.
Important facts for investors to verify
- Whether lower tonnage and system utilization persist, and how gas prices, oil-directed activity and customer consolidation affect demand.
- Progress toward the below-$15-million capital-spending outlook and the expected conversion of lower investment into cash flow.
- Liquidity and covenant headroom, interest costs, and the company’s ability to fund dividends, repurchases and Tax Receivable Agreement payments.
- Developments in the Masaba lawsuit and any appeal or financial impact from the property-tax ruling.
- Customer concentration, receivable collections and the assumptions underlying the $71.5 million Tax Receivable Agreement liability.