Solaris Oilfield Infrastructure, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The filing identifies the registrant as Solaris Oilfield Infrastructure, Inc.
Business context
Solaris designs and manufactures equipment and provides field support, logistics and software for oil and gas well completions. It operates as one reportable segment, primarily in U.S. basins. Offerings include proppant systems, last-mile logistics, automated equipment, fluid management and software.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $320.0 million | $159.2 million |
| Operating income (loss) | $41.8 million | $(0.4) million |
| Net income (loss), consolidated | $33.5 million | $(1.3) million |
| Net income (loss) attributable to Solaris | $21.2 million | $(0.9) million |
| Class A diluted EPS | $0.64 | $(0.04) |
| Adjusted EBITDA | $83.8 million | $30.1 million |
| Operating cash flow | $68.0 million | $16.5 million |
| Capital expenditures for property and equipment | $81.4 million | $19.6 million |
Revenue rose 101%, attributed to stronger activity, new technology deployments and pricing. Fully utilized mobile proppant systems increased to an average of 86 from 57. Cost of services was $219.8 million, or 69% of revenue, versus $115.5 million, or 73%, in 2021. Operating margin was approximately 13.1% in 2022, compared with a slight operating loss in 2021.
Investing cash outflow was $79.5 million, primarily reflecting fleet and technology investment; financing cash outflow was $16.1 million, including dividends. Operating cash flow less reported property-and-equipment investment was approximately negative $13.4 million. Cash declined by $27.7 million to $8.8 million.
Financial position and material changes
- At year-end, cash was $8.8 million and debt under the revolving credit facility was $8.0 million, with $42.0 million of borrowing capacity available. The facility matures in April 2025; the company reported covenant compliance.
- Current assets were $88.7 million and current liabilities $55.9 million, implying working capital of approximately $32.8 million. The filing states liquidity is expected to be sufficient for operations for the next 12 months and beyond.
- Total assets were $462.6 million and total liabilities $145.4 million. The Tax Receivable Agreement liability was $72.6 million.
- Quarterly Class A dividends were $0.105 per share, or $0.42 for the year. Future dividends remain subject to board discretion and debt-agreement restrictions.
- Liberty Oilfield Services represented approximately 22% of 2022 revenue, down from 26% in 2021. One customer also represented 22% of year-end receivables.
Outlook, risks and unusual items
- Management expected slower overall North American land activity growth in 2023, citing operator capital discipline, supply-chain constraints and limits on adding rigs and completion crews. It expected Solaris system activity to outpace the market through new technology and market-share gains; no quantified financial guidance was provided.
- A Texas district court ruling disqualified certain equipment from property-tax exemptions. Solaris accrued $3.1 million and is appealing; an adverse final resolution could materially affect results or cash flows.
- Purchase obligations were approximately $29.7 million, payable within 12 months. The company also reported a $72.6 million Tax Receivable Agreement liability; estimated immediate termination payments were approximately $74.6 million under stated assumptions.
- The independent auditor issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. A material weakness involved IT general controls for a third-party system supporting last-mile logistics revenue and costs. No resulting financial-statement misstatements were identified; management planned remediation before the end of 2023.
- Key risks include oil and gas activity and commodity-price volatility, customer concentration, inflation and labor or supply constraints, transportation availability, environmental and climate regulation, cybersecurity, and possible customer credit deterioration. Management noted that 2022 oil and gas prices were volatile and natural gas prices fell late in the year.
Investor verification priorities
- Track remediation and auditor reassessment of the material weakness in IT controls, particularly for last-mile logistics revenue and costs.
- Monitor the property-tax appeal, additional exposure beyond the $3.1 million accrual, and any effect on cash flows.
- Assess customer concentration, especially the 22% revenue and receivables exposure, and the impact of customer consolidation or activity changes.
- Compare fleet investment and capital spending with operating cash generation, liquidity and borrowing availability.
- Review assumptions supporting deferred tax assets and the Tax Receivable Agreement liability, including potential cash obligations upon termination or a change of control.