Business context and reporting period
Solaris Oilfield Infrastructure, Inc. (NYSE: SOI) filed this Form 10-K for the fiscal year ended December 31, 2021; it reports annual results, not standalone fourth-quarter results. The Houston-based company designs and manufactures automated equipment and provides wellsite, proppant and fluid management, logistics, and software services to U.S. oil and gas operators.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $159.2 million | $103.0 million |
| Operating income (loss) | $(0.4) million | $(59.9) million |
| Net income (loss), consolidated | $(1.3) million | $(51.1) million |
| Net income (loss) attributable to Solaris | $(0.9) million | $(29.3) million |
| Class A diluted EPS | $(0.04) | $(1.03) |
| Operating cash flow | $16.5 million | $43.9 million |
| Capital expenditures | $19.6 million | $4.7 million |
| Adjusted EBITDA | $30.1 million | $25.6 million |
Cost of services, excluding depreciation, was 73% of revenue, up from 64%. The company reported $36.5 million in cash and cash equivalents, no credit-facility borrowings, and $50.0 million of available revolving capacity at year-end. Total current assets were $81.1 million and current liabilities $29.3 million. The company said cash, operating cash flow and available borrowing capacity were expected to fund operations for at least 12 months.
Total liabilities were $108.3 million, including $73.1 million payable under the Tax Receivable Agreement (TRA), $7.4 million of operating lease liabilities and $0.1 million of finance lease liabilities. Cash dividends paid to Class A holders were $0.42 per share for 2021.
Material changes versus the prior comparable period
- Revenue rose 55%, primarily on higher customer activity; fully utilized mobile proppant systems averaged 57 versus 45 in 2020.
- Cost of services grew 76%, faster than revenue, contributing to the higher cost-of-services ratio.
- Operating loss narrowed substantially, chiefly because 2020 included $47.8 million of impairment losses; no impairment was recorded in 2021. The company also recorded $3.1 million of employee retention credits as other income in 2021.
- Adjusted EBITDA increased $4.5 million to $30.1 million. Operating cash flow fell $27.4 million, principally from working-capital changes, including higher receivables and prepaid expenses.
- Investing cash outflows rose to $19.5 million, mainly for fleet enhancements and new technologies. Year-end cash declined by $23.9 million.
Outlook, commentary, risks and unusual items
Management described a recovering oil and gas market and noted higher commodity prices and improving North American activity, but said customer capital discipline and consolidation kept activity below pre-pandemic levels. The filing provides no specific financial guidance or quantified forecast. Management highlighted possible one-to-two-quarter or longer timing differences between drilling and completion activity.
Key risks include commodity-price and customer-spending volatility, reliance on a limited customer base (Liberty Oilfield Services represented approximately 26% of 2021 revenue), customer credit exposure, transportation and supply-chain constraints, competition, and environmental, hydraulic-fracturing, seismicity and climate-related regulation. Two customers represented 42% of year-end accounts receivable.
The February 24, 2022 credit agreement amendment, after year-end, extended maturity to April 26, 2025 and changed interest and repayment terms. The TRA requires payment to holders of 85% of qualifying realized or deemed tax savings; management estimated a potential immediate termination payment of approximately $82.8 million as of the filing, subject to assumptions. The company reported no outstanding legal matters expected to materially affect its financial statements. Its auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting, and the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether improving activity and fleet utilization can support revenue growth without further deterioration in service-cost margins or working-capital cash flow.
- Customer concentration, including the 26% revenue exposure and year-end receivable concentration, and the collectability and timing of those balances.
- Availability and covenant terms of the amended revolving facility, and the effect of its cash-sweep and other repayment provisions.
- The assumptions, timing and potential cash burden of the $73.1 million TRA liability and any change-of-control termination payment.
- Whether dividends remain sustainable given operating cash flow, capital spending, debt-agreement restrictions and other cash commitments.