Solaris Oilfield Infrastructure, Inc. — Q2 2022 Form 10-Q
Business context and period: The company designs and manufactures equipment and provides field support, last-mile logistics, and software for oil and natural gas well completions. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $86.7 | $35.2 | $143.6 | $63.8 |
| Operating income (loss) | $10.3 | ($2.0) | $17.7 | ($4.1) |
| Net income (loss) | $8.3 | ($1.9) | $14.0 | ($3.8) |
| Net income (loss) attributable to Solaris | $5.5 | ($1.2) | $9.0 | ($2.4) |
| Adjusted EBITDA | $21.1 | $6.5 | $36.8 | $12.6 |
| Cash from operations | Not separately presented for quarter | $22.4 | $4.0 |
- Q2 revenue grew 146% year over year; six-month revenue grew 125%. Management attributed growth primarily to stronger demand, including last-mile logistics for mobile proppant systems. Fully utilized mobile proppant systems increased to 84 in Q2 2022 from 53 a year earlier.
- Q2 operating margin was approximately 11.9%, versus a loss in the prior-year quarter. Cost of services excluding depreciation was $61.2 million, approximately 71% of revenue. Q2 basic and diluted Class A earnings per share were both $0.16, compared with a loss of $0.04.
- Six-month investing cash outflow was $31.4 million, including $32.3 million of property and equipment investment, primarily for fleet enhancements and new technologies. Operating cash flow less property and equipment investment was approximately negative $9.9 million. Cash declined $21.1 million to $15.4 million, including $9.8 million of distributions and dividends.
- At June 30, cash was $15.4 million and there were no borrowings under the revolving credit facility; $50 million was available. The facility matures April 26, 2025. Total liabilities were $137.8 million, including $72.6 million payable under the Tax Receivable Agreement (TRA), $8.0 million of operating and finance lease liabilities, and $58.5 million of current liabilities. Current assets were $92.9 million.
Changes, outlook, and notable items
- Results improved substantially from the year-earlier periods, moving from operating and net losses to profits. Increased activity also raised operating costs, receivables, inventories, and capital investment.
- Management described oil and gas market conditions as supportive of North American activity, but noted capital discipline, inflation, supply-chain tightness, customer consolidation, and uncertainty about economic growth. Fully utilized systems rose 32% since Q4 2021, compared with a 29% increase in the U.S. land rig count since the start of 2022; activity timing can lag by one to two quarters or longer.
- The company said cash, operating cash flow, and available revolver capacity should fund operations for at least 12 months. It reported $23.4 million of purchase obligations payable within 12 months. No specific revenue or earnings guidance was provided.
- A Texas district court ruled against the company on eligibility of equipment for certain property-tax exemptions. Solaris recorded a $3.1 million expense and accrued liability and intends to appeal; an adverse final outcome could materially affect results or cash flows.
- Customer concentration remains relevant: one customer generated 14% of Q2 revenue; two customers represented 24% of accounts receivable at quarter-end. The company also disclosed related-party dealings with THRC affiliates, including $10.7 million of six-month revenue, $1.7 million of related costs, and contingent payments of up to $4.0 million through 2024 tied to service-revenue thresholds.
- Other risks cited include commodity-market volatility, inflation and supply-chain constraints, customer defaults and consolidation, geopolitical disruption, and the possibility of weaker industry activity. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track the appeal and ultimate exposure in the Brown County property-tax case, including any additional accruals or cash payments.
- Assess whether operating cash generation can keep pace with fleet and technology investment, working-capital needs, and distributions.
- Monitor utilization, customer demand, receivables collection, and customer concentration as commodity prices and industry spending change.
- Review the TRA liability, its payment timing, and the credit facility’s covenant compliance and borrowing terms.
- Evaluate the terms, approvals, and performance conditions of related-party arrangements and contingent payments to THRC affiliates.