Solaris Oilfield Infrastructure, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing issuer is named Solaris Oilfield Infrastructure, Inc. It designs and manufactures equipment and provides field support, logistics and software for oil and gas well completion, primarily in U.S. basins.
Financial performance and position
Amounts are in millions of dollars except per-share data and where noted.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $56.9 | $28.7 |
| Operating income (loss) | $7.4 | $(2.1) |
| Net income (loss), consolidated | $5.7 | $(1.9) |
| Net income (loss) attributable to Solaris | $3.5 | $(1.2) |
| Diluted earnings (loss) per Class A share | $0.11 | $(0.04) |
| Adjusted EBITDA | $15.7 | $6.1 |
| Cash from operating activities | $6.3 | $2.8 |
| Capital expenditures | $11.8 | $2.6 |
- Revenue rose 99% year over year; fully utilized mobile proppant systems increased to 75 from 52.
- Cost of services, excluding depreciation, was 66% of revenue versus 67% a year earlier. Operating margin was about 13%, compared with a 7% operating loss margin in Q1 2021. Adjusted EBITDA margin was about 28%, up from 21%.
- Operating cash flow less cash capital expenditures was approximately negative $5.5 million. Cash declined $11.4 million to $25.1 million, after investing outflows of $11.5 million and financing outflows of $6.1 million.
- At March 31, cash was $25.1 million and current assets were $81.0 million against current liabilities of $34.0 million. The company reported no borrowings under its $50 million revolving credit facility, with the full $50 million available; it stated it was in compliance with covenants.
- Total liabilities were $112.9 million, including a $73.1 million Tax Receivable Agreement liability and operating lease liabilities of approximately $7.3 million. Total equity was $300.0 million.
Changes, outlook and notable items
- Management attributed revenue growth and improved results primarily to greater customer demand amid stronger commodity prices. Cost of services increased with activity; SG&A rose 13% to $5.2 million, mainly due to headcount and professional fees.
- The company described improving commodity prices and North American activity, but noted that capital discipline, supply-chain disruptions, inflation, customer consolidation and geopolitical uncertainty could constrain activity. It cited the war in Ukraine as a source of potential disruption to oil and gas markets. Management said demand tracks drilling and completion activity, with possible timing lags.
- No specific revenue, earnings or capital-spending guidance was provided. Management said cash, operating cash flow and available credit were expected to fund operations for at least 12 months.
- The February 2022 credit amendment extended facility maturity to April 26, 2025, changed pricing and repayment terms, and added a provision requiring prepayment of outstanding borrowings when specified cash-balance conditions are met. Interest margins vary with leverage; the filing reports no facility borrowings at quarter-end.
- Purchase obligations payable within 12 months were approximately $27.0 million. The company also disclosed a $4.3 million future lease guarantee related to its headquarters and potential contingent payments of up to $4.0 million through 2024 under customer-related arrangements; $0.5 million was paid in Q1 2022 and recognized in revenue.
- Customer concentration increased: one customer generated 29% of Q1 revenue, and two customers accounted for 44% of quarter-end receivables. THRC, an investor affiliated with certain customers and suppliers, held 10.3% of Class A shares; Q1 activity with its affiliates included $5.1 million of revenue and $0.8 million of service costs.
- Solaris LLC distributions and Class A dividends totaled $4.9 million, including a $0.105-per-share Class A dividend. Management reported no material pending litigation, no material changes to previously disclosed risk factors, and effective disclosure controls.
Key facts for investors to verify
- Whether higher system utilization and favorable commodity conditions persist, given capital discipline, consolidation, inflation and supply-chain risks.
- Receivables collection and exposure to concentrated customers, including the 44% share held by two customers.
- Funding needs and returns from elevated fleet and technology capital spending, alongside $27.0 million of near-term purchase obligations.
- Credit-facility covenant headroom and the cash-balance prepayment provision, as well as the size and timing of Tax Receivable Agreement payments.
- Related-party customer, supplier and lease arrangements, including contingent payments and the headquarters lease guarantee.