Business Context and Reporting Period
Solaris Oilfield Infrastructure, Inc. (SOI) filed this Form 8-K on July 19, 2019. The Company operates mobile proppant management systems for the oilfield industry. This filing reports preliminary, unaudited financial results for the quarter ended June 30, 2019, and announces a material restatement of previously issued financial statements for periods ending December 31, 2017, December 31, 2018, and March 31, 2019.
Key Financial Metrics (Q2 2019 Preliminary)
- Revenue: Expected to be approximately $63 million to $65 million.
- Operating Expenses: Expected to be approximately $36 million to $37 million. This includes $6.5 million in depreciation and amortization and approximately $5 million in SG&A (including $1 million in non-cash stock-based compensation).
- Liquidity: Cash balance of approximately $30 million as of June 30, 2019.
- Debt: No debt outstanding as of June 30, 2019.
- Operations: Fully utilized mobile proppant management systems averaged 123 systems.
Material Changes and Restatement Details
The Company identified an accounting error affecting deferred tax assets, additional paid-in capital, non-controlling interest, and retained earnings. This error stemmed from the accounting treatment of a 2017 follow-on offering and subsequent exchanges of membership interests in Solaris LLC for Class A common stock. The error also impacted the provision for income taxes for the year ended December 31, 2017.
Impact on Prior Periods (in thousands):
| Period | Item | Adjustment |
|---|---|---|
| March 31, 2019 | Total Assets | +$37,426 |
| March 31, 2019 | Retained Earnings | -$7,810 |
| Dec 31, 2017 | Net Income Attributable to Solaris | Changed from $3,636 to $(4,174) |
| Dec 31, 2017 | EPS (Basic) | Changed from $0.28 to $(0.34) |
The error had no impact on EBITDA, Adjusted EBITDA, or cash flow from operations for the restated periods.
Outlook, Risks, and Management Commentary
- Internal Controls: Management and the Audit Committee concluded that a material weakness in internal controls existed during the restated periods regarding the accounting for membership interest changes and deferred tax impacts. Disclosure controls and procedures were deemed ineffective for these periods.
- Remediation: Management intends to promptly develop a plan to remediate the material weakness.
- Future Filings: The Company intends to amend its Form 10-K for the year ended December 31, 2018, and its Form 10-Q for the quarter ended March 31, 2019, as soon as reasonably practicable.
- Forward-Looking Statements: The filing includes standard cautionary notes that actual results may differ materially from expectations due to various risk factors.
Investor Verification Checklist
- Verify the upcoming amended Form 10-K (2018) and Form 10-Q (Q1 2019) for corrected historical financial data.
- Review the specific remediation plan for the material weakness in internal controls over financial reporting.
- Confirm the final audited Q2 2019 results against the preliminary ranges provided ($63-65M revenue).
- Monitor communications with BDO USA, LLP regarding the audit of the restated periods.