Solaris Oilfield Infrastructure, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The filing describes Solaris’s equipment, field support, logistics and software for oil and gas well completions. Amounts below are in U.S. dollars; financial statement figures are generally in millions.
Financial performance
- Revenue: Q3 revenue was $49.4 million, up 140% from $20.5 million. Nine-month revenue was $113.2 million, up 46% from $77.7 million. Q3 system rental revenue rose to $16.1 million and system services revenue to $33.0 million; the latter includes last-mile proppant delivery coordination.
- Profitability: Q3 operating income was $2.0 million versus an operating loss of $6.4 million a year earlier. Consolidated net income was $1.4 million, compared with a $5.6 million net loss; net income attributable to Solaris was $0.9 million versus a $3.3 million loss. For the first nine months, Solaris reported an operating loss of $2.1 million and a consolidated net loss of $2.4 million, both improved from 2020. Class A EPS was $0.03 for Q3 and a loss of $0.06 for the nine months.
- Margins and non-GAAP measures: Q3 system gross margin, a company-defined measure excluding depreciation and amortization, was $10.9 million versus $5.7 million. For the nine months it was $30.5 million versus $28.7 million. System services costs exceeded system services revenue in both 2021 periods. Adjusted EBITDA was $7.7 million for Q3 versus $3.1 million; nine-month Adjusted EBITDA was $20.3 million versus $20.7 million. These are non-GAAP measures and are not substitutes for GAAP results.
- Cash flow and capital spending: Nine-month operating cash flow was $11.7 million, down from $38.0 million, primarily due to working-capital changes, including higher receivables. Investing cash outflow was $13.6 million, including $13.7 million of property and equipment investment. Financing cash outflow was $15.6 million, mainly dividends and distributions. Cash fell $17.5 million from year-end 2020 to $42.8 million.
- Liquidity and obligations: Current assets were $87.9 million and current liabilities $33.7 million at quarter-end. Solaris had no revolver borrowings and $50.0 million of available capacity under its credit agreement; it reported covenant compliance. The facility expires April 26, 2022. The balance sheet included approximately $73.5 million payable under the Tax Receivable Agreement, mostly long-term.
Changes, outlook and risks
- Management attributed the revenue recovery to more fully utilized mobile proppant systems and higher last-mile services activity. Average fully utilized systems increased to 59 in Q3 from 34 a year earlier; management also reported a 41% increase in fully utilized systems since Q4 2020.
- Management expected full-year 2021 capital expenditures of approximately $20 million. It stated cash, operating cash flow and available borrowings should be sufficient for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- In August 2021, Solaris entered a three-year ProFrac-Cisco agreement to serve as ProFrac’s dedicated wellsite sand-storage provider and acquire equipment from Cisco. Solaris paid $1.5 million initially and could owe up to $4.5 million in additional payments if specified service-revenue thresholds are met.
- Solaris recorded $3.1 million of employee retention credits in other income in the 2021 periods; $1.2 million had been received and $1.9 million remained in current assets at quarter-end. No impairment losses were recorded in 2021; the prior-year nine-month period included $47.8 million of impairment losses.
- Key risks include dependence on oil and gas drilling and completion activity, commodity-price and COVID-19-related uncertainty, customer consolidation and procurement changes, inflation and material availability, and customer credit exposure. One customer represented 26% of Q3 revenue; three customers represented 49% of accounts receivable at quarter-end. Management reported no material pending legal matters and no material updates to previously disclosed risk factors.
Important facts for investors to verify
- Whether higher utilization and last-mile service growth persist, and whether system services costs can be managed relative to related revenue.
- Receivables collection, working-capital needs and customer concentration, given the decline in operating cash flow and concentration of receivables.
- Progress against the approximately $20 million 2021 capital-spending expectation and the resulting effect on cash balances.
- The economics and contingent equipment payments under the ProFrac-Cisco agreement, as well as the impact of the credit facility’s April 2022 maturity.
- Assumptions supporting deferred tax asset realization and the size and timing of Tax Receivable Agreement payments.