Solaris Energy Infrastructure, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Solaris designs and manufactures equipment and provides field, logistics, and software services for oil and gas well completions. Most revenue comes from rental and services associated with mobile proppant and chemical management systems.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $28.7 million | $47.8 million |
| Operating loss | $2.1 million | $39.3 million |
| Net loss | $1.9 million | $33.2 million |
| Net loss attributable to Solaris | $1.2 million | $19.1 million |
| Loss per Class A share, basic and diluted | $0.04 | $0.65 |
| EBITDA | $4.6 million | $(32.2) million |
| Adjusted EBITDA | $6.1 million | $18.0 million |
| Cash from operating activities | $2.8 million | $11.7 million |
Revenue declined 40% year over year. System rental revenue fell 48% to $13.6 million; system services revenue fell 30% to $14.7 million. System services costs, excluding depreciation and amortization, exceeded related revenue in both periods: $17.3 million versus $14.7 million in Q1 2021. The filing does not present a consolidated gross margin figure.
Net loss narrowed substantially, primarily because Q1 2020 included $47.8 million of impairment losses and other charges; no impairment was recorded in Q1 2021. Adjusted EBITDA nevertheless declined by $11.9 million, reflecting lower activity and revenue. Depreciation and amortization was $6.7 million; SG&A, excluding depreciation and amortization, was $4.6 million.
Cash, liquidity, and obligations
- Cash and cash equivalents were $55.1 million at March 31, 2021, down $5.3 million from year-end 2020.
- Operating cash flow was $2.8 million; investing cash use was $2.6 million, including $2.6 million of property and equipment investment. Financing cash use was $5.5 million, primarily distributions and dividends.
- No borrowings were outstanding under the revolving credit facility; $35.0 million was available to draw. The facility expires April 26, 2022, and the company reported compliance with its covenants.
- Total liabilities were $101.7 million, including $73.5 million payable under the Tax Receivable Agreement. Finance lease liabilities were approximately $0.1 million; operating lease liabilities totaled approximately $8.0 million.
- Management stated that cash, operating cash flow, and available borrowing capacity should fund operations for at least the next 12 months.
Changes, outlook, and risks
- Management reported a 24% increase in fully utilized systems in Q1 2021 versus Q4 2020, while industry activity remained below pre-pandemic levels. The company’s fleet included 164 mobile proppant, 14 mobile chemical, and five mobile water management systems.
- 2021 capital spending was expected to be $10 million to $15 million. No revenue or earnings guidance was provided.
- Management attributed weak demand to oilfield activity and customer capital-spending reductions following COVID-19 and oil-market volatility. It cited uncertainty around economic recovery, commodity prices, regulation, customer consolidation, and procurement changes.
- Two customers represented 26% of Q1 revenue and 24% of period-end accounts receivable. Customer concentration, customer defaults, and oilfield spending are material risks.
- The company paid a $0.105 per-share Class A dividend during the quarter. It also reported a $4.7 million future guarantee related to its headquarters lease with a company partially owned by its CEO and Chairman; related-party service payments were $0.2 million during the quarter.
- Management reported no material pending legal matters, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2021.
Important facts for investors to verify
- Whether rising utilization and oilfield activity can translate into sustained revenue and improved system-services economics.
- How customer consolidation, spending discipline, and concentration affect utilization, pricing, and collections.
- Whether planned capital spending stays within the $10 million–$15 million range and is supported by cash generation.
- The potential cash-payment timing and amount of the $73.5 million Tax Receivable Agreement liability.
- Whether liquidity and the $35.0 million available credit capacity remain adequate as the facility approaches its April 2022 maturity.