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Solaris Oilfield First Quarter 2019 Results

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Solaris Oilfield Infrastructure, Inc. reported financial results for the first quarter 2019.

First Quarter 2019 Highlights

• Net income of $23.4 million, or $0.43 per diluted Class A share, for the quarter ended March 31, 2019
• Adjusted EBITDA of $35.1 million for the quarter ended March 31, 2019
• Positive free cash flow of $2.6 million for the quarter ended March 31, 2019
• Paid a regular quarterly dividend of $0.10 per share on March 29, 2019

First Quarter 2019 Financial Review

Solaris reported net income of $23.4 million, or $0.43 per diluted Class A share, for first quarter 2019, compared to net income of $24.7 million, or $0.47 per diluted Class A share, in fourth quarter 2018 and net income of $13.4 million, or $0.23 per diluted Class A share, in first quarter 2018. Adjusted pro forma net income for first quarter 2019 was $21.6 million, or $0.46 per fully diluted share, which was flat on a total dollar basis and up $0.01 per fully diluted share from fourth quarter 2018 and increased $7.2 million and $0.15 per fully diluted share compared to first quarter 2018. A description of adjusted pro forma net income and a reconciliation to net income attributable to Solaris, its most directly comparable generally accepted accounting principles (“GAAP”) measure, and the computation of adjusted pro forma earnings per fully diluted share are provided below.

Adjusted EBITDA for first quarter 2019 was $35.1 million, an increase of $0.3 million compared to fourth quarter 2018 and an increase of $13.2 million from first quarter 2018. A description of adjusted EBITDA and a reconciliation to net income, its most directly comparable GAAP measure, is provided below.

Revenues were $55.1 million for first quarter 2019, a decrease of $2.2 million, or 4%, compared to fourth quarter 2018, and an increase of $19.1 million, or 53%, compared to first quarter 2018.

During the first quarter 2019, an average of 114 mobile proppant management systems were fully utilized, a 6% decline from the 121 fully utilized systems averaged in the fourth quarter of 2018, and a 34% increase compared to first quarter 2018. The sequential decline in fully utilized systems during the first quarter of 2019 was primarily due to the delayed impact of reduced industry activity levels that occurred during the fourth quarter 2018 resulting from Solaris’ monthly rental revenue model.

The Company previously used revenue days, the combined number of days that its systems earned revenue during the quarter, as a measure of business activity. Going forward, the Company believes the fully utilized system count will be a more comparative metric to measure period-over-period changes in the Company’s rental activity as it will normalize for varying calendar days period-over-period.

Capital Expenditures, Free Cash Flow and Liquidity

The Company invested $20.4 million during first quarter 2019, which included investments to add two mobile proppant management systems and the majority of investment required to add 7 mobile chemical management systems to the fleet. The Company currently has 162 mobile proppant management systems and expects to have 10 mobile chemical management systems available in the coming weeks, which reflects a slight delay from the Company’s prior manufacturing schedule due to right sizing at the Company’s manufacturing facility and design modifications based on field trial learnings on the Company’s new mobile chemical management systems. The Company continues to expect capital expenditures for the full year 2019 in the range of $40-60 million.

Free cash flow during the first quarter 2019 was $2.6 million, which represented the first quarter of recurring positive free cash flow for the Company. The Company had free cash flow of $22.8 million in fourth quarter of 2018, which included a one-time non-recurring payment related to a contract amendment of approximately $26.0 million.

During the first quarter, the Company repaid all of the $13 million drawn under its credit facility as of December 31, 2018. On April 26, 2019, the Company amended its credit facility to increase the revolver to $50 million, with availability based on a total leverage covenant of 2.5x total debt to EBITDA. The amendment increases the company’s revolver size by $30 million and includes an accordion feature, which could increase total availability under the facility to $75 million. As of April 30, 2019, the Company currently has approximately $70 million of liquidity, including approximately $20 million in cash and $50 million of availability under its undrawn credit facility.

Operational Update and Outlook

Based on current industry activity levels, the Company believes it has approximately one third of overall U.S. wellsite proppant storage market share, which continues to represent the leading share. The Company expects to end the second quarter 2019 with 164 mobile proppant management systems and 14 mobile chemical management systems in the rental fleet.

Solaris’ Chairman and Chief Executive Officer Bill Zartler commented, “I’m proud that our team was able to deploy systems steadily during the first quarter despite a relatively flat US frac crew count. We are currently back to Q4 activity levels as we continue to demonstrate the savings, efficiency and safety our solutions provide for our customers. I’m also excited about our product development pipeline as we continue to make progress with our new chemical systems as well as work towards other innovative solutions to drive additional efficiencies for our customers.”

Quarterly Cash Dividend and Board of Directors Update

On March 13, 2019, the Company announced that its Board of Directors had declared its second quarterly cash dividend of $0.10 per share of Class A common stock, which was paid on March 29, 2019 to holders of record as of March 22, 2019. A distribution of $0.10 per unit was also approved for holders of units in Solaris Oilfield Infrastructure, LLC (“Solaris LLC”).

The Company also announced that Ms. Cynthia Durrett was appointed to the Company’s Board of Directors (the “Board”), effective March 12, 2019. Ms. Durrett currently serves as the Company’s Chief Administrative Officer. With the addition of Ms. Durrett, the Board is now composed of eight members, including six independent directors.