Business Wire | Jul 30, 2020 04:06PM EDT

Solaris Oilfield Infrastructure Announces Second Quarter 2020 Results

Jul. 30, 2020

HOUSTON--(BUSINESS WIRE)--Jul. 30, 2020--Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) ("Solaris" or the "Company"), a leading independent provider of supply chain management and logistics solutions designed to drive efficiencies and reduce costs for the oil and natural gas industry, today reported financial results for the second quarter 2020.

Operational Update and Outlook

During the second quarter 2020, an average of 20 mobile proppant management systems were fully utilized, a 76% decrease from the 83 fully utilized systems averaged in the first quarter of 2020. The decrease in fully utilized systems was primarily due to a sharp decline in active hydraulic fracturing crews that began in March and bottomed in May as oil and gas operators reduced budgets and activity in response to lower oil and gas demand and prices. Activity has since increased and the Company expects activity could increase by 35-45% sequentially in the third quarter 2020 as many operators resume a modest level of completions activity.

"I'm pleased that the Solaris team was able to respond quickly to the global pandemic pressures and produce a near breakeven Adjusted EBITDA result at what we believe was the bottom of the cycle while continuing to generate significant free cash flow," Solaris' Chairman and Chief Executive Officer Bill Zartler commented. "While the pace and the ultimate level of this recovery are still unknown, we are encouraged by the modest return to activity we are seeing from our customers. Our debt free balance sheet, ample cash and liquidity allow us to continue offering our customers the highest level of service quality and vendor dependability while continuing to invest in our business and return cash to shareholders."

Second Quarter 2020 Financial Review

Solaris reported a net loss of $(5.5) million, or $(0.20) per diluted Class A share, for second quarter 2020, compared to a net loss of ($19.1) million, or $(0.65) per diluted Class A share, in first quarter 2020 and net income of $13.3 million, or $0.42 per diluted Class A share, in second quarter 2019. Adjusted pro forma net income for second quarter 2020 was $(7.0) million, or $(0.16) per fully diluted share, compared to adjusted pro forma net income in first quarter 2020 of $7.7 million, or $0.17 per fully diluted share, and $18.0 million, or $0.38 per fully diluted share in second quarter 2019.

Adjusted EBITDA for second quarter 2020 was $(0.4) million, compared to adjusted EBITDA of $18.0 million in first quarter 2020 and $32.5 million in second quarter 2019.

Revenues were $9.3 million for second quarter 2020, which were down 80% from first quarter 2020 and down 85% compared to second quarter 2019.

Capital Expenditures, Free Cash Flow and Liquidity

Capital expenditures in second quarter 2020 were $0.9 million compared to capital expenditures of $0.7 million during first quarter 2020. The Company expects capital expenditures for full year 2020 to be $5-$10 million.

Free cash flow (defined as net cash provided by operating activities less investment in property, plant and equipment) during second quarter 2020 was $21.8 million, which represented the sixth consecutive quarter of positive free cash flow for the Company.

As of June 30, 2020, the Company had approximately $63.6 million of cash on the balance sheet, which reflects approximately $1.40 per fully diluted share of available cash. The Company's $50.0 million credit facility remains undrawn.

Shareholder Returns

On May 18, 2020, the Company's Board of Directors declared a cash dividend of $0.105 per share of Class A common stock, which was paid on June 16, 2020 to holders of record as of June 2, 2020. A distribution of $0.105 per unit was also approved for holders of units in Solaris Oilfield Infrastructure, LLC ("Solaris LLC"). Since initiating the dividend in December 2018, the Company has paid 7 consecutive quarterly dividends. Cumulatively, the Company has returned approximately $63 million in cash to shareholders through dividends and share repurchases since December of 2018.

Conference Call

The Company will host a conference call to discuss its second quarter 2020 results on Friday, July 31, 2020 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time). To join the conference call from within the United States, participants may dial (844) 413-3978. To join the conference call from outside of the United States, participants may dial (412) 317-6594. When instructed, please ask the operator to be joined to the Solaris Oilfield Infrastructure, Inc. call. Participants are encouraged to log in to the webcast or dial in to the conference call approximately ten minutes prior to the start time. To listen via live webcast, please visit the Investor Relations section of the Company's website at http://www.solarisoilfield.com.

An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately seven days. It can be accessed by dialing (877) 344-7529 within the United States or (412) 317-0088 outside of the United States. The conference call replay access code is 10146188. The replay will also be available in the Investor Relations section of the Company's website shortly after the conclusion of the call and will remain available for approximately seven days.

About Solaris Oilfield Infrastructure, Inc.

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) manufactures and rents mobile equipment that drives supply chain and execution efficiencies in the completion of oil and natural gas wells. Solaris' patented mobile proppant and chemical systems are deployed in many of the most active oil and natural gas basins in the United States, including the Permian Basin, the Eagle Ford Shale, the STACK/SCOOP formation, the Marcellus and Utica Shales, the Haynesville Shale, the Rockies and the Bakken Shale. Additional information is available on the Solaris website, www.solarisoilfield.com.

Website Disclosure

We use our website (www.solarisoilfield.com) as a routine channel of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under the Securities and Exchange Commission's (the "SEC") Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.

None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated by reference into, or deemed to be a part of, this Current Report on Form 8-K or will be incorporated by reference into any other report or document we file with the SEC unless we expressly incorporate any such information by reference, and any references to our website are intended to be inactive textual references only.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of forward-looking statements include, but are not limited to, statements we make regarding our business strategy, our industry, our future profitability, the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the volatility in global oil markets and the COVID-19 pandemic, expected capital expenditures and the impact of such expenditures on performance, management changes, current and potential future long-term contracts and our future business and financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to the factors discussed or referenced in our filings made from time to time with the SEC. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



Three Months Ended Six Months Ended

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Revenue

System rental $ 5,463 $ 39,740 $ 26,059 $ 31,522 $ 77,088

System services 3,419 19,031 20,957 24,376 30,468

Transloading 264 4,881 465 729 10,714 services

Inventorysoftware 192 449 349 542 955 services

Total revenue 9,339 64,101 47,830 57,169 119,225

Operating costs and expenses

Cost of systemrental(excluding 823 2,552 2,013 2,836 4,899 depreciationandamortization)

Cost of systemservices(excluding 6,013 21,675 24,130 30,143 35,294 depreciationandamortization)

Cost oftransloadingservices(excluding 202 689 337 540 1,399 depreciationandamortization)

Cost ofinventorysoftwareservices 122 165 145 267 300 (excludingdepreciationandamortization)

Depreciationand 6,671 6,622 7,114 13,785 12,967 amortization

Selling,general andadministrative(excluding 3,967 5,006 4,406 8,373 9,034 depreciationandamortization)

Impairment loss - - 47,828 47,828 -

Other operating 2,274 69 1,198 3,472 282 expenses (1)

Total operatingcost and 20,072 36,778 87,171 107,244 64,175 expenses

Operating (10,733 ) 27,323 (39,341 ) (50,075 ) 55,050 income (loss)

Interest income (35 ) (656 ) 111 76 (767 )(expense), net

Total otherincome (35 ) (656 ) 111 76 (767 )(expense)

Income (loss)before income (10,768 ) 26,667 (39,230 ) (49,999 ) 54,283 tax expense

Provision(benefit) for (1,272 ) 4,158 (6,078 ) (7,350 ) 8,339 income taxes

Net income (9,496 ) 22,509 (33,152 ) (42,649 ) 45,944 (loss)

Less: net(income) lossrelated to 3,956 (9,234 ) 14,071 18,026 (20,352 )non-controllinginterests

Net income(loss) $ (5,540 ) $ 13,275 $ (19,081 ) $ (24,623 ) $ 25,592 attributable toSolaris



Earnings pershare of Class $ (0.20 ) $ 0.42 $ (0.65 ) $ (0.85 ) $ 0.85 A common stock- basic

Earnings pershare of Class $ (0.20 ) $ 0.42 $ (0.65 ) $ (0.85 ) $ 0.85 A common stock- diluted



Basic weightedaverage sharesof Class A 28,638 30,609 29,312 28,975 29,326 common stockoutstanding

Dilutedweightedaverage shares 28,638 30,644 29,312 28,975 29,387 of Class Acommon stockoutstanding

Other operating expenses are primarily related to credit losses, loss on 1) sale of assets and costs associated with workforce reductions.

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



June 30, December 31,

2020 2019

Assets

Current assets:

Cash and cash equivalents $ 63,632 $ 66,882

Accounts receivable, net of allowances for creditlosses of $1,076 and $339 as of June 30, 2020 and 11,160 38,554 December 31, 2019, respectively

Prepaid expenses and other current assets 4,809 5,002

Inventories 1,016 7,144

Total current assets 80,617 117,582

Property, plant and equipment, net 255,539 306,583

Non-current inventories 3,555 -

Operating lease right-of-use assets 4,738 7,871

Goodwill 13,004 17,236

Intangible assets, net 3,372 3,761

Deferred tax assets 58,478 51,414

Other assets 545 625

Total assets $ 419,848 $ 505,072

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 3,998 $ 3,824

Accrued liabilities 6,333 14,447

Current portion of payables related to Tax Receivable - 1,416 Agreement

Current portion of operating lease liabilities 579 596

Current portion of finance lease liabilities 30 30

Other current liabilities 75 74

Total current liabilities 11,015 20,387

Operating lease liabilities, net of current 7,499 7,855

Finance lease liabilities, net of current 115 130

Payables related to Tax Receivable Agreement 68,132 66,582

Other long-term liabilities 607 460

Total liabilities 87,368 95,414

Commitments and contingencies

Stockholders' equity:

Preferred stock, $0.01 par value, 50,000 shares - - authorized, none issued and outstanding

Class A common stock, $0.01 par value, 600,000 sharesauthorized, 28,673 shares issued and outstanding as 287 308 of June 30, 2020 and 30,928 shares issued and 30,765shares outstanding as of December 31, 2019

Class B common stock, $0.00 par value, 180,000 sharesauthorized, 15,839 shares issued and outstanding as - - of June 30, 2020 and 180,000 shares authorized,15,939 issued and outstanding as of December 31, 2019

Additional paid-in capital 178,511 191,843

Retained earnings 31,516 74,222

Treasury stock (at cost), 0 shares and 163 shares as - (2,526 )of June 30, 2020 and December 31, 2019, respectively

Total stockholders' equity attributable to Solaris 210,314 263,847 and members' equity

Non-controlling interest 122,166 145,811

Total stockholders' equity 332,480 409,658

Total liabilities and stockholders' equity $ 419,848 $ 505,072

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Three Six Months Ended Months Ended

6/30/20 6/30/19 6/30/20

Cash flows from operating activities:

Net (loss) income $ (42,649 ) $ 45,944 $ (9,496 )

Adjustment to reconcile net (loss)income to net cash provided by operating activities:

Depreciation and amortization 13,785 12,967 6,671

Loss on disposal of asset 1,402 284 1,345

Allowance for credit losses 1,633 - 740

Stock-based compensation 2,656 2,040 1,327

Amortization of debt issuance costs 88 665 44

Deferred income tax expense (7,369 ) 7,880 (1,594 )

Impairment loss 47,828 - -

Other (145 ) (169 ) (168 )

Changes in assets and liabilities:

Accounts receivable 25,760 (4,597 ) 36,001

Prepaid expenses and other assets (217 ) 1,990 (760 )

Inventories (533 ) (3,296 ) 354

Accounts payable 147 (4,661 ) (3,037 )

Accrued liabilities (8,063 ) 4,696 (8,808 )

Deferred revenue - (6,304 ) -

Net cash provided by operating 34,323 57,439 22,619 activities

Cash flows from investing activities:

Investment in property, plant and (1,558 ) (28,717 ) (859 )equipment

Cash received from insurance proceeds 713 38 687

Net cash used in investing activities (845 ) (28,679 ) (172 )

Cash flows from financing activities:

Share repurchases (26,717 ) - 6

Distribution and dividend paid toSolaris LLC unitholders and Class A (9,507 ) (9,515 ) (4,752 )common shareholders

Payments under finance leases (18 ) (18 ) (9 )

Payments under insurance premium - (932 ) - financing

Proceeds from stock option exercises 64 294 9

Payments for shares withheld for taxes (96 ) - (96 )from RSU vesting and cancelled

Payments related to purchase of (454 ) (730 ) - treasury stock

Payments related to debt issuance - (197 ) - costs

Repayment of senior secured credit - (13,000 ) - facility

Net cash used in financing activities (36,728 ) (24,098 ) (4,842 )

Net decrease in cash and cash (3,250 ) 4,662 17,605 equivalents

Cash and cash equivalents at beginning 66,882 25,057 46,027 of period

Cash and cash equivalents at end of $ 63,632 $ 29,719 $ 63,632 period

Non-cash activities

Investing:

Capitalized depreciation in property, $ 316 $ 372 $ 155 plant and equipment

Capitalized stock based compensation 135 96 65

Property and equipment additions 6 829 (159 )incurred but not paid at period-end

Property, plant and equipment 356 4,939 127 additions transferred from inventory

Financing:

Insurance premium financing - 1,812 -

Cash paid for:

Interest 66 183 33

Income taxes 813 663 813

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION - ADJUSTED EBITDA

(In thousands)

(Unaudited)

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus (i) depreciation and amortization expense, (ii) interest expense and (iii) income tax expense, including franchise taxes. We define Adjusted EBITDA as EBITDA plus (i) stock-based compensation expense and (ii) certain non-cash items and extraordinary, unusual or non-recurring gains, losses or expenses.

We believe that our presentation of EBITDA and Adjusted EBITDA provides useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for each of the periods indicated.



Three months ended Six months ended

June 30, March 31, June 30,

2020 2019 2020 2020 2019



Net income $ (9,496 ) $ 22,509 $ (33,152 ) $ (42,649 ) $ 45,944 (loss)

Depreciationand 6,671 6,622 7,114 13,785 12,967 amortization

Interest(income) 35 656 (111 ) (76 ) 767 expense, net

Income taxes (1,272 ) 4,158 (6,078 ) (7,350 ) 8,339 (1)

EBITDA $ (4,062 ) $ 33,945 $ (32,227 ) $ (36,290 ) $ 68,017

Stock-basedcompensation 1,326 1,178 1,329 2,656 2,040 expense (2)

Loss ondisposal of 1,345 71 68 1,413 284 assets

Credit 740 - 711 1,451 - losses

Impairment - - 47,828 47,828 - loss

Severanceexpense and 211 - 331 542 - other

Write-off ofdebt - 528 - - 528 issuancecosts (3)

Transloadcontract - (3,169 ) - - (6,303 )termination(4)

Adjusted $ (440 ) $ 32,553 $ 18,040 $ 17,600 $ 64,566 EBITDA

1) Federal and state income taxes.



Represents stock-based compensation expense related to restricted stock 2) awards.



Write-off of certain unamortized debt issuance costs when the Amended and 3) Restated Credit Agreement, dated as of January 19, 2018, was replaced in its entirety by the Agreement 2019 Credit Agreement.



Deferred revenue related to full termination of a sand storage and 4) transloading agreement; no deferred revenue balance remained as of December 31, 2019.

SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION - ADJUSTED PRO FORMA NET INCOME AND ADJUSTED PRO FORMA EARNINGS PER FULLY DILUTED SHARE

(In thousands)

(Unaudited)

Adjusted pro forma net income represents net income attributable to Solaris assuming the full exchange of all outstanding membership interests in Solaris LLC not held by Solaris Oilfield Infrastructure, Inc. for shares of Class A common stock, adjusted for certain non-recurring items that the Company doesn't believe directly reflect its core operations and may not be indicative of ongoing business operations. Adjusted pro forma earnings per fully diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding Solaris LLC Units, after giving effect to the dilutive effect of outstanding equity-based awards.

When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully diluted share are supplemental measures of operating performance that the Company believes are useful measures to evaluate performance period over period and relative to its competitors. By assuming the full exchange of all outstanding Solaris LLC Units, the Company believes these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income attributable to Solaris as a result of increases in its ownership of Solaris LLC, which are unrelated to the Company's operating performance, and excludes items that are non-recurring or may not be indicative of ongoing operating performance.

Adjusted pro forma net income and adjusted pro forma earnings per fully diluted share are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully diluted share should not be considered alternatives to net income and earnings per share, as determined under GAAP. While these measures are useful in evaluating the Company's performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income attributable to Solaris. Adjusted pro forma net income and adjusted pro forma earnings per fully diluted share should be evaluated in conjunction with GAAP financial results. A reconciliation of adjusted pro forma net income to net income attributable to Solaris, the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully diluted share are set forth below.



Three months ended Six months ended

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Numerator:

Net income(loss) $ (5,540 ) $ 13,275 $ (19,081 ) $ (24,623 ) $ 25,592 attributable toSolaris

Adjustments:

Reallocation ofnet income(loss)attributable tonon-controlling (3,956 ) 9,234 (14,071 ) (18,026 ) 20,352 interests fromthe assumedexchange of LLCInterests(1)

Transloadcontract - (3,169 ) - - (6,303 )termination (2)

Loss ondisposal of 1,345 71 68 1,413 284 assets

Credit losses 740 - 711 1,451 -

Impairment loss - - 47,828 47,828 -

Severanceexpense and 211 - 331 542 - other

write-off ofdebt issuance - 528 - - 528 costs (3)

Income tax(benefit) 182 (1,937 ) (8,101 ) (7,920 ) (3,973 )expense (4)

Adjusted proforma net $ (7,018 ) $ 18,002 $ 7,685 $ 666 $ 36,480 income (loss)(4)

Denominator:

Weightedaverage sharesof Class A 28,638 30,644 29,312 28,975 29,387 common stockoutstanding -diluted

Adjustments:

Assumedexchange ofSolaris LLCUnits for 16,616 16,936 16,614 16,615 18,044 shares of ClassA common stock(1)

Adjusted proforma fullyweightedaverage shares 45,254 47,580 45,926 45,590 47,431 of Class Acommon stockoutstanding -diluted

Adjusted proforma earnings $ (0.16 ) $ 0.38 $ 0.17 $ 0.01 $ 0.77 per share -diluted (4)

Assumes the exchange of all outstanding Solaris LLC Units for shares of Class A common stock at the beginning of the relevant reporting period, (1) resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests.



Deferred revenue related to full termination of a sand storage and (2) transloading agreement; no deferred revenue balance remained as of December 31, 2019.



Write-off of certain unamortized debt issuance cost related to lenders (3) under the 2018 Credit Agreement which are no longer parties to the 2019 Credit Agreement.



The Company revised Credit losses, Income tax (benefit) expense, Adjusted pro forma net income and Adjusted pro forma earnings per share for the quarter ended March 31, 2020 to $0.7 million, $(8.1) million, (4) $7.7 million and $0.17 from the previously published $0.0 million, $0.3 million, $14.8 million and $0.32, respectively, following the correction of an inadvertent omission of credit losses and error to reflect the tax impact related to Impairment loss.

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CONTACT: Yvonne Fletcher Senior Vice President, Finance and Investor Relations (281) 501-3070 IR@solarisoilfield.com