Solaris Oilfield Infrastructure(SOI) - 2022 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements Solaris Oilfield Infrastructure, Inc. reported significant Q2 2022 growth, with revenue up 146% to $86.7 million, net income of $5.5 million, and total assets reaching $442.4 million Condensed Consolidated Balance Sheets Total assets increased to $442.4 million by June 30, 2022, driven by higher accounts receivable and property, plant, and equipment, while cash decreased to $15.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $15,351 | $36,497 | | Accounts receivable, net | $66,854 | $33,120 | | Total current assets | $92,944 | $81,068 | | Property, plant and equipment, net | $267,816 | $240,091 | | Total assets | $442,420 | $406,223 | | Liabilities & Equity | | | | Total current liabilities | $58,544 | $29,299 | | Total liabilities | $137,825 | $108,347 | | Total stockholders' equity | $304,595 | $297,876 | | Total liabilities and stockholders' equity | $442,420 | $406,223 | Condensed Consolidated Statements of Operations Q2 2022 revenue surged 146% to $86.7 million, resulting in operating income of $10.3 million and net income of $5.5 million Statements of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $86,711 | $35,179 | $143,626 | $63,848 | | Operating income (loss) | $10,322 | $(2,032) | $17,735 | $(4,121) | | Net income (loss) attributable to Solaris | $5,453 | $(1,211) | $8,955 | $(2,380) | | Diluted EPS | $0.16 | $(0.04) | $0.27 | $(0.08) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $22.4 million for the first six months of 2022, despite a $21.1 million overall decrease in cash due to investing and financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,394 | $4,040 | | Net cash used in investing activities | $(31,409) | $(7,670) | | Net cash used in financing activities | $(12,131) | $(10,460) | | Net decrease in cash | $(21,146) | $(14,090) | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, debt, equity, and contingencies, highlighting wellsite services as the primary revenue source, an undrawn $50.0 million credit facility, a $3.1 million tax contingency, and significant customer concentration Disaggregation of Revenue (in millions) | Revenue Source | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Wellsite services | $86.5 | $34.9 | $143.1 | $63.3 | | Transloading and Other | $0.2 | $0.2 | $0.5 | $0.6 | | Total revenue | $86.7 | $35.2 | $143.6 | $63.8 | - The company has a $50.0 million revolving credit facility with a $25.0 million uncommitted accordion option. As of June 30, 2022, there were no borrowings outstanding[45] - A property tax contingency of $3.1 million was recognized in Q2 2022 following an unfavorable court ruling regarding the disqualification of equipment for certain property tax exemptions. The company intends to appeal the ruling[69] - For the six months ended June 30, 2022, one customer accounted for 20% of total revenues. As of June 30, 2022, two customers accounted for 14% and 10% of accounts receivable[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant revenue growth to increased demand and higher commodity prices, with Q2 2022 Adjusted EBITDA reaching $21.1 million, supported by strong liquidity Recent Trends and Outlook Q2 2022 saw WTI oil prices between $95 and $120+ per barrel, driving growth in North American drilling activity and a 32% increase in the company's fully utilized systems - WTI oil prices ranged from $95 to over $120 per barrel between April and June 2022, supporting growth in North American drilling and completion activity[81] - The Baker Hughes Land rig count increased by 29% from the start of the year to the end of June 2022. The company's fully utilized systems increased by 32% since the fourth quarter of 2021[82] Results of Operations Q2 2022 revenue increased 146% to $86.7 million, driven by a rise in fully utilized mobile proppant systems, with cost of services at 71% of revenue and a $3.1 million property tax contingency expense - The number of fully utilized mobile proppant systems increased from 53 for the three months ended June 30, 2021, to 84 for the three months ended June 30, 2022[86] - Cost of services as a percentage of revenue was 71% for Q2 2022, consistent with 71% in Q2 2021 (calculated from table data)[88] - A property tax contingency of $3.1 million was recognized related to a court ruling on the disqualification of equipment for certain tax exemptions[89] Comparison of Non-GAAP Financial Measures Adjusted EBITDA significantly increased to $21.1 million in Q2 2022 and $36.8 million for the first six months, reflecting higher revenues and improved operating results Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $8,289 | $(1,870) | $14,011 | $(3,795) | | EBITDA | $17,454 | $4,720 | $31,796 | $9,324 | | Adjusted EBITDA | $21,064 | $6,498 | $36,804 | $12,616 | Liquidity and Capital Resources As of June 30, 2022, the company maintained strong liquidity with $15.4 million in cash and $50.0 million available credit, despite increased capital expenditures of $32.3 million for fleet enhancements - As of June 30, 2022, the company had $15.4 million in cash and cash equivalents and $50.0 million of available borrowing capacity under its Credit Agreement[104] - Net cash from operating activities increased to $22.4 million for the first six months of 2022, compared to $4.0 million for the same period in 2021[106] - Capital expenditures for the first six months of 2022 were $32.3 million, a significant increase from $7.7 million in the first half of 2021[28][107] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk exposure were reported, though credit risk concentration remains, with two customers representing 24% of accounts receivable as of June 30, 2022 - As of June 30, 2022, two customers accounted for 24% of total accounts receivable, down from 42% for two customers as of December 31, 2021[123] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[126] - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[127] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is appealing an unfavorable district court ruling regarding property tax exemptions, which led to a $3.1 million accrual in Q2 2022 - Following an unfavorable ruling by the 35th District Court of Brown County, Texas, regarding property tax exemptions, the company recognized a $3.1 million liability in the three and six-month periods ended June 30, 2022. The company intends to appeal[131] Item 1A. Risk Factors No material updates to risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2021 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 1,675 shares of Class A common stock at an average price of $12.39 per share to satisfy tax withholding obligations for employee restricted stock vesting Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 - April 30 | 505 | $11.41 | | May 1 - May 31 | 256 | $11.25 | | June 1 - June 30 | 914 | $13.25 | | Total | 1,675 | $12.39 | Other Items (3, 4, 5, 6) No defaults upon senior securities, mine safety disclosures, or other material information were reported for the quarter, with Item 6 detailing filed exhibits - The company reported no information for Item 3 (Defaults upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[135][136][137]