Solaris Oilfield Infrastructure(SOI) - 2023 Q4 - Annual Results

Executive Summary and Company Highlights Solaris Oilfield Infrastructure highlights strong 2023 performance, positive free cash flow, increased shareholder returns, and key Q4 2023 financial results CEO Commentary and 2024 Outlook Solaris Oilfield Infrastructure reported a strong 2023 with positive free cash flow, increased dividends, and 15% Adjusted EBITDA growth. The company anticipates significantly higher free cash flow in 2024, supporting continued shareholder returns and strategic capital allocation - 2023 Performance: Generated positive free cash flow, raised dividend per share twice, returned $47 million to shareholders, and grew Adjusted EBITDA by 15% from the prior year[3] - 2024 Outlook: Expects to generate significantly higher free cash flow, supporting continued shareholder returns, maintaining a healthy balance sheet, and creating optionality for long-term capital allocation, including organic and inorganic investments[4] Shareholder Returns Program Solaris continued its commitment to shareholder returns, approving a Q4 2023 dividend with a 9% raise and a Q1 2024 dividend. The company also actively repurchased shares, contributing to a cumulative return of $172 million since 2018 - Q4 2023 Dividend: Approved $0.12 per share, paid December 11, 2023, representing a 9% raise from Q3 2023 and the third dividend raise since 2018[4] - Q1 2024 Dividend: Approved $0.12 per share on February 19, 2024, to be paid March 21, 2024, marking Solaris' 22nd consecutive dividend[5] - Share Repurchases: Repurchased 85,278 shares for $0.7 million in Q4 2023, and an additional 1.1 million shares for approximately $8.1 million from January 19, 2024, to February 9, 2024. Approximately $15 million remains in the current authorization[6] - Cumulative Shareholder Returns: Returned approximately $172 million to shareholders through dividends and share repurchases since 2018, with $47 million returned in 2023. This reflects a 20% increase in dividend per share and an approximately 9% net reduction in total shares outstanding over the last five years[7] Fourth Quarter 2023 Key Highlights Solaris reported Q4 2023 revenue of $63 million, net income of $7 million, and Adjusted EBITDA of $21 million. The company generated $16 million in free cash flow and reduced credit facility borrowings by $7 million, while continuing its shareholder return program Fourth Quarter 2023 Summary Results (in millions) | Metric | Amount | | :-------------------------------- | :------- | | Revenue | $63 million | | Net income | $7 million | | Net income per diluted Class A share | $0.14 | | Adjusted pro forma net income | $7 million | | Adjusted pro forma net income per fully diluted share | $0.15 | | Adjusted EBITDA | $21 million | | Cash flow from operations | $24 million | | Free cash flow | $16 million | | Reduced borrowings outstanding on credit facility | $7 million | | Total returned to shareholders in 2023 | $47 million | | Q4 2023 dividend per share | $0.12 | | Shares repurchased in Q4 2023 | 85,000 | | Value of shares repurchased in Q4 2023 | $0.7 million | | Additional shares repurchased (Jan 19 - Feb 9, 2024) | 1.1 million | | Value of additional shares repurchased | $8 million | Financial Performance Review Solaris' financial performance review details Q4 and full year 2023 revenue, net income, Adjusted EBITDA, and operational metrics Fourth Quarter 2023 Financial Review In Q4 2023, Solaris experienced a sequential and year-over-year decline in revenue and Adjusted EBITDA, primarily due to decreased lower-margin ancillary last mile logistics services and a softening in industry frac crew counts. Net income and adjusted pro forma net income also saw declines compared to prior periods Fourth Quarter 2023 Financial Metrics (in millions, except EPS) | Metric (in millions, except EPS) | Q4 2023 | Q3 2023 | Q4 2022 | | :------------------------------- | :------ | :------ | :------ | | Net income | $7 | $8 | $8 | | Net income per diluted Class A share | $0.14 | $0.16 | $0.15 | | Adjusted pro forma net income | $7 | $9 | $10 | | Adjusted pro forma net income per fully diluted share | $0.15 | $0.19 | $0.22 | | Revenue | $63 | $69 | $84 | | Adjusted EBITDA | $21 | $23 | $23 | - Revenue decreased 9% QoQ and 25% YoY, driven by decreases in lower-margin ancillary last mile logistics services activity and fewer frac crews followed[13] - Adjusted EBITDA decreased 9% QoQ and 7% YoY, impacted by the decline in Solaris system deployments related to fewer frac crews, as the average industry frac crew count softened[13] - Operational Metrics (Q4 2023): Earned revenue on 103 fully utilized systems (down 5% QoQ, 6% YoY); followed an average of 64 industry frac crews (down 4% QoQ)[14] Full Year 2023 Financial Review For the full year 2023, Solaris reported increased net income and Adjusted EBITDA, despite an 8% decrease in revenue. The growth in Adjusted EBITDA was primarily driven by higher system deployments, offsetting a decline in lower-margin logistics services Full Year 2023 Financial Metrics (in millions, except EPS) | Metric (in millions, except EPS) | FY 2023 | FY 2022 | | :------------------------------- | :------ | :------ | | Net income | $39 | $34 | | Net income per diluted Class A share | $0.78 | $0.64 | | Adjusted pro forma net income | $37 | $36 | | Adjusted pro forma net income per fully diluted share | $0.83 | $0.76 | | Revenue | $293 | $320 | | Adjusted EBITDA | $97 | $84 | - Revenue decreased 8% YoY, driven by a decrease in lower-margin ancillary last mile logistics services activity, partially offset by an increase in Solaris system deployments[17] - Adjusted EBITDA increased 15% YoY, primarily driven by higher system deployments[17] Liquidity and Capital Management Solaris' liquidity and capital management details free cash flow, capital expenditure plans, and balance sheet health Free Cash Flow and Capital Expenditures Solaris generated positive free cash flow of $16 million in Q4 2023, with capital expenditures significantly reduced. The company projects a substantial 75% year-over-year reduction in capital expenditures for full year 2024 - Free Cash Flow (Q4 2023): Positive $16 million, including a working capital source of $4 million and capital expenditures of $7 million[9] - Capital Expenditures (Q4 2023): Approximately $7 million, down over 50% from Q3 2023, primarily related to manufacturing of top fill systems[10] - Capital Expenditures (FY 2023): $64 million[10] - Capital Expenditures (FY 2024 Outlook): Expected to be less than $15 million, an approximately 75% year-over-year reduction[10] Balance Sheet and Liquidity As of December 31, 2023, Solaris maintained a healthy liquidity position, reducing net borrowings on its credit facility and decreasing net debt compared to the previous quarter Balance Sheet and Liquidity (in millions) | Metric | Amount (as of Dec 31, 2023) | | :-------------------------------- | :-------------------------- | | Cash on balance sheet | $6 million | | Borrowings outstanding on credit facility | $30 million | | Liquidity | $47 million | | Net Debt | $24 million | - Reduced net borrowings on the credit facility by $7 million in Q4 2023[11] - Net debt declined to $24 million at the end of Q4 2023, compared to $34 million at the end of Q3 2023[11] Company Information This section provides an overview of Solaris Oilfield Infrastructure's business and important forward-looking statements About Solaris Oilfield Infrastructure, Inc. Solaris Oilfield Infrastructure, Inc. specializes in providing mobile equipment designed to enhance supply chain and execution efficiencies for oil and natural gas well completion across various basins in the United States - Provides mobile equipment that drives supply chain and execution efficiencies in the completion of oil and natural gas wells[21] - Solaris' patented systems are deployed across oil and natural gas basins in the United States[21] Forward-Looking Statements This section contains standard forward-looking statements, which are based on current expectations and assumptions but are subject to inherent uncertainties, risks, and changes in circumstances. Readers are cautioned that actual results may differ materially, and the company undertakes no obligation to update these statements - Forward-looking statements are based on current expectations and assumptions, but are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict[22] - Actual results may differ materially from those contemplated by the forward-looking statements due to various factors, including those discussed in the company's Form 10-K[22] - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to publicly update or revise them, except as required by law[22] Financial Statements This section presents Solaris' unaudited consolidated statements of operations, balance sheets, and cash flows for relevant periods Consolidated Statements of Operations The unaudited consolidated statements of operations show total revenue for Q4 2023 at $63.3 million and for FY 2023 at $292.9 million. Net income attributable to Solaris for Q4 2023 was $4.3 million, and for FY 2023 was $24.3 million Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | :------ | | Total revenue | $63,347 | $84,054 | $69,676 | $292,947 | $320,005 | | Operating income | $9,241 | $10,082 | $10,000 | $49,902 | $41,804 | | Net income | $6,959 | $7,988 | $7,638 | $38,775 | $33,512 | | Net income attributable to Solaris Oilfield Infrastructure, Inc. | $4,301 | $4,796 | $4,934 | $24,336 | $21,158 | | Earnings per share of Class A common stock - diluted | $0.14 | $0.15 | $0.16 | $0.78 | $0.64 | Consolidated Balance Sheets The unaudited consolidated balance sheets as of December 31, 2023, show total assets of $468.3 million, a slight increase from $462.6 million in 2022. Total liabilities increased to $152.7 million, while total stockholders' equity saw a minor decrease Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $5,833 | $8,835 | | Total current assets | $67,141 | $88,743 | | Property, plant and equipment, net | $325,121 | $298,160 | | Total assets | $468,297 | $462,576 | | Total current liabilities | $37,201 | $55,909 | | Borrowings under the credit agreement | $30,000 | $8,000 | | Total liabilities | $152,717 | $145,447 | | Total stockholders' equity | $315,580 | $317,129 | Consolidated Statements of Cash Flows The unaudited consolidated statements of cash flows indicate strong operating cash flow for FY 2023 at $89.9 million, up from $68.0 million in FY 2022. Investing activities resulted in a net outflow of $62.0 million for FY 2023, while financing activities used $30.9 million Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | FY 2023 | FY 2022 | Q4 2023 | | :------------------------------------------ | :------ | :------ | :------ | | Net cash provided by operating activities | $89,924 | $67,996 | $23,583 | | Net cash used in investing activities | $(62,003) | $(79,539) | $(7,173) | | Net cash used in financing activities | $(30,923) | $(16,119) | $(14,028) | | Net (decrease)/increase in cash and cash equivalents | $(3,002) | $(27,662) | $2,382 | | Cash and cash equivalents at end of period | $5,833 | $8,835 | $5,833 | Non-GAAP Financial Measures Reconciliation Solaris defines and reconciles its non-GAAP financial measures, including Adjusted EBITDA and Adjusted Pro Forma EPS About Non-GAAP Measures Solaris utilizes non-GAAP financial measures such as adjusted net income, adjusted diluted EPS, and Adjusted EBITDA to provide investors with useful insights into core operating results and to facilitate performance comparisons across periods, emphasizing that these are supplemental to GAAP measures - Non-GAAP measures (adjusted net income, adjusted diluted earnings per share, and Adjusted EBITDA) are used to provide useful information regarding financial condition and results of operations by reflecting core operating results and facilitating comparisons across periods[20] - Management believes these measures are good tools for internal use and for the investment community, but they should be considered in addition to, not as a substitute for or superior to, GAAP measures[20] EBITDA and Adjusted EBITDA Reconciliation Solaris defines EBITDA as net income adjusted for depreciation, interest, and income tax, and Adjusted EBITDA further includes stock-based compensation and other non-cash or non-recurring items. These metrics are presented to offer a consistent view of operating performance, with a reconciliation provided from GAAP net income - EBITDA is defined as net income plus depreciation and amortization expense, interest expense, and income tax expense[33] - Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense and certain non-cash items and extraordinary, unusual, or non-recurring gains, losses, or expenses[33] EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | :------ | | Net income | $6,959 | $7,988 | $7,638 | $38,775 | $33,512 | | EBITDA | $18,759 | $18,739 | $19,179 | $86,087 | $72,237 | | Adjusted EBITDA | $21,322 | $23,044 | $23,428 | $96,693 | $83,782 | Adjusted Pro Forma Net Income and EPS Reconciliation Solaris presents Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Diluted Share to evaluate performance by assuming the full exchange of all outstanding LLC interests and adjusting for non-recurring items. This provides a comparable measure across different organizational and tax structures - Adjusted pro forma net income represents net income attributable to Solaris assuming the full exchange of all outstanding membership interests in Solaris LLC, adjusted for certain non-recurring items[38] - These measures facilitate comparisons with other companies and period-over-period by eliminating the effect of changes in net income attributable to Solaris due to increases in LLC ownership and excluding non-recurring items[39] Adjusted Pro Forma Net Income and EPS Reconciliation (in thousands, except EPS) | Metric (in thousands, except EPS) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net income attributable to Solaris | $4,301 | $4,796 | $4,934 | $24,336 | $21,158 | | Adjusted pro forma net income | $6,635 | $10,195 | $8,517 | $37,457 | $35,513 | | Adjusted pro forma earnings per share - diluted | $0.15 | $0.22 | $0.19 | $0.83 | $0.76 |