Solaris Oilfield Infrastructure Announces First Quarter 2023 Results

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SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)

	Three Months Ended
	March 31,						December 31
	2023			2022			2022

Revenue		77,828			51,836			77,658
Revenue - related parties		4,894			5,079			6,396
Total revenue		82,722			56,915			84,054

Operating costs and expenses:
Cost of services (excluding depreciation and amortization)		53,223			37,671			56,696
Depreciation and amortization		8,417			6,929			8,657
Selling, general and administrative		6,538			5,211			5,873
Other operating (income) expense (1)		(338	)		(309	)		2,746
Total operating costs and expenses		67,840			49,502			73,972
Operating income		14,882			7,413			10,082
Interest expense, net		(459	)		(79	)		(181	)
Total other expense		(459	)		(79	)		(181	)
Income before income tax expense		14,423			7,334			9,901
Provision for income taxes		2,486			1,612			1,913
Net income		11,937			5,722			7,988
Less: net income related to non-controlling interests		(4,368	)		(2,220	)		(3,192	)
Net income attributable to Solaris	$	7,569		$	3,502		$	4,796

Earnings per share of Class A common stock - basic	$	0.23		$	0.11		$	0.15
Earnings per share of Class A common stock - diluted	$	0.23		$	0.11		$	0.15

Basic weighted average shares of Class A common stock outstanding		31,214			31,239			31,640
Diluted weighted average shares of Class A common stock outstanding		31,214			31,239			31,640





SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited)

	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	2,175	$	8,835
Accounts receivable, net of allowances for credit losses of $355 and $385, respectively		68,124		64,543
Accounts receivable - related party		3,840		4,925
Prepaid expenses and other current assets		4,245		5,151
Inventories		7,621		5,289
Total current assets		86,005		88,743
Property, plant and equipment, net		313,299		298,160
Non-current inventories		1,730		1,569
Operating lease right-of-use assets		3,850		4,033
Goodwill		13,004		13,004
Intangible assets, net		1,247		1,429
Deferred tax assets		53,624		55,370
Other assets		239		268
Total assets	$	472,998	$	462,576
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	29,817	$	25,934
Accrued liabilities		22,370		25,252
Current portion of payables related to Tax Receivable Agreement		—		1,092
Current portion of operating lease liabilities		923		917
Current portion of finance lease liabilities		2,191		1,924
Other current liabilities		—		790
Total current liabilities		55,301		55,909
Operating lease liabilities, net of current		6,034		6,212
Borrowings under the credit agreement		26,000		8,000
Finance lease liabilities, net of current		3,359		3,429
Payables related to Tax Receivable Agreement		71,530		71,530
Other long-term liabilities		364		367
Total liabilities		162,588		145,447
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 shares authorized, 30,399 shares issued and outstanding as of March 31, 2023 and 31,641 shares issued and outstanding as of December 31, 2022		304		317
Class B common stock, $0.00 par value, 180,000 shares authorized, 13,674 shares issued and outstanding as of March 31, 2023 and 13,674 issued and outstanding as of December 31, 2022		—		—
Additional paid-in capital		194,463		202,551
Retained earnings		13,081		12,847
Total stockholders' equity attributable to Solaris and members' equity		207,848		215,715
Non-controlling interest		102,562		101,414
Total stockholders' equity		310,410		317,129
Total liabilities and stockholders' equity	$	472,998	$	462,576





SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income	$	11,937		$	5,722
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,417			6,929
(Gain) loss on disposal of asset		(22	)		107
Stock-based compensation		1,980			1,593
Amortization of debt issuance costs		31			40
Deferred income tax expense		2,329			1,455
Other		10			(1	)
Changes in assets and liabilities:
Accounts receivable		(3,581	)		(11,321	)
Accounts receivable - related party		1,086			(1,216	)
Prepaid expenses and other assets		905			1,717
Inventories		(4,071	)		(1,152	)
Accounts payable		2,042			5,040
Accrued liabilities		(3,122	)		(2,644	)
Payments pursuant to tax receivable agreement		(1,092	)		—
Net cash provided by operating activities		16,849			6,269
Cash flows from investing activities:
Investment in property, plant and equipment		(18,949	)		(11,776	)
Cash received from insurance proceeds		—			231
Proceeds from disposal of assets		123			38
Net cash used in investing activities		(18,826	)		(11,507	)
Cash flows from financing activities:
Share repurchases		(14,427	)		—
Distribution to unitholders (includes distribution of $1.5 million at $0.11/unit and $1.4 million at $0.105/unit, respectively)		(1,985	)		(1,446	)
Dividend paid to Class A common stock shareholders		(3,656	)		(3,441	)
Borrowings under the credit agreement		18,000			—
Payments under finance leases		(738	)		(8	)
Payments under insurance premium financing		(541	)		(246	)
Payments for shares withheld for taxes from RSU vesting and cancelled		(1,336	)		(990	)
Net cash used in financing activities		(4,683	)		(6,131	)
Net decrease in cash and cash equivalents		(6,660	)		(11,369	)
Cash and cash equivalents at beginning of period		8,835			36,497
Cash and cash equivalents at end of period	$	2,175		$	25,128
Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment		129			146
Capitalized stock based compensation		174			115
Property and equipment additions incurred but not paid at period-end		5,015			2,827
Property, plant and equipment additions transferred from inventory		1,578			575
Additions to fixed assets through finance leases		933			—
Cash paid for:
Interest		335			37
Income taxes		1			22





SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES RECONCILIATION AND CALCULATION OF NON-GAAP FINANCIAL AND OPERATIONAL MEASURES (In thousands) (Unaudited)

EBITDA AND ADJUSTED EBITDA

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
	March 31,						December 31,
	2023			2022			2022

Net income	$	11,937		$	5,722		$	7,988
Depreciation and amortization		8,417			6,929			8,657
Interest expense, net		459			79			181
Income taxes (1)		2,486			1,612			1,913
EBITDA	$	23,299		$	14,342		$	18,739
Stock-based compensation expense (2)		1,980			1,593			1,427
(Gain) loss on disposal of assets		(361	)		5			2,739
Other (3)		200			(200	)		139
Adjusted EBITDA	$	25,118		$	15,740		$	23,044

________________________
1)	Federal and state income taxes.
2)	Represents stock-based compensation expense related to restricted stock awards.
3)	Other includes accrued excise tax on share repurchases, gains on insurance claims, credit losses or recoveries and other settlements.

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ADJUSTED PRO FORMA NET INCOME AND ADJUSTED PRO FORMA EARNINGS PER FULLY DILUTED SHARE

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 units of Solaris LLC (“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
	March 31,						December 31,
	2023			2022			2022
Numerator:
Net income attributable to Solaris	$	7,569		$	3,502		$	4,796
Adjustments:
Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests (1)		4,368			2,220			3,192
(Gain) loss on disposal of assets		(361	)		5			2,739
Other (2)		200			(200	)		139
Incremental income tax expense		(779	)		(703	)		(671	)
Adjusted pro forma net income	$	10,997		$	4,824		$	10,195
Denominator:
Weighted average shares of Class A common stock outstanding		31,214			31,239			31,640
Adjustments:
Assumed exchange of Solaris LLC units for shares of Class A common stock (1)		15,224			14,769			14,968
Adjusted pro forma fully weighted average shares of Class A common stock outstanding - diluted		46,438			46,008			46,608
Adjusted pro forma earnings per share - diluted	$	0.24		$	0.11		$	0.22

(1)	Assumes the exchange of all outstanding Solaris LLC Units for shares of Class A common stock at the beginning of the relevant reporting period, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests.
(2)	Other includes accrued excise tax on share repurchases, gains on insurance claims, credit losses or recoveries and other settlements.