Solaris Oilfield Infrastructure Inc
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
SEI$57.77+14.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-26.
0001697500-24-000031
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001697500-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 51 previous paragraphs and 68 current paragraphs.
26 unchanged; 17 reworded; 25 added; 7 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 6 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
Recent Developments
Current report
MER Acquisition
Current report
On July 9, 2024, Solaris Inc. and Solaris LLC entered into a definitive agreement to acquire MER, a premier provider of distributed power solutions serving the energy and commercial and industrial end-markets (the “MER Acquisition”). Transaction consideration includes $60.0 million of cash, subject to certain adjustments based on the Company’s capital expenditures prior to the close of the transaction (including the obligation by the Company to assume MER’s acquisition of approximately $308.0 million of on-order turbines); and the issuance of approximately 16.5 million Solaris LLC Units and an equal number of shares of the Company’s Class B common stock to MER’s founders and management team, who will join the Company post-closing.
Current report
The Company’s board of directors has approved the MER Acquisition. The proposed transaction is contingent upon shareholder approval of the issuance of shares of the Company’s Class B common stock, receipt of regulatory approvals and other customary closing conditions. The Company anticipates the transaction to close by the end of the third quarter of 2024.
Current report
Senior Secured Bridge Term Loan Facility
Current report
On July 9, 2024, in connection with the planned MER Acquisition, we secured committed financing from Banco Santander, Texas Capital Securities and Woodforest National Bank in the form of a $300.0 million senior secured bridge term loan facility with a 364-day term (“Bridge Loan”). We paid $4.8 million in loan structuring and commitment fees on the same day. Funds from the Bridge Loan are undrawn and only available to us if we close on the loan. We expect to obtain alternative financing for our cash needs relating to the MER acquisition prior to closing the transaction; if this alternative financing is obtained, we would not close on the Bridge Loan.
Current report
Secured Demand Note
Current report
On July 30, 2024, Solaris LLC entered into a definitive agreement whereby Solaris LLC loaned $29.8 million (the “Loan”) to MER to fund certain progress payments to meet MER’s outstanding commitments. In connection with this financing agreement, the Company drew $30.0 million from its existing senior secured credit facility. The Loan bears interest at 10% and is fully secured by substantially all of MER’s assets. If the Loan is not called, payment would be due on December 6, 2024.
Current report
Total revenue decreased by $3.3 million, or 4%, to $73.9 million in the second quarter of 2024 compared to $77.2 million in the same period of 2023. This result was primarily due to a decrease in fully utilized systems, which dropped to 92 for the second quarter of 2024 from 108 for the second quarter of 2023. This decrease was partially offset by an increase in last mile tonnage in the second quarter of 2024 compared to the same period of 2023.
Current report
Cost of services, excluding depreciation and amortization expense, slightly increased by $0.5 million, or 1%, to $46.1 million in the second quarter of 2024 compared to $45.7 million in the same period of 2023, primarily due to a $2.9 million increase in last mile and ancillary service costs associated with an increase in last mile tonnage. This increase was almost offset by a $0.6 million reduction in system costs due to lower fully utilized system count and reversal of $1.8 million accrued property taxes following a settlement agreement with Brown County Appraisal District. Refer to Note 10, “Commitments and Contingencies,” in the notes to the condensed consolidated financial statements for additional information.
Current report
Cost of services, excluding depreciation and amortization expense, decreased by $12.9 million, or 13%, to $86.0 million in the first six months of 2024 compared to $98.9 million in the same period of 2023. This result was primarily
Current report
due to the reversal of accrued property taxes following settlement with Brown County Appraisal District discussed above, cost saving efforts on ancillary services and lower system count.
Current report
Cost of services, excluding depreciation and amortization, as a percentage of revenue was 62% and 61% for the three and six months ended June 30, 2024, respectively, compared to 59% and 62% for the same periods ended June 30, 2023.
Current report
Gain on Reversal of Property Tax Contingency
Current report
On June 14, 2024, we reached a settlement agreement with Brown County Appraisal District in Texas, following a favorable ruling by the Eastland Court of Appeals on April 18, 2024. As a result, in the three and six months ended June 30, 2024, we reversed $4.3 million of property tax expenses previously recorded through 2023 in connection with this case. Of this amount, $2.5 million was presented as gain on reversal of property tax contingency and $1.8 million reduced the costs of services in our condensed consolidated statements of operations.
Current report
Selling, general and administrative expenses increased by $1.4 million, or 21%, to $8.3 million in the second quarter of 2024 compared to $6.8 million in the same period of 2023. Selling, general and administrative expenses increased by $2.9 million, or 22%, to $16.2 million in the first six months of 2024 compared to $13.4 million in the same period of 2023. The increase in these periods was primarily due to an increase in salaries, benefits and wages driven by an increase in average headcount, as well as increased professional fees and office rent.
Current report
Other Operating Expense (Income), net
Current report
Other operating expense (income) increased by $0.7 million to $0.6 million in the second quarter of 2024 compared to income of $0.1 million in the same period of 2023. Other operating expense (income) increased by $1.1 million, to $0.7 million in the first six months of 2024 compared to income of $0.5 million in the same period of 2023. Other operating expense for the three and six months ended June 30, 2024 primarily relate to transaction costs and credit losses, partially offset with sales tax rebates, sublease income and other settlements. Other operating income for the three and six months ended June 30, 2023 primarily relate to gain on sale of assets and sales tax rebates.
Current report
In connection with the MER Acquisition, we have secured a $300.0 million Bridge Loan with a 364-day term. Funds from the Bridge Loan are undrawn and only available to the Company if we close on the loan. We expect to obtain alternative financing for our cash needs relating to the MER acquisition prior to closing the transaction; if this alternative financing is obtained, we would not close on the Bridge Loan.
Current report
In July 2024, we borrowed $33.0 million from our senior secured credit facility, approximately $3.0 million of which was used to partly cover loan structuring and commitment fees for the Bridge Loan and $29.8 million was used for the Loan to MER. Currently, we have the capacity to draw an additional $14.8 million from our senior secured credit facility.
Current report
On July 25, 2024, our board of directors approved a quarterly cash dividend of $0.12 per share of Class A common stock, to be paid on September 6, 2024 to holders of record as of August 23, 2024, and a distribution of $0.12 per unit to Solaris LLC unitholders, which is subject to the same payment and record dates.
Current report
As of June 30, 2024, our senior secured credit facility had outstanding borrowings of $16.0 million. With the additional $33.0 million borrowed in July 2024, our total obligations under this facility amounted to $49.0 million, which is due within the next twelve months. We believe that our current cash reserves, operating cash flow, receipt of Loan repayment from MER, available borrowings under our senior secured credit facility and senior secured bridge term loan facility and the potential to issue additional equity, if needed, will provide adequate liquidity to meet our future operational needs, including repayment of outstanding debt obligations, dividend payments and financing the MER Acquisition.
Current report
Financing Activities. For the six months ended June 30, 2024, net cash used in financing activities totaled $32.9 million. This amount primarily reflects net repayments of $14.0 million on our credit agreement, $8.1 million for share repurchases, $7.3 million in quarterly dividends to Class A common stock shareholders and $3.3 million in distributions to Solaris LLC unitholders. In comparison, net cash used in financing activities was $3.4 million for the six months ended June 30, 2023. This was largely due to $25.8 million spent on share repurchases, $7.0 million in quarterly dividends to Class A common stock shareholders and $3.5 million in distributions to Solaris LLC unitholders, partially offset by $35.0 million in net borrowings under our senior secured credit facility.
Current report
Future Uses of Cash
Current report
Our material cash commitments consist primarily of obligations under our senior secured credit facility, Tax Receivable Agreement, insurance premium financing, obligations under our finance and operating leases, dividend payments, purchase obligations as part of normal operations and financing of our planned MER Acquisition, which we expect to close by the end of the third quarter of 2024.
Removed paragraphs (7)
Previous report
Cost of services, excluding depreciation and amortization expense, decreased $13.3 million, or 25%, to $39.9 million for the three months ended March 31, 2024, compared to $53.2 million for the three months ended March 31, 2023. The decrease is primarily related to a decrease in last mile tonnage and lower system count for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Cost of services, excluding depreciation and amortization, as a percentage of revenue was 59% and 64% for the three months ended March 31, 2024 and 2023, respectively.
Previous report
Selling, general and administrative expenses increased $1.5 million, or 23%, to $8.0 million for the three months ended March 31, 2024 compared to $6.5 million for the three months ended March 31, 2023, primarily due to increase in salaries, benefits and wages by $0.9 million, of which $0.4 million is from stock-based compensation due to new grants of restricted stock awards.
Previous report
As of March 31, 2024, cash and cash equivalents totaled $3.4 million. We have $30.0 million in borrowings outstanding under that certain Amended and Restated Credit Agreement, dated as of April 28, 2023, as amended (the “Credit Agreement”). As of March 31, 2024, the Company has the ability to draw up to an additional $37.5 million under the amended Credit Agreement. We believe that our cash on hand, operating cash flow and available borrowings under our Credit Agreement will provide sufficient liquidity to address our future cash needs, including capital expenditures, working capital investments, and dividends for the next 12 months and beyond.
Previous report
Financing Activities. Net cash used in financing activities of $15.9 million for the three months ended March 31, 2024 was primarily related to the repurchase of shares for $8.1 million, quarterly dividends of $3.6 million to Class A common stock shareholders, distributions to Solaris LLC unitholders of $1.6 million, $1.5 million of payments related to taxes on the vesting of stock-based compensation and payments under finance leases and insurance of $1.0 million. Net cash used in financing activities of $4.7 million for the three months ended March 31, 2023 was primarily related to the repurchase of shares for $14.4 million, quarterly dividends of $3.7 million to Class A common stock shareholders, distributions to Solaris LLC unitholders of $2.0 million, payments under finance leases and insurance of $1.3 million, and $1.3 million of payments related to taxes on the vesting of stock-based compensation, partially offset by net borrowings under the Credit Agreement of $18.0 million.
Previous report
Our material cash commitments consist primarily of obligations under our Credit Agreement, Tax Receivable Agreement, finance and operating leases for property and equipment, and purchase obligations as a part of normal operations. We have no material off balance sheet arrangements as of March 31, 2024, except for purchase commitments under supply agreements disclosed below.
Previous report
As of March 31, 2024, we expect to pay approximately $0.1 million in commitment fees on our Credit Agreement within the next twelve months, calculated based on the unused portion of lender commitments, at the applicable commitment fee rate of 0.375%. As of March 31, 2024, if our borrowings under the Credit Agreement remain at $30.0 million, we expect to pay approximately $2.5 million in interest within the next twelve months, calculated based on the weighted average interest rate on the borrowings outstanding as of March 31, 2024 of approximately 8.32%.
Previous report
As of March 31, 2024, we had purchase obligations of approximately $2.8 million payable within the next twelve months.
Reworded paragraphs (17)
Previous wording
Demand for our services is predominantly influenced by the level of oil and natural gas well drilling and completion activity in the U.S. Through mid-April 2024, U.S. drilling and completion activity, as measured by the Baker Hughes U.S. Land Rig Count, was down 1% year to date, which reflects the net impact of a slight increase in the number of oil-directed rigs and a 9% decrease in gas-directed rigs. Average WTI oil prices increased over 15% from the low-$70s per barrel range at year-end 2023 to the low-$80s per barrel range in April 2024. Average Henry Hub natural gas prices declined over 30% from the start of the year to below $2 per MMBtu, which was the primary driver of the decrease in gas-directed drilling activity.
Current wording
Demand for our services is predominantly influenced by the level of oil and natural gas well drilling and completion activity in the U.S. During the quarter ended June 30, 2024, U.S. drilling and completion activity, as measured by the Baker Hughes U.S. Land Rig Count, was down 7% which reflects the net impact of a 5% decrease in the number of oil-directed rigs and a 13% decrease in gas-directed rigs. Average WTI oil prices remained in a range of $70 to $90 per barrel during the quarter ended June 30, 2024. Average Henry Hub natural gas prices remained in a low-$2 per MMBtu range, which reflects a 15% decline from the start of the year and was the primary driver of the decrease in gas-directed drilling activity.
Previous wording
For the first quarter ended March 31, 2024, our fully utilized total system count averaged 102 systems, which was roughly flat from 103 systems for the fourth quarter ended December 31, 2023 and was relatively in line with the Baker Hughes rig count trend. A small increase in pricing at the start of 2024 and incremental earnings from our new services allowed us to grow earnings despite the softness in drilling and completion activity. As a result, our operating profit grew over 8% sequentially despite the industry activity decline.
Current wording
For the second quarter ended June 30, 2024, our fully utilized total system count averaged 92 systems, which dropped from 102 systems for the first quarter ended March 31, 2024 and was relatively in line with overall drilling and completion trends in the U.S.
Previous wording
Today oil-directed drilling activity comprises over 80% of the total Baker Hughes U.S. Land rig count. Oil prices currently remain in the low-$80s per barrel range, which we believe should support a sustained level of oil-directed U.S. drilling and completion activity. For the remainder of 2024, we expect the Company’s revenue and profitability to track the overall direction of U.S. drilling and completion activity, which we expect will be negatively impacted by low natural gas prices and industry efficiency gains, partially offset by stable oil-directed activity.
Current wording
Today oil-directed drilling activity comprises over 80% of the total Baker Hughes U.S. Land rig count. Oil prices currently remain in the mid-$70s per barrel range, which we believe should support a sustained level of oil-directed U.S. drilling and completion activity. For the remainder of 2024, we expect the Company’s revenue and profitability to track the overall direction of U.S. drilling and completion activity.
Previous wording
Our capital expenditures of approximately $3 million in first quarter 2024 were down over 50% compared to the fourth quarter of 2023. The Company continues to expect full year 2024 capital expenditures to be below $15 million, which reflects an over 75% decrease from total capital expenditures in 2023 following the completion of our prior growth capital program in 2023. This reduction in capital expenditures should allow us to generate significantly increased cash flow in 2024.
Current wording
Our capital expenditures of approximately $4 million during the first six months of 2024 were down approximately 90% compared to the first six months of 2023 following the completion of our prior growth capital program in 2023.
Previous wording
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Current wording
Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023
Previous wording
Revenue decreased $14.8 million, or 18%, to $67.9 million for the three months ended March 31, 2024 compared to $82.7 million for the three months ended March 31, 2023. The decrease in revenue is primarily related to a decrease in last mile tonnage for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease in revenue was also due to a decrease in total fully utilized systems to 102 from 118 systems for the three months ended March 31, 2024 and March 31, 2023, respectively.
Current wording
Total revenue decreased by $18.1 million, or 11%, to $141.8 million in the first six months of 2024 compared to $159.9 million in the same period of 2023. This result was primarily due to a decrease in last mile logistics services revenue. The decrease in revenue was also due to a decrease in fully utilized systems, which dropped to 97 for the first six months of 2024 from 113 for the first six months of 2023.
Previous wording
Depreciation and amortization increased $1.5 million, or 18%, to $9.9 million for the three months ended March 31, 2024, compared to $8.4 million for the three months ended March 31, 2023. Depreciation increased primarily due to investment in capital spending to develop and upgrade the systems fleet, resulting in the addition of depreciable assets from March 31, 2023 to March 31, 2024.
Current wording
Depreciation and amortization increased by $0.5 million, or 5%, to $9.6 million in the second quarter of 2024 compared to $9.1 million in the same period of 2023. Depreciation and amortization increased by $2.0 million, or 11%, to $19.5 million in the first six months of 2024, compared to $17.5 million in the same period of 2023. Depreciation increased primarily due to investment in capital spending to develop and upgrade the systems fleet, resulting in the addition of depreciable assets from June 30, 2023 to June 30, 2024.
Previous wording
During the three months ended March 31, 2024, we recognized a combined United States federal and state expense for income taxes of $1.9 million, a decrease of $0.6 million as compared to the $2.5 million income tax expense we recognized during the three months ended March 31, 2023. This change was attributable to changes in operating gains. The effective combined United States federal and state income tax rates were 20.3% and 17.2% for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.
Current wording
During the second quarter of 2024, we recognized a combined United States federal and state expense for income taxes of $1.3 million, a decrease of $1.3 million as compared to the $2.6 million income tax expense we recognized during the same period in 2023. During the first six months of June 30, 2024, we recognized a combined United States federal and state expense for income taxes of $3.2 million, a decrease of $1.9 million as compared to the $5.1 million income tax expense we recognized during the same period in 2023. This change was attributable to changes in operating gains. The effective combined United States federal and state income tax rates were 12.0% and 17.8% for the second quarter of 2024 and 2023, respectively. The effective combined United States federal and state income tax rates were 15.8% and 17.5% for the first six months of 2024 and 2023, respectively. The effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.
Previous wording
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 any extraordinary, unusual or non-recurring gains, losses or expenses.
Current wording
We define EBITDA as net income, plus (i) depreciation and amortization expense, (ii) interest expense and (iii) income tax expense. We define Adjusted EBITDA as EBITDA plus (i) stock-based compensation expense and (ii) certain non-cash items and any extraordinary, unusual or non-recurring gains, losses or expenses.
Previous wording
The following table presents a reconciliation of Net income to EBITDA and Adjusted EBITDA for each of the periods indicated.
Current wording
The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of Adjusted EBITDA.
Previous wording
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023: EBITDA and Adjusted EBITDA
Current wording
Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023: EBITDA and Adjusted EBITDA
Previous wording
EBITDA decreased $3.4 million to $19.9 million for the three months ended March 31, 2024 compared to $23.3 million for the three months ended March 31, 2023. Adjusted EBITDA decreased $2.4 million to $22.7 million for the three months ended March 31, 2024 compared to $25.1 million for the three months ended March 31, 2023. The changes in EBITDA and Adjusted EBITDA were primarily due to the changes in revenues and expenses, discussed above.
Current wording
EBITDA decreased $3.4 million to $21.4 million for the three months ended June 30, 2024 compared to $24.9 million for the three months ended June 30, 2023. Adjusted EBITDA decreased $6.0 million to $20.8 million for the three months ended June 30, 2024 compared to $26.8 million for the three months ended June 30, 2023. EBITDA decreased $6.8 million to $41.3 million for the six months ended June 30, 2024 compared to $48.1 million for the six months ended June 30, 2023. Adjusted EBITDA decreased $8.5 million to $43.5 million for the six months ended June 30, 2024 compared to $51.9 million for the six months ended June 30, 2023. The changes in EBITDA and Adjusted EBITDA were primarily due to the changes in revenues and expenses, discussed above.
Previous wording
The Company’s Board of Directors authorized a share repurchase program on March 1, 2023, with an approved limit of $50.0 million and no set term limits. During the three months ended March 31, 2024, we purchased and retired 1,108,349 shares of Class A common stock at an aggregate cost of $8.1 million, or $7.30 per share, under the share repurchase program. As of March 31, 2024, we have purchased and retired 4,272,127 shares of Class A common stock for $34.6 million, or $8.09 per share, resulting in $15.4 million remaining under the authorized share repurchase program.
Current wording
The Company’s board of directors authorized a share repurchase program on March 1, 2023, with an approved limit of $50.0 million and no set term limits. During the three months ended June 30, 2024, we did not repurchase nor retire any shares of Class A common stock under the share repurchase program. During the six months ended June 30, 2024, we purchased and retired 1,108,349 shares of Class A common stock at an aggregate cost of $8.1 million, or $7.30 per share, under the share repurchase program. As of June 30, 2024, we have collectively repurchased and retired 4,272,127 shares of Class A common stock for $34.6 million, or $8.09 per share, resulting in $15.4 million remaining under the authorized share repurchase program.
Previous wording
Operating Activities. Net cash provided by operating activities was $16.9 million for the three months ended March 31, 2024, compared to net cash provided by operating activities of $16.8 million for the three months ended March 31, 2023.
Current wording
Operating Activities. Net cash provided by operating activities decreased to $35.8 million for the six months ended June 30, 2024, compared to $43.8 million for the same period in 2023. This $8.0 million decline is primarily attributed to reduced business activity, reflected in the decrease in our fully utilized systems and lower revenue from last-mile logistics services. Consequently, our net income, adjusted for non-cash items, was $44.9 million for the six months ended June 30, 2024, compared to $50.3 million in the same period in 2023. Additionally, changes in working capital led to a $9.1 million decrease in cash for the six months ended June 30, 2024, compared to a $6.5 million decrease in cash in the same period in 2023.
Previous wording
Investing Activities. Net cash used in investing activities was $3.3 million for the three months ended March 31, 2024, compared to net cash used in investing activities of $18.8 million for the three months ended March 31, 2023. The decrease in investing activities of $15.5 million is primarily due to a reduction in capital expenditures following the completion of our prior growth capital program in 2023.
Current wording
Investing Activities. Net cash used in investing activities was $3.6 million for the six months ended June 30, 2024, a significant decrease from $39.9 million during the same period in 2023. The $36.3 million reduction is mainly attributed to decreased capital expenditures following the completion of our previous growth capital program in 2023.
Previous wording
We had no material changes in our critical accounting estimates during the three months ended March 31, 2024, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.
Current wording
We had no material changes in our critical accounting estimates during the three and six months ended June 30, 2024, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.
Previous wording
We have no material off balance sheet arrangements. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements, except for purchase commitments under supply agreements.
Current wording
We have no material off balance sheet arrangements. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Future Sources and Uses of Cash