Solaris Oilfield Infrastructure, Inc. Announces Fourth Quarter and Full-Year 2017 Results

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 fourth quarter and fiscal year 2017, as further described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”).

Fourth Quarter 2017 Financial Review

Solaris reported net income of $9.2 million, or $0.13 per share, for fourth quarter 2017, compared to net income of $3.0 million in fourth quarter 2016 and net income of $7.4 million, or $0.13 per share, in third quarter 2017. Fourth quarter 2017 net income included certain non-recurring items, including approximately $701,000 of net expenses resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), $581,000 of IPO-related compensation expense, $47,000 related to a loss on disposal of assets and $107,000 of non-recurring transaction costs.

Adjusted EBITDA for the fourth quarter was $15.2 million, an increase of $11.1 million from fourth quarter 2016 and an increase of $4.0 million compared to third quarter 2017. A description of adjusted EBITDA and a reconciliation to net income, its most directly comparable GAAP measure, is provided below.

Adjusted pro forma net income for the fourth quarter was $8.9 million, or $0.20 per fully exchanged and diluted share, an increase of $7.0 million and $0.15 per diluted share from fourth quarter 2016 and an increase of $3.4 million and $0.07 per diluted share compared to third quarter 2017. A description of adjusted pro forma net income and a reconciliation to net income attributable to Solaris, its most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are provided below.

Revenues were $25.2 million for the quarter, an increase of $17.9 million, or 246%, compared to fourth quarter 2016, and an increase of $6.7 million, or 36%, compared to third quarter 2017.

During fourth quarter 2017, the Company generated 6,146 revenue days, the combined number of days that its systems earned revenue during the quarter, a 188% increase from fourth quarter 2016, and up 35% compared to third quarter 2017. Customer demand and adoption rates for Solaris’ systems continue to grow as proppant consumption levels increase across the industry and customers realize the benefits of Solaris’ technology.

In December 2017, the Tax Act was enacted into law. The Tax Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, including a reduction of the U.S. federal corporate income tax rate from 35% to 21%, among other provisions. As a result of the Tax Act, the Company recognized a $21.9 million benefit in other income related to the reduction in liabilities under its tax receivable agreement in the fourth quarter of 2017. The Company also recognized an additional $22.6 million of income tax expense as a provisional amount, relating to the remeasurement of its deferred tax assets.

Full-year 2017 Financial Review

Solaris reported net income of $22.5 million for the fiscal year ended December 31, 2017, compared to net income of $2.8 million in fiscal 2016. 2017 net income included certain non-recurring items, including approximately $701,000 of net expenses resulting from the Tax Act, $4.6 million of IPO-related compensation expense, $498,000 related to a loss on disposal of assets, $348,000 of non-recurring organizational costs and $143,000 of non-recurring transaction costs.

Adjusted EBITDA for fiscal 2017 was $39.9 million, an increase of $33.1 million from fiscal 2016. A description of adjusted EBITDA and a reconciliation to net income, its most directly comparable GAAP measure, is provided below.

Adjusted pro forma net income for fiscal 2017 was $21.1 million, or $0.48 per fully exchanged and diluted share, an increase of $19.3 million and $0.44 per diluted share from fiscal 2016. A description of adjusted pro forma net income and a reconciliation to net income attributable to Solaris, its most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are provided below.

Revenues were $67.4 million for fiscal 2017, an increase of $49.2 million, or 271%, compared to fiscal 2016.

During fiscal 2017, the Company generated 16,712 revenue days, a 191% increase from fiscal 2016. Customer demand and adoption rates for Solaris’ systems continue to grow as proppant consumption levels increase across the industry and customers realize the benefits of Solaris’ technology.

As a result of the Tax Act, the Company recognized a $21.9 million benefit in other income related to the reduction in liabilities under its tax receivable agreement in fiscal year 2017. The Company also recognized an additional $22.6 million of income tax expense as a provisional amount, relating to the remeasurement of its deferred tax assets.

Capital Expenditures and Liquidity

Driven by strong customer demand and continued customer adoption of our proppant management systems and services, the Company invested $49.9 million during the fourth quarter, which included adding eighteen systems to the fleet, ending the year with 77 systems. Also, the Company’s fourth quarter capital expenditures included $18.9 million in construction activities related to the Kingfisher Facility and the acquisition of the assets of Railtronix, LLC. These investments help address rising customer demand and are expected to drive future earnings and cash flow growth for Solaris.

During the fourth quarter, the Company completed a public offering of 8,050,000 Class A Shares, including 3,000,000 primary shares issued and sold by the Company. Net of underwriting discounts and commissions and offering expenses, the Company received net proceeds of approximately $44.5 million. The Company contributed all of the net proceeds of the offering to its subsidiary Solaris Oilfield Infrastructure, LLC (“Solaris LLC”) in exchange for units in Solaris LLC (“Solaris LLC Units”).

As previously disclosed, the Company also entered into a new credit agreement with certain lenders in January 2018. The credit facility has a term of four years and is composed of a $20 million revolver and a $50 million delayed draw term loan.

As of February 28, 2018, the Company had approximately $107.6 million of liquidity, including $43.4 million in cash and approximately $64.2 million of availability under the undrawn credit facility.

Operational Update and Outlook

We currently have 91 systems in the rental fleet, all of which are deployed to customers. The Permian Basin continues to be our most active area, followed by the Eagle Ford Shale, SCOOP/STACK formations, Marcellus/Utica Shale and the Haynesville Shale. Our systems are highly mobile and can be deployed quickly in response to customer demand.

Proppant supply disruptions and continued logistic complexities drive demand for our products and services. To meet growing demand, we recently increased our manufacturing rate and expect to deliver a total of eight systems to the rental fleet in March, which will represent the highest monthly manufacturing rate the Company has achieved in its history. We have been able to accelerate our manufacturing rate through selective outsourcing of certain components of our systems. Based on our current manufacturing outlook, we expect to end the first quarter with 96 to 98 systems in the fleet and expect to end the second quarter with 118 to 122 systems in the fleet.

Transloading and construction activity continues at the Kingfisher Facility. Completion of the initial phase of construction remains on track for August 2018. In the interim, we are providing direct rail-to-truck transloading service for our anchor customer. Since commencing transloading operations in mid-January 2018, we have begun receiving regular shipments of railcars.

Solaris’ Chief Executive Officer Greg Lanham commented, “We are very proud of all that we accomplished in 2017. We more than doubled our mobile proppant management system fleet – from 30 systems to 77 systems – and significantly expanded our market share. We completed our initial public offering, commenced construction of the Kingfisher Facility and completed the Railtronix acquisition. We believe our current fleet of 91 systems represents the industry’s leading market share for new technology proppant handling solutions.”

“We look forward to reaching new milestones in 2018, including delivering eight systems in a single month for the first time in March and adding our 100th system to the fleet in April. Our strong balance sheet, experienced team and unique value proposition provide the opportunity to continue to build upon our success and drive additional efficiencies for our customers.”

Conference Call

The Company will host a conference call to discuss its fourth quarter and fiscal 2017 results on Wednesday, March 7, 2018 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, 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 10116267. 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.

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