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 full year 2019.
Operational Update and Outlook
During the fourth quarter 2019, an average of 88 mobile proppant management systems were fully utilized, a 23% decrease from the 115 fully utilized systems averaged in the third quarter of 2019, and a 27% decrease compared to fourth quarter 2018. The sequential decrease in fully utilized systems during the fourth quarter of 2019 was primarily due to a decline in active hydraulic fracturing crews as oil and gas operators reduced activity to stay within budgets. For full year 2019, an average 110 mobile proppant management systems were fully utilized, which was essentially flat from the 111 fully utilized systems averaged in 2018.
Based on current industry activity levels, the Company believes it has approximately one third of overall U.S. wellsite proppant storage market share, which continues to represent the leading share.
The Company continues to maintain 166 mobile proppant management systems in its rental fleet, unchanged from the third quarter, and will continue to incorporate field learnings into its fleet of 14 mobile chemical management systems. The Company expects capital expenditures for the full year 2020 to be $20.0-40.0 million, unchanged from prior guidance.
“I’m pleased that the Solaris team delivered another solid year of performance, despite a challenging macro environment,” Solaris’ Chairman and Chief Executive Officer Bill Zartler commented. “In 2019, we began generating meaningful operating cash flow, which we have used to both return capital to our shareholders in the form of dividends and share repurchases, and also continue to invest in value-add new technology. Despite early indications for another decline in industry capital spending levels in 2020, our strong balance sheet and cash generation should allow us to continue driving innovation for our customers while maximizing value for shareholders.”
Full Year 2019 Financial Review
Solaris reported net income of $90.4 million, or $1.69 per diluted Class A share, for full year 2019, compared to full year 2018 net income of $86.0 million, or $1.59 per diluted Class A share. Adjusted pro forma net income for full year 2019 was $62.7 million, or $1.32 per fully diluted share, compared to full year 2018 adjusted pro forma net income of $79.2 million, or $1.68 per fully diluted share. A description of adjusted pro forma net income and a reconciliation to net income attributable to Solaris, its most directly comparable generally accepted accounting principles (“GAAP”) measure, and the computation of adjusted pro forma earnings per fully diluted share are provided below.
Adjusted EBITDA for full year 2019 was $112.9 million, compared to full year 2018 adjusted EBITDA of $122.8 million. A description of adjusted EBITDA and a reconciliation to net income, its most directly comparable GAAP measure, is provided below.
Fourth Quarter 2019 Financial Review
Solaris reported net income of $25.3 million, or $0.48 per diluted Class A share, for fourth quarter 2019, compared to net income of $19.1 million, or $0.36 per diluted Class A share, in third quarter 2019 and net income of $24.7 million, or $0.47 per diluted Class A share, in fourth quarter 2018. Fourth quarter 2019 included a $17.6 million, or $0.37 per diluted Class A share, benefit for deferred revenue recognition that resulted from a contract termination at the Company’s Kingfisher transload facility. Adjusted pro forma net income for fourth quarter 2019 was $9.7 million, or $0.20 per fully diluted share, compared to adjusted pro forma net income in third quarter 2019 of $15.2 million, or $0.32 per fully diluted share, and $21.2 million, or $0.44 per fully diluted share in fourth quarter 2018.
Adjusted EBITDA for fourth quarter 2019 was $20.9 million, compared to adjusted EBITDA of $28.0 million in third quarter 2019 and $34.4 million in fourth quarter 2018.
Revenues were $62.9 million for fourth quarter 2019, which were up 5% from third quarter 2019 and up 10% compared to fourth quarter 2018. Excluding the impact of deferred revenue, fourth quarter 2019 revenues declined 20% from third quarter 2019 and decreased 20% compared to fourth quarter 2018.
Capital Expenditures, Free Cash Flow and Liquidity
The Company invested $1.9 million during fourth quarter 2019 and $34.9 million for full year 2019, which included investments in its mobile proppant and chemical management systems.
Free cash flow (defined as net cash provided by operating activities less investment in property, plant and equipment) during fourth quarter 2019 was $24.4 million, which represented the fourth consecutive quarter of positive free cash flow for the Company. For full year 2019, the Company generated $80.0 million of free cash flow.
As of December 31, 2019, the Company had approximately $66.9 million of cash on the balance sheet, which reflects over $1.40 per fully diluted share of available cash. The Company’s $50.0 million credit facility remains undrawn.
Shareholder Returns
On December 3, 2019, the Company announced that its Board of Directors had declared a cash dividend of $0.105 per share of Class A common stock, which represented a 5% increase over the prior quarterly dividend and was paid on December 26, 2019 to holders of record as of December 16, 2019. A distribution of $0.105 per unit was also approved for holders of units in Solaris Oilfield Infrastructure, LLC (“Solaris LLC”). Since initiating the dividend in December 2018, the Company has paid 5 consecutive quarterly dividends, returning a total of nearly $24 million in cash to shareholders.
During the fourth quarter of 2019, Solaris repurchased approximately 0.3 million shares for a total of $3.2 million. Since announcing the share repurchase program in December 2019, Solaris has repurchased a total of approximately 1.4 million shares, or approximately 5% of its fully diluted shares outstanding, at a weighted-average share price of $12.40 for a total of $17.7 million. The Company currently has $7.3 million remaining of its original $25 million share repurchase authorization.
Conference Call
The Company will host a conference call to discuss its fourth quarter and full year 2019 results on Wednesday, February 19, 2020 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 at 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 10135468. 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.
About Solaris Oilfield Infrastructure, Inc.
Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) manufactures and rents mobile equipment that drives supply chain and execution efficiencies in the completion of oil and natural gas wells. Solaris’ patented mobile proppant and chemical systems are deployed in many of the most active oil and natural gas basins in the United States, including the Permian Basin, the Eagle Ford Shale, the STACK/SCOOP formation, the Marcellus and Utica Shales, the Haynesville Shale, the Rockies and the Bakken Shale. Additional information is available on the Solaris website, www.solarisoilfield.com.
Website Disclosure
We use our website (www.solarisoilfield.com) as a routine channel of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under the Securities and Exchange Commission’s (the “SEC”) Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated by reference into, or deemed to be a part of, this Current Report on Form 8-K or will be incorporated by reference into any other report or document we file with the SEC unless we expressly incorporate any such information by reference, and any references to our website are intended to be inactive textual references only.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of forward-looking statements include, but are not limited to, statements we make regarding management changes, the outlook for the operation of our Kingfisher Facility, current and potential future long-term contracts and our future business and financial performance. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to the factors discussed or referenced in our filings made from time to time with the SEC. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES | |||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||||||||||
December 31, | September 30, | December 31, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2019 | 2018 | |||||||||||||||||||||
Revenue | |||||||||||||||||||||||||
System rental | $ | 28,296 | $ | 39,083 | $ | 36,638 | $ | 142,022 | $ | 143,646 | |||||||||||||||
System services | 15,250 | 13,511 | 18,153 | 63,871 | 43,010 | ||||||||||||||||||||
Transloading services | 18,974 | 4,236 | 4,417 | 34,105 | 8,083 | ||||||||||||||||||||
Inventory software services | 338 | 507 | 396 | 1,689 | 2,457 | ||||||||||||||||||||
Total revenue | 62,858 | 57,337 | 59,604 | 241,687 | 197,196 | ||||||||||||||||||||
Operating costs and expenses | |||||||||||||||||||||||||
Cost of system rental (excluding $5,908, $4,792 and $5,773 of depreciation and amortization for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively, and $22,389 and $14,920 of depreciation and amortization for the years ended December 31, 2019 and 2018, respectively, shown separately) | 1,970 | 2,180 | 2,838 | 9,707 | 7,230 | ||||||||||||||||||||
Cost of system services (excluding $375, $385 and $384 of depreciation and amortization for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively, and $1,548 and $1,274 of depreciation and amortization for the years ended December 31, 2019 and 2018, respectively, shown separately) | 18,383 | 15,942 | 21,072 | 74,749 | 50,633 | ||||||||||||||||||||
Cost of transloading services (excluding $412, $410 and $411 of depreciation and amortization for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively, and $1,643 and $954 of depreciation and amortization for the years ended December 31, 2019 and 2018, respectively, shown separately) | 550 | 778 | 652 | 2,601 | 2,242 | ||||||||||||||||||||
Cost of inventory software services (excluding $193, $196 and $193 of depreciation and amortization for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively, and $772 and $794 of depreciation and amortization for the years ended December 31, 2019 and 2018, respectively, shown separately) | 144 | 183 | 160 | 604 | 797 | ||||||||||||||||||||
Depreciation and amortization | 7,050 | 5,908 | 6,908 | 26,925 | 18,422 | ||||||||||||||||||||
Selling, general and administrative (excluding $162, $125 and $147 of depreciation and amortization for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively, and $573 and $480 of depreciation and amortization for the years ended December 31, 2019 and 2018, respectively, shown separately) | 4,619 | 4,096 | 4,933 | 18,586 | 16,758 | ||||||||||||||||||||
Other operating expenses | 56 | 75 | 248 | 585 | 1,827 | ||||||||||||||||||||
Total operating cost and expenses | 32,772 | 29,162 | 36,811 | 133,757 | 97,909 | ||||||||||||||||||||
Operating income | 30,086 | 28,175 | 22,793 | 107,930 | 99,287 | ||||||||||||||||||||
Interest expense, net | 141 | (103 | ) | (8 | ) | (634 | ) | (374 | ) | ||||||||||||||||
Total other expense | 141 | (103 | ) | (8 | ) | (634 | ) | (374 | ) | ||||||||||||||||
Income before income tax expense | 30,227 | 28,072 | 22,785 | 107,296 | 98,913 | ||||||||||||||||||||
Provision for income taxes | 4,894 | 3,420 | 3,703 | 16,936 | 12,961 | ||||||||||||||||||||
Net income | 25,333 | 24,652 | 19,082 | 90,360 | 85,952 | ||||||||||||||||||||
Less: net income related to non-controlling interests | (10,317 | ) | (11,767 | ) | (7,684 | ) | (38,353 | ) | (43,521 | ) | |||||||||||||||
Net income attributable to Solaris | $ | 15,016 | $ | 12,885 | $ | 11,398 | $ | 52,007 | $ | 42,431 | |||||||||||||||
Earnings per share of Class A common stock - basic | $ | 0.48 | $ | 0.47 | $ | 0.36 | $ | 1.69 | $ | 1.60 | |||||||||||||||
Earnings per share of Class A common stock - diluted | $ | 0.48 | $ | 0.47 | $ | 0.36 | $ | 1.69 | $ | 1.59 | |||||||||||||||
Basic weighted average shares of Class A common stock outstanding | 30,933 | 27,050 | 30,951 | 30,141 | 25,678 | ||||||||||||||||||||
Diluted weighted average shares of Class A common stock outstanding | 30,961 | 27,162 | 30,980 | 30,185 | 25,829 | ||||||||||||||||||||
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands, except per share amounts) | ||||||||||
(Unaudited) | ||||||||||
December 31, | December 31, | |||||||||
2019 | 2018 | |||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 66,882 | $ | 25,057 | ||||||
Accounts receivable, net | 38,554 | 39,746 | ||||||||
Prepaid expenses and other current assets | 5,002 | 5,492 | ||||||||
Inventories | 7,144 | 10,470 | ||||||||
Total current assets | 117,582 | 80,765 | ||||||||
Property, plant and equipment, net | 306,583 | 296,538 | ||||||||
Operating lease right-of-use assets | 7,871 | — | ||||||||
Goodwill | 17,236 | 17,236 | ||||||||
Intangible assets, net | 3,761 | 4,540 | ||||||||
Deferred tax assets | 51,414 | 58,074 | ||||||||
Other assets | 625 | 1,454 | ||||||||
Total assets | $ | 505,072 | $ | 458,607 | ||||||
Liabilities and Stockholders' Equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 3,824 | $ | 9,127 | ||||||
Accrued liabilities | 14,447 | 12,658 | ||||||||
Current portion of payables related to Tax Receivable Agreement | 1,416 | — | ||||||||
Current portion of deferred revenue | — | 12,990 | ||||||||
Current portion of operating lease liabilities | 596 | — | ||||||||
Current portion of finance lease liabilities | 30 | 35 | ||||||||
Other current liabilities | 74 | 515 | ||||||||
Total current liabilities | 20,387 | 35,325 | ||||||||
Senior secured credit facility | — | 13,000 | ||||||||
Deferred revenue, net of current | — | 12,468 | ||||||||
Operating lease liabilities, net of current | 7,855 | — | ||||||||
Finance lease liabilities, net of current | 130 | 154 | ||||||||
Payables related to Tax Receivable Agreement | 66,582 | 56,149 | ||||||||
Other long-term liabilities | 460 | 633 | ||||||||
Total liabilities | 95,414 | 117,729 | ||||||||
Commitments and contingencies | ||||||||||
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, 30,928 issued and 30,765 outstanding as of December 31, 2019 and 27,172, issued and 27,091 outstanding as of December 31, 2018 | 308 | 271 | ||||||||
Class B common stock, $0.00 par value, 180,000 shares authorized, 15,939 shares issued and outstanding as of December 31, 2019 and 19,627 issued and outstanding as of December 31, 2018 | — | — | ||||||||
Additional paid-in capital | 191,843 | 164,086 | ||||||||
Retained earnings | 74,222 | 35,507 | ||||||||
Treasury stock (at cost), 163 shares and 91 shares as of December 31, 2019 and 2018, respectively | (2,526 | ) | (1,414 | ) | ||||||
Total stockholders' equity attributable to Solaris and members' equity | 263,847 | 198,450 | ||||||||
Non-controlling interest | 145,811 | 142,428 | ||||||||
Total stockholders' equity | 409,658 | 340,878 | ||||||||
Total liabilities and stockholders' equity | $ | 505,072 | $ | 458,607 | ||||||
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(In thousands) | ||||||||||
(Unaudited) | ||||||||||
For the Year Ended December 31, | ||||||||||
2019 | 2018 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 90,360 | $ | 85,952 | ||||||
Adjustment to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 26,925 | 18,422 | ||||||||
Loss on disposal of asset | 261 | 318 | ||||||||
Stock-based compensation | 4,475 | 3,861 | ||||||||
Amortization of debt issuance costs | 753 | 296 | ||||||||
Write-off of deposit | 202 | — | ||||||||
Provision for bad debt | 339 | — | ||||||||
Deferred income tax expense | 16,122 | 12,277 | ||||||||
Other | (150 | ) | 620 | |||||||
Changes in assets and liabilities: | ||||||||||
Accounts receivable | 853 | (26,766 | ) | |||||||
Prepaid expenses and other assets | 2,332 | (686 | ) | |||||||
Inventories | (2,744 | ) | (10,470 | ) | ||||||
Accounts payable | (3,582 | ) | 4,469 | |||||||
Accrued liabilities | 4,183 | 2,614 | ||||||||
Deferred revenue | (25,458 | ) | 25,458 | |||||||
Net cash provided by operating activities | 114,871 | 116,365 | ||||||||
Cash flows from investing activities: | ||||||||||
Investment in property, plant and equipment | (34,852 | ) | (161,079 | ) | ||||||
Cash received from insurance proceeds | 618 | 540 | ||||||||
Proceeds from disposal of assets | 232 | — | ||||||||
Investment in intangible assets | — | (6 | ) | |||||||
Net cash used in investing activities | (34,002 | ) | (160,545 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Distribution and dividend paid to Solaris LLC unitholders and Class A common shareholders | (19,260 | ) | (4,713 | ) | ||||||
Share repurchases | (3,249 | ) | — | |||||||
Payments under finance leases | (35 | ) | (28 | ) | ||||||
Payments under insurance premium financing | (2,485 | ) | (1,275 | ) | ||||||
Proceeds from stock option exercises | 294 | 932 | ||||||||
Payments related to purchase of treasury stock | (1,112 | ) | (1,146 | ) | ||||||
Proceeds from borrowings under the senior secured credit facility | — | 13,000 | ||||||||
Repayment of senior secured credit facility | (13,000 | ) | — | |||||||
Payments related to debt issuance costs | (197 | ) | (1,014 | ) | ||||||
Other | — | 60 | ||||||||
Net cash provided by financing activities | (39,044 | ) | 5,816 | |||||||
Net increase (decrease) in cash and cash equivalents | 41,825 | (38,364 | ) | |||||||
Cash and cash equivalents at beginning of period | 25,057 | 63,421 | ||||||||
Cash and cash equivalents at end of period | $ | 66,882 | $ | 25,057 | ||||||
Non-cash activities | ||||||||||
Investing: | ||||||||||
Capitalized depreciation in property, plant and equipment | $ | 735 | $ | 688 | ||||||
Property and equipment additions incurred but not paid at period-end | 82 | 3,909 | ||||||||
Property, plant and equipment additions transferred from inventory | 5,882 | 7,532 | ||||||||
Financing: | ||||||||||
Insurance premium financing | 1,869 | 1,552 | ||||||||
Cash paid for (received from): | ||||||||||
Interest | 275 | 281 | ||||||||
Income taxes | 663 | 314 | ||||||||
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION — ADJUSTED EBITDA
(In thousands)
(Unaudited)
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 | Year ended | ||||||||||||||||||||||||
December 31, | September 30, | December 31, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2019 | 2018 | |||||||||||||||||||||
Net income | $ | 25,333 | $ | 24,652 | $ | 19,082 | $ | 90,360 | $ | 85,952 | |||||||||||||||
Depreciation and amortization | 7,050 | 5,908 | 6,908 | 26,925 | 18,422 | ||||||||||||||||||||
Interest expense, net | (141 | ) | 103 | 8 | 634 | 374 | |||||||||||||||||||
Income taxes (1) | 4,894 | 3,420 | 3,703 | 16,936 | 12,961 | ||||||||||||||||||||
EBITDA | $ | 37,136 | $ | 34,083 | $ | 29,701 | $ | 134,855 | $ | 117,709 | |||||||||||||||
Stock-based compensation expense (2) | 1,213 | 720 | 1,225 | 4,476 | 2,920 | ||||||||||||||||||||
Loss on disposal of assets | 80 | 76 | 99 | 463 | 153 | ||||||||||||||||||||
Severance expense | 75 | — | 154 | 229 | — | ||||||||||||||||||||
Transload contract termination (3) | (17,630 | ) | (522 | ) | (3,204 | ) | (27,138 | ) | (522 | ) | |||||||||||||||
Non-recurring cash bonuses (4) | — | — | — | — | 1,679 | ||||||||||||||||||||
IPO bonuses (5) | — | — | — | — | 896 | ||||||||||||||||||||
Adjusted EBITDA | $ | 20,874 | $ | 34,357 | $ | 27,975 | $ | 112,885 | $ | 122,835 | |||||||||||||||
(1) | Federal and state income taxes. | |
(2) | Represents stock-based compensation expense related to restricted stock awards. | |
(3) | Deferred revenue related to full termination of a sand storage and transloading agreement; no deferred revenue balance remained as of December 31, 2019. | |
(4) | Certain performance-based cash awards paid in connection with the purchase of Railtronix upon the achievement of certain financial milestones. | |
(5) | Represents stock-based compensation expense related to restricted stock awards with one-year vesting of $896 in the year ended December 31, 2018 that were granted to certain employees and consultants in connection with the IPO. |
SOLARIS OILFIELD INFRASTRUCTURE, INC AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION — ADJUSTED PRO FORMA NET INCOME AND ADJUSTED PRO FORMA EARNINGS PER FULLY DILUTED SHARE
(In thousands)
(Unaudited)
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 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 | Year ended | ||||||||||||||||||||||||
December 31, | September 30, | December 31, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2019 | 2018 | |||||||||||||||||||||
Numerator: | |||||||||||||||||||||||||
Net income attributable to Solaris | $ | 15,016 | $ | 12,885 | $ | 11,398 | $ | 52,007 | $ | 42,431 | |||||||||||||||
Adjustments: | |||||||||||||||||||||||||
Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests (1) | 10,317 | 11,767 | 7,684 | 38,353 | 43,521 | ||||||||||||||||||||
Transload contract termination (2) | (17,630 | ) | (522 | ) | (3,204 | ) | (27,138 | ) | (522 | ) | |||||||||||||||
Loss on disposal of assets | 80 | 76 | 99 | 463 | 153 | ||||||||||||||||||||
Non-recurring write-off of debt issuance costs (3) | — | — | — | 528 | — | ||||||||||||||||||||
Non-recurring cash bonuses (4) | — | — | — | — | 1,679 | ||||||||||||||||||||
IPO bonuses (5) | — | — | — | — | 896 | ||||||||||||||||||||
Severance expense | 75 | — | 154 | 229 | — | ||||||||||||||||||||
Income tax expense | 1,873 | (3,011 | ) | (948 | ) | (1,748 | ) | (8,978 | ) | ||||||||||||||||
Adjusted pro forma net income | $ | 9,731 | $ | 21,195 | $ | 15,183 | $ | 62,694 | $ | 79,180 | |||||||||||||||
Denominator: | |||||||||||||||||||||||||
Weighted average shares of Class A common stock outstanding - diluted | 30,961 | 27,162 | 30,980 | 30,185 | 25,829 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||
Assumed exchange of Solaris LLC Units for shares of Class A common stock (1) | 16,539 | 20,742 | 16,603 | 17,302 | 21,370 | ||||||||||||||||||||
Adjusted pro forma fully weighted average shares of Class A common stock outstanding - diluted | 47,500 | 47,904 | 47,583 | 47,487 | 47,199 | ||||||||||||||||||||
Adjusted pro forma earnings per share - diluted | $ | 0.20 | $ | 0.44 | $ | 0.32 | $ | 1.32 | $ | 1.68 | |||||||||||||||
(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) | Deferred revenue related to full termination of a sand storage and transloading agreement; no deferred revenue balance remained as of December 31, 2019. | |
(3) | Write-off of certain unamortized debt issuance costs related to lenders under the 2018 Credit Agreement which are no longer parties to the 2019 Credit Agreement. | |
(4) | Certain performance-based cash awards paid in connection with the purchase of Railtronix upon the achievement of certain financial milestones. | |
(5) | Represents stock-based compensation expense related to restricted stock awards with one-year vesting of $896 in the year ended December 31, 2018 that were granted to certain employees and consultants in connection with the IPO. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200218006108/en/
Contacts:
Senior Vice President, Finance and Investor Relations
(281) 501-3070
IR@solarisoilfield.com
