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Solaris Oilfield Infrastructure, Inc. (SOI)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $69.7M, down 10% sequentially and 25% year over year; diluted EPS was $0.16; Adjusted EBITDA was $23.4M, down 13% QoQ and 2% YoY .
  • Positive free cash flow of $6M and a $6M reduction in revolver borrowings; quarter-end liquidity was $41M with cash of $3M .
  • Management highlighted adoption of new technology offerings: nearly 55% of industry frac crews followed deployed either top fill or AutoBlend vs “over 40%” in Q2; fully utilized systems remained 108 despite activity bottoming in the quarter .
  • Dividend increased to $0.12 per share for Q4 (to be paid Dec 11, 2023), up from $0.11 in Q3; distributable cash flow of $20M covered quarterly dividends ($5M) ~4x .
  • S&P Global Wall Street consensus estimates were unavailable for SOI, so beat/miss vs consensus cannot be assessed (S&P Global data unavailable for this ticker mapping).

What Went Well and What Went Wrong

What Went Well

  • Positive free cash flow and deleveraging: FCF +$6M; net borrowings on the credit facility reduced by $6M; liquidity of $41M supports capital returns .
  • Technology adoption accelerated: “nearly 55% of industry frac crews we followed in the quarter deployed either a top fill or AutoBlend™ system, up from over 40% in the prior quarter” (Bill Zartler, CEO) .
  • Shareholder returns strengthened: dividend lifted to $0.12 (21st consecutive dividend when paid), with distributable cash flow ($20M) covering dividends ($5M) ~4x .

What Went Wrong

  • Revenue decline driven by ancillary trucking: revenues fell 10% QoQ and 25% YoY mainly due to decreased ancillary trucking activity; Adjusted EBITDA fell 13% QoQ, reflecting ancillary slowdown and higher maintenance costs .
  • Industry activity weakness: frac crews followed fell to 67 in Q3 from 73 in Q2 as activity “bottomed,” pressuring utilization and profitability .
  • Non-cash impairment and higher interest: $1.4M impairment of fixed assets and higher net interest expense vs prior year weighed on results .

Financial Results

MetricQ3 2022Q2 2023Q3 2023
Total Revenue ($USD Millions)$92.325 $77.202 $69.676
Diluted EPS ($USD)$0.22 $0.24 $0.16
Net Income ($USD Millions)$11.512 $12.241 $7.638
Net Income Attributable to Solaris ($USD Millions)$7.406 $7.532 $4.934
Operating Income ($USD Millions)$13.985 $15.779 $10.000
Adjusted EBITDA ($USD Millions)$23.934 $26.825 $23.428
Operating Margin (%)15.1% (13.985/92.325) 20.4% (15.779/77.202) 14.4% (10.000/69.676)
Adjusted EBITDA Margin (%)25.9% (23.934/92.325) 34.7% (26.825/77.202) 33.6% (23.428/69.676)

Notes:

  • Sequential revenue decreased due to ancillary trucking services; system revenue was approximately flat sequentially .
  • Diluted EPS reflects Class A shareholders; Adjusted pro forma fully diluted EPS was $0.19 in Q3 2023 .

KPIs

KPIQ1 2023Q2 2023Q3 2023
Fully Utilized Systems (count)92 108 108
Industry Frac Crews Followed (fully utilized basis)—73 67
Top Fill Adoption (systems)25% of systems utilized top fill ——
Top Fill or AutoBlend Adoption (% of frac crews followed)—“over 40%” “nearly 55%”
Distributable Cash Flow ($USD Millions)~$22 ~$22 ~$20
Free Cash Flow ($USD Millions)-$2 +$7 +$6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital Expenditures ($USD Millions)FY 2023$65–$75 Low end of $65–$75 Maintained; now low end
Capital Expenditures ($USD Millions)Q4 2023—~$10 New
Dividend per Share ($USD)Q3 2023 → Q4 2023$0.11 (paid Sep 15, 2023) $0.12 (to be paid Dec 11, 2023) Raised
Share Repurchase Program2023~$24M remaining authorization ~$24M remaining; no Q3 repurchases Maintained; no buybacks
Free Cash Flow OutlookQ4 2023 and into 2024—Expect FCF to grow Introduced qualitative outlook

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2023)Trend
Technology adoption (Top Fill, AutoBlend)Q1: Increased deployments; 25% of systems used top fill . Q2: More deployments; contribution margin per frac crew grew 26% .Nearly 55% of frac crews followed deployed top fill or AutoBlend; continued adoption despite activity bottoming .Up
Industry activity and frac efficiencyQ1: Expect adoption to offset nat gas-driven activity softness . Q2: Softening drilling/completion; utilization down .“Industry activity bottomed during the third quarter,” systems flat as adoption offsets declines .Down activity; efficiency up
Ancillary trucking servicesQ1: Lower-margin trucking weighed on revenue . Q2: Ancillary trucking revenue decreased QoQ; margin improved .Ancillary trucking activity declines drove sequential revenue decrease .Mixed; activity down
Capital allocation (dividends/buybacks)Q1: Enhanced return program; dividend up to $0.11; $50M buyback; 1.6M shares repurchased . Q2: 1.4M shares repurchased; $0.11 dividend .Dividend increased to $0.12; no buybacks in Q3; 21st consecutive dividend pro forma .Dividend up; buybacks paused
Reliability and maintenance—Higher maintenance costs incurred to improve system reliability as intensity rises; expected to enhance responsiveness .Increasing investment
Regulatory/legal (property tax contingency)Reserve recorded in 2022; noted Q2 footnotes; under appeal .Mentioned; ruling under appeal with decision anticipated in Q4 2023 .Ongoing

Management Commentary

  • “The Solaris team executed strongly and safely as industry activity bottomed during the third quarter… nearly 55% of industry frac crews we followed in the quarter deployed either a top fill or AutoBlend™ system, up from over 40% in the prior quarter” — Bill Zartler, Chairman & CEO .
  • “We generated another quarter of positive free cash flow and used excess cash to reduce our revolver borrowings. We expect free cash flow to grow in the fourth quarter and into 2024…” .
  • “The Board has approved a $0.12 per share dividend, the second increase to our ordinary dividend in 2023… Since we began returning cash to shareholders in 2018, we will have cumulatively returned approximately $158 million…” .

Q&A Highlights

  • The Q3 2023 earnings call transcript could not be accessed due to a document retrieval error; therefore, specific Q&A themes and any guidance clarifications from live discussion are unavailable. Conference call details were published (Oct 27, 2023; replay available ~7 days) .

Estimates Context

  • S&P Global Wall Street consensus EPS and revenue estimates for Q3 2023 were unavailable for SOI due to a ticker mapping issue; a beat/miss assessment vs consensus cannot be provided at this time (S&P Global data unavailable).
  • Given reported results (revenue $69.7M, diluted EPS $0.16, Adjusted EBITDA $23.4M), sell-side models may consider ancillary trucking headwinds and elevated maintenance spend cited by management in revising near-term margin assumptions .

Key Takeaways for Investors

  • Adoption of top fill and AutoBlend continues to offset lower industry activity, with nearly 55% of frac crews followed using these systems; total system revenue was approximately flat sequentially despite ancillary trucking weakness .
  • Sequential declines in revenue (-10%) and Adjusted EBITDA (-13%) were driven primarily by ancillary trucking activity and higher maintenance costs to improve reliability; these investments are expected to enhance responsiveness as activity improves .
  • FCF positive again (+$6M) with revolver paydown (-$6M) and liquidity of $41M; supports continued capital returns and balance sheet strength .
  • Dividend increased to $0.12 per share for Q4; distributable cash flow ($20M) covered the dividend ($5M) ~4x, signaling sustainability of shareholder payouts near term .
  • FY 2023 capex expected at the low end of $65–$75M and Q4 capex ~ $10M, implying capex moderation and potential FCF expansion in Q4 and into 2024 .
  • Monitor resolution of the Texas property tax contingency (decision anticipated Q4), which could affect non-GAAP adjustments and reported results .
  • Near-term trading: dividend raise and reiterated FCF trajectory are supportive; watch for activity inflection, ancillary trucking trends, and continued technology adoption as catalysts .