DEFA14A: Solaris Oilfield Infrastructure Announces Strong Q2 Results and Acquisition of Mobile Energy Rentals

Solaris Oilfield Infrastructure reports strong Q2 2024 results, highlighted by increased free cash flow and the strategic acquisition of Mobile Energy Rentals (MER) to diversify into mobile distributed power.

Summary

• Solaris Oilfield Infrastructure reported Q2 2024 revenue of $74 million and adjusted EBITDA of $21 million.
• The company generated $18 million in free cash flow, the highest in four years.
• Solaris returned $5 million to shareholders through dividends and announced a Q3 dividend of $0.12 per share.
• The company announced the acquisition of Mobile Energy Rentals (MER), a move into mobile distributed power.
• MER plans to more than triple its fleet size from 150 megawatts to approximately 500 megawatts by late next year.
• Solaris expects Q3 2024 activity levels to be relatively flat compared to Q2.
• The company expects Q3 adjusted EBITDA to be roughly flat sequentially at $20 million to $21 million, excluding any impact from the transaction.
• A special meeting of stockholders to approve the MER acquisition is scheduled for August 30, 2024.
• The transaction is expected to close in the third quarter, subject to stockholder and HSR approval.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong Q2 results, a strategic acquisition, and a commitment to shareholder returns. While there are some risks and uncertainties, the overall tone is optimistic.

Positives

• Strong free cash flow generation in Q2 2024.
• Strategic acquisition of MER diversifies the business and provides growth opportunities.
• Commitment to returning capital to shareholders through dividends and share repurchases.
• Expected synergies between Solaris and MER.
• Stabilization in gas-exposed activity and continued strength in oil basins.
• Balance sheet is well prepared with a lot of torque.

Negatives

• US land completion activity was down approximately 10% from the first quarter of 2024.
• Saw the anticipated choppiness in US drilling and completions activity we referenced in our last earnings call, mostly due to a continued activity decline in natural gas-exposed basins as a result of low gas prices.

Risks

• The MER acquisition is subject to stockholder and HSR approval and customary closing conditions.
• Continued choppiness in US drilling and completions activity.
• Volatility in global oil markets.
• Utilities continue to struggle especially in, in West Texas and New Mexico, on how were going to get the power to the installations.

Future Outlook

Solaris expects relatively flat activity levels in Q3 2024 compared to Q2 and anticipates the MER acquisition to close in Q3, subject to approvals. The company aims to sustain and grow shareholder return programs and enhance return on capital.

Management Comments

• Bill Zartler: 'Our second quarter free cash flow of $18 million is the highest quarterly cash flow we’ve seen in four years, and we expect the core Solaris business will continue to generate significant free cash flow in future quarters as well.'
• Bill Zartler: 'We believe the MER acquisition introduces another opportunity to invest in a growing new product line at attractive return and strengthen our ability to continue returning capital to our shareholders in the longer term.'
• Kyle Ramachandran: 'We ended the second quarter with total debt on our revolving credit facility of $16 million and net debt of $11 million.'

Industry Context

The acquisition of MER reflects a broader trend of oilfield service companies diversifying into new energy sectors to capitalize on growth opportunities and reduce reliance on the cyclical oil and gas industry. The focus on mobile distributed power aligns with the increasing demand for reliable and flexible power solutions across various industries.

Comparison to Industry Standards

• Halliburton and Schlumberger are examples of companies that have diversified their services to include digital solutions and renewable energy projects.
• The expansion into mobile distributed power positions Solaris to compete with companies like Aggreko and APR Energy, which specialize in temporary power solutions.
• The target of 500 MW of mobile power generation capacity by late next year is an ambitious goal, requiring significant capital investment and operational execution.

Stakeholder Impact

• Shareholders: Positive impact due to increased free cash flow and commitment to shareholder returns.
• Employees: Potential opportunities for growth and development within the expanded company.
• Customers: Access to a broader range of services and solutions.
• Suppliers: Potential for increased business opportunities.

Next Steps

• Obtain stockholder and HSR approval for the MER acquisition.
• Close the MER acquisition in the third quarter of 2024.
• Integrate MER into Solaris and execute the growth plan for mobile distributed power.
• Continue to focus on sustaining and growing shareholder return programs.

Key Dates

Keywords

Solaris, Mobile Energy Rentals, MER, acquisition, free cash flow, dividends, oilfield, infrastructure, EBITDA, frac crews, distributed power, shareholder returns