Investor Presentation. May 2018

Transcription

1 Investor Presentation May 2018

2 Disclaimer Forward-Looking Statements The information in this presentation includes forward-looking statements. All statements, other than statements of historical fact included in this presentation, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this presentation, the words could, believe, anticipate, intend, estimate, expect, project and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forwardlooking statements are based on Solaris current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading Risk Factors included in Solaris Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 6, We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the transportation, storage and delivery of proppant. These risks include, but are not limited to, the level of domestic capital spending by the oil and natural gas industry, natural or man-made disasters and other external events that may disrupt our manufacturing operations, volatility of oil and natural gas prices, changes in general economic and geopolitical conditions, large or multiple customer defaults including defaults resulting from actual or potential insolvencies, technological advancements in well service technologies, competitive conditions in our industry and our ability to fully protect our intellectual property rights. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this presentation. Except as otherwise required by applicable law, we disclaim any duty to update and do not intend to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this presentation. This presentation includes financial measures that are not presented in accordance with generally accepted accounting principles ("GAAP"), including EBITDA and Adjusted EBITDA. While management believes such measures are useful for investors, they do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-gaap financial measures should not be used as a replacement for, and should not be considered in isolation from, financial measures that are in accordance with GAAP. Please see the Appendix for reconciliations of those measures to comparable GAAP measures. Industry and Market Data This presentation has been prepared by Solaris and includes market data and other statistical information from third-party sources, including independent industry publications, government publications or other published independent sources. Although Solaris believes these third-party sources are reliable as of their respective dates, Solaris has not independently verified the accuracy or completeness of this information. Some data are also based on the Solaris s good faith estimates, which are derived from its review of internal sources as well as the third-party sources described above. Trademarks and Logos Solaris owns or has rights to various trademarks, service marks and trade names that is uses in connection with the operation of its business. This presentation also contains trademarks, service marks and trade names of third parties, which are the property of their respective owners. Solaris use or display of third parties trademarks, service marks, trade names or products in this presentation is not intended to and does not imply, a relationship with Solaris or an endorsement or sponsorship by or of Solaris. Solely for convenience, the trademarks, service marks and trade names referred to in this presentation may appear without the, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that Solaris will not assert, to the fullest extent under applicable law, its rights or the right of the applicable owner of these trademarks, service marks and trade names. 1

3 Market Summary Ticker Exchange SOI New York Stock Exchange Share Price (1) $16.20 Diluted Shares Outstanding (1)(2) ~47.5 million Market Capitalization ~$770 million (1) As of May 22, (2) Includes Class A and Class B shares. Includes 1,211,174 restricted shares and net dilutive effect of 226,660 outstanding options. 2

4 Growth Driven by Secular Trends Solaris facilitates increased per well and industry wide proppant consumption levels......yet uniquely positioned to capitalize on an oversupplied sand market Innovative logistics solutions that save our customers money and time 112 patent protected Mobile Proppant Management Systems deployed today 24% market share (1) More storage, smaller footprint, simplified operations and safer well sites Comprehensive and real-time proppant inventory dashboard from mine to well head; remotely available in the cloud Manufacturing 8 systems per month Facilitate flow and transportation flexibility...not selling a commodity via owned channels Vertically integrated manufacturing Mobile Proppant Management System Solaris is Taking Market Share (2) Customer adoption and secular trends driving growth 7,673 4, ,436 2Q Average 2016 Average 2017 Average 1Q 2018 Growing market share and earnings, but we are not dependent on increasing sand margins (1) Management estimates. (2) Illustrated by System revenue days, defined as the combined number of days Solaris Systems earned revenues. 3

5 Leading Independent Provider of Proppant Logistics Solutions Leading Well Site Storage and Delivery Systems Digitalizing the Supply Chain Rockies / West Systems 3 (3%) Marcellus / Utica Systems 5 (4%) Drive supply chain efficiencies through real time, remote monitoring of proppant inventory across supply chain: PropView and Railtronix Kingfisher Transload Facility SCOOP / STACK Systems 16 (14%) Solaris Manufacturing Facility Barnett Systems 1 (1%) Permian Basin Systems 58 (52%) Eagle Ford Systems 25 (22%) Haynesville Systems 4 (4%) Kingfisher Transload Facility Fleet of 112 Mobile Proppant Management Systems that address challenges related to the transportation, storage and delivery of proppant High-capacity, unit train capable transload facility in Kingfisher, Oklahoma supporting STACK/SCOOP Underpinned with seven-year contract with leading STACK E&P operator Manufacture and rent Systems directly to leading E&P operators and pressure pumpers ~90% of fleet deployed to customers with multiple Systems System users include EOG Resources, Inc., Devon Energy, Apache Corporation, Schlumberger and ProPetro Services Demand for Systems exceeds our fleet size 4

6 Proppant Demand Continues to Increase Recovering commodity prices have driven increased drilling and completion activity New U.S. Horizontal Wells (1) E&P operators have increasingly focused on using larger amounts of proppant in an effort to drive single-well estimated ultimate recovery rates and returns Trend of increasing proppant per lateral foot expected to continue E 2018E New U.S. Horizontal Wells (thousands) Proppant demand increases expected to amplify supplychain bottlenecks, increase cost and add complexity to last mile logistics We provide solutions for the industry s increasing proppant usage and intensity Increases in equipment demand and acute proppant scarcity drive demand for our business Increasing Total and Per Well Proppant Demand (1) E 2018E Millions of Short Tons (Total Demand for Proppant Demand (Millions of Short Tons) Proppant) Proppant per Horizontal Well (Short Tons) (1) Spears & Associates Hydraulic Fracturing Market, , published Third Quarter ,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Proppant Short Tons per Well 5

7 Proppant Logistics are Complex and Prone to Bottlenecks Proppant Flow Illustrative 20 Million lb. Completion Requirements Description of Process Solaris Data Solution SAND MINE ~10,000 tons of sand Proppant mined and stored in mine storage (silos or domes) RAIL TO BASIN ~100 railcars Proppant loaded into unit train and delivered to basin TRANSLOAD STORAGE FACILITY ~10,000 tons of throughput High capacity transloads with ability to unload unit train in 24 hours Proppant transloaded into storage facility (large silos) or directly to truck DELIVERY TO THE WELLSITE ~400 truck loads Highest variability in supply chain Subject to congestion and bottlenecks and PropView WELLSITE STORAGE AND DELIVERY ~2.5 million lbs / 6 silos; or ~5.0 million lbs / 12 silos Assuming 4 day completion, typical System turned 2x every 24 hours Storage at demand center reduces down time for waiting on sand PropView Solaris Provides Key Buffers and Data Along Supply Chain 6

8 Bringing Order to Chaos Issues with Traditional Offerings Inadequate on-site inventory and offloading capacity Complicated operations and expansive well site footprint Opaque inventory information and limited communication HS&E issues, including silica dust Traditional Sand Kings Our Solution Rolling Storage Supply chain buffer Greater storage and proppant accessibility More accessible unloading points Enclosed system with fewer moving parts and dust suppression Efficient use of space Fully automated Real-time data Solaris Mobile Proppant Management System Solaris Solution 7

9 Elegant Solution to a Complicated Problem Simple, modern, fully-integrated control system High volume input and output capacity Mobile and flexible equipment High Capacity Throughput Supply Chain Savings Increased on-site inventory / access to inventory Increased truck offloading points Smaller truck fleet size required to deliver proppant Decreased truck demurrage Real-time inventory levels and consumption rates Well Site Savings Increased inventory stage execution efficiency Built-in dust control Lower labor requirements Proppant inventory loss savings Reduced fuel requirements Increased asset utilization Seamless Rig-Up and Integration Simultaneous Belly Dump and Pneumatic Loading Belly Dump Truck Pneumatic Truck 8

10 Diverse, Blue Chip Operator and Pressure Pumper Customer Base Select Operator Customers Select Pressure Pumping Customers Solaris has a broad and growing customer mix 9

11 Increased Systems Deployed by >300% Since IPO i.e., Last Twelve Months Growing with Legacy and New Customers 35 Since IPO, top 4 customers have added 125% more systems 35% of Fleet (39 systems) deployed to new customers since IPO Rapidly taking market share from legacy and other new technology well site sand storage solutions New Customers New Customers E&P Pressure Pumper E&P Pressure Pumper Pressure Pumper Pressure Pumper Pressure Pumper E&P Other Systems with Customers at IPO (May 2017) Systems with Customers at IPO (May 2018) Systems with New Customers post-ipo (May 2018) 10

12 Growth Across Legacy and New Basins Solaris Currently has 112 Systems Operating Across Seven Basins ROCKIES MARCELLUS / UTICA SCOOP/STACK PERMIAN EAGLE FORD 3 BARNETT HAYNESVILLE Systems at IPO (May 11, 2017) Systems as of 5/15/ Systems with New Customers post-ipo (May 2018) 11

13 Solaris is Both the Trusted Solution and a Cheap Insurance Policy Solaris System Costs Relative to Total Well Cost Metric $ Amount / Figure Average Horizontal Well Cost $6,000,000 Solaris Monthly Rental and Service Cost (1) $137,000 Average Number of Wells Completed per Month 3 Implied Solaris Cost per Well $45,500 Cost of Solaris system per well: $45,500 < less than 1% of total well cost Low cost insurance policy for operator and pressure pumper to ensure wells are completed on-time and on budget Little motivation to switch potentially saving pennies but risking dollars Solaris System Cost Relative to Total Proppant Cost (2) $125 $100 $80 $5 Total delivered cost of proppant can range between $65 $125 per ton. Largest variability is transportation costs $75 $50 $25 $0 $40 $20 Minegate Proppant Pricing $40 Proppant Transportation Costs Solaris System Cost $125 Total Proppant Cost Solaris System cost represents ~ 4 8% of total proppant costs System cost quickly offset by reduced demurrage and reduced downtime no longer waiting on sand Note: Analysis based on Management estimates. (1) Implied average monthly rental and service revenue per system in Q (2) Based on 10,000 tons of proppant per well. (3) Including trucking and rail costs. 12

14 Kingfisher Facility Operating and Construction On- Track New High-Capacity Transload Facility The first independent, high-speed, unit-train capable transload facility dedicated to the STACK/SCOOP 300 acres directly on the Union Pacific Railroad Within 50 miles of 67 active horizontal rigs (1) Began manifest service in January 2018 Landed first unit-train in April 2018 Central to Current STACK / SCOOP Rig Activity Long-Term Contract with Leading STACK E&P Operator Seven-year agreement Minimum quarterly proppant volume commitment provides run-rate annual revenue of $13 million Rail-to-truck operations commenced January 2018; dedicated unit train loop and 30,000 tons of silo storage commencing August 2018 Customer is a multi-basin Solaris Mobile Proppant Management System customer Proximity to Operators Acreage Will Reduce Supply Chain Costs Legend Horizontal Oil Rig 100 mile radius 50 mile radius 100 mile radius 50 mile radius Source: Baker Hughes North America Rotary Rig Count. (1) Source: IHS Enerdeq, as of March 6, Source: 1Derrick. 13

15 Kingfisher Facility Construction Progress 300 Acres Central to the STACK/SCOOP Plays 30,000 Tons of Storage Under Construction Unit Train Loop Rail-to-truck Service Provided Today 14

16 Digitalization of the Supply Chain PropView : Real-Time, Remotely Available Inventory Data PropView provides real-time inventory levels, both at the well site and remotely via any browser or Solaris App. 15

17 Digitalization of the Supply Chain PropView + Railtronix : Real-Time Inventory Data The Railtronix / PropView integration provides real-time visibility of proppant from source mine to well head 16

18 Continued Growth in Solaris Financial Performance Quarterly Revenue and Revenue Days ($ in Millions) Q Performance Commentary $13.4 $18.5 $25.2 $36.0 1Q 2018 revenue and Adjusted EBITDA grew 43% and 44%, respectively, versus 4Q 2017 Growth in revenue and Adjusted EBITDA are primarily attributable to an increase in revenue days and rental rates 1Q 18 revenue days grew to 7,673, a 25% sequential increase Weighted average rental rates increased 9% sequentially Revenue Days: 2Q 17 3Q 17 4Q 17 1Q 18 3,375 4,564 6,146 7,673 Added 21 systems to the fleet in 1Q 2018 Ended quarter with 98 systems in fleet Quarterly Adjusted EBITDA and Margin ($ in Millions) Capex ($ in Millions) $21.9 $49.9 $11.2 $15.2 $27.6 $41.2 $7.5 $13.9 2Q 17 3Q 17 4Q 17 1Q 18 Margin: 56% 61% 60% 2Q 17 3Q 17 4Q 17 1Q 18 Ending 61% Fleet Size: 17

19 Driven by Sustained Margins Over Cycles and Secular Growth 100% 30,692 32,000 System Rental and Service Gross Margin / Adjusted EBITDA Margin % 80% 60% 40% 20% 58% 12% 2,579 65% 5,745 37% 75% 16,712 59% 70% 61% 24,000 16,000 8,000 Revenue Days 0% Annualized Q (1) System Rental and Service Gross Margin % Adjusted EBITDA Margin % Revenue Days - (1) Q revenue days, gross margin and Adjusted EBITDA margin annualized. 18

20 Margins Driven By System Design and Protected by High Switching Cost Margin Structure is Sustainable Low Personnel Requirement Solaris rents proprietary Systems, but we do not operate the Systems TRAIN, MAINTAIN, MOBILIZE Low Maintenance Spend Solaris equipment is not under pressure and has minimal moving parts Virtually 100% uptime with maintenance performed in the field Economies of Scale Solaris is the leading provider of next generation proppant well site storage and inventory management solutions (~24% market share today) High Switching Costs Relative to Savings from Potential Cheaper Solutions Risk of Switching is Material Risk includes running out of sand or malfunctioning equipment causes delayed completions E&P companies: risk of higher well costs and delayed revenue Pressure pumpers: risk of fewer stages pumper per day More Than Just a Silo Customers rely on Solaris inventory data to manage entire supply chain Alternative storage solutions not plug and play or comprehensive supply chain solution Growing fleet at 8 systems / month Internal manufacturing model drives low manufacturing costs and ability to iterate on design modifications easily 19

21 Drivers of Solaris Growth in 2018 and Beyond Leading well site storage and inventory management solution and continuing to grow, e.g., manufacturing 8 systems per month Kingfisher Phase One completion August Opportunities to drive additional volumes through facility Continued integration and expansion of inventory management data solutions expansion of Railtronix and PropView offerings R&D efforts to improve supply chain management and well site handling of other well site consumables, including chemicals, friction reducers, etc. Free cash flow generation in 2019 return to shareholders, fund continued growth and M&A activity 20

22 Appendix

23 EBITDA and Adjusted EBITDA Reconciliation Three months ended, Year ended ($ in 000s) March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 December 31, 2017 December 31, 2016 December 31, 2015 Net income (loss) $13,415 $9,244 $7,406 $1,062 $22,487 $2,803 $(1,373) Depreciation and amortization Interest expense, net 3, , , ,370 6,635 3,792 2, Income taxes (1) 2,027 24, , EBITDA $18,728 $36,391 $9,792 $2,952 $55,118 $6,661 $1,111 IPO bonuses (2) 588 Stock-based compensation expense (3) 925 Non-recurring cash bonuses (4) 1,679 Loss on disposal of assets , , , , Non-recurring organizational costs (5) Change in payables related to parties pursuant to tax receivable agreement (6) (22,939) - (83) - (23,022) - -- Sand mining and terminal business development costs (7) Non-recurring supplier settlement (8) Other (9) Adjusted EBITDA $21,923 $15,226 $11,198 $7,458 $39,923 $6,788 $1,659 EBITDA and Adjusted EBITDA Margins: EBITDA $18,728 $36,391 $9,792 $2,952 $55,118 $6,661 $1,111 Revenue 36,018 25,204 18,478 13,389 67,395 18,157 14,205 EBITDA Margin 52% 144% 53% 22% 82% 37% 8% Adjusted EBITDA $21,923 $15,226 $11,198 $7,458 $39,923 $6,788 $1,659 Revenue 36,018 25,204 18,478 13,389 67,395 18,157 14,205 Adjusted EBITDA Margin 61% 60% 61% 56% 59% 37% 12% (1) Income taxes include add back for federal and state taxes, including $22,637 in the three months and twelve months ended December 31, 2017 related to the Tax Cuts and Jobs Act. (2) Stock-based compensation expense related to restricted stock awards with one-year vesting that were granted to certain employees and consultants in connection with the Offering. (3) Represents stock-based compensation expense related to restricted stock awards with three-year vesting and options issued under the Plan. (4) Certain performance-based cash awards paid in connection with the purchase of Railtronix upon the achievement of certain financial milestones. (5) Certain non-recurring organization costs in 2017 associated with our IPO. (6) Other income related to the change in payables related to parties pursuant to the tax receivable agreement includes ($21,936) related to the Tax Cuts and Jobs Act. (7) Represents salaries and related expenses, professional fees, transactional costs, rent and travel expenses incurred in the development of sand mining and terminal assets, which expenses did not recur in (8) Represents reserve for deposits made to a supplier, the majority of which was recovered. (9) Non-recurring transaction costs. 22

24 System Rental and Service Gross Margin Reconciliation Three months ended Year ended ($ in 000s) March 31, 2018 December 31, 2017 December 31, 2016 December 31, 2015 System rental and service Revenue: Proppant management system rental $27,405 $54,653 $14,594 $8,296 Proppant management system services 7,509 12,537 3,563 3,167 Total system rental and service revenue $34,914 $67,190 $18,157 $11,463 System rental and services operating costs: Cost of proppant system rental 1,418 2,627 1, Cost of proppant system services 9,106 14,184 4,916 3,847 Total cost of system rental and services $10,524 $16,811 $6,347 $4,841 System rental and service gross margin $24,390 $50,379 $11,810 $6,622 System rental and service gross margin $24,390 $50,379 $11,810 $6,622 System rental and service revenue 34,914 67,190 18,157 11,463 System rental and service gross margin % 70% 75% 65% 58% 23