Solaris Oilfield Infrastructure stock has had a big increase in institutional buying. Over the last 3 months, institutional investment in Solaris Oilfield Infrastructure stock is up an incredible 359.7%!

SOI stock trades at a P/E of 9.3, and a Forward P/E of 5.92. Sweet!

SOI shows a strong growth in revenue. In the last year, revenue has grown by 267.24%. Measured over the past 3 years, revenue has been growing by 87.13% on average per year.

Solaris Oilfield released its earnings on May 9, 2018. The company reported EPS of $0.31 versus the $0.29 estimate. Solaris Oilfield’s quarterly revenue was up 248.9% year-over-year.

Proppant supply disruptions and logistic complexities continue to drive demand for Solaris Oilfield’s products and services. To meet growing demand, the company increased their manufacturing rate earlier this year and delivered eight systems per month to the rental fleet in March and April, the highest monthly manufacturing rate the Company has achieved in its history. The company currently has 108 systems in the rental fleet, all of which are deployed to customers. The Permian Basin continues to be the most active area, followed by the Eagle Ford Shale, SCOOP/STACK formations, Marcellus/Utica Shale, the Rockeis, the Haynesville Shale and the Barnett Shale.

Based on Solaris Oilfield’s current manufacturing outlook, they expect to end the second quarter with 120 to 122 systems in the fleet and expect to end the third quarter with 142 to 146 systems in the fleet.

SOI Stock Chart

SOI chart at key support.

SOI stock is testing key support. The large players volume is rising which suggests large players are accumulating the stock at current price levels. The Twiggs Money Flow and MACD look pretty bad but, if they’ve bottomed, we could get a reversal and move higher on these indicators.

I give SOI stock a buy rating. My price target is $19.22 which represents 19% upside from the current price. Most analysts agree with my buy rating. Overall there are no sell ratings, 1 hold rating, and 13 buy ratings on SOI stock.

Disclosure: As Premium members know, I bought SOI stock today.

Transcription of Solaris Oilfield Infrastructure Earnings Conference Call on May 9, 2018

Good morning, and welcome to the Solaris Oilfield Infrastructure First Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

At this time, I would like to turn the conference over to Kyle Ramachandran, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. I’m joined today by our Founder and Chairman, Bill Zartler; and our CEO, Greg Lanham.

Before we dive into our prepared remarks, we’d like to caution listeners that some of the statements today will be forward-looking statements. Such forward-looking statements may include comments regarding future financial results and reflect a number of known and unknown risks. Please refer to our press release issued on May 8, 2018, and the Form 10-Q filed yesterday along with other recent public filings with the Securities and Exchange Commission that outline those risks.

I would like to also point out that in our earnings release and in today’s conference call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release.

With that said, I’ll now turn the call over to our Founder and Chairman, Bill Zartler. Bill?

Thanks, Kyle, and welcome to Solaris’ first quarter 2018 earnings call. During the first quarter, we continue to execute on our plan and drive supply chain savings and wellsite completion efficiencies for our customers. As highlighted by recent industry commentary, the first quarter witnessed significant sand logistics complexities that resulted in supply disruptions for the industry and delayed completions. Despite these dynamics, we saw a continued demand growth for our systems in the first quarter as we delivered 21 systems to the fleet and remained virtually sold out for the entire quarter. We ended the quarter with 98 systems in the fleet and currently have 108 operating.

During 2018, we continue to grow our market shares, our customers require additional storage buffers throughout their supply chain. We continue to see interest in the 12-pack systems. We currently have 3 sets of 12-packs running, and we had as many as 5 12-packs running concurrently with 3 different customers during the quarter.

Based on estimated overall market of approximately 425 frac fleets, we believe we have about 24% market share today. We believe our combination of highly-efficient, scalable systems in supply chain data integration will lead to continued market share growth as we work hard every day to help provide a product and service that adds significant value to our customers and that will keep us ahead of the completion. Our growth this year has been a function of both deploying additional systems with legacy customers as well as adding new customers. For example, during the first 4 months of 2018, we’ve increased our number of distinct customers by about 33% and we’ve added 21% more systems with our current customers through April of this year. The growing adoption of our technology speaks to the inherent efficiencies with — from our design as well as our reputation for delivering high-quality and reliable products and services. As we develop further integration of supply chain information through our Railtronix acquisition, we believe our value proposition will only continue to attract new and growing customers.

With that, I’ll turn it over to Greg (Greg Lanham CEO and Director), to discuss some additional operational highlights from the first quarter.

Thanks, Bill. Good morning, everyone. I’m very proud of the work that our team did in the first quarter. Not only did we continue to grow market share, but we also reached a new manufacturing milestone when we delivered 8 systems to the fleet in March. This is a testament to our manufacturing, operations and commercial teams. The increase in our fleet size, growing customer demand and industry activity levels led to a record 7,673 revenue days during the first quarter, a 192% year-over-year increase and a 25% sequential increase versus fourth quarter of 2017.

During the first quarter, we continue to be effectively fully utilized. Customer demand for our systems has risen due to the increased well-completion activity, increased proppant usage on average per well, a challenging labor market and increased awareness of the advantages of our prudent technologies. Our most active operating areas continue to be the Midland and Delaware basins, followed by the Eagle Ford, SCOOP/STACK, the Marcellus/Utica, the Haynesville, the Rockies and the Barnett. We are helping our customers complete more stages per day by providing a large buffer at the domain location, and the digital data and tools to more efficiently manage their supply chain.

In addition, in the first quarter, we commenced transloading operations at our Kingfisher facility and have advanced construction. We remain on track to have 30,000 tons of storage available beginning in August. Through April, our anchor tenant has increased month-over-month volumes since commencing deliveries to the facility in January. And a few weeks back, we received our first unit train from an additional customer that we are working with.

Justice with our anchor tangent, our new customer is also a Solaris wellsite system user.

We have continued to make progress on the technology front. As discussed during our previously — our previous quarterly earnings call, the integration between Railtronix and PropView is facilitating full inventory visibility for anchor customer at Kingfisher. Starting with the visibility of product in railcars at the source mines and all the way until it arrives at the wellsite loading into our silos.

We are currently developing extensive enhancements to the PropView platform that will allow customers to have visibility of their prop and inventory across the entire supply chain.

I’d now like to touch on what we’re seeing in the market. As discussed by several of our industry peers, shortage around labor and trucking capacity are 2 of the biggest challenges that we face in the industry today. Our solutions are all geared towards improving efficiency of each of these components. Regarding labor, our system is very simple to operate and is operated by one individual who controls the system through a rugged touchscreen display. No solitary equipment, movements or additional personnel are required to deliver sand to the blender once it has been offloaded into our silos, which makes for a safer and more organized well path. For additional context, today Solaris is delivering a new system to the field every 3 and 3-quarter days. Specialized training and equipment required to operate our systems make much more challenging for us to meet this delivery pace.

Regarding trucking, we are doing several things to drive trucking efficiency. First, pneumatic trailers of the most prevalent sand transportation method in the industry today. We’re able to offload up to 24 trucks in apparel, which provides for both an incredibly high throughput rate of more than 1.5 million pounds per hour. And second, a large buffer to handle the surge of trucks that arrive on the site together. Because we can offload in parallel and without additional equipment, movement of personnel, we significantly reduced the challenges around demerge, and we increase wellsite safety. Second, several of our customers are deploying next-generation pneumatic trailers that have carrying capacity of 54,000 pounds of sand or greater. An increase of 12.5% versus traditional pneumatic trailers and a nearly 30% payload advantage over the leading box solution. Third, PropView and Railtronix provide the real-time data to help our customer more efficiently dispatch trucks to various well sites and optimize sand delivery to locations where it’s most needed.

I believe our leading market share and continued growth are testaments to not only our execution capabilities, but also speak to differentiated and value-added offering that we provide. The cost savings and efficiency gains that our systems create have been proven by both our customers and us. We provide our customers with the capital-like rental model that creates significant return on investment for them and provides the convenience of continual improvement, service and maintenance. As proppant intensity increase, the economic rent we generate from our customers will only continue to grow.

Lastly, we are focusing our R&D efforts on our next version of our wellsite inventory management system to accommodate other products that are delivered all to the wellsite, and we intend to drive supply chain efficiency there just as we have done in profit management. We will continue to move the ball forward and drive innovation across everything we do.

Now with that, I’ll turn the call over to Kyle (Kyle S. Ramachandran, CFO) for a more detailed financial review.

Thanks, Greg. In the first quarter, we continue to grow our business, highlighted by a number of record operational and financial results, including more than 7,600 revenue days, $36 million of revenue and adjusted EBITDA of $21.9 million.

Revenue for the first quarter increased 43% quarter-over-quarter to a record $36 million. This increase was driven by 4 factors: first, we added 21 systems to the fleet, driving a 25% increase in quarter-over-quarter system revenue days; second, our implied average system rental rate increased by approximately 9% quarter-over-quarter. We have reset 2018 pricing for all customers at rates above 2017; third, we had a full quarter of revenue contribution from our recent Railtronix acquisition; and fourth, we began translating activity and revenue contribution from the Kingfisher facility in mid-January.

Circling back on the pricing comment, we believe that our customers are seeing continued increases in efficiency by using our systems, including completing more stages per day and reduced trucking and personnel costs. We believe our customers capture the vast majority of the economic rent that our offerings create. Gross profit defined as total revenue less the cost of proppant system rental, the cost of proppant system services, the cost of transloading services and the cost of proppant inventory software services, excluding depreciation and amortization expense, increased 34% to $24.9 million compared to $18.6 million in the fourth quarter, primarily due to the higher revenues and operating activity discussed.

Selling, general and administrative costs, and salaries, benefits and payroll taxes decreased to $4.5 million from $4.9 million in the fourth quarter. The decrease is primarily driven by a reduction in the 2017 bonus accrual and a reduction in third-party consulting fees as a result of in-sourcing certain administrative functions that took place in the fourth quarter.

We would expect to retain to a level closer to the $5 million in the second quarter. Net income for the quarter was $13.4 million, an increase of approximately 45% versus the fourth quarter. Adjusted EBITDA increased to a record $21.9 million, an increase of 44% versus the fourth quarter.

Adjusted pro forma net income for the first quarter was $14.5 million or $0.31 per share versus $8.9 million or $0.20 per share in the fourth quarter.

Our presentation of adjusted pro forma net income, adjust for certain items that we believe were nonrecurring and also assumes a full exchange of our outstanding LLC units in class B shares not held by Solaris, Inc for Class A shares. By assuming the full exchange of all outstanding Class B shares and LLC — Solaris LLC units, we’ve presented net income and earnings per share that is more comparative with other companies that have different organizational and tax structures.

Total capital expenditures for the quarter were approximately $41 million. During the first quarter, we added 21 systems to our fleet and continued constructions at our Kingfisher facility. We believe these investments in our business will generate attractive long-term returns for our shareholders.

Regarding outlook. We expect to end the second quarter with 120 to 122 systems in the fleet, and we are now providing guidance on 142 to 146 systems in the fleet by the end of the third quarter of this year. We delivered 8 systems to the fleet in March and April, and expect to maintain the pace going forward to meet continued customer demand for our Mobile Proppant Management Systems.

We expect to use our operating cash flow, cash balance and modest borrowings under our credit facility to fund the remainder of capital expenditures in 2018.

At our current build rate, we would expect to generate positive free cash flow beginning in 2019. While the timing — while this time is obviously dynamic and is subject to change based on opportunities that we find to deploy additional capital, we believe we can be in a position to generate meaningful free cash flow, relative to our current market capitalization, which can potentially be available to return to shareholders in various manners.

Speaking of liquidity, I’ll wrap by outlining our current position. As previously discussed, in January of this year, we entered into a new credit facility that provides for a revolver of $20 million and an advanced term loan of $50 million. Borrowings under the facility are subject to certain borrowing-based calculations and the facility has standard financial covenants. Including the undrawn credit facility, our liquidity at the end of April was approximately $90 million, including approximately $21 million of cash.