barclays ceo energy-power conference - solaris oilfield/media/files/s... · 9/7/2017 · barclays...
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Barclays CEO Energy-Power ConferenceSeptember 7, 2017
Disclaimer
1
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 forward-looking 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’ final prospectus dated May 11, 2017, filed in connection with its initial public offering pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on May 15, 2017. 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.
Company Overview
2
Quarterly System Revenue Days (2)
Growing market share and earnings, but we are not dependent on increasing sand margins
Growth Driven by Secular Trends
3
Solaris facilitates increased per well and industry wide proppant consumption levels...
...Yet uniquely positioned to capitalize on an oversupplied sand market
174
645
1,436
3,375
2Q 14 2015 Average 2016 Average 2Q 17
Innovate logistics solutions that save our customers money and time
More storage, smaller footprint, simplified operations and safer well sites
Real-time inventory data available in the cloud
Customer adoption and secular trends driving growth
Mobile Proppant Management System
54 patent protected Mobile Proppant Management Systems deployed today ~ 15% market share (1)
Facilitate flow and transportation flexibility...not selling a commodity via owned channels
Vertically integrated manufacturing
(1) Management estimates.(2) Revenue days defined as the combined number of days Solaris’ Systems earned revenues.
Mobile Proppant Management Systems addresses challenges related to the transportation, storage and delivery of proppant
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 leading EOG Resources, Inc., Devon Energy, Apache Corporation and ProPetroServices
Demand for Systems exceeds our fleet size
− Expect to increase fleet to 68-72 Systems by end of 2017
Well Site Systems
Leading Independent Provider of Proppant Logistics Solutions
4
Mobile Fleet Active in Key Basins
SCOOP / STACK
Systems 6 (11%)
Permian Basin
Systems 31 (57%)
Haynesville
Systems 5 (9%)
Eagle Ford
Systems 11 (20%)
Marcellus / Utica
System 1 (2%)
Kingfisher Transload Facility
Solaris Manufacturing Facility
Expansion Into Transloading Logistics
Developing Kingfisher Facility
− High-capacity, unit train capable transload facility in Kingfisher, Oklahoma supporting STACK/SCOOP
− Underpinned with seven-year contract with leading STACK E&P operator
Integrated supply chain information from terminal to wellhead utilizing our Mobile Proppant Management Systems and our real-time inventory and throughput management application, PropView™
− Expect to deploy additional Mobile Proppant Management Systems to the STACK/SCOOP
Solaris Mobile Proppant Management System Video
5
Market Drivers
6
5%
15%
>40%15%
95%
70%
2014 Q2 2017 2018+
Market Share Based on U.S. Frac Fleet SizeFraming Solaris’ Market Opportunity
7
Note: Management estimates. All numbers are approximations. Referenced “Future” column represents management’s view of potential future market share.
“Sand King” type solutions are industry standard
Several new technology solutions designed in 2013-2014
Solaris and other new technologies take market share in the downturn
New product category created with independent proppant logistics offerings
Solaris and other new technologies take significant market share
Drivers
−Completion designs
− “Manufacturing” style operations; i.e. pad drilling
− HS&E / OSHA compliance
>95%
<
Historical Current Future
Other New Technologies Sand King Type Solution
>40%
<20%
Recovering commodity prices have driven increased drilling and completion activity
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
Proppant demand increases expected to amplify supply-chain 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
New U.S. Horizontal Wells(1)
20.2
23.7
16.0
8.210.5
12.7
15.8
2013 2014 2015 2016 2017E 2018E 2019E
New U.S. Horizontal Wells (thousands)
58
74
54
36
65
85
113
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
20
40
60
80
100
120
2013 2014 2015 2016 2017E 2018E 2019E
Proppant Demand (Millions of Short Tons)
Proppant per Horizontal Well (Short Tons)
Increasing Total and Per Well Proppant Demand(1)
Proppant Demand Continues to Increase
8(1) Spears & Associates’ “Hydraulic Fracturing Market, 2005-2017”, published Fourth Quarter 2016.
Proppant Short Tons per
Well
Millions of Short Tons (Total Demand for Proppant)
Illustrative 20 Million lb. Completion Requirements
Proppant Logistics are Complex and Prone to Bottlenecks
9
2.5 million lbs of storage capacity Assuming 4 day completion, System turned 2x every 24
hours Storage at demand center reduces down time for waiting on
sand
High capacity transloads with ability to unload unit train in 24 hours
Proppant transloaded into storage facility (large silos) or directly to truck
RAIL TO BASIN
TRANSLOAD STORAGE FACILITY
DELIVERY TO THE WELLSITE
WELLSITE STORAGE AND DELIVERY
SAND MINE
Proppant loaded into unit train and delivered to basin
Proppant mined and stored in mine storage (silos or domes)
Highest variability in supply chain
Subject to congestion and bottlenecks
~10,000 tons of sand
~100 railcars
~10,000 tons of throughput
~400 truck loads
~2.5 million lbs / 6 silos
Solaris Provides Key Buffers Along Supply Chain
Secular Trends and Adoption Driving Solaris’ Increased Activity Levels
10Source: Baker Hughes North America Rotary Rig Count and U.S. Energy Information Administration.Note: Revenue days defined as the combined number of days Solaris’ Systems earned revenues. U.S. Rig Count and WTI represents average figures throughout stated period.
174 309
424 446
687 696 750
1,104 994
1,512
2,135
2,627
3,375
100.0% 102.8% 102.9%
73.9%
49.0% 46.8%
40.7%
29.8% 22.8% 25.9%
31.8%
40.1%
48.4%
100.0%
94.3%
70.8%
47.3%
56.0%
45.3%
40.7% 32.5%
44.0% 43.6% 47.6%
50.1%
46.8%
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
Solaris Proppant System Revenue Days
201620152014 2017
Revenue Days
Key
Indexed WTIIndexed U.S. Rig Count
Rig count: 1,852WTI: $103.10
Solaris’ Solutions to Industry’s Challenge
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Supply chain buffer
Greater storage and proppant accessibility
More accessible unloading points
Enclosed system with fewer moving parts and increased dust suppression
Efficient use of space
Fully automated
Real-time data
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
Bringing Order to Chaos
12
Solaris’ Mobile Proppant Management System
Issues with Traditional Offerings
Our Solution
Traditional Sand Kings
Rolling Storage
Solaris’ Solution
PropViewTM: Real-Time Supply Chain Mobile AppSeamless Rig-Up and Integration
Simple, modern, fully-integrated control system
High volume input and output capacity
Mobile and flexible equipment
High Capacity Throughput
Elegant Solution to a Complicated Problem
13
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
Well Site Savings
Increased inventory stage execution efficiency
Built-in dust control
Lower labor requirements
Reduced fuel requirements
Proppant inventory loss savings
Increased asset utilizationReal-time inventory levels and consumption rates
[Redacted customer well name]
Kingfisher FacilityStrategic Expansion into Transloading Logistics
14
Central to Current STACK / SCOOP Rig Activity Proximity to Operators’ Acreage Will Reduce Supply Chain Costs
Development of a New High-Capacity Transload Facility Long-Term Contract with Leading STACK E&P Operator
The first independent, high-speed, unit-train capable transload facility dedicated to the STACK/SCOOP
300 acres directly on the Union Pacific Railroad
First proppant delivery scheduled for January 2018
Within 50 miles of > 75 active horizontal rigs (1)
Seven-year agreement
Minimum quarterly proppant volume commitment
Rail-to-truck operations commencing January 2018; Dedicated unit train loop and 30,000 tons of silo storage commencing August 2018
Operator is a current Solaris Mobile Proppant Management System customer
Source: Baker Hughes North America Rotary Rig Count. Source: 1Derrick.
100 mile radius
50 mile radius
100 mile radius
50 mile radius
(1) Source: IHS Enerdec.
Financial Performance
15
$5.0
$7.6
$13.9
4Q 16 1Q 17 2Q 17
$7.3
$10.3
$13.4
4Q 16 1Q 17 2Q 17
16
Continued Growth in Solaris’ Financial Performance
Quarterly Adjusted EBITDA and Margin ($ in Millions)
Quarterly Revenue and Revenue Days ($ in Millions)
$4.1
$6.1
$7.5
4Q 16 1Q 17 2Q 17
Capex ($ in Millions)
Q2 2017 Performance Commentary
57% 59%Margin: 56%
2,135 2,627Revenue Days: 3,375
2Q 2017 revenue and Adjusted EBITDA grew 30% and 22%, respectively, versus 1Q 2017
Growth in revenue and Adjusted EBITDA are primarily attributable to an increase in revenue days
− 2Q 17 revenue days grew to 3,375, a 28% sequential increase
Added 9 systems to the fleet in 2Q 2017
− Ended quarter with 44 systems in fleet; system count increased by >90% since 2Q 2016
30 35Ending
Fleet Size:
44
17
Attractive Adjusted EBITDA Margin vs. Peers
First Half 2017 Adjusted EBITDA Margin
Source: Company filings.Note: Note: See Appendix for Solaris EBITDA reconciliation.
57.3%
33.4%
20.8%
12.9% 12.7% 7.1% 3.8%
(20.0%)
SOI MINI CLB WEIR FTI NOV HTG FET
18
Strong Balance Sheet and Financial Flexibility
Total Debt / Capitalization(1)
Source: Company filings. (1) Total debt / capitalization as of latest reported filing, shown pro forma where applicable.
Net cash position, with >$90 million of liquidity as of end of Q2 2017
High return on invested capital and strong cash flow generation as a result of capital efficient business model
− System maintenance is minimal and is primarily expensed
Conservative financial philosophy provides flexibility
− Strong liquidity and net cash position
− Returns-focused business model
Active focus on operational excellence and cost efficiencies
Ownership and control over manufacturing process
– 2.3%
18.6% 20.3% 21.8%
46.0% 53.7%
60.7%
SOI HTG NOV FET FTI WEIR MINI CLB
Average: 30.9%
Appendix
19
20
Ticker SOI
Exchange New York Stock Exchange
Share Price (1) $14.75
Diluted Shares Outstanding (1)(2) ~44.2 million
Market Capitalization ~$650 million
Market Summary
(1) As of September 5, 2017.(2) Includes Class A and Class B shares. Includes 1,228,663 restricted shares and net dilutive effect of 591,261 options.
21
EBITDA and Adjusted EBITDA Reconciliation
(1) Income taxes include add-back for franchise tax.(2) Certain non-recurring organizational and transaction costs associated with Solaris’ initial public offering and the Kingfisher facility.(3) One-time cash bonuses of $3.1 million and restricted stock awards with one-year vesting of $0.4 million were paid or granted to certain employees and consultants in connection with Solaris’
initial public offering.(4) Represents unit-based compensation costs of $0.2 million related to restricted stock awards, with three-year vesting. Also includes $0.1 million and $0.2 million for the three and six months
ended June 30, 2017, respectively, related to options under the Solaris’ Long-term Incentive Plan.
T hree m onths ended Six m onths ended June 30,
($ in 000s) June 30, 2017 March 31, 2017 Decem ber 31, 2016 2017 2016
Net income (loss) $1,062 $4,7 82 $3,023 $5,844 ($931)
Depreciation and amortization 1,37 0 1 ,164 1 ,053 2,534 1 ,7 80
Interest expense, net 22 22 9 44 9
Income taxes (1 ) 498 22 17 520 12
EBIT DA $2,952 $5,990 $4,102 $8,942 $87 0
Non-recurring organizational costs (2) 258 90 - 348 —
IPO bonuses (3) 3,523 - - 3,523 —
Loss on disposal of assets 384 - - 409 —
Unit-based compensation expense (4) 341 32 19 37 3 7 2
Adjusted EBIT DA $7 ,458 $6,112 $4,121 $13,595 $942
EBIT DA and Adjusted EBIT DA Margins:
EBITDA $2,952 $5,990 $4,102 $8,942 $87 0
÷ Revenue 13,389 10,324 7 ,289 23,7 13 6,120
EBIT DA Margin 22% 58% 56% 38% 14%
Adjusted EBITDA $7 ,458 $6,112 $4,121 $13,595 $942
÷ Revenue 13,389 10,324 7 ,289 23,7 13 6,120
Adjusted EBIT DA Margin 56% 59% 57 % 57 % 15%
Our Patented Design
22
Silo
Shuttle Conveyor Belt
GravityDual Conveyor Belts
BlenderShuttle Conveyor Belt
Generator
Base unit
GeneratorAerial View of SystemSilo Loading and Delivery Process
Silos
Electrically driven belts
Single point of control for the entire system
Six silos per System
Four fill tubes per silo
2.5 million lbs of inventory available at the blender
~50,000 pounds of proppant per truckload
Two issued patents; one utility patent application and two provisional patent applications relating to Systems, services and other technologies