Investor Presentation February 2019 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 management, 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’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 6, 2018 and subsequent Quarterly Reports, including the From 10-Q filed with the Securities and Exchange Commission on August 1, 2018. 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, our ability to fully protect our intellectual property rights and changes in the long-term supply of and demand for oil and natural gas. 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 Company Snapshot
Ticker SOI (NYSE)
IPO Date May 11, 2017
Market Cap ~$700 million
Long-term Debt $0.0 million
Gross Dividend Yield 2.8% 2019 Consensus EV/EBITDA 4.5x Multiple(2)
2019 Consensus FCF Yield(2) 10%
Ownership (1) EBITDA Growth (2)
in $ millions
Management 16%
Float 56% Yorktown 119 23%
Other 40 4% 7 2 2015 2016 2017 2018E (1) As of October 31, 2018 (2) 2018E and 2019E reflect Bloomberg Consensus estimates as of 2/7/19 2 Solaris Delivers Innovative Products & Solutions and Comprehensive Services to the Industry
Innovative Products & Solutions Comprehensive Services
Mobile Proppant Field Services Management and Logistics Systems
Mobile Chemical Last Mile Management Logistics Systems
Inventory Kingfisher Management Transloading Software Services Solaris Has A Culture And History Of Innovation
Number of Systems in Fleet Dec-2018 May-2018 First 3 Q1-2017 Reconciling Chemical Key Events Urethane Fill Oct-2015 Solution Deployed Systems TM Pipe Extension WTI Price PropView Deployed Deployed Beta Deployed Jan-2018 Non- Nov-2018 Q4-2016 Jul-2015 pneumatic Auto Level Repurchased First 12-pack Deployed Hopper and Deployed Deployed 160 Upgraded sold Systems Dec-2017 May-2015 Railtronix First Central Sep-2016 Acquisition 140 Conveyor PropViewTM Belt Built Mobile App Aug-2017 120 Deployed Kingfisher Mar-2015 Ground Redesigned Control Apr-2016 Breaking 100 System Using Dual Allen-Bradley Discharge May-2017 Deployed IPO on 160- 80 Sep-2014 162 NYSE 146
($ in USD) Acquisition of Feb-2016 60 Manufacturing 122 Facility and IP System Tarping 98 Deployed April40 -2014 77 License 59 Agreement with 44 20Loadcraft 35 29 21 23 23 24 4 5 15 19 3 8 0 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E (1)
Solaris’ Has the Culture and Team to Constantly Improve Product and Service Offering
(1) Company Guidance as of 11/1/18 4 Diverse, Blue Chip Operator and Pressure Pumper Customer Base
Select Operator Customers Select Pressure Pumping Customers
Solaris has a broad and growing customer mix 5 Well Logistics Complexity Driven by Volume Growth, Shift to In-Basin Sand and Other Factors
Increasing Sand Intensity Levels Are Pervasive Recent Shift to In-Basin Sand Likely Continues
MM Lbs MM Tons MM Tons
Source: Company data, Coras Research Source: Wells Fargo Securities
6 Proppant Logistics are Bottleneck Prone; In Basin Sand Increases Need for Wellsite Inventory Buffer
Illustrative Solaris Data Illustrative Proppant Flow 20 MM lb Completion Solution Proppant Flow 20 MM lb Completion
~10,000 tons of ® ~10,000 tons of SAND MINE sand SAND MINE sand
~100 railcars ® RAIL TO BASIN Lost buffer of inventory along the supply chain ~10,000 tons of ® TRANSLOAD throughput STORAGE FACILITY
~400 truck loads ~400 truck loads DELIVERY TO THE and DELIVERY TO THE WELLSITE PropView ® WELLSITE
~2.5 million lbs / ~2.5 million lbs / NORTHERN NORTHERN WHITE SAND CHAIN SUPPLY 6 silos; or PropView ® CHAIN IN BASINSAND REGIONAL / SUPPLY 6 silos; or WELLSITE STORAGE ~5.0 million lbs / WELLSITE STORAGE ~5.0 million lbs / AND DELIVERY 12 silos AND DELIVERY 12 silos
Solaris Provides Key Buffers and Data Along Supply Chain 7 Solaris Growth Driven by Overall Market Growth Combined with Technology Displacement
Utilized Well Site Sand Storage Systems Utilization Variances Suggest by Technology Type(1) Technology/Service Differentiation
Traditional SandKing Assumptions: technology has lost share Q3 2018 Demand = 425 Avg Frac Fleets to boxes and silos, with Solaris’ systems having Available Supply = 134 average SOI systems in Q3 + the fastest market ~200 box systems + >100 non-SOI silos + >300 adoption rate and current SandKings market share ~1/3 519 96% ~70%, with 449 ~425 wide range by 399 company/ technology
314
253
<25%
~1/3
Source: Company data, Coras Research Source: Company estimates (1) Marketed US Frac fleet count used to approximate number of well site sand storage systems 8 Bringing Order to Chaos: Solaris Versus Traditional Technology
Issues with Traditional Offerings
Inadequate on-site inventory and offloading Traditional Rolling capacity Sand Kings Storage
Complicated operations and expansive well site footprint
Opaque inventory information and limited communication
HS&E issues, including silica dust
Our Solution
Solaris’ Mobile Proppant Management System
Supply chain buffer Solaris’ Greater storage and Solution proppant accessibility More accessible unloading points Enclosed system with fewer moving parts and dust suppression Efficient use of space Fully automated Real-time data 9 Elegant Solution to a Complicated Problem
High Capacity Throughput Simple, modern, fully-integrated control system High volume input and output capacity Mobile and flexible equipment
Supply Chain Savings Well Site Savings
Increased on-site inventory / Increased inventory stage access to inventory execution efficiency
Built-in dust control Increased truck offloading points
Lower labor requirements Smaller truck fleet size required to deliver proppant Proppant inventory loss savings Decreased truck demurrage Reduced fuel requirements Real-time inventory levels and consumption rates Increased asset utilization
Seamless Rig-Up and Integration Simultaneous Belly Dump and Pneumatic Loading
Belly Dump Pneumatic Truck Truck
10 Value Proposition to Customers: Trusted Solution and Low Cost Insurance Policy
Solaris System Costs <1% of Total Well Cost Solaris System Costs <5% of Total Proppant Cost
$ Amount / Metric Figure Average Horizontal Well Cost $6,000,000 Solaris Monthly Rental and Service Cost (1) $139,000 Average Number of Wells Completed per 3 Month Implied Solaris Cost per Well $46,333
Solaris System Costs ~25% of Total Economic Savings Produced
Fuel Savings 5% Lighting / Power Savings Inventory Loss 1% Savings 5% $46,333 Labor Trucking / Savings Demurrage Solaris 10% Savings 25% Of ~$200,000/well total Revenue Dust Control savings generated by Solaris System Savings systems, the customer retains $153,667 15% Daily ~75% of the benefit Completion Retained Cost Savings Value per 40% Well
Note: Analysis based on Management estimates; assumes 3-well Delaware Basin pad, 10,000 tons of proppant/well, 40 stages/well and ~500,000 pounds of proppant/stage (1) Implied average monthly rental and service revenue per system in Q2 2018
11 Solaris Patented System Design
Two issued patents, three utility patent applications and two provisional patent application relating to Systems, services and other technologies
Silo Loading and Delivery Process Aerial View of System Generator Dual Conveyor Belts Generator Gravity Silo Silos
Base unit ~50,000 pounds of proppant per truckload Shuttle Conveyor Belt
Six to twelve silos per System Shuttle Blender Four fill tubes per silo Conveyor Belt
2.5 to 5 million lbs of inventory available at the blender Electrically driven belts Multiple redundancies built in (i.e. 4 fill tubes, dual Single point of control for the entire system belt, dual generators) 12 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.
13 Supply Chain Visibility Last Mile Dashboard – Vendor to Blender
Recently integrated with Automatize, trucking logistics platform, to provide full visibility from mine to well head for Permian operator self-sourcing sand
Real-time Supply Updates
Accounts for the number of active trucks moving to and from the mine and/or transload and the well site
Proppant Volume Updates
Volume of individual silos by grade
Total volume of each grade at well site
Remaining volume available under mine purchase order
Aggregate Statics
Total completed loads per site
Supply chain insights drive lower trucking costs and stage efficiencies
14 Bringing Order to Chaos…Again Solaris’ New Mobile Chemical Silo Systems
Chemicals, acid, friction reducer, biocide, etc. stored in multiple totes and iso-containers today
Replaced with 3 silos with inventory control and monitoring, precise flow measurement and improved HS&E
Footprint will be reduced to three Solaris silos
15 Continued Growth in Solaris’ Financial Performance…
Quarterly Revenue and Revenue Days ($ in Millions) Q3 2018 Performance Commentary
$56.7 3Q 2018 revenue and Adjusted EBITDA grew 20% and 22%, respectively, on a sequential basis $47.2 Growth in revenue and Adjusted EBITDA are primarily $36.0 attributable to an increase in revenue days $25.2 $18.5 − 3Q 18 revenue days grew to 11,848, a 20% sequential increase
− Average rental rates relatively flat since Q1 2018
3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 Added 24 systems to the fleet in 3Q 2018 Revenue 4,564 6,146 7,673 Days: 9,850 11,848 − Ended quarter with 146 systems in fleet
Quarterly Adjusted EBITDA and Margin ($ in Millions) Capex ($ in Millions)
$36.5 $49.9 $30.0 $44.9 $41.2 $38.8 $21.9 $27.6 $15.2 $11.2
3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18
Ending Margin: 61% 60% 61% 64% 64% Fleet 59 77 98 122 146 Size: …Driven by Sustained Margins Over Cycles and Secular Growth
100% 36,000 %
90%
80% 29,371 75% 70% 27,000 70% 65% 63% 59% 60% 58%
50% 18,000 16,712
40% 37% Revenue Days
30% 9,000 20% 12% 5,745 10% 2,579 System Rental and Service Gross Margin / Adjusted EBITDA Margin Margin EBITDA / Adjusted Margin Gross Service and Rental System 0% - 2015 2016 2017 2018 Q3 YTD
System Rental and Service Margin % Adjusted EBITDA Margin Revenue Days
17 Margins In Line with Other Premium Equipment Rental Businesses
Approximate Year-to-date Q3 2018 Specialized Rental EBITDA Margins
Specialized rental businesses tend to be Commoditized rental Manufactures own specialized buried in larger companies product; invests in own in the oilfield services R&D/technology sector 70% Solaris margins are in line 50-60% 60% 63% with other premium well- site rental businesses and 50% not much higher than more commoditized/industrial rental businesses
US Industrial Premium Solaris Premium Compression Rentals Drill Pipe System Completion Rental Rental Rental & Rentals Service
Source: Company data Note: Companies used for rental margin comparison include AROC, URI, HRI, SPN and WHD 18 Drivers of Solaris Growth in 2018 and Beyond
Leading well site storage and inventory management solution with opportunities for further growth in legacy systems
New product introductions, including chemical systems, Auto Level Hopper and potential build out of non-pneumatic systems
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
Free cash flow generation in 2019…return to shareholders, fund continued growth and M&A activity
19 Appendix EBITDA and Adjusted EBITDA Reconciliation
Three months ended, Twelve months ended December 30,
($ in 000s) September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 2017 2016 2015
Net income (loss) $26,437 $21,448 $13,415 $9,244 $22,487 $2,803 ($1,373) Depreciation and amortization 5,328 3,984 3,202 2,359 6,635 3,792 2,395 Interest expense, net 116 71 84 26 97 23 22
Income taxes (1) 4,237 3,277 2,027 24,762 25,899 43 67 EBITDA $36,118 $28,780 $18,728 $36,391 $55,118 $6,661 $1,111
IPO bonuses (2) - 307 588 581 4,627 - - Stock-based compensation expense (3) 338 939 925 1,039 2,211 127 64 Non-recurring organizational costs (4) - - 1,679 - 348 - - Change in payables related to parties - - - (22,939) (23,022) - - pursuant to tax receivable agreement (5)
Loss on disposal of assets 51 23 3 47 498 - -
Other (6) - - - 107 143 - 484 Adjusted EBITDA $36,507 $30,049 $21,923 $15,226 $39,923 $6,788 $1,659
EBITDA and Adjusted EBITDA Margins:
EBITDA $36,118 $28,780 $18,728 $36,391 $55,118 $6,661 $1,111 ÷ Revenue 56,686 47,155 36,018 25,204 67,395 18,157 14,205 EBITDA Margin 64% 61% 52% 144% 82% 37% 8%
Adjusted EBITDA $36,507 $30,049 $21,923 $15,226 $39,923 $6,788 $1,659
÷ Revenue 56,686 47,155 36,018 25,204 67,395 18,157 14,205
Adjusted EBITDA Margin 64% 64% 61% 60% 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; certain non-recurring organization costs in 2017 associated with our IPO. (5) Other income related to the change in payables related to parties pursuant to the tax receivable agreement includes ($21,936) related to the Tax Cuts and Jobs Act. (6) Non-recurring transaction costs: Represents salaries and related expenses, professional fees, transactional costs, rent and travel expenses incurred in the development of sand mining and terminal assets, which expenses did not recur in 2016. Also represents reserve for deposits made to a supplier, the majority of which was recovered. 21 System Rental and Service Gross Margin Reconciliation
Nine months ended Twelve months ended December 30,
($ in 000s) September 30, 2018 2017 2016 2015
System rental and service revenue:
Proppant management system rental $104,563 $54,653 $14,594 $8,296
Proppant management system services 29,499 12,537 3,563 3,167
Total system rental and service revenue $134,062 $67,190 $18,157 $11,463
System rental and service operating costs:
Cost of proppant system rental 5,050 2,627 1,431 994
Cost of proppant system servcies 34,691 14,184 4,916 3,847
Total cost of system rental and services $39,741 $16,811 $6,347 $4,841
System rental and service gross margin $94,321 $50,379 $11,810 $6,622
System rental and service gross margin $94,321 $50,379 $11,810 $6,622 ÷ System rental and service revenue $134,062 $67,190 $18,157 $11,463 System rental and service gross margin % 70% 75% 65% 58%
22 Margins Driven By System Design and Protected by High Switching Cost
High Switching Costs Relative to Savings from Margin Structure is Sustainable Potential Cheaper Solutions
Low Personnel Requirement Risk of Switching is Material
Solaris rents proprietary Systems, but we do not Risk includes running out of sand or malfunctioning operate the Systems equipment – causes delayed completions
TRAIN, MAINTAIN, MOBILIZE E&P companies: risk of higher well costs and delayed revenue
Low Maintenance Spend Pressure pumpers: risk of fewer stages pumper per day Solaris’ equipment is not under pressure and has minimal moving parts More Than Just a Silo Virtually 100% uptime with maintenance performed in the field Customers rely on Solaris inventory data to manage entire supply chain
Economies of Scale Alternative storage solutions not plug and play or comprehensive supply chain solution Solaris is the leading provider of next generation proppant well site storage and inventory management solutions (~1/3 market share today)
Internal manufacturing model drives low manufacturing costs and ability to iterate on design modifications easily
23 Solaris Systems Have Trucking, Labor and Safety Advantages
Comparison of Containerized vs Solaris Silo Technology Options
Boxes struggle to keep up Technology with the pace of modern frac Box A Box B Solaris Solaris design volumes / hour (2 smaller boxes) (1 larger box) Pneumatic System Belly dump System Trucking Efficiency Comparison Reliance on constant forklift movements introduces: Lbs / Well 20,000,000 20,000,000 20,000,000 20,000,000 Lbs / Truckload 46,000 42,000 50,000 54,000 Single point of failure risk Total Truckloads / Well 435 477 400 371 $540 $540 $600 $540 HSE risk Avg Cost $ / Truck Trip Total Truck Cost $ / Well $234,900 $257,580 $240,000 $200,340 To achieve a similar 2.5 mm lb supply buffer offered by a Trucking Cost / Four-Well Pad $939,600 $1,030,320 $960,000 $801,360 6-silo Solaris system, 60 Max # Trucks Unloading Simultaneously 1 1 24 1-2 larger boxes or over 100 smaller boxes would be Max Trucks / Hour During Active Frac 0 0 24 4-10 needed in addition to a Max Trucks / Hour During Downtime 7 12 24 4-10 forklift working area Max Sand Volume Loadings - Lbs / Hour 306,667 504,000 1,200,000 540,000 Other Operational Comparison Forklift Movements / Well 3,480 1,908 0 0 Forklift Movements / Pad 13,920 7,632 0 0 Labor / System (employees per shift) 3-5 3-5 1 1
Source: Company estimates Note: Assumes any non-pneumatic truck is 10% cheaper, larger boxes average 5 min unloading time and smaller boxes average 8-9 min unloading time per truck 24 Well Site Overview 12 Pack Zipper Frac
14 14 4 11 12 1 2b 2a 5 7 3 1 6 8 9 2b
2d2c 13 10 13 11
1 Water tanks 3 Hydration unit 9 Frac stack 2 Chemicals 4 Solaris Silo System 10 Data van 2a Acid/frac tanks 5 Blender 11 Wireline truck 2b ISO tanks 6 High pressure manifold 12 Pump down trucks (water) 2c Totes 7 Pump trucks (horsepower) 13 Fuel trucks 2d Chem add unit 8 Zipper frac manifold 14 Sand trucks
25