Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38090 SOLARIS OILFIELD INFRASTRUCTURE, INC. (Exact name of registrant as specified in its charter) (State or ...

First Quarter 2024 Results and Shareholder Returns Overview Solaris Oilfield Infrastructure delivered strong Q1 2024 free cash flow, enabling significant shareholder returns and maintaining a robust financial position [Executive Summary & Key Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Key%20Highlights) Solaris Oilfield Infrastructure reported strong free cash flow generation in Q1 2024, enabling continued shareholder returns - Solaris started the year with **strong free cash flow generation**, continuing to harvest cash from prior organic investments[2](index=2&type=chunk) - The company expects continued growth in free cash flow to support shareholder returns, maintain a healthy balance sheet, and provide flexibility for future investments[3](index=3&type=chunk) Key Financial Highlights | Metric | Q1 2024 Value | | :-------------------------------- | :------------ | | Revenue | $68 million | | Net income | $7 million | | EPS (diluted Class A share) | $0.14 | | Adjusted pro forma net income | $7 million | | Adjusted pro forma EPS (fully diluted) | $0.16 | | Adjusted EBITDA | $23 million | | Cash flow from operations | $17 million | | Free cash flow | $14 million | | Shareholder returns (Q1 2024) | $13 million | | Cumulative shareholder returns (since 2018) | $172 million | [Shareholder Returns Program](index=1&type=section&id=Shareholder%20Returns%20Program) Solaris continued its commitment to shareholder returns, approving a Q2 2024 dividend of $0.12 per share and repurchasing 1.1 million shares in Q1 2024 - Solaris' Board of Directors approved a **Q2 2024 cash dividend of $0.12 per share** of Class A common stock, payable on June 17, 2024[5](index=5&type=chunk) - The company repurchased **1.1 million shares for approximately $8 million** during Q1 2024, with approximately $15 million remaining in the current share repurchase authorization[4](index=4&type=chunk) - Since initiating the repurchase authorization in Q1 2023, Solaris has repurchased **4.3 million shares**, representing approximately **10% of total current outstanding shares**[4](index=4&type=chunk) - Pro forma for the Q2 2024 dividend, Solaris has returned approximately **$178 million to shareholders** through dividends and share repurchases since 2018, increasing dividend per share by **20%** and reducing total shares outstanding by **7%**[6](index=6&type=chunk) [Free Cash Flow, Capital Expenditures & Liquidity](index=1&type=section&id=Free%20Cash%20Flow%2C%20Capital%20Expenditures%20%26%20Liquidity) Solaris generated positive free cash flow of $14 million in Q1 2024, despite seasonal working capital use - Free cash flow after asset disposals was **positive $14 million** in Q1 2024, including a seasonal working capital use of $5 million[7](index=7&type=chunk) - Capital expenditures in Q1 2024 were approximately **$3 million**, down **55% from Q4 2023**; full-year 2024 capital expenditures are expected to be less than **$15 million**, an approximately **75% year-over-year reduction**[7](index=7&type=chunk) Liquidity and Net Debt Position | Metric | As of March 31, 2024 | | :----------------- | :------------------- | | Cash on balance sheet | $3 million | | Borrowings outstanding | $30 million | | Liquidity | $41 million | | Net debt | $27 million | Detailed First Quarter 2024 Financial Review This section provides an in-depth analysis of Solaris' Q1 2024 financial performance, including revenue, net income, and operational activity [Financial Performance Analysis](index=3&type=section&id=Financial%20Performance%20Analysis) Solaris' Q1 2024 financial performance showed sequential growth in revenue and Adjusted EBITDA, driven by increased lower-margin ancillary last mile logistics services and improved system pricing Key Financial Performance Metrics (Values in Millions USD, except EPS) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | QoQ Change | YoY Change | | :-------------------------- | :------ | :------ | :------ | :--------- | :--------- | | Net income | $7M | $7M | $12M | Flat | -41.7% | | EPS (diluted Class A share) | $0.14 | $0.14 | $0.23 | Flat | -39.1% | | Adjusted pro forma net income | $7M | $7M | $11M | Flat | -36.4% | | Adjusted pro forma EPS (fully diluted) | $0.16 | $0.15 | $0.24 | +6.7% | -33.3% | | Revenue | $68M | $63M | $83M | +7% | -18% | | Adjusted EBITDA | $23M | $21M | $25M | +7% | -10% | - The sequential increases in revenue and Adjusted EBITDA were driven by an increase in lower-margin ancillary last mile logistics services activity and improved system pricing[12](index=12&type=chunk) [Operational Activity](index=3&type=section&id=Operational%20Activity) In Q1 2024, Solaris operated 102 fully utilized systems, which remained flat quarter-over-quarter but decreased 14% year-over-year - Solaris earned revenue on **102 fully utilized systems** (sand and top fill systems) in Q1 2024, which was essentially flat with Q4 2023 but down **14% from Q1 2023**[13](index=13&type=chunk) - The company followed an average of **64 industry frac crews** on a fully utilized basis in Q1 2024, flat with Q4 2023[13](index=13&type=chunk) Unaudited Consolidated Financial Statements Presents Solaris' unaudited consolidated statements of operations, balance sheets, and cash flows for Q1 2024 and comparative periods [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations provide a detailed breakdown of Solaris' revenues, operating costs, and net income for the three months ended March 31, 2024, compared to prior periods Consolidated Statements of Operations (Thousands USD) | Metric | March 31, 2024 | March 31, 2023 | December 31, 2023 | | :------------------------------------------ | :------------- | :------------- | :---------------- | | Revenue | $64,635 | $77,828 | $60,069 | | Revenue - related parties | $3,255 | $4,894 | $3,278 | | **Total revenue** | **$67,890** | **$82,722** | **$63,347** | | Cost of services (excluding D&A) | $39,887 | $53,223 | $36,870 | | Depreciation and amortization | $9,934 | $8,417 | $9,518 | | Selling, general and administrative | $7,990 | $6,538 | $7,229 | | Other operating (income) expense, net | $123 | $(338) | $489 | | **Total operating costs and expenses** | **$57,934** | **$67,840** | **$54,106** | | **Operating income** | **$9,956** | **$14,882** | **$9,241** | | Interest expense, net | $(799) | $(459) | $(912) | | Income before income tax expense | $9,157 | $14,423 | $8,329 | | Provision for income taxes | $(1,857) | $(2,486) | $(1,370) | | **Net income** | **$7,300** | **$11,937** | **$6,959** | | Less: net income related to non-controlling interests | $(2,983) | $(4,368) | $(2,658) | | Net income attributable to Solaris Oilfield Infrastructure, Inc. | $4,317 | $7,569 | $4,301 | | Less: income attributable to participating securities | $(277) | $(350) | $(214) | | **Net income attributable to common shareholders** | **$4,040** | **$7,219** | **$4,087** | | Earnings per share of Class A common stock - basic | $0.14 | $0.23 | $0.14 | | Earnings per share of Class A common stock - diluted | $0.14 | $0.23 | $0.14 | | Basic weighted average shares of Class A common stock outstanding | 28,587 | 31,214 | 29,024 | | Diluted weighted average shares of Class A common stock outstanding | 28,587 | 31,214 | 29,024 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present Solaris' financial position as of March 31, 2024, compared to December 31, 2023, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (Thousands USD) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | **Assets** | | | | Cash and cash equivalents | $3,424 | $5,833 | | Accounts receivable, net | $46,411 | $44,916 | | Total current assets | $62,885 | $67,141 | | Property, plant and equipment, net | $320,885 | $325,121 | | Goodwill | $13,004 | $13,004 | | Deferred tax assets | $45,861 | $48,010 | | **Total assets** | **$457,070** | **$468,297** | | **Liabilities** | | | | Accounts payable | $12,266 | $12,654 | | Accrued liabilities | $16,489 | $20,292 | | Total current liabilities | $35,315 | $37,201 | | Credit agreement | $30,000 | $30,000 | | Payables related to Tax Receivable Agreement | $68,846 | $71,530 | | **Total liabilities** | **$147,222** | **$152,717** | | **Stockholders' Equity** | | | | Total stockholders' equity attributable to Solaris Oilfield Infrastructure, Inc. | $200,131 | $205,983 | | Non-controlling interest | $109,717 | $109,597 | | **Total stockholders' equity** | **$309,848** | **$315,580** | | **Total liabilities and stockholders' equity** | **$457,070** | **$468,297** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows outline the cash generated and used by Solaris across operating, investing, and financing activities for the three months ended March 31, 2024, compared to the same period in 2023 Consolidated Statements of Cash Flows (Thousands USD) | Metric | March 31, 2024 | March 31, 2023 | | :------------------------------------------ | :------------- | :------------- | | Net income | $7,300 | $11,937 | | Depreciation and amortization | $9,934 | $8,417 | | **Net cash provided by operating activities** | **$16,875** | **$16,849** | | Investment in property, plant and equipment | $(3,358) | $(18,949) | | Proceeds from disposal of property, plant and equipment | $10 | $123 | | **Net cash used in investing activities** | **$(3,348)** | **$(18,826)** | | Share repurchases and retirements | $(8,092) | $(14,427) | | Dividend paid to Class A common stock shareholders | $(3,648) | $(3,656) | | Borrowings under the credit agreement | $4,000 | $18,000 | | Repayment of credit agreement | $(4,000) | $0 | | **Net cash used in financing activities** | **$(15,936)** | **$(4,683)** | | Net decrease in cash and cash equivalents | $(2,409) | $(6,660) | | Cash and cash equivalents at beginning of period | $5,833 | $8,835 | | **Cash and cash equivalents at end of period** | **$3,424** | **$2,175** | Non-GAAP Financial Measures & Reconciliations Details Solaris' use of non-GAAP financial measures, including reconciliations for Adjusted EBITDA, Free Cash Flow, and Adjusted Pro Forma Net Income [About Non-GAAP Measures](index=3&type=section&id=About%20Non-GAAP%20Measures) Solaris utilizes non-GAAP financial measures such as adjusted net income, adjusted diluted EPS, Adjusted EBITDA, and Free Cash Flow to provide investors with additional insights into core operating results and facilitate period-over-period comparisons - Management believes adjusted net income, adjusted diluted EPS, and Adjusted EBITDA provide useful information by reflecting core operating results and facilitating comparisons across periods, removing effects of varying interest expense, depreciation, and other non-comparable items[17](index=17&type=chunk)[30](index=30&type=chunk) - Non-GAAP measures should be considered in addition to, not as a substitute for or superior to, GAAP measures[17](index=17&type=chunk)[32](index=32&type=chunk) - Adjusted pro forma net income and EPS assume full exchange of Solaris LLC interests for Class A common stock, adjusting for non-recurring items to evaluate performance period over period and relative to competitors[38](index=38&type=chunk)[39](index=39&type=chunk) [EBITDA and Adjusted EBITDA Reconciliation](index=9&type=section&id=EBITDA%20and%20Adjusted%20EBITDA%20Reconciliation) This section provides the reconciliation of Net Income to EBITDA and Adjusted EBITDA, highlighting adjustments for depreciation, interest, taxes, stock-based compensation, and other non-recurring items for Q1 2024 and prior periods EBITDA and Adjusted EBITDA Reconciliation (Thousands USD) | Metric | March 31, 2024 | March 31, 2023 | December 31, 2023 | | :-------------------------- | :------------- | :------------- | :---------------- | | Net income | $7,300 | $11,937 | $6,959 | | Depreciation and amortization | $9,934 | $8,417 | $9,518 | | Interest expense, net | $799 | $459 | $912 | | Provision for income taxes | $1,857 | $2,486 | $1,370 | | **EBITDA** | **$19,890** | **$23,299** | **$18,759** | | Stock-based compensation expense | $2,217 | $1,980 | $1,911 | | (Gain) loss on disposal of assets | $12 | $(361) | $(4) | | Credit losses | $300 | $0 | $650 | | Other | $268 | $200 | $6 | | **Adjusted EBITDA** | **$22,687** | **$25,118** | **$21,322** | [Free Cash Flow Reconciliation](index=10&type=section&id=Free%20Cash%20Flow%20Reconciliation) This section reconciles net cash flows provided by operating activities to free cash flow, demonstrating the company's liquidity after accounting for capital expenditures Free Cash Flow Reconciliation (Thousands USD) | Metric | March 31, 2024 | March 31, 2023 | December 31, 2023 | | :------------------------------------------ | :------------- | :------------- | :---------------- | | Net cash flows provided by operating activities | $16,875 | $16,849 | $23,583 | | Cash used for capital expenditures, net of proceeds from disposal of assets | $(3,348) | $(18,826) | $(7,173) | | **Free cash flow** | **$13,527** | **$(1,977)** | **$16,410** | [Adjusted Pro Forma Net Income and EPS Reconciliation](index=10&type=section&id=Adjusted%20Pro%20Forma%20Net%20Income%20and%20EPS%20Reconciliation) This section provides the reconciliation of net income attributable to Solaris to adjusted pro forma net income and the calculation of adjusted pro forma earnings per fully diluted share, assuming the full exchange of all outstanding LLC interests Adjusted Pro Forma Net Income and EPS Reconciliation (Thousands USD, except per share data) | Metric | March 31, 2024 | March 31, 2023 | December 31, 2023 | | :---------------------------------------------------------- | :------------- | :------------- | :---------------- | | Net income attributable to Solaris | $4,317 | $7,569 | $4,301 | | Reallocation of net income attributable to non-controlling interests | $2,983 | $4,368 | $2,658 | | Loss on disposal of assets | $12 | $(361) | $(4) | | Credit losses | $300 | $0 | $650 | | Other | $268 | $200 | $6 | | Incremental income tax expense | $(626) | $(779) | $(976) | | **Adjusted pro forma net income** | **$7,254** | **$10,997** | **$6,635** | | Weighted average shares of Class A common stock outstanding | 28,587 | 31,214 | 29,024 | | Potentially dilutive shares | 15,543 | 15,224 | 15,252 | | **Adjusted pro forma fully weighted average shares of Class A common stock outstanding - diluted** | **44,130** | **46,438** | **44,276** | | **Adjusted pro forma earnings per share - diluted** | **$0.16** | **$0.24** | **$0.15** | Corporate Information & Disclosures Provides essential corporate details, including company profile, conference call information, forward-looking statements, and investor relations contact [Company Profile](index=3&type=section&id=Company%20Profile) Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) specializes in providing mobile equipment that enhances supply chain and execution efficiencies for oil and natural gas well completions across various U.S. basins - Solaris Oilfield Infrastructure, Inc. provides patented mobile equipment to improve supply chain and execution efficiencies in oil and natural gas well completions[18](index=18&type=chunk) - The company's systems are deployed across oil and natural gas basins in the United States[18](index=18&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) Solaris hosted a conference call on April 26, 2024, to discuss its Q1 2024 results, with details provided for live access and subsequent audio replay via phone and webcast - Solaris hosted a conference call on Friday, April 26, 2024, at 8:00 a.m. Central Time to discuss Q1 2024 results[15](index=15&type=chunk) - Participants could join via dial-in or live webcast through the Investor Relations section of the company's website[15](index=15&type=chunk) - An audio replay of the conference call was made available for approximately seven days via phone and the company's website[16](index=16&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements regarding Solaris' business strategy, future profitability, capital expenditures, and market conditions - The press release contains forward-looking statements concerning business strategy, future profitability, capital expenditures, and market volatility[19](index=19&type=chunk) - These statements are based on current expectations and assumptions but are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict[19](index=19&type=chunk)[20](index=20&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to update or revise them, except as required by law[20](index=20&type=chunk) [Investor Relations Contact](index=11&type=section&id=Investor%20Relations%20Contact) For investor relations inquiries, individuals can contact Yvonne Fletcher, Senior Vice President, Finance and Investor Relations - Contact for Investor Relations is Yvonne Fletcher, Senior Vice President, Finance and Investor Relations[42](index=42&type=chunk)

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) Q4 2023 Earnings Conference Call February 27, 2023 9:00 AM ET Company Participants Yvonne Fletcher - SVP, Finance and IR William Zartler - Founder, Chairman & CEO Kyle Ramachandran - President & CFO Conference Call Participants Stephen Gengaro - Stifel John Daniel - Daniel Energy Partners Operator Good morning, and welcome to the Solaris Q4 2023 Earnings Conference Call. [Operator Instructions] After the today’s presentation, there will be an opportunity to a ...

[Cautionary Statement Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section details forward-looking statements and factors that could cause actual results to differ materially - This Annual Report includes forward-looking statements that are predictive in nature and depend upon or refer to future events or conditions, identified by words like "believe," "expect," "anticipate," "intend," and "estimate"[10](index=10&type=chunk) - Factors that could cause actual results to differ materially from forward-looking statements include the level of domestic capital spending and access to capital markets by the oil and natural gas industry, global economic developments, geopolitical risks (e.g., Russia-Ukraine war, Israel-Hamas conflict), inflationary risks, and significant changes in transportation industries[11](index=11&type=chunk) - Additional factors include technological advancements in well completion, competitive conditions, inability to protect intellectual property, changes in capital availability, increases in tax rates, effects of existing and future laws/regulations, cyber-attacks, future litigation, business acquisitions, natural disasters, and uncertainty regarding future operating results[15](index=15&type=chunk) [PART I](index=6&type=section&id=PART%20I) [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Solaris provides specialized equipment, logistics, and software for U.S. oil and gas well completion, focusing on efficient electric solutions [Our Company](index=6&type=section&id=Our%20Company) - Solaris Oilfield Infrastructure, Inc. is a Houston, Texas based business that designs and manufactures specialized equipment, combined with field technician support, last mile and mobilization logistics services, and software solutions[18](index=18&type=chunk) - The company's service offering helps oil and natural gas operators and their suppliers drive efficiencies that reduce operational footprint and costs during the completion phase of well development in most active U.S. basins[18](index=18&type=chunk) - Solaris specializes in developing **all-electric equipment** that automates the low-pressure section of oil and gas well completion sites, believing it operates more efficiently, is more reliable, safer, and lowers environmental and operating footprints[19](index=19&type=chunk) [Our Properties](index=6&type=section&id=Our%20Properties) - The company owns or leases its corporate headquarters in Houston, Texas, a repair and maintenance facility in Monahans, Texas, and a manufacturing facility in Early, Texas[21](index=21&type=chunk) [Suppliers](index=6&type=section&id=Suppliers) - Solaris has long-term relationships with third-party suppliers for equipment and product transportation and materials for manufacturing and maintenance[22](index=22&type=chunk) - **No single supplier** accounted for more than **10% of total spending** in 2023 or 2022[22](index=22&type=chunk) - The company does not have long-term agreements with third-party trucking suppliers and could experience shortages and price increases in the future[23](index=23&type=chunk) [Our Customers and Contracts](index=6&type=section&id=Our%20Customers%20and%20Contracts) - Primary customers are major E&P and oilfield service companies, with relationships generally governed by master service agreements (MSAs) and specific work performed under individual work orders[24](index=24&type=chunk) Customer Revenue Concentration | Customer | 2023 Revenue Contribution | 2022 Revenue Contribution | | :-------------------------- | :-------------------------- | :-------------------------- | | Liberty Oilfield Services, LLC | Approximately 12% | Approximately 22% | | EOG Resources, Inc. | Approximately 12% | N/A | [Competition](index=8&type=section&id=Competition) - The oil and natural gas services industry is highly competitive, with numerous competitors including logistics companies, equipment manufacturers, hydraulic fracturing service companies, and sand mining companies[25](index=25&type=chunk) - Principal competitive factors include equipment reliability, technical expertise, patent-protected technology, unique/bundled service offerings, equipment capacity, transportation and storage, workforce competency, efficiency, safety record, reputation, experience, and price[26](index=26&type=chunk) - Solaris differentiates itself by delivering **high-quality services and equipment**, coupled with **superior execution and operating efficiency** in a safe working environment[26](index=26&type=chunk) [Seasonality](index=8&type=section&id=Seasonality) - The company's business is not significantly impacted by seasonality, but may be affected by holidays, inclement weather, and clients' budget cycles, potentially leading to declines in operating results[27](index=27&type=chunk) [Human Capital](index=8&type=section&id=Human%20Capital) - Employees are considered the foundation for fostering an innovative culture, safe operations, and delivery of services, with a focus on a collaborative and inclusive work environment[27](index=27&type=chunk) Human Capital Statistics (as of December 31, 2023) | Metric | Value | | :------------------------------------------ | :---- | | Total employees | 338 | | Employees subject to collective bargaining | None | | Racially or ethnically diverse in supervisory/managerial roles | 25% | | Total racially or ethnically diverse workforce | 38% | | Women in supervisory/managerial roles | 22% | | Total female workforce | 14% | - Safety is a core value, with an integrated system of policies, practices, and controls, including regular safety and regulatory compliance training[30](index=30&type=chunk) - Recruiting efforts include dedicated personnel, online job postings, and programs at academic and professional institutions to attract and retain talented individuals[31](index=31&type=chunk) [Environmental and Occupational Health and Safety Regulations](index=10&type=section&id=Environmental%20and%20Occupational%20Health%20and%20Safety%20Regulations) - Business operations are subject to stringent federal, tribal, state, and local laws and regulations governing occupational health and safety, environmental discharges, and environmental protection, enforced by entities like the EPA and OSHA[32](index=32&type=chunk) - Key U.S. legal standards include the Clean Air Act, Clean Water Act, Oil Pollution Act of 1990, CERCLA, RCRA, Safe Drinking Water Act, Occupational Safety and Health Act, Endangered Species Act, and DOT regulations[33](index=33&type=chunk)[34](index=34&type=chunk) - The trend in environmental regulation is towards more restrictions, with initiatives impacting hydraulic fracturing (e.g., federal regulatory authority, state requirements, water access), induced seismicity (e.g., disposal well regulations, potential shutdowns), and ground-level ozone standards (e.g., NAAQS, potential for more stringent rules)[35](index=35&type=chunk)[39](index=39&type=chunk) - Climate change initiatives, including federal (e.g., EPA methane rules, Inflation Reduction Act's methane fee) and international (e.g., Paris Agreement, Global Methane Pledge, COP28) efforts, could increase operating/capital costs for customers and reduce demand for Solaris's services[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - Climate change policies may also impact access to capital for fossil fuel energy companies, with institutional investors and banks shifting towards 'clean' power sources and setting 'net zero' carbon emission commitments[42](index=42&type=chunk) - The SEC has proposed rules requiring climate-related disclosures (Scope 1, 2, and 3 GHG emissions), which could increase operating costs and litigation risks[42](index=42&type=chunk)[44](index=44&type=chunk) - Worker safety regulations, particularly concerning human exposure to crystalline silica in hydraulic fracturing, pose health risks and potential liability for the industry[46](index=46&type=chunk) [Intellectual Property](index=20&type=section&id=Intellectual%20Property) - Solaris continuously innovates its product and service offerings, including software solutions, and protects its technology through patent, copyright, trademark, and trade secret laws[48](index=48&type=chunk) Patent Portfolio (as of December 31, 2023) | Type | Number | | :-------------------------------- | :----- | | Issued U.S. patents | 7 | | Issued Canadian corollary patents | 9 | | Issued Mexican corollary patents | 2 | | Pending U.S. utility patent applications | 4 | | Pending Mexican utility patent applications | 2 | - Issued patents expire between 2032 and 2043, but there is no assurance that pending applications will result in granted patents or that existing patents will not be contested or found unenforceable[49](index=49&type=chunk) [Available Information](index=20&type=section&id=Available%20Information) - Solaris is required to file annual, quarterly, and current reports, proxy statements, and other information with the SEC, which are available on www.sec.gov and the company's website, www.solarisoilfield.com[50](index=50&type=chunk)[51](index=51&type=chunk) [Board of Directors and Executive Officers](index=20&type=section&id=Board%20of%20Directors%20and%20Executive%20Officers) - The Board of Directors as of February 27, 2024, includes William A. Zartler (Chairman and CEO), Laurie H. Argo, James R. Burke, Cynthia M. Durrett, Edgar R. Giesinger, W. Howard Kennan, Jr., F. Gardner Parker, A. James Teague, and Ray N. Walker, Jr[52](index=52&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - Executive officers (excluding directors) as of February 27, 2024, include Kyle S. Ramachandran (President and CFO), Kelly L. Price (COO), Christopher P. Wirtz (Chief Accounting Officer), and Christopher M. Powell (Chief Legal Officer and Corporate Secretary)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.Risk%20Factors) Solaris faces risks from market volatility, competition, operational hazards, customer concentration, regulatory shifts, and financial limitations - The demand for Solaris's products and services is primarily determined by current and anticipated oil and natural gas prices and the related levels of capital spending and drilling activity, making the company vulnerable to price volatility[72](index=72&type=chunk) - The company faces significant competition from various industry players, and consolidation among customers or competitors could impede market share gains or make adoption of new product offerings difficult[73](index=73&type=chunk)[74](index=74&type=chunk) - Continuing inflationary issues and associated changes in monetary policy may increase the cost of goods, services, and personnel, leading to higher capital expenditures and operating costs[75](index=75&type=chunk) - Changes in the transportation industry, including availability, reliability, or costs, could impair customers' ability to take delivery of products or make Solaris's offerings less attractive[76](index=76&type=chunk)[78](index=78&type=chunk) - Operational risks include natural or man-made disasters, extreme weather events, and employee/employer liabilities, which may not be fully covered by insurance and could disrupt business[79](index=79&type=chunk)[80](index=80&type=chunk) - Reliance on a few large customers means the loss of any material customer could adversely affect revenue and operating results, as redeploying equipment at similar utilization or pricing levels may be challenging[81](index=81&type=chunk) - External events such as pandemics, political unrest, armed conflicts (e.g., Ukraine-Russia, Israel-Hamas), and economic recessions could materially disrupt demand for oil and natural gas and Solaris's services[82](index=82&type=chunk)[84](index=84&type=chunk) - Failure to protect proprietary information and intellectual property rights, or successful challenges against them, could result in a loss of competitive advantage or market share[89](index=89&type=chunk) - Technological advancements in well service products, including those that reduce proppant or chemical requirements, could adversely affect business if Solaris cannot adapt or implement new technologies rapidly[90](index=90&type=chunk) - Cybersecurity risks, including information theft, data corruption, and operational disruption, are significant, and existing protective measures may not be sufficient against evolving threats[91](index=91&type=chunk) - The business depends on domestic capital spending by the oil and natural gas industry, and reductions in such spending due to commodity price declines or other factors could materially affect liquidity and financial condition[96](index=96&type=chunk) - Uncertainty in global financial markets or deterioration of customer financial condition could lead to reduced spending, non-payment, or inability to perform obligations[97](index=97&type=chunk)[100](index=100&type=chunk) - The Credit Agreement subjects Solaris to financial and restrictive covenants, and non-compliance could lead to acceleration of outstanding amounts or limited access to funds[101](index=101&type=chunk) - The ability to use net operating loss (NOL) carryovers may be limited by future income or an 'ownership change' under Section 382 of the Internal Revenue Code[102](index=102&type=chunk) - Laws, regulations, and executive orders relating to hydraulic fracturing could increase costs, result in restrictions, delays, or cancellations of oil and natural gas exploration and production activities, thereby reducing demand for Solaris's services[103](index=103&type=chunk) - Increasing attention to environmental, social, and governance (ESG) matters, including climate change, may lead to increased costs, reduced demand for hydrocarbon products, negative investor sentiment, and restricted access to capital markets[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - Solaris Inc. is a holding company dependent on distributions from Solaris LLC to pay taxes and obligations under the Tax Receivable Agreement (TRA), and restrictions on such distributions could adversely affect liquidity[116](index=116&type=chunk) - Payments under the Tax Receivable Agreement could be substantial, potentially accelerated in a change of control, and may significantly exceed actual tax benefits, impacting liquidity and potentially deterring acquisitions[136](index=136&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk) - The requirements of being a public company, including compliance with Exchange Act and Sarbanes-Oxley Act, strain resources, increase costs, and distract management, with potential for future material weaknesses in internal control[144](index=144&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) [Item 1B. Unresolved Staff Comments](index=30&type=section&id=Item%201B.Unresolved%20Staff%20Comments) The company has no unresolved staff comments to report - There are no unresolved staff comments[151](index=151&type=chunk) [Item 1C. Cybersecurity](index=31&type=section&id=Item%201C.Cybersecurity) Solaris implements a NIST-based cybersecurity system with risk assessments, incident response, training, and access controls, overseen by the Audit Committee - Solaris implements policies, standards, and technical controls based on the National Institute of Standards and Technology (NIST) framework to protect networks and applications[153](index=153&type=chunk) - Cybersecurity risk management processes include regular risk assessments, a monitoring and detection system with an incident response plan, bi-annual employee training (including phishing campaigns), least privilege access controls with multi-factor authentication, and encryption for sensitive data[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - Due diligence is conducted on third-party service providers to evaluate their cybersecurity capabilities, and contractual requirements are included to mitigate risks[158](index=158&type=chunk) - Cybersecurity risk management is integrated into the company's overall enterprise risk management activities[159](index=159&type=chunk) - As of the Annual Report date, no previous cybersecurity threats have materially affected the company, but it acknowledges that threats are continually evolving and no security measure can guarantee absolute protection[160](index=160&type=chunk)[162](index=162&type=chunk) - The Audit Committee of the Board of Directors is responsible for overseeing cybersecurity, information security, and information technology risks, with the Chief Administrative Officer (CAO) reporting on emerging incidents[163](index=163&type=chunk)[164](index=164&type=chunk) [Item 2. Properties](index=32&type=section&id=Item%202.%20Properties) The company's principal properties are described in detail under the 'Our Properties' section within Item 1. Business - The principal properties are described in Item 1. 'Business' under the caption '—Our Properties'[165](index=165&type=chunk) [Item 3. Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) Disclosure concerning legal proceedings is incorporated by reference from Note 12. Commitments and Contingencies in the Financial Statements and Supplementary Data section - Disclosure concerning legal proceedings is incorporated by reference to 'Part II. Item 8. "Financial Statements and Supplementary Data—Note 12. Commitments and Contingencies"' in this Annual Report[165](index=165&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[166](index=166&type=chunk) [PART II](index=32&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Solaris Class A common stock trades on NYSE (SOI); the company paid **$0.45 per share** in dividends and repurchased **$26.5 million** in shares in 2023 - Shares of Class A common stock trade on the NYSE under the symbol 'SOI.' As of February 21, 2024, there were approximately **4 holders of record** for Class A common stock and **13 holders of record** for Class B common stock (which has no market)[168](index=168&type=chunk)[169](index=169&type=chunk) Dividend Policy | Year | Quarterly Cash Dividends per Class A Share | | :--- | :----------------------------------------- | | 2023 | $0.45 | | 2022 | $0.42 | | Current Intent | $0.12 (quarterly) / $0.48 (annually) | - Future dividend policy is at the discretion of the board of directors and depends on business conditions, financial condition, capital requirements, investment opportunities, and contractual restrictions[170](index=170&type=chunk) Issuer Purchases of Equity Securities (Year Ended December 31, 2023) | Metric | Value | | :------------------------------------------ | :---------------- | | Total Number of Shares Purchased | 3,316,079 | | Average Price Paid Per Share | $8.40 | | Total Number of Shares Purchased as Part of Publicly Announced Plan | 3,163,778 | | Maximum Dollar Value of Shares That May Yet be Purchased Under the Plan | $23,532,857 | | Excise Tax Accrued (2023) | $265,000 | - The company's board of directors authorized a plan in March 2023 to repurchase up to **$50 million** of Class A common stock[174](index=174&type=chunk) [Item 6. Reserved](index=34&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information - This item is reserved[176](index=176&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Solaris's financial condition, operations, and outlook, highlighting 2023 profit growth and projected 2024 capital expenditure reductions [Overview](index=35&type=section&id=Overview) - Solaris designs and manufactures specialized equipment, combined with field technician support, last mile and mobilization logistics services, and software solutions, to help oil and natural gas operators drive efficiencies and reduce costs during well development in the United States[180](index=180&type=chunk) [Recent Trends and Outlook](index=35&type=section&id=Recent%20Trends%20and%20Outlook) - In 2023, U.S. drilling and completion activity declined **5%** (full year average) and over **20%** (start to end of year) due to a decrease in commodity prices (WTI oil down over **20%**, Henry Hub natural gas down **50-70%**)[182](index=182&type=chunk) - Despite industry decline, Solaris's fully utilized total system count grew from **95 in 2022 to 109 in 2023**, and operating profit grew over **19%** due to new technology-led growth, increased pricing, and new services[183](index=183&type=chunk) - For 2024, revenue and profitability are expected to track closer to U.S. drilling and completion activity, with oil prices in the mid-**$70s** supporting oil-directed activity (**80% of rig count**)[184](index=184&type=chunk) - Capital expenditures are expected to decline to below **$15 million** in 2024 (over **75% decrease** from **$64 million** in 2023), which, combined with a stable market, should generate significantly increased cash flow[185](index=185&type=chunk) [Results of Operations (Year Ended December 31, 2023 Compared to Year Ended December 31, 2022)](index=36&type=section&id=Results%20of%20Operations) Consolidated Statements of Operations (in thousands) | Metric | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :------- | | Revenue | $292,947 | $320,005 | $(27,058) | | Operating costs and expenses: | | | | | Cost of services (excluding depreciation) | 177,847 | 219,775 | (41,928) | | Depreciation and amortization | 36,185 | 30,433 | 5,752 | | Property tax contingency | — | 3,072 | (3,072) | | Selling, general and administrative | 26,951 | 23,074 | 3,877 | | Impairment losses | 1,423 | — | 1,423 | | Other operating expense, net | 639 | 1,847 | (1,208) | | Total operating costs and expenses | 243,045 | 278,201 | (35,156) | | Operating income | 49,902 | 41,804 | 8,098 | | Interest expense, net | (3,307) | (489) | (2,818) | | Income before income tax expense | 46,595 | 41,315 | 5,280 | | Provision for income taxes | (7,820) | (7,803) | (17) | | Net income | 38,775 | 33,512 | 5,263 | | Less: net income related to non-controlling interests | (14,439) | (12,354) | (2,085) | | Net income attributable to Solaris | $24,336 | $21,158 | $3,178 | - Revenue decreased by **$27.1 million (8%)** to **$292.9 million** in 2023, mainly due to a decrease in last mile logistics services activity, partially offset by an increase in fully utilized systems (from **95 to 109**) and increased pricing[189](index=189&type=chunk) - Cost of services (excluding depreciation) decreased by **$41.9 million (19%)** to **$177.8 million** in 2023, primarily due to decreased last mile and mobilization logistics services activity. Cost of services as a percentage of revenue improved from **69% in 2022 to 61% in 2023**[190](index=190&type=chunk) - Selling, general and administrative expenses increased by **$3.9 million (17%)** to **$27.0 million** in 2023, primarily due to increases in headcount and professional fees[194](index=194&type=chunk) - An impairment loss of **$1.4 million** was recorded in 2023 on certain fixed assets classified as held for sale, as their carrying value exceeded fair value less estimated costs to sell[195](index=195&type=chunk) - Interest expense, net, increased by **$2.8 million (560%)** to **$3.3 million** in 2023, driven by an increase in average borrowings outstanding and effective interest rates on the senior secured credit facility[197](index=197&type=chunk) [Comparison of Non-GAAP Financial Measures (Year Ended December 31, 2023 Compared to Year Ended December 31, 2022)](index=37&type=section&id=Comparison%20of%20Non-GAAP%20Financial%20Measures) - EBITDA and Adjusted EBITDA are used as important indicators of performance to assess operating results on a consistent basis by removing effects of interest expense, depreciation, amortization, and other non-recurring items[200](index=200&type=chunk) Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Metric | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :------- | | Net income | $38,775 | $33,512 | $5,263 | | Depreciation and amortization | 36,185 | 30,433 | 5,752 | | Interest expense, net | 3,307 | 489 | 2,818 | | Income taxes | 7,820 | 7,803 | 17 | | **EBITDA** | **$86,087** | **$72,237** | **$13,850** | | Property tax contingency | — | 3,072 | (3,072) | | Stock-based compensation expense | 7,732 | 6,092 | 1,640 | | Loss on disposal of assets | 386 | 3,754 | (3,368) | | Impairment on fixed assets | 1,423 | — | 1,423 | | Change in payables related to Tax Receivable Agreement | — | (663) | 663 | | Credit losses | 810 | (420) | 1,230 | | Other | 255 | (290) | 545 | | **Adjusted EBITDA** | **$96,693** | **$83,782** | **$12,911** | - EBITDA increased by **$13.9 million** to **$86.1 million** in 2023, and Adjusted EBITDA increased by **$12.9 million** to **$96.7 million**, primarily due to the changes in revenues and expenses discussed[207](index=207&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash flows from operations, borrowings under credit agreements, and proceeds from equity offerings, used for ongoing operations, capital expenditures, share repurchases, and dividends[209](index=209&type=chunk) - As of December 31, 2023, cash and cash equivalents totaled **$5.8 million**, with **$30.0 million** in borrowings outstanding under the Credit Agreement and **$41.3 million** of available borrowing capacity, which is believed to be sufficient for operations for the next 12 months and beyond[210](index=210&type=chunk) Summary of Cash Flows (in thousands) | Metric | 2023 | 2022 | Change (2023 vs. 2022) | | :-------------------------------- | :----- | :----- | :--------------------- | | Net cash provided by operating activities | $89,924 | $67,996 | $21,928 | | Net cash used in investing activities | (62,003) | (79,539) | 17,536 | | Net cash used in financing activities | (30,923) | (16,119) | (14,804) | | Net change in cash | (3,002) | (27,662) | 24,660 | - Net cash provided by operating activities increased by **$21.9 million** to **$89.9 million** in 2023, primarily due to increased profitability from operations[212](index=212&type=chunk) - Net cash used in investing activities decreased by **$17.5 million** to **$62.0 million** in 2023, primarily due to a reduction in capital expenditures as the build-out of new service lines was largely completed[213](index=213&type=chunk) - Net cash used in financing activities increased to **$30.9 million** in 2023, driven by **$26.4 million** in share repurchases and **$20.7 million** in dividends, partially offset by **$22.0 million** in net borrowings under the Credit Agreement[214](index=214&type=chunk) - Material cash commitments include obligations under the Credit Agreement, Tax Receivable Agreement, finance and operating leases, and purchase obligations[215](index=215&type=chunk) - Expected 2024 payments include approximately **$0.2 million** in commitment fees and **$2.5 million** in interest on the Credit Agreement, and approximately **$3.5 million** in purchase obligations[216](index=216&type=chunk)[218](index=218&type=chunk) [Critical Accounting Estimates](index=40&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting estimates involve significant judgments and assumptions, particularly for the fair value and recoverability of long-lived assets, definite-lived intangible assets, and goodwill, which are sensitive to management's forecasts of operating performance, useful lives, discount rates, and market conditions[220](index=220&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk) - Income tax estimates, including deferred tax assets and the Tax Receivable Agreement liability, require significant judgment in projecting future taxable income, which is inherently uncertain and can materially impact financial statements[227](index=227&type=chunk)[229](index=229&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A.Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Solaris's market risks are primarily related to potential changes in the fair value of long-lived assets and long-term debt due to interest rate fluctuations. The company is indirectly exposed to commodity price risk through its customers' drilling activity but does not hedge this exposure. It also faces credit risk from customer concentrations, which is mitigated through credit evaluations and monitoring - Market risks primarily relate to potential changes in the fair value of long-lived assets and long-term debt due to fluctuations in applicable market interest rates[235](index=235&type=chunk) - The company is indirectly exposed to commodity price risk through its customers' drilling and completion activity levels, but does not currently intend to hedge this exposure[236](index=236&type=chunk) - Solaris is subject to interest rate risk on its **$30.0 million** outstanding debt under the Credit Agreement (as of December 31, 2023), with a weighted average interest rate of approximately **8.38%**. A **1% change** in this rate would impact interest expense by about **$0.3 million** annually[237](index=237&type=chunk) - Credit risk arises from customer concentrations; as of December 31, 2023, two customers accounted for **12% and 10% of total accounts receivable**. This risk is mitigated through credit evaluations, monitoring payment patterns, and pursuing legal remedies[238](index=238&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Solaris's audited consolidated financial statements and notes, with BDO USA, P.C. issuing an unqualified opinion on financial statements and internal controls [Report of Independent Registered Public Accounting Firm](index=44&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - BDO USA, P.C. issued an unqualified opinion on the consolidated financial statements as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, stating they present fairly the financial position, results of operations, and cash flows in conformity with GAAP[242](index=242&type=chunk) - The firm also expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023, based on COSO criteria[243](index=243&type=chunk)[256](index=256&type=chunk) - Critical audit matters included the estimation of future taxable income, which requires significant judgment for deferred tax asset recoverability, and the remediation of a prior year material weakness impacting last mile service revenue, which required significant audit effort[248](index=248&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) [Consolidated Balance Sheets as of December 31, 2023 and 2022](index=48&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | **Assets:** | | | | Cash and cash equivalents | $5,833 | $8,835 | | Accounts receivable, net | 44,916 | 64,543 | | Accounts receivable - related party | 2,378 | 4,925 | | Prepaid expenses and other current assets | 4,342 | 5,151 | | Inventories | 6,672 | 5,289 | | Assets held for sale | 3,000 | — | | Total current assets | 67,141 | 88,743 | | Property, plant and equipment, net | 325,121 | 298,160 | | Operating lease right-of-use assets | 10,721 | 4,033 | | Goodwill | 13,004 | 13,004 | | Intangible assets, net | 702 | 1,429 | | Deferred tax assets, net | 48,010 | 55,370 | | Total assets | **$468,297** | **$462,576** | | **Liabilities:** | | | | Accounts payable | $12,654 | $25,934 | | Accrued liabilities | 20,292 | 25,252 | | Current portion of payables related to Tax Receivable Agreement | — | 1,092 | | Current portion of operating lease liabilities | 1,385 | 917 | | Current portion of finance lease liabilities | 2,462 | 1,924 | | Total current liabilities | 37,201 | 55,909 | | Operating lease liabilities, net of current | 11,541 | 6,212 | | Credit agreement | 30,000 | 8,000 | | Finance lease liabilities, net of current | 2,401 | 3,429 | | Payables related to Tax Receivable Agreement | 71,530 | 71,530 | | Total liabilities | **$152,717** | **$145,447** | | **Stockholders' Equity:** | | | | Total stockholders' equity attributable to Solaris Oilfield Infrastructure, Inc. | 205,983 | 215,715 | | Non-controlling interest | 109,597 | 101,414 | | Total stockholders' equity | **$315,580** | **$317,129** | - Total assets increased slightly to **$468.3 million** in 2023 from **$462.6 million** in 2022, driven by an increase in property, plant and equipment, net, partially offset by a decrease in current assets[264](index=264&type=chunk) - Total liabilities increased to **$152.7 million** in 2023 from **$145.4 million** in 2022, primarily due to an increase in credit agreement borrowings[264](index=264&type=chunk) [Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021](index=49&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (in thousands, except share and per share amount) | Metric | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Total revenue | $292,947 | $320,005 | $159,189 | | Operating costs and expenses | 243,045 | 278,201 | 159,576 | | Operating income (loss) | 49,902 | 41,804 | (387) | | Interest expense, net | (3,307) | (489) | (247) | | Income (loss) before income tax expense | 46,595 | 41,315 | (634) | | Provision for income taxes | (7,820) | (7,803) | (626) | | Net income (loss) | 38,775 | 33,512 | (1,260) | | Less: net (income) loss related to non-controlling interests | (14,439) | (12,354) | 392 | | Net income (loss) attributable to Solaris Oilfield Infrastructure, Inc. | $24,336 | $21,158 | $(868) | | Earnings (loss) per share of Class A common stock - basic | $0.78 | $0.64 | $(0.04) | | Earnings (loss) per share of Class A common stock - diluted | $0.78 | $0.64 | $(0.04) | - Total revenue decreased by **8%** to **$292.9 million** in 2023 from **$320.0 million** in 2022[265](index=265&type=chunk) - Operating income increased by **19%** to **$49.9 million** in 2023 from **$41.8 million** in 2022[265](index=265&type=chunk) - Net income attributable to Solaris Oilfield Infrastructure, Inc. increased by **15%** to **$24.3 million** in 2023 from **$21.2 million** in 2022[265](index=265&type=chunk) - Basic and diluted earnings per share of Class A common stock increased to **$0.78** in 2023 from **$0.64** in 2022[265](index=265&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2023, 2022 and 2021](index=50&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) - Total stockholders' equity decreased slightly to **$315.6 million** as of December 31, 2023, from **$317.1 million** in 2022, primarily due to share repurchases and dividends, partially offset by net income[267](index=267&type=chunk) - In 2023, the company repurchased and retired **3,164 thousand Class A common shares** for **$26.4 million**[267](index=267&type=chunk) - Dividends paid to Class A common stockholders totaled **$14.1 million** in 2023[267](index=267&type=chunk) [Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021](index=51&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Net cash provided by operating activities | $89,924 | $67,996 | $16,473 | | Net cash used in investing activities | (62,003) | (79,539) | (19,524) | | Net cash used in financing activities | (30,923) | (16,119) | (20,818) | | Net decrease in cash and cash equivalents | (3,002) | (27,662) | (23,869) | | Cash and cash equivalents at end of period | $5,833 | $8,835 | $36,497 | - Net cash provided by operating activities increased by **$21.9 million** to **$89.9 million** in 2023, primarily due to increased profitability[212](index=212&type=chunk)[269](index=269&type=chunk) - Net cash used in investing activities decreased by **$17.5 million** to **$62.0 million** in 2023, mainly due to a reduction in capital expenditures[213](index=213&type=chunk)[269](index=269&type=chunk) - Net cash used in financing activities increased to **$30.9 million** in 2023, driven by **$26.4 million** in share repurchases and **$20.7 million** in dividends, partially offset by **$22.0 million** in net borrowings under the Credit Agreement[214](index=214&type=chunk)[269](index=269&type=chunk) [Notes to the Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [1. Organization and Background of Business](index=52&type=section&id=1.%20Organization%20and%20Background%20of%20Business) - Solaris Oilfield Infrastructure, Inc. designs and manufactures specialized equipment, combined with field technician support, last mile and mobilization logistics services, and software solutions, to help oil and natural gas operators and their suppliers drive efficiencies and reduce costs during well development in the United States[271](index=271&type=chunk) [2. Summary of Significant Accounting Policies](index=52&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - Solaris Inc. consolidates the financial results of Solaris LLC and its subsidiaries, reporting non-controlling interest for the portion of units not owned by Solaris Inc[272](index=272&type=chunk) - Significant estimates are made for stock-based compensation, useful lives and salvage values of long-lived assets, goodwill and long-lived asset impairment evaluations, net realizable value of inventory, income taxes, Tax Receivable Agreement liability, collectability of accounts receivable, and present value of lease payments[275](index=275&type=chunk) - Inventories are stated at the lower of weighted average cost or net realizable value; no impairments were recorded for the years ended December 31, 2023 and 2022[279](index=279&type=chunk) - Property, plant and equipment are stated at cost less accumulated depreciation, computed using the straight-line method over estimated useful lives (up to **15 years** for systems and related equipment)[280](index=280&type=chunk) Net Book Value of Identifiable Intangible Assets (in thousands) | Asset Type | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Customer relationships | $616 | $1,287 | | Software acquired in the acquisition of Railtronix | 45 | 95 | | Patents and other | 41 | 47 | | Total identifiable intangibles | **$702** | **$1,429** | - Goodwill of **$13.0 million** (as of December 31, 2023 and 2022) relates to the purchase of the silo manufacturing business from Loadcraft Industries Ltd.; no goodwill impairments were recognized in 2021-2023[292](index=292&type=chunk)[294](index=294&type=chunk) - A **$1.4 million** impairment was recorded in 2023 for certain fixed assets classified as held for sale, as their carrying value exceeded fair value less estimated costs to sell; no impairments were recorded in 2021-2022[297](index=297&type=chunk)[298](index=298&type=chunk) - Revenue is recognized in accordance with ASC Topic 606, based on the transfer of control of services and products, with transaction prices allocated to performance obligations[300](index=300&type=chunk) Disaggregation of Revenue by Activity (in thousands) | Activity | 2023 | 2022 | 2021 | | :---------------- | :----- | :----- | :----- | | Wellsite services | $292,302 | $318,977 | $158,052 | | Other | 645 | 1,028 | 1,137 | | Total revenue | **$292,947** | **$320,005** | **$159,189** | - Solaris Inc. is subject to U.S. federal, state, and local income taxes, while Solaris LLC is treated as a partnership for federal income tax purposes. Deferred tax assets and liabilities are determined based on temporary differences[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk) - The Tax Receivable Agreement (TRA) commits Solaris Inc. to pay TRA Holders **85%** of net cash savings from certain tax basis increases and imputed interest; the liability was **$71.5 million** as of December 31, 2023[325](index=325&type=chunk)[327](index=327&type=chunk) [3. Allowance for Credit Losses](index=60&type=section&id=3.%20Allowance%20for%20Credit%20Losses) Allowance for Credit Losses on Customer Receivables (in thousands) | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Balance, January 1 | $385 | $746 | | Credit losses | 2,221 | 330 | | Adjustments | (1,411) | (691) | | Less write-offs | (229) | — | | Balance, December 31 | **$966** | **$385** | - The allowance for credit losses increased to **$966 thousand** as of December 31, 2023, from **$385 thousand** in 2022, reflecting increased credit losses and adjustments, partially offset by write-offs[333](index=333&type=chunk) [4. Prepaid Expenses and Other Current Assets](index=60&type=section&id=4.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid Expenses and Other Current Assets (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Prepaid purchase orders | $— | $25 | | Prepaid insurance | 1,166 | 964 | | Deposits | 123 | 122 | | Employee retention credit | 958 | 1,900 | | Other assets | 2,095 | 2,140 | | Prepaid expenses and other current assets | **$4,342** | **$5,151** | - Prepaid expenses and other current assets decreased to **$4.3 million** as of December 31, 2023, from **$5.2 million** in 2022, primarily due to a reduction in the employee retention credit[334](index=334&type=chunk) [5. Property, Plant and Equipment](index=61&type=section&id=5.%20Property%2C%20Plant%20and%20Equipment) Property, Plant and Equipment, Net (in thousands) | Asset Type | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Systems and related equipment | $434,386 | $369,352 | | Systems in process | 21,130 | 30,110 | | Vehicles | 13,527 | 13,211 | | Machinery and equipment | 5,762 | 5,414 | | Buildings | 4,877 | 4,595 | | Computer hardware and software | 3,866 | 1,670 | | Land | 612 | 612 | | Furniture and fixtures | 1,342 | 357 | | Property, plant and equipment, gross | 485,502 | 425,321 | | Less: accumulated depreciation | (160,381) | (127,161) | | Property, plant and equipment, net | **$325,121** | **$298,160** | - Net property, plant and equipment increased to **$325.1 million** as of December 31, 2023, from **$298.2 million** in 2022, primarily due to additions to systems and related equipment[335](index=335&type=chunk) - Depreciation expense for the year ended December 31, 2023, was **$35.5 million**, up from **$29.7 million** in 2022[335](index=335&type=chunk) [6. Accrued Liabilities](index=61&type=section&id=6.%20Accrued%20Liabilities) Accrued Liabilities (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Property, plant and equipment | $761 | $— | | Employee related expenses | 7,580 | 6,913 | | Selling, general and administrative | 1,337 | 876 | | Cost of revenue | 3,421 | 11,598 | | Excise, franchise and sales taxes | 1,525 | 1,317 | | Ad valorem taxes (includes property tax contingency) | 5,626 | 4,448 | | Interest payable | 42 | 71 | | Other | — | 29 | | Accrued liabilities | **$20,292** | **$25,252** | - Accrued liabilities decreased to **$20.3 million** as of December 31, 2023, from **$25.3 million** in 2022, primarily due to a significant reduction in cost of revenue accruals[336](index=336&type=chunk) [7. Leases](index=61&type=section&id=7.%20Leases) - The company leases offices and storage under operating leases and property, vehicles, and computer equipment under finance leases[337](index=337&type=chunk)[338](index=338&type=chunk) Components of Lease Expense (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------- | :----- | :----- | :----- | | Operating lease cost | $2,471 | $1,254 | $1,187 | | Finance lease cost (Amortization of ROU assets) | 2,452 | 775 | 26 | | Finance lease cost (Interest on lease liabilities) | 327 | 115 | 4 | | Sublease income | (50) | — | — | | Total lease cost | **$5,200** | **$2,144** | **$1,217** | - Total lease cost increased to **$5.2 million** in 2023 from **$2.1 million** in 2022, driven by higher operating and finance lease costs[339](index=339&type=chunk) Future Minimum Lease Payments (as of December 31, 2023, in thousands) | Year Ending December 31, | Operating Leases | Finance Leases | | :----------------------- | :--------------- | :------------- | | 2024 | $2,267 | $2,673 | | 2025 | 2,096 | 1,998 | | 2026 | 1,949 | 498 | | 2027 | 1,848 | — | | 2028 | 1,663 | — | | Thereafter | 9,514 | — | | Total future minimum lease payments | **$19,337** | **$5,169** | - The weighted average remaining lease term for operating leases was **10.8 years** and for finance leases was **2.5 years** as of December 31, 2023[341](index=341&type=chunk) [8. Senior Secured Credit Facility](index=62&type=section&id=8.%20Senior%20Secured%20Credit%20Facility) - Solaris LLC executed Amendment No. 2 to the Credit Agreement in April 2023, increasing available borrowings from **$50 million to $75 million**, with a maximum total capacity of **$100 million**[342](index=342&type=chunk) - As of December 31, 2023, **$30.0 million** in borrowings were outstanding, with an additional **$41.3 million** of available borrowing capacity. The Credit Agreement matures on **April 26, 2025**[343](index=343&type=chunk)[342](index=342&type=chunk) - Borrowings bear interest at either SOFR or an alternate base rate plus an applicable margin, with a weighted average interest rate of approximately **8.38%** on outstanding borrowings as of December 31, 2023[345](index=345&type=chunk) - The Credit Agreement includes financial covenants requiring maintenance of specific ratios (consolidated EBITDA to interest expense, senior indebtedness to consolidated EBITDA, and eligible assets to total revolving exposure), with which the company was in compliance as of December 31, 2023[346](index=346&type=chunk)[349](index=349&type=chunk) [9. Equity](index=64&type=section&id=9.%20Equity) - Solaris LLC paid distributions totaling **$20.7 million** to all unitholders in 2023, and Solaris Inc. paid **$14.1 million** in quarterly cash dividends to Class A common stockholders[350](index=350&type=chunk) - Under a share repurchase plan authorized in March 2023 for up to **$50 million**, Solaris Inc. purchased and retired **3,163,778 Class A common shares** for **$26.5 million** in 2023, with **$23.5 million** remaining available[351](index=351&type=chunk) - The company accrued **$265 thousand** for the **1% U.S. federal excise tax** on stock repurchases in 2023[352](index=352&type=chunk) - The Long Term Incentive Plan (LTIP) authorized **9,818,080 Class A common shares** for equity-based awards, with **5,328,470 shares** remaining available as of December 31, 2023[354](index=354&type=chunk) - As of December 31, 2023, **6,605 stock options** remained outstanding (all vested, exercise price **$2.87**), and **1,481,111 unvested restricted stock awards** had **$8.7 million** in unrecognized compensation cost[356](index=356&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) - **172,212 performance-based restricted stock units (PSUs)** were outstanding as of December 31, 2023, with **$1.3 million** in unrecognized compensation cost, based on relative and absolute total shareholder return criteria[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) Earnings (Loss) Per Share (in thousands, except per share amount) | Metric | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Net income (loss) attributable to Solaris Oilfield Infrastructure Inc. | $24,336 | $21,158 | $(868) | | Net income (loss) attributable to common stockholders | $23,167 | $20,311 | $(1,233) | | Basic EPS | $0.78 | $0.64 | $(0.04) | | Diluted EPS | $0.78 | $0.64 | $(0.04) | Weighted-Average Potentially Dilutive Shares Excluded (in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | :----- | | Class B common stock | 13,672 | 13,717 | 14,035 | | Restricted stock awards | 1,478 | 583 | 282 | | Performance-based restricted stock awards | 118 | — | — | | Stock options | 7 | 7 | 8 | | Total | **15,275** | **14,307** | **14,325** | [10. Income Taxes](index=67&type=section&id=10.%20Income%20Taxes) Income Tax Expense (in thousands) | Component | 2023 | 2022 | 2021 | | :---------------- | :----- | :----- | :----- | | Current Federal | $— | $— | $— | | Current State | 569 | 120 | 494 | | Deferred Federal | 6,424 | 6,167 | (20) | | Deferred State | 827 | 1,516 | 152 | | Total | **$7,820** | **$7,803** | **$626** | - Solaris Inc. recognized a combined U.S. federal and state income tax expense of **$7.8 million** in both 2023 and 2022[368](index=368&type=chunk) Net Deferred Tax Asset (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total deferred tax assets | $51,625 | $55,370 | | Total deferred tax liabilities | (3,615) | — | | Net deferred tax asset | **$48,010** | **$55,370** | - As of December 31, 2023, the company had approximately **$226.0 million** of federal net operating loss (NOL) carryovers (**$170.0 million** with no expiration date) and **$49.4 million** of state NOL carryovers (expiring between **2037 and 2042**)[369](index=369&type=chunk) - The company's uncertain tax benefits totaled **$802 thousand** as of December 31, 2023, reported as a component of the net deferred tax asset[375](index=375&type=chunk) - The liability under the Tax Receivable Agreement was **$71.5 million** as of December 31, 2023, representing **85%** of anticipated net cash savings in income tax[376](index=376&type=chunk) [11. Concentrations](index=70&type=section&id=11.%20Concentrations) - For the year ended December 31, 2023, two customers each accounted for **12%** of the company's revenue[378](index=378&type=chunk) - As of December 31, 2023, two customers accounted for **12% and 10%** of the company's total accounts receivable[378](index=378&type=chunk) - **No single supplier** accounted for more than **10% of total purchases** for the years ended December 31, 2023, 2022, and 2021[379](index=379&type=chunk) - As of December 31, 2023, two suppliers accounted for **17% and 12%** of the company's accounts payable[379](index=379&type=chunk) [12. Commitments and Contingencies](index=71&type=section&id=12.%20Commitments%20and%20Contingencies) - A property tax contingency of **$3.1 million** was recognized in accrued liabilities as of December 31, 2023, related to an unfavorable Texas District Court ruling, with an appeal ruling anticipated in the first half of 2024[380](index=380&type=chunk) - The company has purchase obligations of approximately **$3.5 million** payable within the next twelve months as of December 31, 2023[382](index=382&type=chunk) - A guarantee of lease agreement with Solaris Energy Management, LLC (a related party) for office space totals **$2.8 million** as of December 31, 2023[383](index=383&type=chunk) [13. Related Party Transactions](index=71&type=section&id=13.%20Related%20Party%20Transactions) - Solaris LLC paid **$1.2 million** in 2023 to Solaris Energy Management, LLC (partially owned by the CEO) for administrative services, including rent, travel, personnel, and consulting costs[384](index=384&type=chunk)[385](index=385&type=chunk) - The company recognized **$23.5 million** in revenue and **$2.1 million** in cost of services in 2023 related to THRC Affiliates, which are affiliated with a significant shareholder (THRC Holdings, LP)[386](index=386&type=chunk) - Payments under the Tax Receivable Agreement involved a **$1.1 million** payment in January 2023, with a concurrent **$0.4 million** cash distribution to other Solaris LLC members[388](index=388&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=73&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure[390](index=390&type=chunk) [Item 9A. Controls and Procedures](index=73&type=section&id=Item%209A.Controls%20and%20Procedures) Management concluded Solaris's disclosure controls were effective as of December 31, 2023, after remediating a material weakness in IT general controls - Management, under the supervision of the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[391](index=391&type=chunk) - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, using COSO criteria, and concluded it was effective[394](index=394&type=chunk) - A previously reported material weakness related to ineffective information technology general controls (ITGCs) for a third-party IT system supporting last mile logistics services was remediated as of December 31, 2023[149](index=149&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk) - Remediation efforts included developing an internal use application to replace the third-party IT system, enhancing risk assessment procedures, and implementing an IT management review and testing plan[396](index=396&type=chunk) [Item 9B. Other Information](index=74&type=section&id=Item%209B.Other%20Information) No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended December 31, 2023 - None of the directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2023[399](index=399&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=74&type=section&id=Item%209C.Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - This item is not applicable[400](index=400&type=chunk) [PART III](index=74&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=74&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Shareholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2024[402](index=402&type=chunk) - The company's Code of Business Conduct and Ethics is available on its website, www.solarisoilfield.com, under the 'Governance Documents' tab within 'Investor Relations'[403](index=403&type=chunk) [Item 11. Executive Compensation](index=75&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Shareholders - Information regarding executive compensation is incorporated by reference from the Proxy Statement for the Annual Meeting[404](index=404&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=75&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Shareholders - Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the Proxy Statement for the Annual Meeting[405](index=405&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=75&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Shareholders - Information regarding certain relationships and related transactions and director independence is incorporated by reference from the Proxy Statement for the Annual Meeting[406](index=406&type=chunk) [Item 14. Principal Accounting Fees and Services](index=75&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Shareholders - The independent registered public accounting firm is BDO USA, P.C., Houston, Texas, Auditor Firm ID: PCAOB ID 243[407](index=407&type=chunk) - Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement for the Annual Meeting[407](index=407&type=chunk) [PART IV](index=76&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=76&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules (all omitted as not applicable or presented elsewhere), and a detailed index of exhibits filed or furnished with the Annual Report on Form 10-K - The consolidated financial statements of Solaris Oilfield Infrastructure, Inc. and subsidiaries and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8[410](index=410&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the required information is presented in the financial statements or the notes thereto[411](index=411&type=chunk) - A detailed index to exhibits required to be filed or furnished pursuant to Item 601 of Regulation S-K is provided[412](index=412&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk)[416](index=416&type=chunk)[419](index=419&type=chunk) [Item 16. Form 10-K Summary](index=78&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - This item is not applicable[418](index=418&type=chunk)

[Executive Summary and Company Highlights](index=1&type=section&id=Executive%20Summary%20and%20Company%20Highlights) Solaris Oilfield Infrastructure highlights strong 2023 performance, positive free cash flow, increased shareholder returns, and key Q4 2023 financial results [CEO Commentary and 2024 Outlook](index=1&type=section&id=CEO%20Commentary%20and%202024%20Outlook) Solaris Oilfield Infrastructure reported a strong 2023 with positive free cash flow, increased dividends, and **15% Adjusted EBITDA growth**. The company anticipates significantly higher free cash flow in 2024, supporting continued shareholder returns and strategic capital allocation - **2023 Performance**: Generated positive free cash flow, raised dividend per share twice, **returned $47 million to shareholders**, and **grew Adjusted EBITDA by 15%** from the prior year[3](index=3&type=chunk) - **2024 Outlook**: Expects to generate significantly higher free cash flow, supporting continued shareholder returns, maintaining a healthy balance sheet, and creating optionality for long-term capital allocation, including organic and inorganic investments[4](index=4&type=chunk) [Shareholder Returns Program](index=1&type=section&id=Shareholder%20Returns) Solaris continued its commitment to shareholder returns, approving a Q4 2023 dividend with a **9% raise** and a Q1 2024 dividend. The company also actively repurchased shares, contributing to a cumulative return of **$172 million** since 2018 - **Q4 2023 Dividend**: **Approved $0.12 per share**, paid December 11, 2023, representing a **9% raise** from Q3 2023 and the third dividend raise since 2018[4](index=4&type=chunk) - **Q1 2024 Dividend**: **Approved $0.12 per share** on February 19, 2024, to be paid March 21, 2024, marking Solaris' 22nd consecutive dividend[5](index=5&type=chunk) - **Share Repurchases**: **Repurchased 85,278 shares for $0.7 million** in Q4 2023, and an **additional 1.1 million shares for approximately $8.1 million** from January 19, 2024, to February 9, 2024. **Approximately $15 million remains** in the current authorization[6](index=6&type=chunk) - **Cumulative Shareholder Returns**: **Returned approximately $172 million to shareholders** through dividends and share repurchases since 2018, with **$47 million returned in 2023**. This reflects a **20% increase in dividend per share** and an **approximately 9% net reduction in total shares outstanding** over the last five years[7](index=7&type=chunk) [Fourth Quarter 2023 Key Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Summary%20Results%20and%20Shareholder%20Return%20Highlights) Solaris reported **Q4 2023 revenue of $63 million**, **net income of $7 million**, and **Adjusted EBITDA of $21 million**. The company **generated $16 million in free cash flow** and **reduced credit facility borrowings by $7 million**, while continuing its shareholder return program Fourth Quarter 2023 Summary Results (in millions) | Metric | Amount | | :-------------------------------- | :------- | | Revenue | $63 million | | Net income | $7 million | | Net income per diluted Class A share | $0.14 | | Adjusted pro forma net income | $7 million | | Adjusted pro forma net income per fully diluted share | $0.15 | | Adjusted EBITDA | $21 million | | Cash flow from operations | $24 million | | Free cash flow | $16 million | | Reduced borrowings outstanding on credit facility | $7 million | | Total returned to shareholders in 2023 | $47 million | | Q4 2023 dividend per share | $0.12 | | Shares repurchased in Q4 2023 | 85,000 | | Value of shares repurchased in Q4 2023 | $0.7 million | | Additional shares repurchased (Jan 19 - Feb 9, 2024) | 1.1 million | | Value of additional shares repurchased | $8 million | [Financial Performance Review](index=2&type=section&id=Financial%20Performance%20Review) Solaris' financial performance review details Q4 and full year 2023 revenue, net income, Adjusted EBITDA, and operational metrics [Fourth Quarter 2023 Financial Review](index=2&type=section&id=Fourth%20Quarter%202023%20Financial%20Review) In Q4 2023, Solaris experienced a sequential and year-over-year decline in revenue and Adjusted EBITDA, primarily due to decreased lower-margin ancillary last mile logistics services and a softening in industry frac crew counts. Net income and adjusted pro forma net income also saw declines compared to prior periods Fourth Quarter 2023 Financial Metrics (in millions, except EPS) | Metric (in millions, except EPS) | Q4 2023 | Q3 2023 | Q4 2022 | | :------------------------------- | :------ | :------ | :------ | | Net income | $7 | $8 | $8 | | Net income per diluted Class A share | $0.14 | $0.16 | $0.15 | | Adjusted pro forma net income | $7 | $9 | $10 | | Adjusted pro forma net income per fully diluted share | $0.15 | $0.19 | $0.22 | | Revenue | $63 | $69 | $84 | | Adjusted EBITDA | $21 | $23 | $23 | - **Revenue decreased 9% QoQ and 25% YoY**, driven by decreases in lower-margin ancillary last mile logistics services activity and fewer frac crews followed[13](index=13&type=chunk) - **Adjusted EBITDA decreased 9% QoQ and 7% YoY**, impacted by the decline in Solaris system deployments related to fewer frac crews, as the average industry frac crew count softened[13](index=13&type=chunk) - Operational Metrics (Q4 2023): **Earned revenue on 103 fully utilized systems** (**down 5% QoQ, 6% YoY**); **followed an average of 64 industry frac crews** (**down 4% QoQ**)[14](index=14&type=chunk) [Full Year 2023 Financial Review](index=2&type=section&id=Full%20Year%202023%20Financial%20Review) For the full year 2023, Solaris reported increased net income and Adjusted EBITDA, despite an **8% decrease in revenue**. The growth in Adjusted EBITDA was primarily driven by higher system deployments, offsetting a decline in lower-margin logistics services Full Year 2023 Financial Metrics (in millions, except EPS) | Metric (in millions, except EPS) | FY 2023 | FY 2022 | | :------------------------------- | :------ | :------ | | Net income | $39 | $34 | | Net income per diluted Class A share | $0.78 | $0.64 | | Adjusted pro forma net income | $37 | $36 | | Adjusted pro forma net income per fully diluted share | $0.83 | $0.76 | | Revenue | $293 | $320 | | Adjusted EBITDA | $97 | $84 | - **Revenue decreased 8% YoY**, driven by a decrease in lower-margin ancillary last mile logistics services activity, partially offset by an increase in Solaris system deployments[17](index=17&type=chunk) - **Adjusted EBITDA increased 15% YoY**, primarily driven by higher system deployments[17](index=17&type=chunk) [Liquidity and Capital Management](index=2&type=section&id=Liquidity%20and%20Capital%20Management) Solaris' liquidity and capital management details free cash flow, capital expenditure plans, and balance sheet health [Free Cash Flow and Capital Expenditures](index=2&type=section&id=Free%20Cash%20Flow%2C%20Capital%20Expenditures%20and%20Liquidity) Solaris generated **positive free cash flow of $16 million** in Q4 2023, with capital expenditures significantly reduced. The company projects a substantial **75% year-over-year reduction** in capital expenditures for full year 2024 - Free Cash Flow (Q4 2023): **Positive $16 million**, including a working capital source of **$4 million** and capital expenditures of **$7 million**[9](index=9&type=chunk) - Capital Expenditures (Q4 2023): **Approximately $7 million**, **down over 50%** from Q3 2023, primarily related to manufacturing of top fill systems[10](index=10&type=chunk) - Capital Expenditures (FY 2023): **$64 million**[10](index=10&type=chunk) - Capital Expenditures (FY 2024 Outlook): Expected to be **less than $15 million**, an **approximately 75% year-over-year reduction**[10](index=10&type=chunk) [Balance Sheet and Liquidity](index=2&type=section&id=Balance%20Sheet%20and%20Liquidity) As of December 31, 2023, Solaris maintained a healthy liquidity position, reducing net borrowings on its credit facility and decreasing net debt compared to the previous quarter Balance Sheet and Liquidity (in millions) | Metric | Amount (as of Dec 31, 2023) | | :-------------------------------- | :-------------------------- | | Cash on balance sheet | $6 million | | Borrowings outstanding on credit facility | $30 million | | Liquidity | $47 million | | Net Debt | $24 million | - **Reduced net borrowings on the credit facility by $7 million** in Q4 2023[11](index=11&type=chunk) - **Net debt declined to $24 million** at the end of Q4 2023, compared to **$34 million** at the end of Q3 2023[11](index=11&type=chunk) [Company Information](index=3&type=section&id=Company%20Information) This section provides an overview of Solaris Oilfield Infrastructure's business and important forward-looking statements [About Solaris Oilfield Infrastructure, Inc.](index=3&type=section&id=About%20Solaris%20Oilfield%20Infrastructure%2C%20Inc.) Solaris Oilfield Infrastructure, Inc. specializes in providing mobile equipment designed to enhance supply chain and execution efficiencies for oil and natural gas well completion across various basins in the United States - Provides mobile equipment that drives supply chain and execution efficiencies in the completion of oil and natural gas wells[21](index=21&type=chunk) - Solaris' patented systems are deployed across oil and natural gas basins in the United States[21](index=21&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward%20Looking%20Statements) This section contains standard forward-looking statements, which are based on current expectations and assumptions but are subject to inherent uncertainties, risks, and changes in circumstances. Readers are cautioned that actual results may differ materially, and the company undertakes no obligation to update these statements - Forward-looking statements are based on current expectations and assumptions, but are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict[22](index=22&type=chunk) - Actual results may differ materially from those contemplated by the forward-looking statements due to various factors, including those discussed in the company's Form 10-K[22](index=22&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to publicly update or revise them, except as required by law[22](index=22&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) This section presents Solaris' unaudited consolidated statements of operations, balance sheets, and cash flows for relevant periods [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The unaudited consolidated statements of operations show **total revenue for Q4 2023 at $63.3 million** and **for FY 2023 at $292.9 million**. **Net income attributable to Solaris for Q4 2023 was $4.3 million**, and **for FY 2023 was $24.3 million** Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | :------ | | Total revenue | $63,347 | $84,054 | $69,676 | $292,947 | $320,005 | | Operating income | $9,241 | $10,082 | $10,000 | $49,902 | $41,804 | | Net income | $6,959 | $7,988 | $7,638 | $38,775 | $33,512 | | Net income attributable to Solaris Oilfield Infrastructure, Inc. | $4,301 | $4,796 | $4,934 | $24,336 | $21,158 | | Earnings per share of Class A common stock - diluted | $0.14 | $0.15 | $0.16 | $0.78 | $0.64 | [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) The unaudited consolidated balance sheets as of December 31, 2023, show **total assets of $468.3 million**, a slight increase from **$462.6 million** in 2022. **Total liabilities increased to $152.7 million**, while total stockholders' equity saw a minor decrease Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $5,833 | $8,835 | | Total current assets | $67,141 | $88,743 | | Property, plant and equipment, net | $325,121 | $298,160 | | Total assets | $468,297 | $462,576 | | Total current liabilities | $37,201 | $55,909 | | Borrowings under the credit agreement | $30,000 | $8,000 | | Total liabilities | $152,717 | $145,447 | | Total stockholders' equity | $315,580 | $317,129 | [Consolidated Statements of Cash Flows](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The unaudited consolidated statements of cash flows indicate **strong operating cash flow for FY 2023 at $89.9 million**, **up from $68.0 million** in FY 2022. Investing activities resulted in a **net outflow of $62.0 million** for FY 2023, while **financing activities used $30.9 million** Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | FY 2023 | FY 2022 | Q4 2023 | | :------------------------------------------ | :------ | :------ | :------ | | Net cash provided by operating activities | $89,924 | $67,996 | $23,583 | | Net cash used in investing activities | $(62,003) | $(79,539) | $(7,173) | | Net cash used in financing activities | $(30,923) | $(16,119) | $(14,028) | | Net (decrease)/increase in cash and cash equivalents | $(3,002) | $(27,662) | $2,382 | | Cash and cash equivalents at end of period | $5,833 | $8,835 | $5,833 | [Non-GAAP Financial Measures Reconciliation](index=3&type=section&id=RECONCILIATION%20AND%20CALCULATION%20OF%20NON-GAAP%20FINANCIAL%20AND%20OPERATIONAL%20MEASURES) Solaris defines and reconciles its non-GAAP financial measures, including Adjusted EBITDA and Adjusted Pro Forma EPS [About Non-GAAP Measures](index=3&type=section&id=About%20Non-GAAP%20Measures) Solaris utilizes non-GAAP financial measures such as adjusted net income, adjusted diluted EPS, and Adjusted EBITDA to provide investors with useful insights into core operating results and to facilitate performance comparisons across periods, emphasizing that these are supplemental to GAAP measures - Non-GAAP measures (adjusted net income, adjusted diluted earnings per share, and Adjusted EBITDA) are used to provide useful information regarding financial condition and results of operations by reflecting core operating results and facilitating comparisons across periods[20](index=20&type=chunk) - Management believes these measures are good tools for internal use and for the investment community, but they should be considered in addition to, not as a substitute for or superior to, GAAP measures[20](index=20&type=chunk) [EBITDA and Adjusted EBITDA Reconciliation](index=8&type=section&id=EBITDA%20AND%20ADJUSTED%20EBITDA) Solaris defines EBITDA as net income adjusted for depreciation, interest, and income tax, and Adjusted EBITDA further includes stock-based compensation and other non-cash or non-recurring items. These metrics are presented to offer a consistent view of operating performance, with a reconciliation provided from GAAP net income - EBITDA is defined as net income plus depreciation and amortization expense, interest expense, and income tax expense[33](index=33&type=chunk) - Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense and certain non-cash items and extraordinary, unusual, or non-recurring gains, losses, or expenses[33](index=33&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | :------ | | Net income | $6,959 | $7,988 | $7,638 | $38,775 | $33,512 | | EBITDA | $18,759 | $18,739 | $19,179 | $86,087 | $72,237 | | Adjusted EBITDA | $21,322 | $23,044 | $23,428 | $96,693 | $83,782 | [Adjusted Pro Forma Net Income and EPS Reconciliation](index=10&type=section&id=ADJUSTED%20PRO%20FORMA%20NET%20INCOME%20AND%20ADJUSTED%20PRO%20FORMA%20EARNINGS%20PER%20FULLY%20DILUTED%20SHARE) Solaris presents Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Diluted Share to evaluate performance by assuming the full exchange of all outstanding LLC interests and adjusting for non-recurring items. This provides a comparable measure across different organizational and tax structures - Adjusted pro forma net income represents net income attributable to Solaris assuming the full exchange of all outstanding membership interests in Solaris LLC, adjusted for certain non-recurring items[38](index=38&type=chunk) - These measures facilitate comparisons with other companies and period-over-period by eliminating the effect of changes in net income attributable to Solaris due to increases in LLC ownership and excluding non-recurring items[39](index=39&type=chunk) Adjusted Pro Forma Net Income and EPS Reconciliation (in thousands, except EPS) | Metric (in thousands, except EPS) | Q4 2023 | Q4 2022 | Q3 2023 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net income attributable to Solaris | $4,301 | $4,796 | $4,934 | $24,336 | $21,158 | | Adjusted pro forma net income | $6,635 | $10,195 | $8,517 | $37,457 | $35,513 | | Adjusted pro forma earnings per share - diluted | $0.15 | $0.22 | $0.19 | $0.83 | $0.76 |

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38090 SOLARIS OILFIELD INFRASTRUCTURE, INC. (Exact name of registrant as specified in its charter) Delawa ...

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) Q3 2023 Earnings Conference Call October 27, 2023 9:00 AM ET Company Participants Emily Boltryk - Director of Finance and Investor Relations William Zartler - Founder, Chairman and Chief Executive Officer Yvonne Fletcher - Senior Vice President, Finance and Investor Relations Kyle Ramachandran - President and Chief Financial Officer Conference Call Participants Luke Lemoine - Piper Sandler Stephen Gengaro - Stifel John Daniel - Daniel Energy Partners Donald C ...

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) July 28, 2023 9:00 AM ET Company Participants Yvonne Fletcher - SVP, Finance & IR William Zartler - Chairman & CEO Kyle Ramachandran - CFO & President Conference Call Participants Luke Lemoine - Piper Sandler Stephen Gengaro - Stifel Sean Mitchell - Daniel Energy Partners Operator Good morning, and welcome to the Solaris Oilfield Infrastructure Second Quarter 2023 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would like no ...

[Report Information](index=1&type=section&id=Report%20Information) [Company Information](index=1&type=section&id=Company%20Information) This section details Solaris Oilfield Infrastructure, Inc.'s SEC filing, including report type, exchange listing, filer status, and outstanding shares as of July 24, 2023 - Filing Type: Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023[2](index=2&type=chunk) - Registrant: SOLARIS OILFIELD INFRASTRUCTURE, INC[2](index=2&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Value | | :-------------------------------- | :-------------------- | | Trading Symbol(s) | "SOI" | | Exchange on which registered | New York Stock Exchange | | Filer Status | Accelerated filer | | Class A Common Stock Outstanding (July 24, 2023) | 30,477,237 shares | | Class B Common Stock Outstanding (July 24, 2023) | 13,671,971 shares | [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) [Nature and Risks of Forward-Looking Statements](index=4&type=section&id=Nature%20and%20Risks%20of%20Forward-Looking%20Statements) This section warns that forward-looking statements are predictive, involve inherent risks and uncertainties, and advises against undue reliance, listing factors that could cause actual results to differ - Forward-looking statements are predictive, depend on future events or conditions, and include words like 'believe,' 'expect,' 'anticipate,' 'intend,' 'estimate'[9](index=9&type=chunk) - Factors that could cause actual results to differ materially include: domestic capital spending, global economic developments, geopolitical risks (e.g., war in Ukraine), industry consolidation, inflationary risks, rising interest rates, supply chain constraints, customer defaults, technological advancements, competitive conditions, and regulatory changes[10](index=10&type=chunk)[14](index=14&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statement unless required by law[13](index=13&type=chunk) [PART I: FINANCIAL INFORMATION](index=7&type=section&id=PART%20I:%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with notes on accounting policies and transactions [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows financial position as of June 30, 2023, with increased total assets and liabilities, primarily from property, plant, equipment, and credit borrowings, while equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------ | :---------------- | :------- | | Total assets | $484,330 | $462,576 | +$21,754 | | Property, plant and equipment, net | $325,441 | $298,160 | +$27,281 | | Cash and cash equivalents | $9,371 | $8,835 | +$536 | | Total liabilities | $175,874 | $145,447 | +$30,427 | | Borrowings under the credit agreement | $43,000 | $8,000 | +$35,000 | | Total stockholders' equity | $308,456 | $317,129 | -$8,673 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2023, revenue decreased 11%, but operating and net income rose due to lower costs; for six months, all three metrics increased year-over-year Statements of Operations Highlights (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :--- | :--- | :----------- | | Total revenue | $77,202 | $86,711 | -$9,509 (-11%) | | Operating income | $15,779 | $10,322 | +$5,457 (+52.9%) | | Net income attributable to Solaris | $7,532 | $5,453 | +$2,079 (+38.1%) | | Income per share of Class A common stock – basic | $0.24 | $0.16 | +$0.08 (+50%) | Statements of Operations Highlights (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :--- | :--- | :----------- | | Total revenue | $159,924 | $143,626 | +$16,298 (+11.3%) | | Operating income | $30,661 | $17,735 | +$12,926 (+72.9%) | | Net income attributable to Solaris | $15,101 | $8,955 | +$6,146 (+68.6%) | | Income per share of Class A common stock – basic | $0.47 | $0.27 | +$0.20 (+74.1%) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Statements detail changes in stockholders' equity for six months ended June 30, 2023, showing a decrease due to **$14.4 million** in repurchases and **$3.7 million** in dividends Changes in Stockholders' Equity (Six Months Ended June 30, 2023, in thousands) | Activity | Amount | | :-------------------------------- | :------- | | Balance at January 1, 2023 | $317,129 | | Share and unit repurchases and retirements | $(14,427) | | Dividends paid | $(3,656) | | Net income | $11,937 | | Balance at June 30, 2023 | $308,456 | Changes in Stockholders' Equity (Six Months Ended June 30, 2022, in thousands) | Activity | Amount | | :-------------------------------- | :------- | | Balance at January 1, 2022 | $297,876 | | Dividends paid | $(3,441) | | Net income | $5,722 | | Balance at June 30, 2022 | $304,595 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For six months ended June 30, 2023, operating cash flow **increased 103% to $45.5 million**, investing cash used **rose 27% to $39.9 million**, and financing cash used **decreased 58.5% to $5.0 million** Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :------- | | Net cash provided by operating activities | $45,460 | $22,394 | +$23,066 | | Net cash used in investing activities | $(39,896) | $(31,409) | -$8,487 | | Net cash used in financing activities | $(5,028) | $(12,131) | +$7,103 | | Net increase (decrease) in cash | $536 | $(21,146) | +$21,682 | | Cash at end of period | $9,371 | $15,351 | -$5,980 | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business, accounting policies, property, debt, equity, taxes, concentrations, commitments, and related party transactions [Note 1. Organization and Background of Business](index=12&type=section&id=Note%201.%20Organization%20and%20Background%20of%20Business) Solaris Oilfield Infrastructure designs and manufactures specialized equipment, provides field support, logistics, and software to U.S. oil and gas operators, reducing costs during well completion - Business Description: Designs and manufactures specialized equipment, provides field technician support, last mile logistics services, and software solutions for oil and natural gas well completion[27](index=27&type=chunk) - Geographic Focus: Deploys equipment and services across active oil and natural gas basins in the United States[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines key accounting policies, including presentation, estimates, revenue recognition, disaggregation of revenue, and recent accounting standards, notably the TRA amendment replacing LIBOR with SOFR [Basis of Presentation and Consolidation](index=12&type=section&id=Basis%20of%20Presentation%20and%20Consolidation) Solaris Inc. consolidates Solaris LLC's financial results, reporting non-controlling interest, with statements adhering to GAAP and SEC rules, incorporating all necessary recurring adjustments - Solaris Inc. consolidates the financial results of Solaris LLC and its subsidiaries, reporting non-controlling interest for units not owned by Solaris Inc[28](index=28&type=chunk) - Financial statements are prepared in accordance with GAAP and SEC rules, reflecting all normal recurring adjustments[29](index=29&type=chunk) [Use of Estimates](index=12&type=section&id=Use%20of%20Estimates) Consolidated financial statements require management to make significant estimates and assumptions impacting assets, liabilities, revenues, and expenses, where actual results may differ - Significant estimates include stock-based compensation, useful lives and salvage values of long-lived assets, goodwill and long-lived asset impairment evaluations, net realizable value of inventory, income taxes, Tax Receivable Agreement liability, collectability of accounts receivable, and determination of the present value of lease payments and right-of-use assets[33](index=33&type=chunk) [Revenue Recognition](index=12&type=section&id=Revenue%20Recognition) Revenue is recognized under ASC Topic 606 upon transfer of control, reflecting expected consideration; contracts often have multiple performance obligations with prices allocated by stand-alone selling prices - Revenue recognition follows ASC Topic 606, based on the transfer of control of services and products to the customer[34](index=34&type=chunk)[36](index=36&type=chunk) - Contracts typically contain multiple performance obligations (e.g., equipment, last mile logistics, labor services), with transaction prices allocated based on relative stand-alone selling prices[37](index=37&type=chunk) [Disaggregation of Revenue](index=14&type=section&id=Disaggregation%20of%20Revenue) Revenue is disaggregated into 'Wellsite services' and 'Transloading and Other'; Q2 2023 wellsite services revenue decreased, while six-month revenue increased year-over-year Revenue by Activity (in millions) | Activity | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Wellsite services | $77.1 | $86.5 | $159.6 | $143.1 | | Transloading and Other | $0.1 | $0.2 | $0.3 | $0.5 | | **Total revenue** | **$77.2** | **$86.7** | **$159.9** | **$143.6** | [Recently Issued Accounting Standards](index=14&type=section&id=Recently%20Issued%20Accounting%20Standards) The company adopted ASU No. 2020-04, extended by ASU No. 2022-06, for LIBOR transition, and amended the Tax Receivable Agreement on June 27, 2023, to replace LIBOR with SOFR plus a margin - ASU No. 2020-04 (Reference Rate Reform) guidance, extended by ASU No. 2022-06, is effective until December 31, 2024[39](index=39&type=chunk) - The Tax Receivable Agreement was amended on June 27, 2023, to replace LIBOR references with the 12-month term SOFR plus **71.513 basis points**[39](index=39&type=chunk)[72](index=72&type=chunk) [Note 3. Property, Plant and Equipment](index=14&type=section&id=Note%203.%20Property,%20Plant%20and%20Equipment) Net property, plant, and equipment increased from **$298.2 million** to **$325.4 million** as of June 30, 2023, primarily due to increases in systems and related equipment and systems in process Property, Plant and Equipment, Net (in millions) | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------ | :---------------- | :------- | | Systems and related equipment | $402.0 | $369.3 | +$32.7 | | Systems in process | $37.5 | $30.1 | +$7.4 | | Property, plant and equipment, gross | $468.6 | $425.3 | +$43.3 | | Less: accumulated depreciation | $(143.2) | $(127.1) | $(16.1) | | **Property, plant and equipment, net** | **$325.4** | **$298.2** | **+$27.2** | [Note 4. Senior Secured Credit Facility](index=15&type=section&id=Note%204.%20Senior%20Secured%20Credit%20Facility) Solaris LLC amended its Credit Agreement on April 28, 2023, increasing available borrowing to **$75.0 million**; as of June 30, 2023, **$43.0 million** was outstanding with an **8.10%** interest rate, and the company was compliant with all covenants - Credit Agreement Amendment: Increased available borrowings from **$50.0 million** to **$75.0 million**, with a maximum capacity of **$100.0 million**, effective April 28, 2023[42](index=42&type=chunk) Senior Secured Credit Facility Status (as of June 30, 2023, in millions) | Metric | Amount | | :-------------------------------- | :----- | | Borrowings outstanding | $43.0 | | Ability to draw | $32.0 | | Weighted average interest rate | 8.10% | - Covenant Compliance: The company was in compliance with all covenants under the Credit Agreement as of June 30, 2023[48](index=48&type=chunk) [Note 5. Equity](index=17&type=section&id=Note%205.%20Equity) This note details equity activities, including dividend distributions, the **$50.0 million** share repurchase program, and stock-based compensation, resulting in a decrease in outstanding Class A common stock [Dividends](index=17&type=section&id=Dividends) Solaris LLC paid **$4.9 million** in Q2 2023 dividends and **$10.1 million** for the six months ended June 30, 2023, with Solaris Inc. using its portion to pay quarterly cash dividends to Class A common stockholders Dividend Distributions (in millions) | Period | Total Solaris LLC Unitholders | To Solaris Inc. | | :-------------------------------- | :---------------------------- | :-------------- | | Three months ended June 30, 2023 | $4.9 | $3.4 | | Three months ended June 30, 2022 | $4.9 | $3.4 | | Six months ended June 30, 2023 | $10.1 | $7.0 | | Six months ended June 30, 2022 | $9.7 | $6.9 | [Share Repurchase Program](index=17&type=section&id=Share%20Repurchase%20Program) The Board authorized a **$50.0 million** share repurchase plan on March 2, 2023; as of June 30, 2023, **3,078,500 shares** were repurchased for **$25.8 million** (average **$8.38/share**), with **$24.2 million** remaining - Share Repurchase Plan: Authorized on March 2, 2023, for up to **$50.0 million** of Class A common stock[50](index=50&type=chunk) Share Repurchase Program Status (as of June 30, 2023) | Metric | Value | | :-------------------------------- | :-------------------- | | Shares repurchased (Six months) | 3,078,500 shares | | Aggregate cost (Six months) | $25.8 million | | Average price per share | $8.38 | | Amount remaining for future repurchases | $24.2 million | | Accrued stock repurchase excise tax (Six months) | $0.3 million | [Stock-Based Compensation](index=17&type=section&id=Stock-Based%20Compensation) The LTIP was amended in May 2023, reserving an additional **4,700,000 shares**; as of June 30, 2023, **5,521,494 awards** were available, with **$11.7 million** unrecognized expense for restricted stock and **$1.7 million** for PSUs - LTIP Amendment: An additional **4,700,000 shares** of Class A common stock were reserved for issuance under the LTIP as of May 17, 2023[52](index=52&type=chunk) Stock-Based Compensation Status (as of June 30, 2023) | Metric | Value | | :-------------------------------- | :-------------------- | | Total stock awards available for grant | 5,521,494 | | Unvested restricted stock shares | 1,508,797 shares | | Unrecognized compensation expense (restricted stock) | $11.7 million | | Outstanding performance-based restricted stock units (PSUs) | 172,212 units | | Unrecognized compensation cost (PSUs) | $1.7 million | - PSU Performance Criteria: **50%** based on total shareholder return relative to peers, and **50%** based on absolute total shareholder return[57](index=57&type=chunk) [Income Per Share](index=20&type=section&id=Income%20Per%20Share) Basic and diluted income per share for Class A common stock significantly increased for both the three and six months ended June 30, 2023, compared to the prior year, with certain potentially dilutive shares excluded due to their antidilutive effect Income Per Share of Class A Common Stock (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :--- | :--- | :----- | | Basic Income per share | $0.24 | $0.16 | +$0.08 | | Diluted Income per share | $0.24 | $0.16 | +$0.08 | Income Per Share of Class A Common Stock (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :--- | :--- | :----- | | Basic Income per share | $0.47 | $0.27 | +$0.20 | | Diluted Income per share | $0.47 | $0.27 | +$0.20 | - Potentially dilutive shares excluded from diluted EPS calculation due to antidilutive effect: **15,370,598** for Q2 2023 and **15,299,846** for YTD 2023[61](index=61&type=chunk) [Note 6. Income Taxes](index=22&type=section&id=Note%206.%20Income%20Taxes) This note details the company's income tax structure, effective tax rates, deferred tax position, and obligations under the Tax Receivable Agreement, which was amended to replace LIBOR with SOFR [Income Taxes](index=22&type=section&id=Income%20Taxes) Solaris Inc. is subject to federal and state income taxes, while Solaris LLC is a partnership; effective tax rates for Q2 and YTD 2023 were **17.8%** and **17.5%**, respectively, with deferred tax assets deemed realizable Income Tax Expense and Effective Rates (in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Income tax expense | $2.7 | $1.9 | $5.1 | $3.6 | | Effective tax rate | 17.8% | 19.0% | 17.5% | 20.2% | - The effective tax rate differed from the statutory rate primarily due to Solaris LLC's treatment as a partnership for United States federal income tax purposes[63](index=63&type=chunk) - The company believes it will be able to realize its deferred tax assets in the future, which primarily relate to its investment in Solaris LLC and net operating loss carryovers[64](index=64&type=chunk)[65](index=65&type=chunk) [Payables Related to the Tax Receivable Agreement](index=22&type=section&id=Payables%20Related%20to%20the%20Tax%20Receivable%20Agreement) The company made **$1.1 million** in TRA payments in January 2023; as of June 30, 2023, the liability was **$71.5 million**, and the agreement was amended to replace LIBOR with SOFR - Payments Made: **$1.1 million** in January 2023 under the Tax Receivable Agreement[67](index=67&type=chunk) - Liability (June 30, 2023): **$71.5 million**, representing **85%** of anticipated future tax savings from increases in tax basis and imputed interest[68](index=68&type=chunk) - Amendment: The Tax Receivable Agreement was amended on June 27, 2023, to replace LIBOR references with the 12-month term SOFR plus **71.513 basis points**[72](index=72&type=chunk) [Note 7. Concentrations](index=24&type=section&id=Note%207.%20Concentrations) The company faces customer and supplier concentration risks; in Q2 2023, two customers accounted for **15%** and **11%** of revenues, and one supplier for **15%** of purchases - Customer Concentration (Three Months Ended June 30, 2023 Revenue): Two customers accounted for **15%** and **11%** of the Company's revenues[73](index=73&type=chunk) - Customer Concentration (As of June 30, 2023 Accounts Receivable): Three customers accounted for **12%**, **12%**, and **10%** of the Company's accounts receivable[73](index=73&type=chunk) - Supplier Concentration (Three Months Ended June 30, 2023 Purchases): One supplier accounted for **15%** of the Company's total purchases[74](index=74&type=chunk) - Supplier Concentration (As of June 30, 2023 Accounts Payable): One supplier accounted for **14%** of the Company's accounts payable[74](index=74&type=chunk) [Note 8. Commitments and Contingencies](index=24&type=section&id=Note%208.%20Commitments%20and%20Contingencies) This note addresses potential liabilities from tax matters and litigation, including a **$3.1 million** accrued liability for an unfavorable property tax ruling under appeal, with no other material litigation expected [Tax Matters](index=24&type=section&id=Tax%20Matters) The company recognized a **$3.1 million** accrued liability as of June 30, 2023, for an unfavorable property tax ruling in Brown County, Texas, which is currently under appeal with a final ruling expected in H2 2023 - Property Tax Contingency: **$3.1 million** accrued liability as of June 30, 2023, related to an unfavorable ruling in Brown County, Texas, regarding property tax exemptions[75](index=75&type=chunk) - Appeal Status: An appeal was filed with the Eleventh District of Texas – Eastland Court of Appeals, and a final ruling is anticipated in the second half of 2023[75](index=75&type=chunk) [Litigation and Claims](index=26&type=section&id=Litigation%20and%20Claims) Management believes no pending litigation, disputes, or claims are expected to have a material adverse effect on the condensed consolidated financial statements - Management's opinion: No pending litigation, disputes, or claims are expected to have a material adverse effect on the condensed consolidated financial statements[77](index=77&type=chunk) [Note 9. Related Party Transactions](index=26&type=section&id=Note%209.%20Related%20Party%20Transactions) The company engages in transactions with related parties, including administrative services from Solaris Energy Management, LLC and business dealings with THRC Affiliates, involving revenue, cost of services, and contingent payments Related Party Transactions (in millions) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Payments to Solaris Energy Management, LLC (administrative services) | $0.3 | $0.8 | | Revenue from THRC Affiliates | $7.3 | $12.2 | | Cost of services from THRC Affiliates | $0.6 | $1.7 | - THRC Holdings, LP, an entity affiliated with certain customers and suppliers, held **11.1%** ownership of the Company's Class A common stock as of June 30, 2023[81](index=81&type=chunk) - Contingent Payments: Solaris may be required to pay up to **$4.0 million** to THRC Affiliates through 2024, contingent upon meeting minimum Services revenue thresholds[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results, including business overview, industry trends, detailed revenue and expense analysis, non-GAAP reconciliations, and liquidity [Overview](index=27&type=section&id=Overview) Solaris Oilfield Infrastructure provides specialized equipment, field support, logistics, and software to U.S. oil and gas operators, focusing on efficiency and cost reduction during well completion, with revenue from mobile proppant and fluid management systems and logistics services - Core Business: Designs and manufactures specialized equipment, provides field technician support, last mile logistics, and software solutions for oil and natural gas well completion[86](index=86&type=chunk) - Primary Revenue Sources: Mobile proppant and fluid management systems, last mile logistics management services[86](index=86&type=chunk) - New Technologies: Proprietary top fill equipment and AutoBlend™ integrated electric blender contribute to revenue[86](index=86&type=chunk) [Recent Trends and Outlook](index=27&type=section&id=Recent%20Trends%20and%20Outlook) Demand for Solaris's offerings is driven by drilling activity; despite a decline in U.S. Land Rig Count, Solaris's system count and earnings have outpaced trends due to new technology and pricing, with continued outperformance expected Commodity Prices and Rig Count | Metric | Q2 2023 Average | 2022 Average | 2023 YTD Change | | :-------------------------------- | :-------------- | :----------- | :-------------- | | WTI Oil Prices | Over $70/barrel | $94/barrel | Softened | | Henry Hub Natural Gas Prices | $2-$3/MMBtu | Over $6/MMBtu | Down | | Baker Hughes US Land Rig Count | N/A | N/A | Down ~14% | - Company Performance: Fully utilized total system count growth has outpaced the rig count trend due to new technology-led growth with new and existing customers, and increased pricing[89](index=89&type=chunk) - Outlook: Expects continued earnings growth from new product lines to allow earnings to outperform the trend in underlying oil and gas activity[89](index=89&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section compares financial performance for the three and six months ended June 30, 2023, versus 2022, detailing changes in revenue, operating costs, and income, highlighting drivers and efficiencies [Revenue](index=28&type=section&id=Revenue) Total revenue decreased **11%** to **$77.2 million** for Q2 2023 due to lower last mile tonnage, but increased **11%** to **$159.9 million** for the six months, driven by demand and pricing, with fully utilized systems rising from **83 to 113** Revenue Performance (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Total revenue | $77,202 | $86,711 | $159,924 | $143,626 | | Change (YoY) | -$9,509 (-11%) | N/A | +$16,298 (+11%) | N/A | | Fully utilized systems (period end) | 108 | 88 | 113 | 83 | - The decrease in Q2 2023 revenue was primarily due to a decrease in last mile tonnage, partially offset by an increase in total fully utilized systems[93](index=93&type=chunk) - The increase in YTD 2023 revenue was primarily related to an activity-driven increase in demand for products and services and updated pricing[93](index=93&type=chunk) [Cost of Services](index=28&type=section&id=Cost%20of%20Services) Cost of services (excluding depreciation) decreased **25%** to **$45.7 million** for Q2 2023 due to lower last mile tonnage, remaining flat at **$98.9 million** for six months, improving as a percentage of revenue to **59%** and **62%** respectively Cost of Services (excluding depreciation, in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Cost of services | $45,652 | $61,237 | $98,875 | $98,908 | | Change (YoY) | -$15,585 (-25%) | N/A | -$33 (0%) | N/A | | As a percentage of revenue | 59% | 71% | 62% | 69% | - The decrease in Q2 2023 cost of services was primarily related to a decrease in last mile tonnage[94](index=94&type=chunk) [Property Tax Contingency](index=30&type=section&id=Property%20Tax%20Contingency) No additional property tax contingencies were recognized in Q2 or YTD 2023; the **$3.1 million** accrued liability for the Brown County ruling remains, with an appeal decision expected in H2 2023 that could be material - No additional property tax contingencies were recognized during the three and six months ended June 30, 2023[96](index=96&type=chunk) - A **$3.1 million** accrued liability related to an unfavorable Texas District Court ruling on property tax exemptions remains, with an appeal ruling anticipated in the second half of 2023[96](index=96&type=chunk) [Selling, General and Administrative Expenses](index=30&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative (SG&A) expenses increased **13%** to **$6.8 million** for Q2 2023 and **19%** to **$13.4 million** for the six months, primarily due to increases in headcount and professional fees Selling, General and Administrative Expenses (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | SG&A expenses | $6,825 | $6,062 | $13,363 | $11,273 | | Change (YoY) | +$763 (+13%) | N/A | +$2,090 (+19%) | N/A | - The increase in SG&A expenses was primarily due to increases in headcount and professional fees[97](index=97&type=chunk) [Other Operating Income](index=30&type=section&id=Other%20Operating%20Income) Other operating income significantly decreased **89%** to **$0.1 million** for Q2 2023 and **67%** to **$0.5 million** for six months, primarily due to lower gains on asset sales and sales tax rebates compared to prior year Other Operating Income (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Other operating income | $125 | $1,114 | $463 | $1,423 | | Change (YoY) | -$989 (-89%) | N/A | -$960 (-67%) | N/A | - 2023 other operating income primarily relates to gain on sale of assets and sales tax rebates, partially offset by excise tax for share buybacks[98](index=98&type=chunk) - 2022 other operating income primarily related to change in the TRA liability, credit losses, gain on insurance claims, and write-off of prepaid purchase orders[98](index=98&type=chunk) [Provision for Income Taxes](index=30&type=section&id=Provision%20for%20Income%20Taxes) Income tax expense increased to **$2.7 million** for Q2 and **$5.1 million** for six months ended June 30, 2023, driven by operating gains, with effective tax rates of **17.8%** and **17.5%** respectively, due to partnership tax treatment Provision for Income Taxes (in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Income tax expense | $2.7 | $1.9 | $5.1 | $3.6 | | Change (YoY) | +$0.8 (+42.1%) | N/A | +$1.5 (+41.7%) | N/A | | Effective tax rate | 17.8% | 19.0% | 17.5% | 20.2% | - The change in income tax expense was attributable to operating gains[99](index=99&type=chunk) - The effective tax rate differed from the statutory rate primarily due to Solaris LLC's treatment as a partnership for United States federal income tax purposes[99](index=99&type=chunk) [Comparison of Non-GAAP Financial Measures](index=30&type=section&id=Comparison%20of%20Non-GAAP%20Financial%20Measures) This section reconciles Net Income to EBITDA and Adjusted EBITDA, both non-GAAP measures, which significantly increased for the three and six months ended June 30, 2023, driven by changes in revenues and expenses [EBITDA and Adjusted EBITDA](index=30&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) EBITDA increased by **$7.4 million** to **$24.9 million** for Q2 2023 and **$16.4 million** to **$48.1 million** for six months; Adjusted EBITDA rose by **$5.8 million** to **$26.8 million** and **$15.1 million** to **$51.9 million** respectively, driven by revenue and expense changes - EBITDA is defined as net income, plus depreciation and amortization expense, interest expense, and income tax expense[101](index=101&type=chunk) - Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense and certain non-cash items and any extraordinary, unusual or non-recurring gains, losses or expenses[103](index=103&type=chunk) EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income | $12,241 | $8,289 | $24,178 | $14,011 | | EBITDA | $24,850 | $17,454 | $48,149 | $31,796 | | Adjusted EBITDA | $26,825 | $21,064 | $51,943 | $36,804 | | Change in Adjusted EBITDA (YoY) | +$5,761 (+27.3%) | N/A | +$15,139 (+41.1%) | N/A | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity sources (operating cash, credit borrowings, equity), capital uses (operations, capex, repurchases, dividends), and cash flow activities, concluding current liquidity is sufficient [Overview](index=34&type=section&id=Overview) Solaris's liquidity comes from operations, credit, and equity; capital is used for operations, capex, repurchases, and dividends; as of June 30, 2023, **$9.4 million** cash and **$32.0 million** credit available are deemed sufficient for future needs - Primary Liquidity Sources: Cash flows from operations, borrowings under credit agreements, and proceeds from equity offerings[111](index=111&type=chunk) - Primary Uses of Capital: Funding ongoing operations, capital expenditures (organic growth, fleet development/maintenance/upgrades), share repurchases, and dividend payments[111](index=111&type=chunk) Liquidity Position (as of June 30, 2023, in millions) | Metric | Amount | | :-------------------------------- | :----- | | Cash and cash equivalents | $9.4 | | Borrowings outstanding under Credit Agreement | $43.0 | | Ability to draw under Credit Agreement | $32.0 | - Liquidity Outlook: Management believes current liquidity is sufficient to address future cash needs for the next 12 months and beyond[112](index=112&type=chunk) [Share Repurchase Program](index=34&type=section&id=Share%20Repurchase%20Program) The Board authorized a **$50.0 million** share repurchase program on March 2, 2023; as of June 30, 2023, **3,078,500 shares** were purchased for **$25.8 million** (average **$8.38/share**), with **$24.2 million** remaining - Authorization: **$50.0 million** share repurchase plan authorized on March 2, 2023, with no set term limits[113](index=113&type=chunk) Share Repurchase Program Status (as of June 30, 2023) | Metric | Value | | :-------------------------------- | :-------------------- | | Shares purchased | 3,078,500 shares | | Aggregate cost | $25.8 million | | Average price per share | $8.38 | | Amount remaining under authorization | $24.2 million | [Cash Flows](index=34&type=section&id=Cash%20Flows) This section summarizes cash flow activities for the six months ended June 30, 2023, compared to 2022, showing significant increases in operating cash flow and a decrease in net cash used in financing activities Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :------- | | Net cash provided by operating activities | $45,460 | $22,394 | +$23,066 | | Net cash used in investing activities | $(39,896) | $(31,409) | -$8,487 | | Net cash used in financing activities | $(5,028) | $(12,131) | +$7,103 | | Net change in cash | $536 | $(21,146) | +$21,682 | [Significant Sources and Uses of Cash Flows](index=34&type=section&id=Significant%20Sources%20and%20Uses%20of%20Cash%20Flows) Operating cash flow increased due to higher profitability; investing activities rose from capital expenditures; financing cash used decreased, driven by **$35.0 million** net borrowings offsetting repurchases and dividends - Operating Activities: Net cash provided increased by **$23.1 million** for the six months ended June 30, 2023, primarily attributable to increased profitability from operations[116](index=116&type=chunk) - Investing Activities: Net cash used increased by **$8.5 million** for the six months ended June 30, 2023, primarily due to capital expenditures related to new technologies and enhancements to the fleet[117](index=117&type=chunk) - Financing Activities (Six months ended June 30, 2023): Net cash used was **$5.0 million**, primarily related to **$25.8 million** in share repurchases, **$7.0 million** in quarterly dividends, and **$3.5 million** in distributions to unitholders, partially offset by **$35.0 million** in net borrowings under the Credit Agreement[118](index=118&type=chunk)[120](index=120&type=chunk) [Capital Sources](index=36&type=section&id=Capital%20Sources) The company's senior secured credit facility serves as a key capital source, providing flexibility for its financial operations - The Senior Secured Credit Facility is a primary capital source for the company[122](index=122&type=chunk) [Future Sources and Uses of Cash](index=36&type=section&id=Future%20Sources%20and%20Uses%20of%20Cash) Material cash commitments include Credit Agreement, TRA, leases, and purchase obligations; within twelve months, **$0.1 million** in commitment fees, **$3.5 million** in interest, and **$14.6 million** in purchase obligations are expected - Material cash commitments consist primarily of obligations under the Credit Agreement, Tax Receivable Agreement, finance and operating leases for property and equipment, and purchase obligations[124](index=124&type=chunk) Expected Cash Payments (next twelve months, in millions) | Metric | Amount | | :-------------------------------- | :----- | | Commitment fees on Credit Agreement | ~$0.1 | | Interest on Credit Agreement | ~$3.5 | | Purchase obligations | ~$14.6 | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No material changes occurred in the company's critical accounting policies and estimates during the three and six months ended June 30, 2023 - No material changes in critical accounting policies and estimates during the three and six months ended June 30, 2023[128](index=128&type=chunk) [Recent Accounting Pronouncements](index=36&type=section&id=Recent%20Accounting%20Pronouncements) No recently adopted accounting standards were implemented during the reporting period; refer to Note 2 for information on recently issued accounting standards - No recently adopted accounting standards during the reporting period[130](index=130&type=chunk) [Off Balance Sheet Arrangements](index=36&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company has no material off-balance sheet arrangements, except for purchase commitments under supply agreements, and is not materially exposed to related financial risks - The company has no material off-balance sheet arrangements, except for purchase commitments under supply agreements[133](index=133&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that the company's exposure to market risk has not materially changed since December 31, 2022, and provides specific disclosures regarding credit risk - The company's exposure to market risk has not changed materially since December 31, 2022[134](index=134&type=chunk) [Credit Risk](index=37&type=section&id=Credit%20Risk) Most accounts receivable have **60-day** or less payment terms; as of June 30, 2023, three customers accounted for **12%**, **12%**, and **10%** of receivables, with risk mitigated by credit evaluations and payment monitoring - Majority of accounts receivable have payment terms of **60 days** or less[135](index=135&type=chunk) - As of June 30, 2023, three customers accounted for **12%**, **12%**, and **10%** of the company's total accounts receivable[135](index=135&type=chunk) - Credit risk is mitigated by performing credit evaluations and monitoring customer payment patterns[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness in ITGCs related to a third-party system, with a remediation plan initiated and no other material changes to internal control [Disclosure Controls and Procedures](index=37&type=section&id=Disclosure%20Controls%20and%20Procedures) As of June 30, 2023, disclosure controls and procedures were ineffective due to a material weakness in ITGCs, specifically regarding user access, change management, and segregation of duties for a third-party IT system supporting financial reporting - Disclosure controls and procedures were not effective as of June 30, 2023[136](index=136&type=chunk) - The material weakness is related to ineffective ITGCs in user access, application change management, operating system and logical access controls, and segregation of duties for a third-party IT system supporting financial reporting for last mile logistics services[137](index=137&type=chunk) [Remediation Plan for Material Weakness](index=37&type=section&id=Remediation%20Plan%20for%20Material%20Weakness) Management initiated a remediation plan to strengthen internal controls, including developing internal software to replace the third-party IT system, enhancing risk assessment for internally developed systems, and implementing an IT management review and testing plan for ITGCs - Remediation efforts include developing and implementing internal use software to replace the third-party IT system[139](index=139&type=chunk) - The plan also involves developing enhanced risk assessment procedures and controls related to internally developed third-party IT systems[139](index=139&type=chunk) - An IT management review and testing plan will be implemented to monitor ITGCs, with a specific focus on systems supporting financial reporting[139](index=139&type=chunk) [Changes in Internal Control over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) Except for the identified material weakness and ongoing remediation efforts, no other material changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2023 - No other material changes in internal control over financial reporting during the quarter ended June 30, 2023, apart from the identified material weakness and remediation efforts[142](index=142&type=chunk) [PART II: OTHER INFORMATION](index=40&type=section&id=PART%20II:%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine litigation, but management believes no pending matters would materially affect financial condition or results, except for a **$3.1 million** property tax liability under appeal, which could be material - The company is involved in routine litigation, disputes, or claims related to its business activities[145](index=145&type=chunk) - Management's opinion: No pending litigation, disputes, or claims are expected to have a material adverse effect on financial condition, cash flows, or results of operations[145](index=145&type=chunk) - A **$3.1 million** accrued liability for an unfavorable property tax ruling in Brown County, Texas, is under appeal, with a final ruling anticipated in the second half of 2023; resolution could be material[146](index=146&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material updates to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, have occurred - No material updates to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[147](index=147&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on equity security transactions not registered under the Securities Act, detailing issuer purchases of Class A common stock under the authorized share repurchase plan and for tax withholding obligations [Unregistered Sales of Equity Securities](index=40&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) There were no unregistered sales of equity securities during the reporting period - No unregistered sales of equity securities during the reporting period[148](index=148&type=chunk) [Issuer Purchases of Equity Securities](index=40&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) For the six months ended June 30, 2023, the company purchased **3,229,041 shares** of Class A common stock at an average price of **$7.89/share**, including **3,078,500 shares** under the **$50.0 million** repurchase plan and **150,541 shares** for tax withholding Issuer Purchases of Equity Securities (Six Months Ended June 30, 2023) | Metric | Value | | :-------------------------------- | :-------------------- | | Total Number of Shares Purchased | 3,229,041 shares | | Average Price Paid Per Share | $7.89 | | Shares Purchased as Part of Publicly Announced Plan | 3,078,500 shares | | Maximum Dollar Value Remaining Under Plan | $24,212,452 | - The total shares purchased include **150,541 shares** bought to satisfy tax withholding obligations upon the vesting of restricted stock[155](index=155&type=chunk) [Item 3. Defaults upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities during the reporting period[151](index=151&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report for the period - No mine safety disclosures[152](index=152&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) During the three months ended June 30, 2023, no director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2023[153](index=153&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including amendments to key agreements and plans, along with certifications from the Chief Executive Officer and Chief Financial Officer - Key exhibits include amendments to the Certificate of Incorporation, Bylaws, Credit Agreement, Tax Receivable Agreement, and the Long Term Incentive Plan[154](index=154&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are included[154](index=154&type=chunk)[157](index=157&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) [Report Signatures](index=45&type=section&id=Report%20Signatures) The report was officially signed on July 27, 2023, by William A. Zartler, Chairman and CEO, and Kyle S. Ramachandran, President and CFO, confirming its submission - The report was signed on July 27, 2023[163](index=163&type=chunk) - Signatories: William A. Zartler (Chairman and Chief Executive Officer) and Kyle S. Ramachandran (President and Chief Financial Officer)[163](index=163&type=chunk)

[Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) [Forward-Looking Statements and Risk Factors](index=4&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) The report's forward-looking statements are based on current expectations and subject to significant risks and uncertainties - The company identifies several key factors and uncertainties that could materially affect its financial results[10](index=10&type=chunk)[14](index=14&type=chunk) - Key risks include **volatility in oil and gas prices**, geopolitical events, inflation, supply chain constraints, customer consolidation, and competitive pressures[10](index=10&type=chunk) [PART I: FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023 [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$473.0 million** as of March 31, 2023, driven by higher PP&E and borrowings Key Balance Sheet Items (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,175 | $8,835 | | Total current assets | $86,005 | $88,743 | | Property, plant and equipment, net | $313,299 | $298,160 | | **Total assets** | **$472,998** | **$462,576** | | Borrowings under the credit agreement | $26,000 | $8,000 | | Total liabilities | $162,588 | $145,447 | | **Total stockholders' equity** | **$310,410** | **$317,129** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a **45%** year-over-year revenue increase to **$82.7 million** and net income growth to **$7.6 million** Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenue | $82,722 | $56,915 | | Operating income | $14,882 | $7,413 | | Net income | $11,937 | $5,722 | | Net income attributable to Solaris | $7,569 | $3,502 | | Diluted EPS | $0.23 | $0.11 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net operating cash flow increased to **$16.8 million**, while total cash decreased by **$6.7 million** for the quarter Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,849 | $6,269 | | Net cash used in investing activities | ($18,826) | ($11,507) | | Net cash used in financing activities | ($4,683) | ($6,131) | | **Net decrease in cash** | **($6,660)** | **($11,369)** | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Key disclosures include an expanded credit facility, a new share repurchase program, and significant customer concentration - On April 28, 2023, the company amended its credit agreement, increasing total available borrowings from **$50.0 million to $75.0 million**[44](index=44&type=chunk)[45](index=45&type=chunk) - A new share repurchase plan of up to **$50.0 million** was authorized, and the company repurchased **1,641,000 shares for $14.4 million** during the quarter[53](index=53&type=chunk) - The liability under the Tax Receivable Agreement was **$71.5 million** as of March 31, 2023[70](index=70&type=chunk) - For Q1 2023, three customers accounted for **13%, 12%, and 11%** of total revenues, indicating significant customer concentration[72](index=72&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong revenue growth, market outlook, liquidity management, and non-GAAP financial measures [Recent Trends and Outlook](index=27&type=section&id=Recent%20Trends%20and%20Outlook) Despite market volatility, system count growth outpaced rig count trends due to new technology adoption - Oil and natural gas prices were volatile in Q1 2023, with WTI oil prices ranging from the **high $60s to low $80s** per barrel[90](index=90&type=chunk) - The company's growth in fully utilized systems has **outpaced the general rig count trend**, driven by new technology and product offerings[91](index=91&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Revenue grew **45%** year-over-year to **$82.7 million**, with Adjusted EBITDA increasing to **$25.1 million** Comparison of Operations (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenue | $82,722 | $56,915 | | Cost of services (excl. D&A) | $53,223 | $37,671 | | Selling, general and administrative | $6,538 | $5,211 | | Operating income | $14,882 | $7,413 | - The number of fully utilized mobile proppant systems increased from **75 in Q1 2022 to 92 in Q1 2023**[96](index=96&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $11,937 | $5,722 | | EBITDA | $23,299 | $14,342 | | **Adjusted EBITDA** | **$25,118** | **$15,740** | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and borrowings, supporting a new **$50.0 million** share repurchase program - As of May 3, 2023, the company had approximately **$34.5 million** available to draw under its amended credit agreement[110](index=110&type=chunk) - Under the new share repurchase program, the company bought back **1,641,000 shares for $14.4 million**, leaving **$35.6 million** available[111](index=111&type=chunk) - Net cash from operating activities increased to **$16.8 million** in Q1 2023 from **$6.3 million** in Q1 2022[114](index=114&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Market risk exposure remains unchanged, with a notable credit risk from customer concentration in accounts receivable - As of March 31, 2023, one customer accounted for **13% of total accounts receivable**[132](index=132&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness in IT general controls for a third-party system - A **material weakness** was identified related to ineffective IT general controls for a third-party IT system supporting last-mile logistics services[134](index=134&type=chunk) - The remediation plan includes evaluating alternative software and enhancing risk assessment procedures for third-party IT systems[136](index=136&type=chunk) [PART II: OTHER INFORMATION](index=39&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company accrued **$3.1 million** for a property tax dispute in Texas, which it intends to appeal - Following an adverse ruling in a property tax case, the company has recognized a liability of **$3.1 million** and plans to appeal the decision[142](index=142&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the 2022 Annual Report on Form 10-K - The company reports **no material changes** to its risk factors since its 2022 Form 10-K filing[143](index=143&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **1,641,000 shares** under a new **$50 million** plan initiated in March 2023 Issuer Purchases of Equity Securities (March 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Plan | Max Value Remaining Under Plan | | :--- | :--- | :--- | :--- | :--- | | March 1 - March 31 | 1,788,838 | $8.82 | 1,641,000 | $35,557,509 | - Total shares purchased include **1,641,000** under the public plan and **147,838** to satisfy tax withholding obligations[146](index=146&type=chunk) [Other Items (3, 4, 5, 6)](index=41&type=section&id=Other%20Items%20(3%2C%204%2C%205%2C%206)) This section notes an increase in the credit facility to **$75.0 million** and lists filed exhibits - On April 28, 2023, the company amended its credit agreement to increase available borrowings by **$25.0 million**, bringing the total facility to **$75.0 million**[151](index=151&type=chunk) - The company reported **no defaults** on senior securities and **no mine safety disclosures**[147](index=147&type=chunk)[148](index=148&type=chunk) [Signatures](index=44&type=section&id=SIGNATURES) [Report Authorization](index=44&type=section&id=Report%20Authorization) The report was duly authorized and signed by the CEO and CFO on May 4, 2023 - The Form 10-Q was signed and certified by the Principal Executive Officer and Principal Financial Officer on **May 4, 2023**[163](index=163&type=chunk)