Core Viewpoint - Solaris Oilfield Infrastructure, Inc. (SOI) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook driven by an upward trend in earnings estimates [1][4]. Earnings Estimates and Ratings - The Zacks rating system is based on changes in earnings estimates, which are tracked through the Zacks Consensus Estimate from sell-side analysts [2]. - A changing earnings picture is crucial for stock price movements, making the Zacks rating system beneficial for investors who may struggle with subjective Wall Street ratings [3][5]. Impact of Earnings Estimates on Stock Prices - The correlation between future earnings potential and near-term stock price movements is strong, with institutional investors playing a role in this relationship by adjusting their valuations based on earnings estimates [5][6]. - Rising earnings estimates for Solaris Oilfield Infrastructure suggest an improvement in the company's underlying business, which could lead to increased stock prices [6]. Importance of Earnings Estimate Revisions - Empirical research supports the strong correlation between earnings estimate revisions and stock movements, highlighting the significance of tracking these revisions for investment decisions [7]. - The Zacks Rank system effectively utilizes earnings estimate revisions to classify stocks, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [8]. Specific Earnings Estimates for Solaris Oilfield Infrastructure - For the fiscal year ending December 2024, Solaris Oilfield Infrastructure is expected to earn $0.50 per share, reflecting a -35.9% change from the previous year [9]. - Over the past three months, the Zacks Consensus Estimate for the company has increased by 2%, indicating a positive trend in earnings estimates [9]. Conclusion on Zacks Rating System - The Zacks rating system maintains a balanced approach with an equal proportion of 'buy' and 'sell' ratings, ensuring that only the top 5% of stocks receive a 'Strong Buy' rating [10]. - Solaris Oilfield Infrastructure's upgrade to Zacks Rank 1 places it in the top 5% of stocks based on estimate revisions, suggesting potential for market-beating returns in the near term [11].

Core Viewpoint - Solaris Oilfield Infrastructure has demonstrated a strong earnings performance, consistently beating consensus estimates, which positions the company favorably for future earnings reports [1][3][5]. Earnings Performance - For the last reported quarter, Solaris Oilfield Infrastructure reported earnings of $0.16 per share, exceeding the Zacks Consensus Estimate of $0.13 per share, resulting in a surprise of 23.08% [1]. - In the previous quarter, the company was expected to post earnings of $0.14 per share but delivered $0.15 per share, achieving a surprise of 7.14% [1]. - The company has an average surprise of 15.11% over the past two quarters, indicating a strong track record of exceeding earnings estimates [3]. Earnings Estimates and Predictions - Estimates for Solaris Oilfield Infrastructure have been trending higher, influenced by its history of earnings surprises [4]. - The company currently has an Earnings ESP of +14.29%, suggesting that analysts are optimistic about its earnings prospects [5]. - The positive Earnings ESP, combined with a Zacks Rank of 2 (Buy), indicates a strong possibility of another earnings beat in the upcoming report [5]. Industry Context - Solaris Oilfield Infrastructure operates within the Zacks Oil and Gas - Field Services industry, which is characterized by companies that often exceed earnings estimates [7].

An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss. That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it's worth checking a company's Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to uti ...

Solaris Oilfield Infrastructure, Inc. (SOI) shares ended the last trading session 37.4% higher at $11.36. The jump came on an impressive volume with a higher-than-average number of shares changing hands in the session. This compares to the stock's 2.7% loss over the past four weeks. The surge can be attributed to Solaris' recent acquisition of the distributed power solution provider, Mobile Energy Rentals, LLC. Mobile Energy's distributed power solutions complement Solaris' electric offerings, thereby stren ...

Financial Data and Key Metrics Changes - The company generated $68 million in revenue and $23 million in adjusted EBITDA for the first quarter of 2024, with $14 million in free cash flow [36] - Operating cash flow was $17 million, with $3 million in capital expenditures, resulting in $14 million in free cash flow [5] - Total debt on the revolving credit facility remained at $30 million, with net debt at $27 million and approximately $41 million of available liquidity [5] Business Line Data and Key Metrics Changes - The annualized contribution margin per fully utilized system, excluding ancillary trucking services, improved by 4% sequentially, while the total annualized contribution margin, including ancillary services, improved by 7% to $1.1 million [6][7] - The company followed an average of 64 frac crews, which was flat compared to the previous quarter [5] Market Data and Key Metrics Changes - North American land activity is expected to be relatively flat in the second quarter, influenced by natural gas weakness and strong oil prices [1] - The company anticipates a 5% to 10% decrease in the number of frac crews followed in the second quarter compared to the first quarter average [1] Company Strategy and Development Direction - The company is focused on continuing to deliver innovative solutions to improve well site efficiency and enhance shareholder returns [4] - The company is committed to maintaining a strong shareholder return framework, with a focus on dividends and opportunistic share repurchases [37] - The company is evaluating organic and inorganic growth opportunities while maintaining a healthy balance sheet [37] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is some softness in activity, they expect a resurgence in the industry as private equity firms reload capital and teams [8] - The company believes that its investments will lead to stronger earnings power and cash flow resilience compared to prior cycles [19] - Management expressed confidence in the ability to add value through addressing the growing nature of completions intensity with the right solutions [49] Other Important Information - The company has paid dividends for 22 consecutive quarters without a cut and has increased its per share dividend by 20% since inception [37] - The company is experiencing increased demand for electric frac fleets and related equipment, which aligns with industry trends towards electrification [47] Q&A Session Summary Question: Impact of silica deal on competitive landscape - Management indicated that the silica deal would not significantly impact the competitive landscape in the well site logistics business [2] Question: Use of cash going forward - Management stated that cash would be used for debt repayment, dividends, and share repurchases, with a focus on maintaining liquidity [14] Question: M&A opportunities in the service space - Management noted that while valuations are down, there are opportunities for M&A, particularly with unique technologies and protected markets [32]

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 |