10-Q

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 June 30, 2021

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)

Delaware	81-5223109
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9811 Katy Freeway, Suite 700 Houston, Texas	77024
(Address of principal executive offices)	(Zip code)

(281) 501-3070

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value	“SOI”	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2021, the registrant had 31,862,999 shares of Class A common stock, $0.01 par value per share, and 13,818,517 shares of Class B common stock, $0.00 par value per share, outstanding.

SOLARIS OILFIELD INFRASTRUCTURE, INC.

TABLE OF CONTENTS

		Page
Cautionary Statement Regarding Forward-Looking Statements		1
PART I: FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION		20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
SIGNATURES		22

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Our forward-looking statements include statements about our business strategy, our industry, our future profitability, expected capital expenditures and the impact of such expenditures on our performance, management changes, current and potential future long-term contracts and our future business and financial performance. In addition, our forward-looking statements address the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from both the coronavirus 2019 (“COVID-19”) pandemic and the continued volatility in global oil markets, and the expected impact of these events on our businesses, operations, earnings and results.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

● the level of domestic capital spending by the oil and natural gas industry and uncertainty regarding the future actions of oil producers and the risk that they take actions that will prolong or exacerbate the current over-supply of crude oil;

● developments in the global economy, as well as the public health crisis related to the COVID-19 pandemic, and the resulting impacts to the demand and supply for oil and natural gas or volatility of oil and natural gas prices;

● operational challenges relating to the COVID-19 pandemic, distribution and administration of the COVID-19 vaccines and efforts to mitigate the impact and spread of the virus;

● uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the services we provide and the commercial opportunities available to us;

● consolidation amongst current or potential customers that could affect demand for our products and services;

● large or multiple customer defaults, including defaults resulting from actual or potential insolvencies;

● technological advancements in well completion technologies and our ability to expand our product and service offerings;

● competitive conditions in our industry;

● inability to fully protect our intellectual property rights;

● actions taken by our customers, competitors and third-party operators;

● significant changes in the transportation industries or fluctuations in transportation costs or the availability or reliability of transportation that service our business;

● changes in the availability and cost of capital;

● our ability to successfully implement our business strategy;

1

● changes in our tax status;

● changes in market price and availability of materials;

● the effects of existing and future laws and governmental regulations (or the interpretation thereof) on us and our customers;

● cyber-attacks targeting systems and infrastructure used by the oil and natural gas industry;

● the effects of future litigation;

● credit markets;

● business acquisitions;

● natural or man-made disasters and other external events that may disrupt our manufacturing operations;

● uncertainty regarding our future operating results;

● the impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations; and

● plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

All forward-looking statements speak only as of the date of this Quarterly Report. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, this Quarterly Report and in our other filings with the United States Securities and Exchange Commission (the “SEC”), which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.

2

PART 1: FINANCIAL INFORMATION

Item 1:     Financial Statements

SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	June 30,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	46,276	$	60,366
Accounts receivable, net of allowances for credit losses of $920 and $1,099, respectively		31,341		18,243
Prepaid expenses and other current assets		3,813		2,169
Inventories		1,939		954
Total current assets		83,369		81,732
Property, plant and equipment, net		241,048		245,884
Non-current inventories		2,882		3,318
Operating lease right-of-use assets		4,449		4,708
Goodwill		13,004		13,004
Intangible assets, net		2,593		2,982
Deferred tax assets		63,842		59,805
Other assets		381		463
Total assets	$	411,568	$	411,896
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	14,145	$	6,863
Accrued liabilities		12,006		11,986
Current portion of payables related to Tax Receivable Agreement		606		606
Current portion of operating lease liabilities		693		647
Current portion of finance lease liabilities		30		30
Other current liabilities		813		75
Total current liabilities		28,293		20,207
Operating lease liabilities, net of current		6,981		7,419
Finance lease liabilities, net of current		85		100
Payables related to Tax Receivable Agreement		72,908		68,097
Other long-term liabilities		587		594
Total liabilities		108,854		96,417
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued and outstanding		—		—
Class A common stock, $0.01 par value, 600,000 shares authorized, 30,984 shares issued and outstanding as of June 30, 2021 and 28,943 shares issued and outstanding as of December 31, 2020		310		290
Class B common stock, $0.00 par value, 180,000 shares authorized, 13,820 shares issued and outstanding as of June 30, 2021 and 15,685 issued and outstanding as of December 31, 2020		—		—
Additional paid-in capital		194,690		180,415
Retained earnings		11,137		20,549
Total stockholders' equity attributable to Solaris		206,137		201,254
Non-controlling interest		96,577		114,225
Total stockholders' equity		302,714		315,479
Total liabilities and stockholders' equity	$	411,568	$	411,896

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenue:
System rental	$	14,323	$	5,463	$	27,971	$	31,522
System services		20,616		3,419		35,326		24,376
Transloading services		38		264		152		729
Inventory software services		202		192		399		542
Total revenue		35,179		9,339		63,848		57,169
Operating costs and expenses:
Cost of system rental (excluding $6,187 and $6,034 and $12,328 and $12,035 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)		1,556		823		3,164		2,836
Cost of system services (excluding $188 and $274 and $362 and $631 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)		23,282		6,013		40,534		30,143
Cost of transloading services (excluding $0 and $0 and $0 and $411 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)		197		202		441		540
Cost of inventory software services (excluding $195 and $191 and $390 and $384 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)		100		122		202		267
Depreciation and amortization		6,752		6,671		13,445		13,785
Selling, general and administrative (excluding $182 and $172 and $365 and $324 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)		4,964		3,967		9,570		8,373
Impairment losses		—		—		—		47,828
Other operating expenses		360		2,274		613		3,472
Total operating costs and expenses		37,211		20,072		67,969		107,244
Operating loss		(2,032)		(10,733)		(4,121)		(50,075)
Interest income (expense), net		(55)		(35)		(104)		76
Total other expense (income)		(55)		(35)		(104)		76
Loss before income tax expense		(2,087)		(10,768)		(4,225)		(49,999)
Benefit for income taxes		217		1,272		430		7,350
Net loss		(1,870)		(9,496)		(3,795)		(42,649)
Less: net loss related to non-controlling interests		659		3,956		1,415		18,026
Net loss attributable to Solaris	$	(1,211)	$	(5,540)	$	(2,380)	$	(24,623)
Loss per share of Class A common stock – basic	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)
Loss per share of Class A common stock – diluted	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)
Basic weighted-average shares of Class A common stock outstanding		30,984		28,638		30,473		28,975
Diluted weighted-average shares of Class A common stock outstanding		30,984		28,638		30,473		28,975

(1)The condensed consolidated statements of operations include stock-based compensation expense as follows:

Cost of system rental	$	7	$	18	$	12	$	31
Cost of system services		88		73		260		273
Cost of transloading services		4		4		13		7
Selling, general and administrative		1,254		1,231		2,267		2,345
Stock-based compensation expense	$	1,353	$	1,326	$	2,552	$	2,656

]

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Six Months Ended June 30, 2021
	Class A			Class B			Additional							Non-		Total
	Common Stock			Common Stock			Paid-in		Retained		Treasury Stock			controlling		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Interest		Equity
Balance at January 1, 2021	28,943	$	290	15,685	$	—	$	180,415	$	20,549	—	$	—	$	114,225	$	315,479
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	1,865		19	(1,865)		—		13,526		—	—		—		(13,545)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(1,184)		—	—		—		—		(1,184)
Stock option exercises	4		—	—		—		18		—	—		—		(6)		12
Stock-based compensation	—		—	—		—		854		—	—		—		418		1,272
Vesting of restricted stock	223		2	—		—		407		—	—		—		(409)		—
Cancelled shares withheld for taxes from RSU vesting	(57)		(1)	—		—		(146)		(319)	—		—		(207)		(673)
Solaris LLC distribution paid to Solaris LLC unitholders (other than Solaris Inc.) at $0.105 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,451)		(1,451)
Dividends paid ($0.105 per share of Class A common stock)	—		—	—		—		—		(3,346)	—		—		—		(3,346)
Net loss	—		—	—		—		—		(1,169)	—		—		(756)		(1,925)
Balance at March 31, 2021	30,978		310	13,820		—		193,890		15,715	—		—		98,269		308,184
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(198)		—	—		—		—		(198)
Stock-based compensation	—		—	—		—		989		—	—		—		442		1,431
Vesting of restricted stock	8		—	—		—		15		—	—		—		(15)		—
Cancelled shares withheld for taxes from RSU vesting	(2)		—	—		—		(6)		(21)	—		—		(9)		(36)
Solaris LLC distribution paid to Solaris LLC unitholders (other than Solaris Inc.) at $0.105 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,451)		(1,451)
Dividends paid ($0.105 per share of Class A common stock)	—		—	—		—		—		(3,346)	—		—		—		(3,346)
Net loss	—		—	—		—		—		(1,211)	—		—		(659)		(1,870)
Balance at June 30, 2021	30,984	$	310	13,820	$	—	$	194,690	$	11,137	—	$	—	$	96,577	$	302,714

	Six Months Ended June 30, 2020
	Class A			Class B			Additional							Non-		Total
	Common Stock			Common Stock			Paid-in		Retained		Treasury Stock			controlling		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Interest		Equity
Balance at January 1, 2020	30,765	$	308	15,940	$	—	$	191,843	$	74,222	163	$	(2,526)	$	145,811	$	409,658
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	50		1	(50)		—		460		—	—		—		(461)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(303)		—	—		—		—		(303)
Stock option exercises	9		—	—		—		66		—	7		(80)		(11)		(25)
Share and unit repurchases and retirements	(2,374)		(24)	—		—		(14,804)		(10,177)	—		—		(1,711)		(26,716)
Stock-based compensation	—		—	—		—		907		—	—		—		492		1,399
Vesting of restricted stock	105		1	—		—		471		—	37		(373)		(473)		(374)
Solaris LLC distribution paid to Solaris LLC unitholders (other than Solaris Inc.) at $0.105 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,668)		(1,668)
Dividends paid ($0.105 per share of Class A common stock)	—		—	—		—		—		(3,087)	—		—		—		(3,087)
Treasury stock retirements	—		—	—		—		(1,247)		(1,732)	(207)		2,979		—		—
Net loss	—		—	—		—		—		(19,081)	—		—		(14,071)		(33,152)
Balance at March 31, 2020	28,555		286	15,890		—		177,393		40,145	—		—		127,908		345,732
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	50		1	(50)		—		395		—	—		—		(395)		1
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(310)		—	—		—		—		(310)
Stock option exercises	7		—	—		—		36		—	—		—		(16)		20
Stock-based compensation	—		—	—		—		895		—	—		—		497		1,392
Vesting of restricted stock	80		—	—		—		171		—	—		—		(171)		—
Cancelled shares withheld for taxes from RSU vesting	(19)		—	—		—		(69)		—	—		—		(38)		(107)
Solaris LLC distribution paid to Solaris LLC unitholders (other than Solaris Inc.) at $0.105 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,663)		(1,663)
Dividends paid ($0.105 per share of Class A common stock)	—		—	—		—		—		(3,089)	—		—		—		(3,089)
Net loss	—		—	—		—		—		(5,540)	—		—		(3,956)		(9,496)
Balance at June 30, 2020	28,673	$	287	15,840	$	—	$	178,511	$	31,516	—	$	—	$	122,166	$	332,480

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Six Months Ended
	June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(3,795)	$	(42,649)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		13,445		13,785
Loss on disposal of assets		117		1,402
Allowance for credit losses		599		1,633
Stock-based compensation		2,552		2,656
Amortization of debt issuance costs		88		88
Deferred income tax benefit		(607)		(7,369)
Impairment losses		—		47,828
Other		(146)		(145)
Changes in operating assets and liabilities:
Accounts receivable		(13,697)		25,760
Prepaid expenses and other assets		(742)		(217)
Inventories		(1,085)		(533)
Accounts payable		7,239		147
Accrued liabilities		72		(8,063)
Net cash provided by operating activities		4,040		34,323
Cash flows from investing activities:
Investment in property, plant and equipment		(7,716)		(1,558)
Cash received from insurance proceeds		6		—
Proceeds from disposal of assets		40		713
Net cash used in investing activities		(7,670)		(845)
Cash flows from financing activities:
Share repurchases		—		(26,717)
Distribution and dividend paid to Solaris LLC unitholders (other than Solaris Inc.) and Class A common shareholders		(9,594)		(9,507)
Payments under finance leases		(12)		(18)
Payments under insurance premium financing		(164)		—
Proceeds from stock option exercises		12		64
Payments for shares withheld for taxes from RSU vesting and cancelled		(702)		(96)
Payments related to purchase of treasury stock		—		(454)
Net cash used in financing activities		(10,460)		(36,728)
Net decrease in cash		(14,090)		(3,250)
Cash at beginning of period		60,366		66,882
Cash at end of period	$	46,276	$	63,632
Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment	$	289	$	316
Capitalized stock based compensation		151		135
Property and equipment additions incurred but not paid at period-end		612		6
Property, plant and equipment additions transferred from inventory		536		356
Financing:
Insurance premium financing		738		—
Cash paid for:
Interest		66		66
Income Taxes		325		813

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

Notes to the Condensed Consolidated Financial Statements

(Dollars in millions, except share data)

1.    Organization and Background of Business

Description of Business

We design and manufacture specialized equipment, which combined with field technician support, logistics services and our software solutions, enables us to provide a service offering that helps oil and natural gas operators and their suppliers drive efficiencies and reduce costs during the completion phase of well development. Our equipment and services are deployed in most of the active oil and natural gas basins in the United States.

2.    Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires “Solaris Inc.” or the “Company”) is the managing member of Solaris Oilfield Infrastructure, LLC (“Solaris LLC”) and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business. Solaris Inc. consolidates the financial results of Solaris LLC and its subsidiaries and reports non-controlling interest related to the portion of the units in Solaris LLC (the “Solaris LLC Units”) not owned by Solaris Inc., which will reduce net income attributable to the holders of Solaris Inc.’s Class A common stock.

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements reflect all normal recurring adjustments that are necessary for fair presentation. Operating results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

The unaudited interim condensed consolidated financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with Solaris Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 and notes thereto.

All material intercompany transactions and balances have been eliminated upon consolidation.

COVID-19 and Global Economic and Market Conditions

The novel strain of coronavirus ("COVID-19") has caused, and continues to cause, severe disruptions to the U.S. and global economies, including the oil and gas industry and the demand for our products and services.

The degree to which COVID-19 and related events outside of our control adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the timing, extent, trajectory and duration of the COVID-19 pandemic, the development, availability and administration of effective treatments and vaccines and the impact of the COVID-19 pandemic on the global economy and any subsequent recovery of normal economic and operating conditions.

While we expect these matters discussed above will continue to disrupt our operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities

7

at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates relate to stock-based compensation, useful lives and salvage values of long-lived assets, future cash flows associated with goodwill and long-lived asset impairment, net realizable value of inventory, collectability of accounts receivable and estimates of allowance for credit losses and determination of the present value of lease payments and right-of-use assets.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.

3.    Property, Plant and Equipment

Property, plant and equipment are stated at cost. We manufacture or construct most of our systems. During the manufacture of these assets, they are reflected as systems in process until complete. Modifications to existing systems, including the expenditures for upgrades and enhancements that result in additional functionality, increased efficiency, or the extension of the estimated useful life, are capitalized. Property, plant and equipment consists of the following:

	June 30,		December 31,
	2021		2020
Systems and related equipment	$	302.9	$	299.4
Systems in process		14.8		12.6
Computer hardware and software		1.1		1.0
Machinery and equipment		5.3		5.3
Vehicles		4.3		3.6
Buildings		4.4		4.3
Land		0.6		0.6
Furniture and fixtures		0.4		0.4
Property, plant and equipment, gross	$	333.8	$	327.2
Less: accumulated depreciation		(92.8)		(81.3)
Property, plant and equipment, net	$	241.0	$	245.9

4.    Debt

On April 26, 2019, Solaris LLC entered into an Amended and Restated Credit Agreement (the “2019 Credit Agreement”) by and among Solaris LLC, as borrower, each of the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent. The 2019 Credit Agreement consists of an initial $50.0 revolving loan commitment (the “Loan”) with a $25.0 uncommitted accordion option to increase the Loan availability to $75.0.

The term of the 2019 Credit Agreement expires on April 26, 2022. The 2019 Credit Agreement requires that we prepay any outstanding borrowings under the Loan in the event our total leverage ratio is greater than 1.00 to 1.00 and our consolidated cash balance exceeds $20.0, taking into account certain adjustments. At June 30, 2021, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw $50.0.

Although there were no borrowings outstanding under the 2019 Credit Agreement, the applicable margin ranges from 1.75% to 2.50% for Eurodollar loans and 0.75% to 1.50% for alternate base rate loans, in each case depending on our total leverage ratio. The 2019 Credit Agreement requires that we pay a quarterly commitment fee on undrawn

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amounts of the Loan, ranging from 0.25% to 0.375% depending upon the total leverage ratio. We were in compliance with all covenants in accordance with the 2019 Credit Agreement as of June 30, 2021.

5.    Equity

Dividends

Solaris LLC paid distributions totaling $4.8 and $4.8 to all Solaris LLC unitholders in the three months ended June 30, 2021 and 2020, respectively, of which $3.3 and $3.1 was paid to Solaris Inc. Solaris LLC paid distributions totaling $9.6 and $9.5 to all Solaris LLC unitholders in the six months ended June 30, 2021 and 2020, respectively, of which $6.7 and $6.2 was paid to Solaris Inc. Solaris Inc. used the proceeds from the distributions to pay quarterly cash dividends to all holders of shares of Class A common stock.

Stock-based compensation

The Company’s long-term incentive plan for employees, directors and consultants (the “LTIP”) provides for the grant of all or any of the following types of equity-based awards: (1) incentive stock options qualified as such under United States federal income tax laws; (2) stock options that do not qualify as incentive stock options; (3) stock appreciation rights; (4) restricted stock awards; (5) restricted stock units; (6) bonus stock; (7) performance awards; (8) dividend equivalents; (9) other stock-based awards; (10) cash awards; and (11) substitute awards.

Subject to adjustment in accordance with the terms of the LTIP, 5,118,080 shares of Solaris Inc.’s Class A common stock have been reserved for issuance pursuant to awards under the LTIP. As of June 30, 2021, 2,543,375 stock awards were available for grant.

The following table summarizes activity related to restricted stock for the three and six months ended June 30, 2021 and 2020:

	Restricted Stock Awards
	2021	2020
Unvested at January 1,	703,115	627,251
Awarded	414,185	386,146
Vested	(223,275)	(141,700)
Forfeited	(5,388)	(32,845)
Unvested at March 31,	888,637	838,852
Awarded	3,376	10,194
Vested	(8,797)	(80,203)
Forfeited	(2,306)	(37,164)
Unvested at June 30,	880,910	731,679

Of the unvested 880,910 shares of restricted stock, it is expected that 121,235 shares, 386,793 shares, 238,180 shares, and 134,702 shares will vest in 2021, 2022, 2023 and 2024, respectively, in each case, subject to the applicable vesting terms governing such shares of restricted stock. There was approximately $7.9 of unrecognized compensation expense related to unvested restricted stock as of June 30, 2021. The unrecognized compensation expense will be recognized over the weighted average remaining vesting period of 1.2 years.

Loss Per Share

Basic loss per share of Class A common stock is computed by dividing net loss attributable to Solaris Inc. by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted loss per share is computed giving effect to all potentially dilutive shares.

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The following table sets forth the calculation of loss per share for the three and six months ended June 30, 2021 and 2020:

	Three Months Ended June 30,				Six Months Ended June 30,
Basic net loss per share:	2021		2020		2021		2020
Numerator
Net loss attributable to Solaris	$	(1.2)	$	(5.5)	$	(2.4)	$	(24.6)
Loss attributable to participating securities (1)		(0.1)		—		(0.2)		—
Net loss attributable to common stockholders	$	(1.3)	$	(5.5)	$	(2.6)	$	(24.6)
Denominator
Weighted average number of unrestricted outstanding common shares used to calculate basic net loss per share		30,984		28,638		30,473		28,975
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net loss per share		30,984		28,638		30,473		28,975
Loss per share of Class A common stock - basic	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)
Loss per share of Class A common stock - diluted	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)

(1) The Company’s restricted shares of common stock are participating securities.

The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Class B common stock		13,819		15,856		14,271		15,889
Restricted stock awards		94		761		220		726
Stock Options		8		13		10		17
Total		13,921		16,630		14,501		16,632

6. Income Taxes

Income Taxes

Solaris Inc. is a corporation and, as a result, is subject to United States federal, state and local income taxes. Solaris LLC is treated as a partnership for United States federal income tax purposes and therefore does not pay United States federal income tax on its taxable income. Instead, the Solaris LLC unitholders, including Solaris Inc., are liable for United States federal income tax on their respective shares of Solaris LLC’s taxable income reported on the unitholders’ United States federal income tax returns. Solaris LLC is liable for income taxes in those states not recognizing its status as a partnership for United States federal income tax purposes.

For the three months ended June 30, 2021 and 2020, we recognized a combined United States federal and state benefit for income taxes of ($0.2) and ($1.3), respectively. For the six months ended June 30, 2021 and 2020, we recognized a combined United States federal and state benefit for income taxes of ($0.4) and ($7.4), respectively. The effective combined United States federal and state income tax rates were 10.4% and 11.7% for the three months ended June 30, 2021 and 2020, respectively. The effective combined United States federal and state income tax rates were 10.2% and 14.7% for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021 and 2020, our effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.

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The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. The largest components of the Company’s deferred tax position relate to the Company’s investment in Solaris LLC and net operating loss carryovers. The Company recorded a deferred tax asset and additional paid-in capital for the difference between the book value and the tax basis of the Company’s investment in Solaris LLC. This difference originates from the equity offerings of Class A common stock, exchanges of Solaris LLC Units (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock, and issuances of Class A common stock, and corresponding Solaris LLC Units, in connection with stock-based compensation.

Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize our deferred tax assets in the future. As the Company reassesses this position in the future, changes in cumulative earnings history, excluding non-recurring charges, or changes to forecasted taxable income may alter this expectation and may result in an increase in the valuation allowance and an increase in the effective tax rate.

Section 382 of the Internal Revenue Code of 1986, contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carryovers and certain built-in losses recognized in years after the “ownership change.” An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change net operating loss carryovers to offset taxable income earned after the ownership change. We do not believe the Section 382 annual limitation related to historical ownership changes impacts our ability to utilize our net operating losses; however, if we were to experience a future ownership change our ability to use net operating losses may be impacted.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States to provide emergency assistance to individuals and businesses affected by the COVID-19 pandemic. The CARES Act includes temporary changes to both income and non-income based tax laws. For the three and six months ended June 30, 2021 and 2020 the impact of the CARES Act was immaterial to the Company’s tax provision. However, under the CARES Act, the Company is deferring the employer portion of payroll tax payments through December 31, 2022. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods.

Payables Related to the Tax Receivable Agreement

In connection with Solaris Inc.’s initial public offering (the “IPO” or the “Offering”), Solaris Inc. entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the members of Solaris LLC immediately prior to the IPO (each such person and any permitted transferee, a “TRA Holder,” and together, the “TRA Holders”) on May 17, 2017. This agreement generally provides for the payment by Solaris Inc. to each TRA Holder of 85% of the net cash savings, if any, in United States federal, state and local income tax and franchise tax that Solaris Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the IPO as a result of (i) certain increases in tax basis that occur as a result of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of all or a portion of such TRA Holder’s Solaris LLC Units in connection with the IPO or pursuant to the exercise of the Redemption Right or the Call Right (each as defined in Solaris LLC’s Second Amended and Restated Limited Liability Company Agreement (the “Solaris LLC Agreement”)) and (ii) imputed interest deemed to be paid by Solaris Inc. as a result of, and additional tax basis arising from, any payments Solaris Inc. makes under the Tax Receivable Agreement. Solaris Inc. will retain the benefit of the remaining 15% of these cash savings. As of June 30, 2021 and December 31, 2020, Solaris Inc. recorded a payable related to the Tax Receivable Agreement of $73.5 and $68.7, respectively, $0.6 and $0.6 of which has been recorded as a current liability, respectively. The increase in payables related to the Tax Receivable Agreement is a result of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units from TRA Holders during the six months ended June 30, 2021.

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7.  Concentrations

For the three months ended June 30, 2021, one customer accounted for 30% of the Company’s revenues. For the three months ended June 30, 2020, two customers accounted for 21% of the Company’s revenues. For the six months ended June 30, 2021, one customer accounted for 22% of the Company’s revenues. For the six months ended June 30, 2020, no customer accounted for more than 10% of the Company’s revenues. As of June 30, 2021, two customers accounted for 46% of the Company’s accounts receivable. As of December 31, 2020, four customers accounted for 42% of the Company’s accounts receivable.

For the three months ended June 30, 2021, no supplier accounted for more than 10% of the Company’s total purchases. For the three months ended June 30, 2020, one supplier accounted for 40% of the Company’s total purchases. For the six months ended June 30, 2021, no supplier accounted for more than 10% of the Company’s total purchases. For the six months ended June 30, 2020, one supplier accounted for 36% of the Company’s total purchases. As of June 30, 2021, no supplier accounted for 10% of the Company’s accounts payable. As of December 31, 2020, two suppliers accounted for 23% of the Company’s accounts payable.

8.  Commitments and Contingencies

In the normal course of business, the Company is subjected to various claims, legal actions, contract negotiations and disputes. The Company provides for losses, if any, in the year in which they can be reasonably estimated. In management’s opinion, there are currently no such matters outstanding that would have a material effect on the accompanying condensed consolidated financial statements.

9.  Related Party Transactions

The Company recognizes certain costs incurred in relation to transactions incurred in connection with the amended and restated administrative services agreement, dated May 17, 2017, between Solaris LLC and Solaris Energy Management, LLC, a company partially owned by William A. Zartler, the Chief Executive Officer and Chairman of the Board. These services include rent paid for office space, travel services, personnel, consulting and administrative costs. For the three months ended June 30, 2021 and 2020, Solaris LLC paid $0.2 and $0.2, respectively, for these services. For the six months ended June 30, 2021 and 2020, Solaris LLC paid $0.3 and $0.4, respectively, for these services. As of June 30, 2021, and December 31, 2020, the Company included $0.1 and $0.1, respectively, in prepaid expenses and other current assets on the condensed consolidated balance sheets. Additionally, as of June 30, 2021 and December 31, 2020, the Company included $0.1 and $0.1, respectively, of accruals to related parties in accrued liabilities on the consolidated balance sheet.

The Company has executed a guarantee of lease agreement with Solaris Energy Management, LLC, a related party of the Company, related to the rental of office space for the Company’s corporate headquarters. The total future guaranty under the guarantee of lease agreement with Solaris Energy Management, LLC is $4.6 as of June 30, 2021.

On March 26, 2021, THRC Holdings, LP (“THRC”), purchased shares representing an 8.7% ownership of the Company’s Class A common stock and 6.0% total shares outstanding as of June 30, 2021.  THRC is affiliated with certain of the Company’s customers, including ProFrac Services, LLC (“ProFrac”) and FTS International, and certain of the Company’s suppliers including Automatize Logistics, LLC and Cisco Logistics, LLC (“Cisco”) (together the “THRC Affiliates”).  For the three and six months ended June 30, 2021, the Company recognized revenues related to our service offering provided to the THRC Affiliates of $3.1 and $3.2, respectively.  Accounts receivable related to THRC Affiliates as of June 30, 2021, were $2.4.  For the three and six months ended June 30, 2021, the Company recognized cost of services provided by THRC Affiliates of $0.1 and $0.1, respectively.  Accounts payable as of June 30, 2021, included $0.1 related to THRC Affiliates.

In August 2021, the Company executed a three-year agreement with ProFrac and Cisco (the “ProFrac-Cisco Agreement”), whereby Solaris will be the dedicated wellsite sand storage provider to ProFrac and Solaris will provide volume-based pricing for those services. Per the ProFrac-Cisco Agreement, Solaris will also purchase certain equipment from Cisco Logistics.

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10.  Subsequent Events

See Note 9. “Related Party Transactions”, for a discussion of an agreement executed in the third quarter of 2021.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires, “we,” “us,” “our,” “Solaris Inc.” or the “Company”). The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and “Risk Factors” included in this Quarterly Report and the Annual Report on Form 10-K for the year ended December 31, 2020 as updated by our subsequent filings with the United States Securities and Exchange Commission (the “SEC”), all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.

Overview

We design and manufacture specialized equipment, which combined with field technician support, logistics services and our software solutions, enables us to provide a service offering that helps oil and natural gas operators and their suppliers to drive efficiencies and reduce costs during the completion phase of well development. The majority of our revenue is currently derived from rental and services related to our patented mobile proppant and patent-pending chemical management systems that unload, store and deliver proppant and chemicals used in the hydraulic fracturing of oil and natural gas wells, as well as coordinating the delivery of proppant to the well site. Our systems are deployed in most of the active oil and natural gas basins in the United States.

Our service fleet currently consists of 158 mobile proppant management systems, 14 mobile chemical management systems and 17 mobile water management systems which reflects the conversion of proppant management systems to water management systems.

Recent Trends and Outlook

Demand for our products and services is predominantly influenced by the level of oil and natural gas well drilling and completion activity, which, in turn, is determined by the current and anticipated profitability of developing oil and natural gas reserves.

Since the first quarter of 2020, changing market expectations around the COVID-19 global economic impact drove extreme volatility in oil and gas commodity prices and activity. WTI oil prices fell from $60 per barrel to under $20 per barrel during the second quarter of 2020 and recovered to over $70 per barrel in June 2021. The Baker Hughes US Land rig count decreased 55% to 417 average rigs in 2020 from 920 average rigs in 2019. Since the start of 2021, the Baker Hughes US Land rig count has increased another 34% to 470 rigs compared to a 26% increase in our fully utilized systems since the fourth quarter of 2020. While our fully utilized systems are highly correlated with US land rig count activity over longer periods, timing differences between drilling and completion activity can result in lags of one to two quarters. Recent rig count increases against our expectation for relatively flat completions activity for the remainder of 2021 imply a build in drilled but uncompleted wells that support an increase in completions activity in early 2022. Further recovery in oil and gas prices and activity will depend on multiple factors, including the ultimate pace of economic recovery, the success of COVID-19 vaccine rollouts, potential regulatory changes and the resulting supply-demand balance in oil and gas.

Recent consolidation amongst some of our E&P and oil service customers combined with financial discipline from publicly traded energy companies has reduced industry-wide capital spending, resulting in activity levels that remain below pre-pandemic levels despite the recovery in commodity prices. Additionally, consolidation can drive procurement

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strategy changes, which has historically resulted in both market share gains and losses for the Company. We expect both consolidation and financial discipline will likely continue to be important themes for the energy industry going forward.

Previous capital expenditure guidance for the full year 2021 of $10.0 to $15.0 million included approximately $5.0 million for investments in new technology, which are now expected to be between $5.0 and $10.0 million. As a result, the Company now expects capital expenditures for the full year 2021 to be between $15.0 and $20.0 million.

Results of Operations

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021		2020		Change		2021		2020		Change
	(in thousands)						(in thousands)
Revenue
System rental	$	14,323	$	5,463	$	8,860	$	27,971	$	31,522	$	(3,551)
System services		20,616		3,419		17,197		35,326		24,376		10,950
Transloading services		38		264		(226)		152		729		(577)
Inventory software services		202		192		10		399		542		(143)
Total revenue		35,179		9,339		25,840		63,848		57,169		6,679
Operating costs and expenses:
Cost of system rental (excluding depreciation and amortization)		1,556		823		733		3,164		2,836		328
Cost of system services (excluding depreciation and amortization)		23,282		6,013		17,269		40,534		30,143		10,391
Cost of transloading services (excluding depreciation and amortization)		197		202		(5)		441		540		(99)
Cost of inventory software services (excluding depreciation and amortization)		100		122		(22)		202		267		(65)
Depreciation and amortization		6,752		6,671		81		13,445		13,785		(340)
Selling, general and administrative (excluding depreciation and amortization)		4,964		3,967		997		9,570		8,373		1,197
Impairment losses		—		—		—		—		47,828		(47,828)
Other operating expenses		360		2,274		(1,914)		613		3,472		(2,859)
Total operating costs and expenses		37,211		20,072		17,139		67,969		107,244		(39,275)
Operating loss		(2,032)		(10,733)		8,701		(4,121)		(50,075)		45,954
Interest income (expense), net		(55)		(35)		(20)		(104)		76		(180)
Total other income (expense)		(55)		(35)		(20)		(104)		76		(180)
Loss before income tax expense		(2,087)		(10,768)		8,681		(4,225)		(49,999)		45,774
Benefit for income taxes		217		1,272		(1,055)		430		7,350		(6,920)
Net loss		(1,870)		(9,496)		7,626		(3,795)		(42,649)		38,854
Less: net loss related to non-controlling interests		659		3,956		(3,297)		1,415		18,026		(16,611)
Net loss attributable to Solaris	$	(1,211)	$	(5,540)	$	4,329	$	(2,380)	$	(24,623)	$	22,243

System Rental

System rental revenue increased $8.9 million, or 162%, to $14.3 million for the three months ended June 30, 2021 compared to $5.5 million for the three months ended June 30, 2020. System rental revenue decreased $3.6 million, or 11%, to $28.0 million for the six months ended June 30, 2021 compared to $31.5 million for the six months ended June 30, 2020. The changes in system rental revenue are primarily related to changes in mobile proppant systems on a fully utilized basis, in response to global oil market volatility.

Cost of system rental increased $0.7 million, or 88%, to $1.6 million for the three months ended June 30, 2021 compared to $0.8 million for the three months ended June 30, 2020, excluding depreciation and amortization expense.

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Cost of system rental increased $0.3 million, or 11%, to $3.2 million for the six months ended June 30, 2021 compared to $2.8 million for the six months ended June 30, 2020, excluding depreciation and amortization expense. Cost of system rental increased primarily due to an increase in mobile proppant systems on a fully utilized basis. Cost of system rental as a percentage of system rental revenue was 11% and 15% for the three months ended June 30, 2021 and 2020, respectively and was 11% and 9% for the six months ended June 30, 2021 and 2020, respectively.

System Services

System services revenue increased $17.2 million, or 506%, to $20.6 million for the three months ended June 30, 2021 compared to $3.4 million for the three months ended June 30, 2020. System services revenue increased $11.0 million, or 45%, to $35.3 million for the six months ended June 30, 2021 compared to $24.4 million for the six months ended June 30, 2020. System services revenue increased due to an increase in last mile services provided to coordinate proppant delivered into our systems, as well as an increase in mobile proppant systems on a fully utilized basis.

Cost of system services increased $17.3 million, or 288%, to $23.3 million for the three months ended June 30, 2021 compared to $6.0 million for the three months ended June 30, 2020, excluding depreciation and amortization expense. Cost of system services increased $10.4 million, or 35%, to $40.5 million for the six months ended June 30, 2021 compared to $30.1 million for the six months ended June 30, 2020, excluding depreciation and amortization expense. Cost of system services increased due to an increase in last mile services provided to coordinate proppant delivered to systems as well as an increase in fully utilized systems. Cost of system services as a percentage of system services revenue was 113% and 176% for the three months ended June 30, 2021 and 2020, respectively and was 115% and 124% for the six months ended June 30, 2021 and 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.0 million, or 25%, to $5.0 million for the three months ended June 30, 2021 compared to $4.0 million for the three months ended June 30, 2020, excluding depreciation and amortization. Selling, general and administrative expenses increased $1.2 million, or 14%, to $9.6 million for the six months ended June 30, 2021 compared to $8.4 million for the six months ended June 30, 2020, excluding depreciation and amortization expense. Selling, general and administrative expenses increased due primarily to increases in compensation costs and professional fees.

Impairment Losses

As a result of risks and uncertainties associated with volatility in global oil markets driven by significant reductions in demand for oil due to COVID-19 and certain actions by oil producers globally and the expected impact on our businesses, operations, earnings and results, we recorded impairment losses and other charges of $37.8 million, $4.2 million, $2.8 million, $2.6 million and $0.4 million in relation to property, plant and equipment, goodwill, ROU assets, inventories and other assets, respectively, in the six months ended June 30, 2020. We did not record impairment losses in the three or six months ended June 30, 2021, respectively, and for the three months ended June 30, 2020.

Provision for Income Taxes

During the three months ended June 30, 2021, we recognized a combined United States federal and state benefit for income taxes of $0.2 million, a decrease of $1.1 million as compared to the $1.3 million income tax benefit we recognized during the three months ended June 30, 2020. During the six months ended June 30, 2021, we recognized a combined United States federal and state benefit for income taxes of $0.4 million, a decrease of $7.0 million as compared to the $7.4 million income tax benefit we recognized during the six months ended June 30, 2020. This change was attributable to lower operating losses. The effective combined United States federal and state income tax rates were 10.4% and 11.7% for the three months ended June 30, 2021 and 2020, respectively. The effective combined United States federal and state income tax rates were 10.2% and 14.7% for the six months ended June 30, 2021 and 2020, respectively. The effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.

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Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus (i) depreciation and amortization expense, (ii) interest expense and (iii) income tax expense, including franchise taxes. We define Adjusted EBITDA as EBITDA plus (i) stock-based compensation expense and (ii) certain non-cash items and any extraordinary, unusual or non-recurring gains, losses or expenses.

EBITDA and Adjusted EBITDA should not be considered in isolation or as substitutes for an analysis of our results of operation and financial condition as reported in accordance with accounting standards generally accepted in the United States (“GAAP”). Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The following table presents a reconciliation of Net income to EBITDA and Adjusted EBITDA for each of the periods indicated.

	Three months ended						Six months ended
	June 30,						June 30,
	2021		2020		Change		2021		2020		Change
	(in thousands)						(in thousands)
Net loss	$	(1,870)	$	(9,496)	$	7,626	$	(3,795)	$	(42,649)	$	38,854
Depreciation and amortization		6,752		6,671		81		13,445		13,785		(340)
Interest (income) expense, net		55		35		20		104		(76)		180
Income taxes (1)		(217)		(1,272)		1,055		(430)		(7,350)		6,920
EBITDA	$	4,720	$	(4,062)	$	8,782	$	9,324	$	(36,290)	$	45,614
Stock-based compensation expense (2)		1,353		1,326		27		2,552		2,656		(104)
Loss on disposal of assets		99		1,345		(1,246)		117		1,413		(1,296)
Impairment losses		—		—		—		—		47,828		(47,828)
Severance expense		—		211		(211)		—		542		(542)
Credit losses		316		740		(424)		599		1,451		(852)
Transaction costs (3)		10		—		10		24		—		24
Adjusted EBITDA	$	6,498	$	(440)	$	6,938	$	12,616	$	17,600	$	(4,984)

(1) United States federal and state income taxes.

(2) Represents stock-based compensation expense related to restricted stock awards.

(3) Costs related to the evaluation of acquisitions.

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020: EBITDA and Adjusted EBITDA

EBITDA increased $8.8 million to $4.7 million for the three months ended June 30, 2021 compared to ($4.1) million for the three months ended June 30, 2020. Adjusted EBITDA increased $6.9 million to $6.5 million for the three months ended June 30, 2021 compared to ($0.4) million for the three months ended June 30, 2020. EBITDA increased $45.6 million to $9.3 million for the six months ended June 30, 2021 compared to ($36.3) million for the six months ended June 30, 2020. Adjusted EBITDA decreased $5.0 million to $12.6 million for the six months ended June 30, 2021 compared to $17.6 million for the six months ended June 30, 2020. The changes in EBITDA and Adjusted EBITDA were primarily due to the changes in revenues and expenses, discussed above.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity to date have been cash flows from operations, borrowings under our credit agreements and proceeds from equity offerings. Our primary uses of capital have been to fund ongoing operations,

16

capital expenditures to support organic growth, including our fleet development and related maintenance and fleet upgrades, repurchase shares of Class A common stock in the open market, and pay dividends. Although no assurance can be given, depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed.

As of June 30, 2021, cash and cash equivalents totaled $46.3 million. We have no borrowings outstanding under our 2019 Credit Agreement and have $50.0 million of available borrowing capacity. We believe that our cash on hand, operating cash flow and available borrowings under our 2019 Credit Agreement will be sufficient to fund our operations for at least the next 12 months.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

	Six Months Ended
	June 30,
	2021		2020		Change
	(in thousands)
Net cash provided by operating activities	$	4,040	$	34,323	$	(30,283)
Net cash used in investing activities		(7,670)		(845)		(6,825)
Net cash used in financing activities		(10,460)		(36,728)		26,268
Net change in cash	$	(14,090)	$	(3,250)	$	(10,840)

Significant Sources and Uses of Cash Flows

Operating Activities. Net cash provided by operating activities was $4.0 million for the six months ended June 30, 2021, compared to net cash provided by operating activities of $34.3 million for the six months ended June 30, 2020. The decrease of $30.3 million in operating cash flow was primarily attributable to lower revenues and changes in working capital.

Investing Activities. Net cash used in investing activities was $7.7 million for the six months ended June 30, 2021, compared to net cash used in investing activities of $0.8 million for the six months ended June 30, 2020. The increase in investing activities of $6.8 million is primarily due to capital expenditures related to enhancements to our fleet and for new technologies.

Financing Activities. Net cash used in financing activities of $10.5 million for the six months ended June 30, 2021 was primarily related to quarterly dividends of $9.6 million and $0.7 million of payments related to vesting of stock-based compensation. Net cash used in financing activities of ($36.7) million for the six months ended June 30, 2020 was primarily related to $26.7 million of share repurchases and quarterly dividends of $9.5 million.

Capital Sources

Senior Secured Credit Facility

See Note 4. “Debt” to our condensed consolidated financial statements as of June 30, 2021, for a discussion of our senior secured credit facility.

Contractual Obligations

We had no material changes in our contractual commitments and obligations during the three months ended June 30, 2021 from the amounts listed under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 23, 2021. See Note 4 “Debt” and Note 8 “Commitments and Contingencies” to our condensed consolidated financial statements for additional information.

17

Critical Accounting Policies and Estimates

See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

None.

Recently Issued Accounting Standards

See Note 2. “Summary of Significant Accounting Policies – Recently Issued Accounting Standards” to our condensed consolidated financial statements as of June 30, 2021, for a discussion of recently issued accounting standards.

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), we meet the definition of an “emerging growth company,” which allows us to have an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, however, we elected to opt out of such exemption (this election is irrevocable).

Off Balance Sheet Arrangements

We have no material off balance sheet arrangements. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2020. Our exposure to market risk has not changed materially since December 31, 2020.

Credit Risk

The majority of our accounts receivable have payment terms of 60 days or less. As of June 30, 2021, two customers collectively accounted for 46% of our total accounts receivable. As of December 31, 2020, four customers collectively accounted for 42% of our total accounts receivable. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our customers. Please see Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information regarding credit risk of our customers.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized

18

and reported within the time periods specified in the rules and forms of the SEC. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

19

PART II. OTHER INFORMATION

Item 1.        Legal Proceedings

Due to the nature of our business, we may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. In the opinion of our management, there are no pending litigation, disputes or claims against us which, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations.

Item 1A.      Risk Factors

Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our Class A common stock are described under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 23, 2021. As of the date of this filing, there have been no material updates to the risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

During the current quarter, we repurchased the shares of Class A common stock as shown in the table below, to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our employees:

	Total Number of	Average Price
	Shares	Paid Per
Period	Purchased	Share
January 1 - January 31	—	$	—
February 1 - February 28	—		—
March 1 - March 31	57,026		11.78
April 1 - April 30	504		12.82
May 1 - May 31	—		—
June 1 - June 30	1,820		11.67
Total	59,350	$	11.79

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

20

Item 6.Exhibits

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Solaris Oilfield Infrastructure, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (File No. 001-38090) filed with the Commission on May 23, 2017).
3.2	Amended and Restated Bylaws of Solaris Oilfield Infrastructure, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K (File No. 001-38090) filed with the Commission on May 23, 2017).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.
104*	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

*     Filed herewith.

**   Furnished herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act, except to the extent that the registrant specifically incorporates it by reference.

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SOLARIS OILFIELD INFRASTRUCTURE, INC.
August 4, 2021	By:	/s/ William A. Zartler
		William A. Zartler
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
August 4, 2021	By:	/s/ Kyle S. Ramachandran
		Kyle S. Ramachandran
		President and Chief Financial Officer
		(Principal Financial Officer)

22

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, William A. Zartler, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Solaris Oilfield Infrastructure, Inc. (the “registrant”);

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2021

reg

/s/ William A. Zartler

William A. Zartler

Chairman and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Kyle S. Ramachandran, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Solaris Oilfield Infrastructure, Inc. (the “registrant”);

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2021

/s/ Kyle S. Ramachandran

Kyle S. Ramachandran

President and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b)
OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, William A. Zartler, Chairman and Chief Executive Officer of Solaris Oilfield Infrastructure, Inc. (the “Company”), hereby certify, to my knowledge, that:

(1)the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 4, 2021	/s/ William A. Zartler
		William A. Zartler
		Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b)
OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Kyle S. Ramachandran, President and Chief Financial Officer of Solaris Oilfield Infrastructure, Inc. (the “Company”), hereby certify, to my knowledge, that:

(1)the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 4, 2021	/s/ Kyle S. Ramachandran
		Kyle S. Ramachandran
		President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Aug. 03, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity File Number	001-38090
Entity Registrant Name	SOLARIS OILFIELD INFRASTRUCTURE, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	81-5223109
Entity Address, Address Line One	9811 Katy Freeway, Suite 700
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77024
City Area Code	281
Local Phone Number	501-3070
Title of 12(b) Security	Class A Common Stock
Trading Symbol	SOI
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Central Index Key	0001697500
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false
Class A Common Stock
Document and Entity Information
Entity Common Stock, Shares Outstanding		31,862,999
Class B Common Stock
Document and Entity Information
Entity Common Stock, Shares Outstanding		13,818,517

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 46,276	$ 60,366
Accounts receivable, net of allowances for credit losses of $920 and $1,099, respectively	31,341	18,243
Prepaid expenses and other current assets	3,813	2,169
Inventories	1,939	954
Total current assets	83,369	81,732
Property, plant and equipment, net	241,048	245,884
Non-current inventories	2,882	3,318
Operating lease right-of-use assets	4,449	4,708
Goodwill	13,004	13,004
Intangible assets, net	2,593	2,982
Deferred tax assets	63,842	59,805
Other assets	381	463
Total assets	411,568	411,896
Current liabilities:
Accounts payable	14,145	6,863
Accrued liabilities	12,006	11,986
Current portion of payables related to Tax Receivable Agreement	606	606
Current portion of operating lease liabilities	693	647
Current portion of finance lease liabilities	30	30
Other current liabilities	813	75
Total current liabilities	28,293	20,207
Operating lease liabilities, net of current	6,981	7,419
Finance lease liabilities, net of current	85	100
Payables related to Tax Receivable Agreement	72,908	68,097
Other long-term liabilities	587	594
Total liabilities	108,854	96,417
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued and outstanding
Additional paid-in capital	194,690	180,415
Retained earnings	11,137	20,549
Total stockholders' equity attributable to Solaris	206,137	201,254
Non-controlling interest	96,577	114,225
Total stockholders' equity	302,714	315,479
Total liabilities and stockholders' equity	411,568	411,896
Class A Common Stock
Stockholders' equity:
Common Stock	310	290
Class B Common Stock
Stockholders' equity:
Common Stock

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Allowance for credit losses	$ 920	$ 1,099
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000	50,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Class A Common Stock
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	600,000	600,000
Common stock, shares issued	30,984	28,943
Common stock, shares outstanding	30,984	28,943
Class B Common Stock
Common stock, par value (in dollars per share)	$ 0.00	$ 0.00
Common stock, shares authorized	180,000	180,000
Common stock, shares issued	13,820	15,685
Common stock, shares outstanding	13,820	15,685

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue:
Total revenue	$ 35,179	$ 9,339	$ 63,848	$ 57,169
Operating costs and expenses:
Depreciation and amortization	6,752	6,671	13,445	13,785
Selling, general and administrative (excluding $182 and $172 and $365 and $324 of depreciation and amortization for the three and six months ended June 30, 2021 and 2020, respectively, shown separately) (1)	4,964	3,967	9,570	8,373
Impairment losses				47,828
Other operating expenses	360	2,274	613	3,472
Total operating costs and expenses	37,211	20,072	67,969	107,244
Operating loss	(2,032)	(10,733)	(4,121)	(50,075)
Interest income (expense), net	(55)	(35)	(104)	76
Total other expense (income)	(55)	(35)	(104)	76
Loss before income tax expense	(2,087)	(10,768)	(4,225)	(49,999)
Benefit for income taxes	217	1,272	430	7,350
Net loss	(1,870)	(9,496)	(3,795)	(42,649)
Less: net loss related to non-controlling interests	659	3,956	1,415	18,026
Net loss attributable to Solaris	(1,211)	(5,540)	(2,380)	(24,623)
System rental
Revenue:
Total revenue	14,323	5,463	27,971	31,522
Operating costs and expenses:
Cost of revenue	1,556	823	3,164	2,836
System services
Revenue:
Total revenue	20,616	3,419	35,326	24,376
Operating costs and expenses:
Cost of revenue	23,282	6,013	40,534	30,143
Transloading services
Revenue:
Total revenue	38	264	152	729
Operating costs and expenses:
Cost of revenue	197	202	441	540
Inventory software services
Revenue:
Total revenue	202	192	399	542
Operating costs and expenses:
Cost of revenue	$ 100	$ 122	$ 202	$ 267
Class A Common Stock
Operating costs and expenses:
Loss per share of Class A common stock - basic (in dollars per share)	$ (0.04)	$ (0.20)	$ (0.08)	$ (0.85)
Loss per share of Class A common stock - diluted (in dollars per share)	$ (0.04)	$ (0.20)	$ (0.08)	$ (0.85)
Basic weighted-average shares of Class A common stock outstanding (in shares)	30,984	28,638	30,473	28,975
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net loss per share (in shares)	30,984	28,638	30,473	28,975

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Depreciation and amortization, nonproduction	$ 182	$ 172	$ 365	$ 324
Stock-based compensation expense	1,353	1,326	2,552	2,656
Selling, general and administrative expenses
Stock-based compensation expense	1,254	1,231	2,267	2,345
System rental
Depreciation and amortization, production	6,187	6,034	12,328	12,035
Stock-based compensation expense	7	18	12	31
System services
Depreciation and amortization, production	188	274	362	631
Stock-based compensation expense	88	73	260	273
Transloading services
Depreciation and amortization, production	0	0	0	411
Stock-based compensation expense	4	4	13	7
Inventory software services
Depreciation and amortization, production	$ 195	$ 191	$ 390	$ 384

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Common Stock Class A Common Stock	Common Stock Class B Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Non-controlling Interest	Total
Balance at beginning of year at Dec. 31, 2019	$ 308		$ 191,843	$ 74,222	$ (2,526)	$ 145,811	$ 409,658
Balance at beginning of year (in shares) at Dec. 31, 2019	30,765	15,940			163
Changes in Stockholders' Equity
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	$ 1		460			(461)
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock (in shares)	50	(50)
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock			(303)				(303)
Stock option exercises			66		$ (80)	(11)	(25)
Stock option exercises (in shares)	9				7
Share and unit repurchases and retirements	$ (24)		(14,804)	(10,177)		(1,711)	(26,716)
Share and unit repurchases and retirements (in shares)	(2,374)
Stock-based compensation			907			492	1,399
Vesting of restricted stock	$ 1		471		$ (373)	(473)	(374)
Vesting of restricted stock (in shares)	105				37
Solaris LLC distribution paid to Solaris LLC unitholders						(1,668)	(1,668)
Dividends paid (Class A common stock)				(3,087)			(3,087)
Treasury stock retirements			(1,247)	(1,732)	$ 2,979
Treasury stock retirements (in shares)					(207)
Net loss				(19,081)		(14,071)	(33,152)
Balance at end of year at Mar. 31, 2020	$ 286		177,393	40,145		127,908	345,732
Balance at end of year (in shares) at Mar. 31, 2020	28,555	15,890
Balance at beginning of year at Dec. 31, 2019	$ 308		191,843	74,222	$ (2,526)	145,811	409,658
Balance at beginning of year (in shares) at Dec. 31, 2019	30,765	15,940			163
Changes in Stockholders' Equity
Net loss							(42,649)
Balance at end of year at Jun. 30, 2020	$ 287		178,511	31,516		122,166	332,480
Balance at end of year (in shares) at Jun. 30, 2020	28,673	15,840
Balance at beginning of year at Mar. 31, 2020	$ 286		177,393	40,145		127,908	345,732
Balance at beginning of year (in shares) at Mar. 31, 2020	28,555	15,890
Changes in Stockholders' Equity
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	$ 1		395			(395)	1
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock (in shares)	50	(50)
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock			(310)				(310)
Stock option exercises			36			(16)	20
Stock option exercises (in shares)	7
Stock-based compensation			895			497	1,392
Vesting of restricted stock			171			(171)
Vesting of restricted stock (in shares)	80
Cancelled shares withheld for taxes from RSU vesting			(69)			(38)	(107)
Cancelled shares withheld for taxes from RSU vesting (in shares)	(19)
Solaris LLC distribution paid to Solaris LLC unitholders						(1,663)	(1,663)
Dividends paid (Class A common stock)				(3,089)			(3,089)
Net loss				(5,540)		(3,956)	(9,496)
Balance at end of year at Jun. 30, 2020	$ 287		178,511	31,516		122,166	332,480
Balance at end of year (in shares) at Jun. 30, 2020	28,673	15,840
Balance at beginning of year at Dec. 31, 2020	$ 290		180,415	20,549		114,225	315,479
Balance at beginning of year (in shares) at Dec. 31, 2020	28,943	15,685
Changes in Stockholders' Equity
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	$ 19		13,526			(13,545)
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock (in shares)	1,865	(1,865)
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock			(1,184)				(1,184)
Stock option exercises			18			(6)	12
Stock option exercises (in shares)	4
Stock-based compensation			854			418	1,272
Vesting of restricted stock	$ 2		407			(409)
Vesting of restricted stock (in shares)	223
Cancelled shares withheld for taxes from RSU vesting	$ (1)		(146)	(319)		(207)	(673)
Cancelled shares withheld for taxes from RSU vesting (in shares)	(57)
Solaris LLC distribution paid to Solaris LLC unitholders						(1,451)	(1,451)
Dividends paid (Class A common stock)				(3,346)			(3,346)
Net loss				(1,169)		(756)	(1,925)
Balance at end of year at Mar. 31, 2021	$ 310		193,890	15,715		98,269	308,184
Balance at end of year (in shares) at Mar. 31, 2021	30,978	13,820
Balance at beginning of year at Dec. 31, 2020	$ 290		180,415	20,549		114,225	315,479
Balance at beginning of year (in shares) at Dec. 31, 2020	28,943	15,685
Changes in Stockholders' Equity
Net loss							(3,795)
Balance at end of year at Jun. 30, 2021	$ 310		194,690	11,137		96,577	302,714
Balance at end of year (in shares) at Jun. 30, 2021	30,984	13,820
Balance at beginning of year at Mar. 31, 2021	$ 310		193,890	15,715		98,269	308,184
Balance at beginning of year (in shares) at Mar. 31, 2021	30,978	13,820
Changes in Stockholders' Equity
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock			(198)				(198)
Stock-based compensation			989			442	1,431
Vesting of restricted stock			15			(15)
Vesting of restricted stock (in shares)	8
Cancelled shares withheld for taxes from RSU vesting			(6)	(21)		(9)	(36)
Cancelled shares withheld for taxes from RSU vesting (in shares)	(2)
Solaris LLC distribution paid to Solaris LLC unitholders						(1,451)	(1,451)
Dividends paid (Class A common stock)				(3,346)			(3,346)
Net loss				(1,211)		(659)	(1,870)
Balance at end of year at Jun. 30, 2021	$ 310		$ 194,690	$ 11,137		$ 96,577	$ 302,714
Balance at end of year (in shares) at Jun. 30, 2021	30,984	13,820

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Jun. 30, 2021	Jun. 30, 2020
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Distributions paid to unit holders (in dollars per unit)	$ 0.105	$ 0.105	$ 0.105	$ 0.105
Cash dividends paid (in dollars per share)	$ 0.105	$ 0.105	$ 0.105	$ 0.105

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net loss	$ (3,795)	$ (42,649)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	13,445	13,785
Loss on disposal of assets	117	1,402
Allowance for credit losses	599	1,633
Stock-based compensation	2,552	2,656
Amortization of debt issuance costs	88	88
Deferred income tax benefit	(607)	(7,369)
Impairment losses		47,828
Other	(146)	(145)
Changes in operating assets and liabilities:
Accounts receivable	(13,697)	25,760
Prepaid expenses and other assets	(742)	(217)
Inventories	(1,085)	(533)
Accounts payable	7,239	147
Accrued liabilities	72	(8,063)
Net cash provided by operating activities	4,040	34,323
Cash flows from investing activities:
Investment in property, plant and equipment	(7,716)	(1,558)
Cash received from insurance proceeds	6
Proceeds from disposal of assets	40	713
Net cash used in investing activities	(7,670)	(845)
Cash flows from financing activities:
Share repurchases		(26,717)
Distribution and dividend paid to Solaris LLC unitholders (other than Solaris Inc.) and Class A common shareholders	(9,594)	(9,507)
Payments under finance leases	(12)	(18)
Payments under insurance premium financing	(164)
Proceeds from stock option exercises	12	64
Payments for shares withheld for taxes from RSU vesting and cancelled	(702)	(96)
Payments related to purchase of treasury stock		(454)
Net cash used in financing activities	(10,460)	(36,728)
Net decrease in cash	(14,090)	(3,250)
Cash at beginning of period	60,366	66,882
Cash at end of period	46,276	63,632
Non-cash activities
Capitalized depreciation in property, plant and equipment	289	316
Capitalized stock based compensation	151	135
Property and equipment additions incurred but not paid at period-end	612	6
Property, plant and equipment additions transferred from inventory	536	356
Insurance premium financing	738
Cash paid for:
Interest	66	66
Income taxes	$ 325	$ 813

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Organization and Background of Business

6 Months Ended

Jun. 30, 2021

Organization and Background of Business

Organization and Background of Business

1.    Organization and Background of Business

Description of Business

We design and manufacture specialized equipment, which combined with field technician support, logistics services and our software solutions, enables us to provide a service offering that helps oil and natural gas operators and their suppliers drive efficiencies and reduce costs during the completion phase of well development. Our equipment and services are deployed in most of the active oil and natural gas basins in the United States.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.    Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires “Solaris Inc.” or the “Company”) is the managing member of Solaris Oilfield Infrastructure, LLC (“Solaris LLC”) and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business. Solaris Inc. consolidates the financial results of Solaris LLC and its subsidiaries and reports non-controlling interest related to the portion of the units in Solaris LLC (the “Solaris LLC Units”) not owned by Solaris Inc., which will reduce net income attributable to the holders of Solaris Inc.’s Class A common stock.

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements reflect all normal recurring adjustments that are necessary for fair presentation. Operating results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

The unaudited interim condensed consolidated financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with Solaris Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 and notes thereto.

All material intercompany transactions and balances have been eliminated upon consolidation.

COVID-19 and Global Economic and Market Conditions

The novel strain of coronavirus ("COVID-19") has caused, and continues to cause, severe disruptions to the U.S. and global economies, including the oil and gas industry and the demand for our products and services.

The degree to which COVID-19 and related events outside of our control adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the timing, extent, trajectory and duration of the COVID-19 pandemic, the development, availability and administration of effective treatments and vaccines and the impact of the COVID-19 pandemic on the global economy and any subsequent recovery of normal economic and operating conditions.

While we expect these matters discussed above will continue to disrupt our operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities

at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates relate to stock-based compensation, useful lives and salvage values of long-lived assets, future cash flows associated with goodwill and long-lived asset impairment, net realizable value of inventory, collectability of accounts receivable and estimates of allowance for credit losses and determination of the present value of lease payments and right-of-use assets.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.

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Property, Plant and Equipment

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment

Property, Plant and Equipment

3.    Property, Plant and Equipment

Property, plant and equipment are stated at cost. We manufacture or construct most of our systems. During the manufacture of these assets, they are reflected as systems in process until complete. Modifications to existing systems, including the expenditures for upgrades and enhancements that result in additional functionality, increased efficiency, or the extension of the estimated useful life, are capitalized. Property, plant and equipment consists of the following:

	June 30,		December 31,
	2021		2020
Systems and related equipment	$	302.9	$	299.4
Systems in process		14.8		12.6
Computer hardware and software		1.1		1.0
Machinery and equipment		5.3		5.3
Vehicles		4.3		3.6
Buildings		4.4		4.3
Land		0.6		0.6
Furniture and fixtures		0.4		0.4
Property, plant and equipment, gross	$	333.8	$	327.2
Less: accumulated depreciation		(92.8)		(81.3)
Property, plant and equipment, net	$	241.0	$	245.9

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Debt

6 Months Ended

Jun. 30, 2021

Debt

Debt

4.    Debt

On April 26, 2019, Solaris LLC entered into an Amended and Restated Credit Agreement (the “2019 Credit Agreement”) by and among Solaris LLC, as borrower, each of the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent. The 2019 Credit Agreement consists of an initial $50.0 revolving loan commitment (the “Loan”) with a $25.0 uncommitted accordion option to increase the Loan availability to $75.0.

The term of the 2019 Credit Agreement expires on April 26, 2022. The 2019 Credit Agreement requires that we prepay any outstanding borrowings under the Loan in the event our total leverage ratio is greater than 1.00 to 1.00 and our consolidated cash balance exceeds $20.0, taking into account certain adjustments. At June 30, 2021, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw $50.0.

Although there were no borrowings outstanding under the 2019 Credit Agreement, the applicable margin ranges from 1.75% to 2.50% for Eurodollar loans and 0.75% to 1.50% for alternate base rate loans, in each case depending on our total leverage ratio. The 2019 Credit Agreement requires that we pay a quarterly commitment fee on undrawn

amounts of the Loan, ranging from 0.25% to 0.375% depending upon the total leverage ratio. We were in compliance with all covenants in accordance with the 2019 Credit Agreement as of June 30, 2021.

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Equity

6 Months Ended

Jun. 30, 2021

Equity

Equity

5.    Equity

Dividends

Solaris LLC paid distributions totaling $4.8 and $4.8 to all Solaris LLC unitholders in the three months ended June 30, 2021 and 2020, respectively, of which $3.3 and $3.1 was paid to Solaris Inc. Solaris LLC paid distributions totaling $9.6 and $9.5 to all Solaris LLC unitholders in the six months ended June 30, 2021 and 2020, respectively, of which $6.7 and $6.2 was paid to Solaris Inc. Solaris Inc. used the proceeds from the distributions to pay quarterly cash dividends to all holders of shares of Class A common stock.

Stock-based compensation

The Company’s long-term incentive plan for employees, directors and consultants (the “LTIP”) provides for the grant of all or any of the following types of equity-based awards: (1) incentive stock options qualified as such under United States federal income tax laws; (2) stock options that do not qualify as incentive stock options; (3) stock appreciation rights; (4) restricted stock awards; (5) restricted stock units; (6) bonus stock; (7) performance awards; (8) dividend equivalents; (9) other stock-based awards; (10) cash awards; and (11) substitute awards.

Subject to adjustment in accordance with the terms of the LTIP, 5,118,080 shares of Solaris Inc.’s Class A common stock have been reserved for issuance pursuant to awards under the LTIP. As of June 30, 2021, 2,543,375 stock awards were available for grant.

The following table summarizes activity related to restricted stock for the three and six months ended June 30, 2021 and 2020:

	Restricted Stock Awards
	2021	2020
Unvested at January 1,	703,115	627,251
Awarded	414,185	386,146
Vested	(223,275)	(141,700)
Forfeited	(5,388)	(32,845)
Unvested at March 31,	888,637	838,852
Awarded	3,376	10,194
Vested	(8,797)	(80,203)
Forfeited	(2,306)	(37,164)
Unvested at June 30,	880,910	731,679

Of the unvested 880,910 shares of restricted stock, it is expected that 121,235 shares, 386,793 shares, 238,180 shares, and 134,702 shares will vest in 2021, 2022, 2023 and 2024, respectively, in each case, subject to the applicable vesting terms governing such shares of restricted stock. There was approximately $7.9 of unrecognized compensation expense related to unvested restricted stock as of June 30, 2021. The unrecognized compensation expense will be recognized over the weighted average remaining vesting period of 1.2 years.

Loss Per Share

Basic loss per share of Class A common stock is computed by dividing net loss attributable to Solaris Inc. by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted loss per share is computed giving effect to all potentially dilutive shares.

The following table sets forth the calculation of loss per share for the three and six months ended June 30, 2021 and 2020:

	Three Months Ended June 30,				Six Months Ended June 30,
Basic net loss per share:	2021		2020		2021		2020
Numerator
Net loss attributable to Solaris	$	(1.2)	$	(5.5)	$	(2.4)	$	(24.6)
Loss attributable to participating securities (1)		(0.1)		—		(0.2)		—
Net loss attributable to common stockholders	$	(1.3)	$	(5.5)	$	(2.6)	$	(24.6)
Denominator
Weighted average number of unrestricted outstanding common shares used to calculate basic net loss per share		30,984		28,638		30,473		28,975
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net loss per share		30,984		28,638		30,473		28,975
Loss per share of Class A common stock - basic	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)
Loss per share of Class A common stock - diluted	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)

(1) The Company’s restricted shares of common stock are participating securities.

The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Class B common stock		13,819		15,856		14,271		15,889
Restricted stock awards		94		761		220		726
Stock Options		8		13		10		17
Total		13,921		16,630		14,501		16,632

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Income Taxes

6 Months Ended

Jun. 30, 2021

Income Taxes

Income Taxes

6. Income Taxes

Income Taxes

Solaris Inc. is a corporation and, as a result, is subject to United States federal, state and local income taxes. Solaris LLC is treated as a partnership for United States federal income tax purposes and therefore does not pay United States federal income tax on its taxable income. Instead, the Solaris LLC unitholders, including Solaris Inc., are liable for United States federal income tax on their respective shares of Solaris LLC’s taxable income reported on the unitholders’ United States federal income tax returns. Solaris LLC is liable for income taxes in those states not recognizing its status as a partnership for United States federal income tax purposes.

For the three months ended June 30, 2021 and 2020, we recognized a combined United States federal and state benefit for income taxes of ($0.2) and ($1.3), respectively. For the six months ended June 30, 2021 and 2020, we recognized a combined United States federal and state benefit for income taxes of ($0.4) and ($7.4), respectively. The effective combined United States federal and state income tax rates were 10.4% and 11.7% for the three months ended June 30, 2021 and 2020, respectively. The effective combined United States federal and state income tax rates were 10.2% and 14.7% for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021 and 2020, our effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.

The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. The largest components of the Company’s deferred tax position relate to the Company’s investment in Solaris LLC and net operating loss carryovers. The Company recorded a deferred tax asset and additional paid-in capital for the difference between the book value and the tax basis of the Company’s investment in Solaris LLC. This difference originates from the equity offerings of Class A common stock, exchanges of Solaris LLC Units (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock, and issuances of Class A common stock, and corresponding Solaris LLC Units, in connection with stock-based compensation.

Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize our deferred tax assets in the future. As the Company reassesses this position in the future, changes in cumulative earnings history, excluding non-recurring charges, or changes to forecasted taxable income may alter this expectation and may result in an increase in the valuation allowance and an increase in the effective tax rate.

Section 382 of the Internal Revenue Code of 1986, contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carryovers and certain built-in losses recognized in years after the “ownership change.” An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change net operating loss carryovers to offset taxable income earned after the ownership change. We do not believe the Section 382 annual limitation related to historical ownership changes impacts our ability to utilize our net operating losses; however, if we were to experience a future ownership change our ability to use net operating losses may be impacted.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States to provide emergency assistance to individuals and businesses affected by the COVID-19 pandemic. The CARES Act includes temporary changes to both income and non-income based tax laws. For the three and six months ended June 30, 2021 and 2020 the impact of the CARES Act was immaterial to the Company’s tax provision. However, under the CARES Act, the Company is deferring the employer portion of payroll tax payments through December 31, 2022. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods.

Payables Related to the Tax Receivable Agreement

In connection with Solaris Inc.’s initial public offering (the “IPO” or the “Offering”), Solaris Inc. entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the members of Solaris LLC immediately prior to the IPO (each such person and any permitted transferee, a “TRA Holder,” and together, the “TRA Holders”) on May 17, 2017. This agreement generally provides for the payment by Solaris Inc. to each TRA Holder of 85% of the net cash savings, if any, in United States federal, state and local income tax and franchise tax that Solaris Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the IPO as a result of (i) certain increases in tax basis that occur as a result of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of all or a portion of such TRA Holder’s Solaris LLC Units in connection with the IPO or pursuant to the exercise of the Redemption Right or the Call Right (each as defined in Solaris LLC’s Second Amended and Restated Limited Liability Company Agreement (the “Solaris LLC Agreement”)) and (ii) imputed interest deemed to be paid by Solaris Inc. as a result of, and additional tax basis arising from, any payments Solaris Inc. makes under the Tax Receivable Agreement. Solaris Inc. will retain the benefit of the remaining 15% of these cash savings. As of June 30, 2021 and December 31, 2020, Solaris Inc. recorded a payable related to the Tax Receivable Agreement of $73.5 and $68.7, respectively, $0.6 and $0.6 of which has been recorded as a current liability, respectively. The increase in payables related to the Tax Receivable Agreement is a result of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units from TRA Holders during the six months ended June 30, 2021.

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Concentrations

6 Months Ended

Jun. 30, 2021

Concentrations

Concentrations

7.  Concentrations

For the three months ended June 30, 2021, one customer accounted for 30% of the Company’s revenues. For the three months ended June 30, 2020, two customers accounted for 21% of the Company’s revenues. For the six months ended June 30, 2021, one customer accounted for 22% of the Company’s revenues. For the six months ended June 30, 2020, no customer accounted for more than 10% of the Company’s revenues. As of June 30, 2021, two customers accounted for 46% of the Company’s accounts receivable. As of December 31, 2020, four customers accounted for 42% of the Company’s accounts receivable.

For the three months ended June 30, 2021, no supplier accounted for more than 10% of the Company’s total purchases. For the three months ended June 30, 2020, one supplier accounted for 40% of the Company’s total purchases. For the six months ended June 30, 2021, no supplier accounted for more than 10% of the Company’s total purchases. For the six months ended June 30, 2020, one supplier accounted for 36% of the Company’s total purchases. As of June 30, 2021, no supplier accounted for 10% of the Company’s accounts payable. As of December 31, 2020, two suppliers accounted for 23% of the Company’s accounts payable.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies

Commitments and Contingencies

8.  Commitments and Contingencies

In the normal course of business, the Company is subjected to various claims, legal actions, contract negotiations and disputes. The Company provides for losses, if any, in the year in which they can be reasonably estimated. In management’s opinion, there are currently no such matters outstanding that would have a material effect on the accompanying condensed consolidated financial statements.

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Related Party Transactions

6 Months Ended

Jun. 30, 2021

Related Party Transactions

Related Party Transactions

9.  Related Party Transactions

The Company recognizes certain costs incurred in relation to transactions incurred in connection with the amended and restated administrative services agreement, dated May 17, 2017, between Solaris LLC and Solaris Energy Management, LLC, a company partially owned by William A. Zartler, the Chief Executive Officer and Chairman of the Board. These services include rent paid for office space, travel services, personnel, consulting and administrative costs. For the three months ended June 30, 2021 and 2020, Solaris LLC paid $0.2 and $0.2, respectively, for these services. For the six months ended June 30, 2021 and 2020, Solaris LLC paid $0.3 and $0.4, respectively, for these services. As of June 30, 2021, and December 31, 2020, the Company included $0.1 and $0.1, respectively, in prepaid expenses and other current assets on the condensed consolidated balance sheets. Additionally, as of June 30, 2021 and December 31, 2020, the Company included $0.1 and $0.1, respectively, of accruals to related parties in accrued liabilities on the consolidated balance sheet.

The Company has executed a guarantee of lease agreement with Solaris Energy Management, LLC, a related party of the Company, related to the rental of office space for the Company’s corporate headquarters. The total future guaranty under the guarantee of lease agreement with Solaris Energy Management, LLC is $4.6 as of June 30, 2021.

On March 26, 2021, THRC Holdings, LP (“THRC”), purchased shares representing an 8.7% ownership of the Company’s Class A common stock and 6.0% total shares outstanding as of June 30, 2021.  THRC is affiliated with certain of the Company’s customers, including ProFrac Services, LLC (“ProFrac”) and FTS International, and certain of the Company’s suppliers including Automatize Logistics, LLC and Cisco Logistics, LLC (“Cisco”) (together the “THRC Affiliates”).  For the three and six months ended June 30, 2021, the Company recognized revenues related to our service offering provided to the THRC Affiliates of $3.1 and $3.2, respectively.  Accounts receivable related to THRC Affiliates as of June 30, 2021, were $2.4.  For the three and six months ended June 30, 2021, the Company recognized cost of services provided by THRC Affiliates of $0.1 and $0.1, respectively.  Accounts payable as of June 30, 2021, included $0.1 related to THRC Affiliates.

In August 2021, the Company executed a three-year agreement with ProFrac and Cisco (the “ProFrac-Cisco Agreement”), whereby Solaris will be the dedicated wellsite sand storage provider to ProFrac and Solaris will provide volume-based pricing for those services. Per the ProFrac-Cisco Agreement, Solaris will also purchase certain equipment from Cisco Logistics.

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Subsequent Events

6 Months Ended

Jun. 30, 2021

Subsequent Events

Subsequent Events

10.  Subsequent Events

See Note 9. “Related Party Transactions”, for a discussion of an agreement executed in the third quarter of 2021.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires “Solaris Inc.” or the “Company”) is the managing member of Solaris Oilfield Infrastructure, LLC (“Solaris LLC”) and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business. Solaris Inc. consolidates the financial results of Solaris LLC and its subsidiaries and reports non-controlling interest related to the portion of the units in Solaris LLC (the “Solaris LLC Units”) not owned by Solaris Inc., which will reduce net income attributable to the holders of Solaris Inc.’s Class A common stock.

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements reflect all normal recurring adjustments that are necessary for fair presentation. Operating results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

The unaudited interim condensed consolidated financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with Solaris Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020 and notes thereto.

All material intercompany transactions and balances have been eliminated upon consolidation.

COVID-19 and Global Economic and Market Conditions

COVID-19 and Global Economic and Market Conditions

The novel strain of coronavirus ("COVID-19") has caused, and continues to cause, severe disruptions to the U.S. and global economies, including the oil and gas industry and the demand for our products and services.

The degree to which COVID-19 and related events outside of our control adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the timing, extent, trajectory and duration of the COVID-19 pandemic, the development, availability and administration of effective treatments and vaccines and the impact of the COVID-19 pandemic on the global economy and any subsequent recovery of normal economic and operating conditions.

While we expect these matters discussed above will continue to disrupt our operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities

at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates relate to stock-based compensation, useful lives and salvage values of long-lived assets, future cash flows associated with goodwill and long-lived asset impairment, net realizable value of inventory, collectability of accounts receivable and estimates of allowance for credit losses and determination of the present value of lease payments and right-of-use assets.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment

Schedule of property plant and equipment

	June 30,		December 31,
	2021		2020
Systems and related equipment	$	302.9	$	299.4
Systems in process		14.8		12.6
Computer hardware and software		1.1		1.0
Machinery and equipment		5.3		5.3
Vehicles		4.3		3.6
Buildings		4.4		4.3
Land		0.6		0.6
Furniture and fixtures		0.4		0.4
Property, plant and equipment, gross	$	333.8	$	327.2
Less: accumulated depreciation		(92.8)		(81.3)
Property, plant and equipment, net	$	241.0	$	245.9

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Equity (Tables)

6 Months Ended

Jun. 30, 2021

Equity

Summary of activity related to restricted stock

	Restricted Stock Awards
	2021	2020
Unvested at January 1,	703,115	627,251
Awarded	414,185	386,146
Vested	(223,275)	(141,700)
Forfeited	(5,388)	(32,845)
Unvested at March 31,	888,637	838,852
Awarded	3,376	10,194
Vested	(8,797)	(80,203)
Forfeited	(2,306)	(37,164)
Unvested at June 30,	880,910	731,679

Schedule of earnings per share calculation

	Three Months Ended June 30,				Six Months Ended June 30,
Basic net loss per share:	2021		2020		2021		2020
Numerator
Net loss attributable to Solaris	$	(1.2)	$	(5.5)	$	(2.4)	$	(24.6)
Loss attributable to participating securities (1)		(0.1)		—		(0.2)		—
Net loss attributable to common stockholders	$	(1.3)	$	(5.5)	$	(2.6)	$	(24.6)
Denominator
Weighted average number of unrestricted outstanding common shares used to calculate basic net loss per share		30,984		28,638		30,473		28,975
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net loss per share		30,984		28,638		30,473		28,975
Loss per share of Class A common stock - basic	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)
Loss per share of Class A common stock - diluted	$	(0.04)	$	(0.20)	$	(0.08)	$	(0.85)

(1) The Company’s restricted shares of common stock are participating securities.

Schedule of antidilutive shares

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Class B common stock		13,819		15,856		14,271		15,889
Restricted stock awards		94		761		220		726
Stock Options		8		13		10		17
Total		13,921		16,630		14,501		16,632

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Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Property, Plant and Equipment
Property, plant and equipment, gross	$ 333,800	$ 327,200
Less: accumulated depreciation	(92,800)	(81,300)
Property, plant and equipment, net	241,048	245,884
Systems and related equipment
Property, Plant and Equipment
Property, plant and equipment, gross	302,900	299,400
Systems in process
Property, Plant and Equipment
Property, plant and equipment, gross	14,800	12,600
Computer hardware and software
Property, Plant and Equipment
Property, plant and equipment, gross	1,100	1,000
Machinery and equipment
Property, Plant and Equipment
Property, plant and equipment, gross	5,300	5,300
Vehicles
Property, Plant and Equipment
Property, plant and equipment, gross	4,300	3,600
Buildings
Property, Plant and Equipment
Property, plant and equipment, gross	4,400	4,300
Land
Property, Plant and Equipment
Property, plant and equipment, gross	600	600
Furniture and fixtures
Property, Plant and Equipment
Property, plant and equipment, gross	$ 400	$ 400

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Debt (Details) - 2019 Credit Agreement $ in Millions	6 Months Ended
	Jun. 30, 2021 USD ($)	Apr. 26, 2019 USD ($)
Debt
Maximum borrowing		$ 50.0
Potential additional borrowing available		25.0
Maximum borrowing capacity with accordion option		$ 75.0
Leverage ratio for threshold		1.00
Cash threshold triggering repayment		$ 20.0
Outstanding credit facility	$ 0.0
Remaining borrowing capacity	$ 50.0
Minimum
Debt
Commitment fee (as a percent)	0.25%
Maximum
Debt
Commitment fee (as a percent)	0.375%
Eurodollar | Minimum
Debt
Applicable margin rate	1.75%
Eurodollar | Maximum
Debt
Applicable margin rate	2.50%
Alternate base rate | Minimum
Debt
Applicable margin rate	0.75%
Alternate base rate | Maximum
Debt
Applicable margin rate	1.50%

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Equity - Dividends (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Equity
Distributions paid to unit holders			$ 9,594	$ 9,507
Distribution received	$ 3,300	$ 3,100	6,700	6,200
Solaris LLC
Equity
Distributions paid to unit holders	$ 4,800	$ 4,800	$ 9,600	$ 9,500

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Equity - SBC (Details)	Jun. 30, 2021 shares
Stock-based compensation
Available for grant (in shares)	2,543,375
Class A Common Stock
Stock-based compensation
Reserved for issuance (in shares)	5,118,080

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Equity - Restricted stock (Details) - Restricted stock - USD ($) $ in Millions	3 Months Ended				6 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2021
Number of Shares
Unvested, beginning (in shares)	888,637	703,115	838,852	627,251	703,115
Awarded (in shares)	3,376	414,185	10,194	386,146
Vested (in shares)	(8,797)	(223,275)	(80,203)	(141,700)
Forfeited (in shares)	(2,306)	(5,388)	(37,164)	(32,845)
Unvested, end (in shares)	880,910	888,637	731,679	838,852	880,910
Other non-option information
Unrecognized compensation costs	$ 7.9				$ 7.9
Expected period for recognizing compensation expense					1 year 2 months 12 days
First vesting period
Number of Shares
Unvested, end (in shares)	121,235				121,235
Second vesting period
Number of Shares
Unvested, end (in shares)	386,793				386,793
Third vesting period
Number of Shares
Unvested, end (in shares)	238,180				238,180
Fourth vesting period
Number of Shares
Unvested, end (in shares)	134,702				134,702

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Equity - EPS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Numerator
Net loss attributable to Solaris	$ (1,211)	$ (5,540)	$ (2,380)	$ (24,623)
Loss attributable to participating securities	(100)		(200)
Net loss attributable to common stockholders	$ (1,300)	$ (5,500)	$ (2,600)	$ (24,600)
Class A Common Stock
Denominator
Weighted average number of unrestricted outstanding common shares used to calculate basic net loss per share (in shares)	30,984	28,638	30,473	28,975
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net loss per share (in shares)	30,984	28,638	30,473	28,975
Loss per share of Class A common stock - basic (in dollars per share)	$ (0.04)	$ (0.20)	$ (0.08)	$ (0.85)
Loss per share of Class A common stock - diluted (in dollars per share)	$ (0.04)	$ (0.20)	$ (0.08)	$ (0.85)

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Equity - Antidilutive (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Potentially dilutive shares
Excluded from EPS calculation (in shares)	13,921	16,630	14,501	16,632
Class B Common Stock
Potentially dilutive shares
Excluded from EPS calculation (in shares)	13,819	15,856	14,271	15,889
Restricted stock
Potentially dilutive shares
Excluded from EPS calculation (in shares)	94	761	220	726
Stock options
Potentially dilutive shares
Excluded from EPS calculation (in shares)	8	13	10	17

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Income Taxes (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	May 17, 2017	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Tax (benefits) and expenses		$ (217)	$ (1,272)	$ (430)	$ (7,350)
Effective tax rate		10.40%	11.70%	10.20%	14.70%
Current portion of payables related to Tax Receivable Agreement		$ 606		$ 606		$ 606
Tax Receivable Agreement
Payments of net cash saving (as a percent)	85.00%
Benefit of remaining cash savings (as a percent)	15.00%
Payables related to Tax Receivable Agreement		73,500		73,500		68,700
Current portion of payables related to Tax Receivable Agreement		$ 600		$ 600		$ 600

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Concentrations (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2021 customer	Jun. 30, 2020 customer item	Jun. 30, 2021 customer	Jun. 30, 2020 item	Dec. 31, 2020 customer item
Revenue | Customer | One Customer
Concentrations
Number of customers	1		1
Concentration risk (as a percent)	30.00%		22.00%
Revenue | Customer | Two Customers
Concentrations
Number of customers		2
Concentration risk (as a percent)		21.00%
Accounts receivable | Customer | Two Customers
Concentrations
Number of customers			2
Concentration risk (as a percent)			46.00%
Accounts receivable | Customer | Four Customers
Concentrations
Number of customers					4
Concentration risk (as a percent)					42.00%
Purchases | Supplier | One Supplier
Concentrations
Number of suppliers | item		1		1
Concentration risk (as a percent)		40.00%		36.00%
Accounts payables | Supplier | Two Suppliers
Concentrations
Number of suppliers | item					2
Concentration risk (as a percent)					23.00%

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Related Party Transactions (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Mar. 26, 2021	Dec. 31, 2020
William A. Zartler
Related Party Transactions
Payment made to related party	$ 0.2	$ 0.2	$ 0.3	$ 0.4
Due from related party	0.1		0.1			$ 0.1
Due to related party	0.1		0.1			$ 0.1
Solaris Energy Management, LLC
Related Party Transactions
Other commitments	4.6		4.6
THRC Affiliates
Related Party Transactions
Due from related party	2.4		2.4
Due to related party	0.1		0.1
Revenue from related party	3.1		3.2
Related party costs	$ 0.1		$ 0.1
THRC
Related Party Transactions
Voting power (as a percent)					6.00%
THRC | Solaris Oilfield Infrastructure
Related Party Transactions
Noncontrolling interest (as a percent)					8.70%