Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2020or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission File Number: 001-38090SOLARIS OILFIELD INFRASTRUCTURE, INC.(Exact name of registrant as specified in its charter)Delaware81-5223109(State or other jurisdictionof incorporation or organization)(I.R.S. EmployerIdentification No.)9811 Katy Freeway, Suite 700Houston, Texas77024(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 ClassTrading Symbol(s)Name of each exchange on which registeredClass A Common Stock, $0.01 par value“SOI"New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒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 shorterperiod 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 thepreceding 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, a 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 providedpursuant to Section 13(a) of the Exchange Act. ¨☒Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of theSarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒Aggregate market value of the voting and non-voting common equity held by non-affiliates of Registrant as of June 30, 2020: $214,610,750As of February 18, 2021, the registrant had 30,148,968 shares of Class A common stock, $0.01 par value per share, and 15,178,649 shares of Class B common stock, $0.00 par value per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive proxy statement relating to the Registrant’s 2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of Contents
SOLARIS OILFIELD INFRASTRUCTURE, INC.
TABLE OF CONTENTS
Cautionary Statement Regarding Forward-Looking Statements
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
PART IV
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual 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, our expected capital expenditures and the impact of such expenditures on our performance, management
changes, current and potential future long-term contracts, the costs of being a publicly traded corporation, our capital
programs 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
disease 2019 (“COVID-19”) pandemic and the continued volatility in global oil markets, and the expected impact of these
events on our businesses, results of operations and earnings.
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;
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● changes in the availability and cost of capital;
● our ability to successfully implement our business strategy;
● 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 Annual Report that are not historical.
All forward-looking statements speak only as of the date of this Annual 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 "Risk Factors," 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.
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PART I
You should read this entire report carefully, including the risks described under Part 1, Item 1A. Risk Factors and our
consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this Annual
Report. Except as otherwise indicated or required by the context, all references in this Annual Report to the "Company,"
"Solaris," "we," "us" and "our" refer to (i) Solaris Oilfield Infrastructure, LLC ("Solaris LLC") and its consolidated
subsidiaries prior to the completion of our initial public offering and (ii) Solaris Oilfield Infrastructure, Inc. ("Solaris Inc.")
and its consolidated subsidiaries following the completion of our initial public offering, unless we state otherwise or the
context otherwise requires.
Item 1. Business
Our Company
We are a Houston, Texas based business that designs and manufactures 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. For a discussion
of our Organizational Structure, See Part II, Item 6 “Selected Financial Data.”
Products and Services
We provide several products and services designed to increase efficiency, ensure reliable supply and reduce logistical
costs to deliver and manage proppant and chemicals used during the completion phase of oil and gas well development. Our
primary offerings include:
(1) Systems – We provide equipment to manage the delivery, handling and storage of proppant and chemicals at the
well site. Our systems are highly mobile and can be easily deployed to any North American basin. We use digital
technology and machine learning to provide customers with customizable data tracking and analytics around
sand usage, measurement accuracy and trucking logistics.
a. Mobile Proppant Management System – Our patented mobile proppant management systems typically store
approximately 2.5 million pounds of proppant in a six-silo configuration and provide 24 unloading points
for pneumatic trucks to deliver proppant into the silos. We also offer a non-pneumatic kit that allows our
system to receive proppant from belly dump trucks. We believe our six-silo system provides increased
inventory capacity compared to other systems, which reduces the amount of truck demurrage, or wait time,
at the well site. Our systems are scalable in increments of three, including our 12-silo configuration, which
provides a larger buffer to help manage increased proppant loadings and trucking logistics. Design
enhancements include our AutoHopperTM technology, which automates the delivery of proppant into the
blender and the addition of belt scales for improved measurement accuracy and data analytics around sand
usage.
b. Mobile Chemical Management System – Our patent-pending mobile chemical management systems
typically contain three silos, one base unit, and a system of pumps, meters and hoses to measure and deliver
up to six different completion chemicals to the pressure pumping company’s blender. The three-silo
configuration provides increased inventory capacity and control in a smaller footprint when compared to
traditional storage and delivery methods which typically include a chem add unit, frac tanks, ISO tanks and
dozens of manually operated totes on flatbed trailers.
c. Digital Inventory Software – Each of our systems is equipped with sensors and our integrated Solaris
Lens® software system that enables our customers to track inventory and throughput volumes of each silo
or silo compartment on a remote and real-time basis. With the integration of third-party trucking
applications, we can provide full visibility of the proppant and chemical from the vendor to the well site
supply chain for certain customers.
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(2) Field and Logistics Services – We provide trained personnel to support our systems, train our customers to
operate the systems and assist in the transportation of our systems. In addition, we provide last mile proppant
logistics services, including managing trucking logistics from source to well site.
(3) Transloading Services – At our Kingfisher Facility in Oklahoma, we provide rail transloading services, store rail
cars and provide forward staging storage of proppant and other industrial materials.
Our Properties
Our corporate headquarters are located at 9811 Katy Freeway, Suite 700, Houston, TX 77024, and our offices are leased.
Our other properties include:
Early, TX
We manufacture our systems in our facility in Early, Texas (the “Early Facility”). We own the Early Facility, and its
location in central Texas provides convenient access to several of our most active operating areas, including the Permian
Basin, the Eagle Ford Shale, the Haynesville Shale and the SCOOP/STACK formations.
Kingfisher, OK
Our 300 acre transload facility in Kingfisher, Oklahoma (the “Kingfisher Facility”), which is leased, is located central to
the SCOOP/STACK plays and is capable of servicing multiple large volume customers through transloading, forward
staging or storage services. The assets of the Kingfisher Facility were impaired during the year ended December 31, 2020
as a result of reduced activities.
Suppliers
We have built long-term relationships with third-party suppliers to both transport equipment and products and provide
certain materials used in the manufacturing and maintenance of our systems. During the years ended December 31, 2020 and
2019, one supplier, Automatize Logistics, LLC, a provider of third party trucking services, accounted for approximately 24%
and 19%, respectively, of our total spending.
To date, we have been able to obtain the third party-trucking services necessary to support our operations on a timely
basis. While we believe that we will be able to make satisfactory alternative arrangements in the event of any interruption in
the supply of third-party trucking services by one or more of our suppliers, we may not always be able to do so. We do not
currently have long-term agreements with third-party trucking suppliers and could experience shortages and price increases in
the future.
Our Customers and Contracts
Our primary customers are major E&P and oilfield service companies. We generally execute master service agreements
("MSAs") with our customers. Generally, the MSAs govern the relationship with our customers with specific work performed
under individual work orders. For the year ended December 31, 2020, Devon Energy Corporation accounted for
approximately 14% of our total revenue. For the year ended December 31, 2019, Devon Energy Corporation and ProPetro
Services, Inc., accounted for approximately 19% and 10%, respectively, of our total revenue.
Competition
The oil and natural gas services industry is highly competitive. We face competition from numerous proppant and
chemical producers and proppant and chemical transporters who also offer solutions for unloading, storing and delivering
proppant and chemicals at well sites and also from competitors who are focused on developing more efficient proppant and
chemical logistic solutions. Our main competitors include U.S. Silica, Proppant Express Solutions, LLC and Hi-Crush
Partners LP. We also face competition from pressure pumping, logistics and sand companies that own their own proppant and
chemical handling equipment. Many of these companies may be customers of ours on certain jobs while also utilizing their
own equipment on other jobs.
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We believe that the principal competitive factors in the markets we serve are equipment reliability, technical expertise,
patented-protected technology, unique services offerings, equipment capacity, transportation and storage, work force
competency, efficiency, safety record, reputation, experience and price. We seek to differentiate ourselves from our
competitors by delivering the highest-quality services and equipment possible, coupled with superior execution and operating
efficiency in a safe working environment.
Seasonality
Our business is not significantly impacted by seasonality, although our fourth quarter activity has historically been
impacted by holidays and our clients’ budget cycles, during which we may experience declines in our operating results.
In addition, we provide our proppant and chemical systems and services to E&P companies operating in oil and natural
gas producing basins where severe weather conditions may curtail drilling activities and, as a result, impact our revenues
generated from those regions. For a discussion of the impact of weather on our operations, please see Item 1A. “Risk Factors
—Seasonal weather conditions and natural disasters could severely disrupt normal operations and harm our business.”
Human Capital
We believe that our employees are the foundation to fostering our innovative culture, the safe operation of our assets and
delivery of services to our customers. We foster a collaborative, inclusive, and safety-minded work environment, focused on
working safely every day. We seek to identify qualified internal and external talent for our organization, enabling us to execute
on our strategic objectives.
As of December 31, 2020, we employed 125 employees overall, who were employed pursuant to an administrative
services agreement that primarily supports our operations. None of our employees are subject to collective bargaining
agreements. We consider our employee relations to be good.
Diversity and Inclusion
We are committed to fostering a work environment in which all employees treat each other with dignity and respect and
are continually striving to attract a diverse workforce. Our employee demographic profile allows us to promote inclusion of
thought, skill, knowledge, and culture across our operations to achieve our social obligations, commitments and to drive
enhanced decision making and execution for the business. We are proud of the diversity of our workforce and promote
inclusion at all levels of our organization. As of December 31, 2020:
(1) Females represented approximately 16% of our organization and 24% of supervisory or managerial roles.
(2) Minorities represented 28% of our organization and 21% of supervisory or managerial roles.
Health and Safety
Safety is a core value of ours and begins with the protection and safety of our employees. We value people above all else
and remain committed to making safety and health our top priority. To protect our employees, contractors, and surrounding
community from workplace hazards and risks, we implement and maintain an integrated system of policies, practices, and
controls, including requirements to complete regular detailed safety and regulatory compliance training for all applicable
individuals.
In response to the ongoing COVID-19 pandemic, we moved early and quickly to protect the health and safety of our
employees and are continuing to proactively manage our response to an evolving national and global situation. We took
several strategic and proactive measures in response to information from the Centers for Disease Control and the local, state
and national authorities to try to minimize the risk of business disruption and to protect our ability to deliver reliable services
to our customers. Some of these actions include forming a critical response team of senior management to collaborate, review
and execute our business response to the pandemic, instituting social distancing practices and routine deep cleaning protocols
at all facility locations to manage the spread of COVID-19, permitting our non-essential
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employees to work remotely until further notice, where applicable, and implementing plans for safely returning to our offices
over time. Working remotely and under our revised policies has not significantly impacted our ability to maintain operations
or caused us to incur significant additional expenses; however, we are unable to predict the duration or ultimate impact of
these measures.
Environmental and Occupational Health and Safety Regulations
Our business operations are subject to stringent federal, tribal, regional, state and local laws and regulations governing
occupational health and safety, the discharge of materials into the environment and environmental protection. Numerous
governmental entities, including the U.S. Environmental Protection Agency (“EPA”), the U.S. Occupational Safety and Health
Administration ("OSHA") and analogous state agencies, have the power to enforce compliance with these laws and
regulations and the permits issued under them, often requiring difficult and costly actions, including the incurrence of
potentially significant capital or operating expenditures to mitigate or prevent releases of materials from our equipment,
facilities or from customer locations where we provide products and services. These laws and regulations may, among other
things require the acquisition of permits to conduct regulated activities; restrict the types, quantities and concentration of
various substances that can be released into the environment; require remedial measures to mitigate pollution from former and
ongoing operations; impose specific safety and health criteria addressing worker protection; and impose substantial liabilities
for pollution resulting from operations and support services. For further information on the risks related to the effects that
environmental, health and safety and other governmental regulations have on our business, see Part I, Item 1A.” Risk
Factors”.
The more significant of these existing environmental and occupational health and safety laws and regulations include the
following U.S. legal standards, as amended from time to time:
(1) the Clean Air Act (“CAA”), which restricts the emission of air pollutants from many sources and imposes
various pre-construction, operational, monitoring, and reporting requirements, and that the EPA has relied upon
as authority for adopting climate change regulatory initiatives relating to greenhouse gas (“GHG”) emissions;
(2) the Federal Water Pollution Control Act, also known as the Clean Water Act, which regulates discharges of
pollutants from facilities to state and federal waters, including wetlands, and establishes the extent to which
waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;
(3) the Oil Pollution Act of 1990, which, among other things, subjects owners and operators of onshore facilities to
liability for removal costs and damages arising from an oil spill in waters of the United States;
(4) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), which
imposes liability on generators, transporters, disposers and arrangers of hazardous substances at sites where
hazardous substance releases have occurred or are threatening to occur;
(5) the Resource Conservation and Recovery Act (“RCRA”), which governs the generation, treatment, storage,
transport, and disposal of solid wastes, including hazardous wastes;
(6) the Safe Drinking Water Act (“SDWA”), which ensures the quality of the nation’s public drinking water through
adoption of drinking water standards and controlling the injection of waste fluids into below-ground formations
that may adversely affect drinking water sources;
(7) the Occupational Safety and Health Act, which establishes workplace standards for the protection of the health
and safety of employees, including the implementation of hazard communications programs designed to inform
employees about hazardous substances in the workplace, potential harmful effects of these substances, and
appropriate control measures;
(8) the Endangered Species Act, which restricts activities that may affect federally identified endangered and
threatened species or their habitats by the implementation of operating restrictions or a temporary, seasonal, or
permanent ban in affected areas; and
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(9) the U.S. Department of Transportation (“DOT”) regulations, which relate to advancing the safe transportation of
energy and hazardous materials and emergency response preparedness.
As a result of operating on properties that have been used for crude oil and natural gas wellsite support services for many
years, regulations such as CERCLA and RCRA could impose significant liability and costs associated with damages to natural
resources or remediation, an accidental release of materials into the environment and costs related to clean-up of third-party
sites. Additionally, there exist regional, state and local jurisdictions in the United States where we operate that also have, or
are developing or considering developing, similar environmental and occupational health and safety laws and regulations
governing many of these same types of activities. We have incurred and will continue to incur operating and capital
expenditures, some of which may be material, to comply with environmental and occupational health and safety laws and
regulations and such costs may have a material adverse effect on our business and operational results in the future.
If existing regulatory requirements or enforcement policies change or new regulatory or enforcement initiatives are
developed and implemented in the future, we or our customers may be required to make significant, unanticipated capital and
operating expenditures. Examples of recent regulations or other regulatory initiatives in the United States include the
following:
(1) Hydraulic Fracturing. At the federal level, the EPA has asserted federal regulatory authority under the SDWA
over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance
for such activities. Additionally, the EPA issued a final regulation under the Clean Water Act prohibiting
discharges to publicly owned treatment works of wastewater from onshore unconventional oil and gas extraction
facilities and released its final report on the potential impacts of hydraulic fracturing on drinking water
resources, concluding that "water cycle" activities associated with hydraulic fracturing may impact drinking
water resources under certain circumstances. While the U.S. Congress has from time to time considered but
refused to adopt federal regulation of hydraulic fracturing, with President Biden taking office and the shift in
party control of the Congressional Senate in January 2021, there is a possibility that the Biden Administration
will pursue such regulation through legislation or executive order. At the state level, many states have adopted
legal requirements that have imposed new or more stringent permitting, public disclosure or well construction
requirements on hydraulic fracturing activities, including states where our customers operate. States could also
elect to place prohibitions on hydraulic fracturing and local governments may seek to adopt ordinances within
their jurisdictions regulating the time, place or manner of drilling activities in general or hydraulic fracturing
activities in particular. Finally, water is an essential component of shale oil and natural gas production during
both the drilling and hydraulic fracturing processes. Our customers' access to water to be used in these processes
may be adversely affected due to reasons such as periods of extended drought, private, third party competition
for water in localized areas or the implementation of local or state governmental programs to monitor or restrict
the beneficial use of water subject to their jurisdiction for hydraulic fracturing to assure adequate local water
supplies.
(2) Induced Seismicity. In recent years, wells used for the disposal by injection of flowback water or certain other
oilfield fluids below ground into non-producing formations have been associated with an increased number of
seismic events, with research suggesting that the link between seismic events and wastewater disposal may vary
by region and local geology. In response to these concerns, regulators in some of the states in which our
customers operate have adopted additional requirements related to seismicity and its potential association with
hydraulic fracturing. Another consequence of seismic events may be lawsuits alleging that disposal well
operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating
waste disposal.
(3) Ground-Level Ozone Standards. In 2015, the EPA issued a final rule under the CAA, making the National
Ambient Air Quality Standard ("NAAQS") for ground-level ozone more stringent. Since that time, the EPA has
issued area designations with respect to ground-level ozone. State implementation of the revised NAAQS could,
among other things, require installation of new emission controls on some of our or our customers' equipment,
result in longer permitting timelines, and significantly increase our or our customers' capital expenditures and
operating costs.
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(4) Climate Change. In the United States, no comprehensive climate change legislation has been implemented at the
federal level, but President Biden has made addressing climate change one of his Administration’s top four
priorities, has already signed several executive orders to this effect in January 2021 and is expected to pursue
legislative as well as other executive and regulatory initiatives in the future to limit GHG emissions. Moreover,
because the U.S. Supreme Court has held that GHG emissions constitute a pollutant under the CAA, the EPA
has adopted rules impacting the oil and gas sector and relating to permitting, monitoring, reporting or restricting
GHG emissions, such as methane. In recent years, there has been considerable uncertainty surrounding
regulation of the emissions of methane, with the Obama Administration first implementing performance
standards in 2016 and the Trump Administration subsequently taking measures to delay implementation of those
standards, including issuing final policy amendments in September 2020 that, among other things, rescinded the
2016 methane standards. Various industry and environmental groups are separately challenging both the 2016
standards and the September 2020 final policy amendments, and President Biden has issued an executive order
on January 20, 2021 that, among other things, called for issuance of proposed rules by no later than September
2021 that would restore the Obama-era Administration’s rules for methane standards applicable to new,
modified, and reconstructed sources and establish new methane and volatile organic compound standards
applicable to existing oil and gas operations, including the production, transmission, processing and storage
segments. Separately, various states and groups of states have adopted or are considering adopting legislation,
regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon
taxes, reporting and tracking programs, and restriction of emissions. At the international level, President Biden
issued an executive order on January 20, 2021 recommitting the United States to the Paris Agreement, which the
United States under the Trump Administration had withdrawn from effective November 4, 2020. In other
political actions, the Acting Secretary of the U.S. Department of the Interior issued an order, effective
immediately on January 20, 2021, that suspends new oil and gas leases and drilling permits on non-Indian
federal lands and waters for a period of 60 days. Building on this suspension, President Biden issued an
executive order on January 27, 2021 that suspends new leasing activities for oil and gas exploration and
production on non-Indian federal lands and offshore waters pending completion of a comprehensive review and
reconsideration of federal oil and gas permitting and leasing practices that take into consideration potential
climate and other impacts associated with oil and gas activities on such lands and waters. These January 20,
2021 and January 27, 2021 orders do not apply to existing leases, and the January 27, 2021 order further directs
applicable agencies to take measures to eliminate fossil fuel subsidies from federal budget requests beginning in
federal fiscal year 2022. Litigation risks are also increasing, as a number of states, municipalities and other
plaintiffs have sought to bring suit against the largest oil and natural gas exploration and production companies
in state or federal court, alleging, among other things, that such companies created public nuisances by
producing fuels that contributed to global warming effects and therefore are responsible for roadway and
infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of
climate change for some time but defrauded their investors by failing to adequately disclose those impacts.
There are also increasing financial risks for fossil fuel producers as well as other companies handling fossil
fuels, as stockholders and bondholders currently invested in fossil fuel energy companies concerned about the
potential effects of climate change may elect in the future to shift some or all of their investments into non-fossil
fuel energy related sectors. Institutional investors who provide financing to fossil fuel energy companies also
have become more attentive to sustainability lending practices and some of them may elect not to provide
funding for fossil fuel energy companies. Finally, increasing concentrations of GHG in the earth's atmosphere
may produce climate changes that have significant physical effects, such as increased frequency and severity of
storms, droughts, floods, rising sea levels and other climatic events.
We are also subject to the requirements of the federal Occupational Safety and Health Act and comparable state statutes
whose purpose is to protect the health and safety of workers. In addition, the OSHA’s hazard communication standard, the
EPA’s Emergency Planning and Community Right-to-Know Act and comparable state regulations and any implementing
regulations require that we organize and/or disclose information about hazardous materials used or produced in our operations
and that this information be provided to employees, state and local governmental authorities and citizens. We have an internal
program of inspection designed to monitor and enforce compliance with worker safety requirements.
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Additionally, as part of the services we provide, we engage third parties that operate as motor carriers and therefore, are
subject to regulation by the DOT and analogous state agencies. These regulatory authorities exercise broad powers, governing
activities such as the authorization to engage in motor carrier operations, regulatory safety, equipment testing, driver
requirements and specifications, and insurance requirements. The trucking industry is subject to possible regulatory and
legislative changes that may impact our operations, including increased costs, such as changes in fuel emissions limits, hours
of service regulations that govern the amount of time a driver may drive or work in any specific period and limits on vehicle
weight and size. We cannot predict whether, or in what form, any legislative or regulatory changes or municipal ordinances
applicable to our logistics operations will be enacted and to what extent any such legislation or regulations could increase our
costs or otherwise adversely affect our business or operations.
Intellectual Property
We continuously seek to innovate our product and service offerings to improve our operations and deliver increased value
to our customers and our software team is constantly designing and building increased software capabilities to enable efficient
supply chain planning and management for our customers. As such, we seek patent and trademark protections for our
technology when we deem it prudent, and we aggressively pursue protection of these rights. We believe our patents,
trademarks, and other protections for our proprietary technologies are adequate for the conduct of our business and that no
single patent or trademark is critical to our business. In addition, we rely to a great extent on the technical expertise and know-
how of our personnel to maintain our competitive position, and we take commercially reasonable measures to protect trade
secrets and other confidential and/or proprietary information relating to the technologies we develop.
As of December 31, 2020, we had six issued patents in the United States, five corollary patents issued in Canada and two
corollary patents issued in Mexico; two utility patent applications in the United States, two in Canada, and one in Mexico.
Each patent and patent application relates to our systems and services and other technologies. Our issued patents expire, if all
of the maintenance fees are paid, between 2032 and 2039. We cannot assure you that any of our patent applications will result
in the issuance of a patent, or whether the examination process will require us to narrow our claims. In addition, any patents
may be contested, circumvented, found unenforceable or invalid, and we may not be able to prevent third parties from
infringing them.
Available Information
We are required to file any annual, quarterly and current reports, proxy statements and certain other information with the
Securities and Exchange Commission (the “SEC”).
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. Any documents filed by us with the SEC, including this
Annual Report, can be downloaded from the SEC's website.
Our principal executive offices are located at 9811 Katy Freeway, Suite 700, Houston, Texas 77024, and our telephone
number is (281) 501-3070. Our website is at www.solarisoilfield.com. Our periodic reports and other information filed with or
furnished to the SEC, pursuant to Section 13(a) or 15(d) of the Exchange Act, including Annual Reports on Form 10-K and
10-K/A, quarterly reports on Form 10-Q and Form 10-Q/A, current reports on Form 8-K, and amendments to those reports are
available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are
electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by
reference into this Annual Report and does not constitute a part of this Annual Report.
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Item 1A. Risk Factors
The following are certain risk factors that affect our business, financial condition, results of operations and cash flows.
Many of these risks are beyond our control. These risk factors should be considered in connection with evaluating the
forward-looking statements contained in this Annual Report. The risks and uncertainties described below are not the only ones
that we face. If any of the events described below were to actually occur, our business, financial condition, results of
operations and cash flows could be adversely affected and our results could differ materially from expected and historical
results, any of which may also adversely affect the holders of our stock.
Risks Related to Our Operations and Industry:
The volatility of oil and natural gas prices may adversely affect the demand for our systems, products and services, and
negatively impact our results of operations.
The demand for our products and services is primarily determined by current and anticipated oil and natural gas prices
and the related levels of capital spending and drilling activity in the areas in which we have operations. The COVID-19
pandemic, combined with a period of increased production from major oil producing nations and decreasing availability of
crude oil storage, contributed to lower commodity prices compared to historical levels, both of which are expected to continue
to impact demand over the short-to-medium term. Volatility or weakness in oil prices or natural gas prices (or the perception
that oil prices or natural gas prices will decrease or remain stagnant) affects the spending patterns of our customers and may
result in the drilling of fewer new wells. As a result, demand for proppants or chemicals may decrease, which could, in turn,
lead to lower demand for our products and services and may cause lower prices and lower utilization of our assets. We have,
and may in the future, experienced significant fluctuations in operating results as a result of the reactions of our customers to
changes in oil and natural gas prices.
Events outside of our control, including a pandemic or outbreak of an infectious disease, such as the global COVID-
19 pandemic, political unrest and economic recessions occurring around the globe, could materially adversely affect our
business, liquidity, results of operations and financial condition.
We face risks that are outside of our control which could significantly disrupt the demand for oil and natural gas and our
products and services, and adversely impact our operations and financial condition. These risks include, but are not limited to:
● the ongoing COVID-19 pandemic and the extent to which it has caused business disruptions, disrupted the oil
and gas industry and global supply chains, negatively impacted the global economy, reduced global demand for
oil and gas and created significant volatility and disruption of financial and commodity markets;
● the occurrence or threat of terrorist attacks in the United States or other countries, anti-terrorist efforts and other
armed conflicts involving the United States or other countries, including continued hostilities in the Middle East;
or
● domestic civil unrest, including: recent acts of protest and civil unrest related to the 2020 presidential election,
political instability and societal disruption, or damage to infrastructure or our customers’ operations.
The degree to which events outside of our control adversely impacts our results will also 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
pandemic on the global economy and any subsequent recovery of normal economic and operating conditions.
These factors collectively have contributed to unprecedented negative global economic impacts, including a significant
decrease in demand, and which such impacts may continue into the future. While we expect these matters
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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.
We face significant competition that may impede our ability to gain market share or cause us to lose market share, or
that could make adoption of new product offerings or services difficult.
The market for supply chain management and well site logistic services is becoming increasingly competitive. We face
competition from proppant producers, pressure pumping companies, transloaders and proppant transporters who also offer
solutions for unloading, storing and delivering proppant at well sites and also from competitors who, like us, are focused on
developing more efficient last mile logistics management solutions. Some of these solutions utilize containers for on-site
proppant storage and handling delivery, while others use silo-based storage as we do. Some of our competitors have greater
financial and other resources than we do and may develop technology superior to ours or more cost-effective than ours.
Competition in our industry and for our products is thus based on price, consistency and quality of products, distribution
capability, customer service, reliability of supply, breadth of product offering and technical support. If our competitors are able
to respond to industry conditions or trends more rapidly or effectively or resort to price competition, or if we are unable to
gain market acceptance of new product offerings, we may be unable to gain or maintain our market share or may lose market
share or operating profit, which could have an adverse effect on our business, results of operations and financial condition.
Silica-related legislation, including compliance with OSHA regulations relating to respirable crystalline silica, or
litigation could have a material adverse effect on our business, reputation or results of operations.
We are subject to laws and regulations relating to human exposure to crystalline silica. For example, OSHA has
implemented rules establishing a more stringent permissible exposure limit for exposure to respirable crystalline silica and
provided other provisions to protect employees. These rules require compliance with engineering control obligations to limit
exposures to respirable crystalline silica in connection with hydraulic fracturing activities by June 2021. If we are unable to
satisfy these obligations, or are not able to do so in a manner that is cost effective or attractive to our customers, our business
operations may be adversely affected or availability or demand for our products could be significantly affected. Federal and
state regulatory authorities, including OSHA, and analogous state agencies may continue to propose changes in their
regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits and required controls and
personal protective equipment, and we can provide no assurance that we will be able to comply with any future laws and
regulations relating to exposure to crystalline silica that are adopted, or that the costs of complying with such future laws and
regulations would not have a material adverse effect on our operating results by requiring us to modify or cease our
operations.
In addition, the inhalation of respirable crystalline silica is associated with health risks, including the lung disease
silicosis. These health risks have been, and may continue to be, a significant issue confronting the hydraulic fracturing
industry. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability
from the use of hydraulic fracture sand, may have the effect of discouraging our customers' use of hydraulic fracture sand. The
actual or perceived health risks of handling hydraulic fracture sand could materially and adversely affect hydraulic fracturing
service providers, including us, through reduced use of hydraulic fracture sand, the threat of product liability or the filing of
lawsuits naming us as a defendant, increased scrutiny by federal, state and local regulatory authorities of us and our customers
or reduced financing sources available to the hydraulic fracturing industry. See Part I, Item 1. “Business – Environmental and
Occupational Health and Safety Regulations” for more discussion on occupational health and safety matters.
Changes in the transportation industry, including fluctuations in transportation costs, changes in the way in which
proppant or chemicals are transported to the well site or the availability or reliability of transportation to supply our
proppant or chemical management systems and transloading services, could impair the ability of our customers to take
delivery of proppant or chemicals or make our products and services less attractive and thereby adversely impact our
business.
The transportation industry is subject to possible legislative and regulatory changes that may affect the economics of the
industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the
cost of providing truckload services. Disruption of transportation services due to factors outside of our
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control, including shortages of rail cars or trucks, extreme weather-related events, accidents, strikes, lockouts, increased
regulation, more stringent railcar or safety regulatory initiatives, or other events could temporarily impair the ability of our
customers to take delivery of our systems and proppant or chemicals at the well site or affect the provision of last mile
services. Accordingly, if there are disruptions of the services utilized by our customers (whether these services are provided by
us or a third party), and they are unable to find alternative transportation providers, our business could be adversely affected.
Additionally, alternative transportation methods for transporting and delivering proppant or chemicals to the well site could
make our product offerings less attractive than those of our competitors and affect our results of operations.
Our business is subject to inherent risks some of which are beyond our control. These risks may be self-insured or may
not be fully covered under our insurance policies.
Our assets and operations may be affected by natural or man-made disasters and other external events such as extreme
weather events that may disrupt our business, including manufacturing and field operations. These hazards can also cause
personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental
damage, and suspension or cancellation of operations. In addition, our operations are subject to, and exposed to,
employee/employer liabilities and risks such as wrongful termination, discrimination, labor organizing, retaliation claims and
general human resource related matters.
We do not have insurance against all foreseeable risks and we may not be able to maintain adequate insurance in the
future at rates we consider reasonable. The occurrence of a significant event or adverse claim in excess of the insurance
coverage that we maintain or that is not covered by insurance could have a material adverse effect on our liquidity, results of
operations and financial condition.
Reliance upon a few large customers may adversely affect our revenue and operating results.
It is likely that we will continue to derive a significant portion of our revenue from a relatively small number of customers
in the future and the operations of our customers have and may continue to experience delays or disruptions and temporary
suspensions of operations. We typically do not enter into long-term contractual agreements with our customers and if we were
to lose any material customer, we may not be able to redeploy our equipment at similar utilization or pricing levels or within a
short period of time and such loss could have a material adverse effect on our business until the equipment is redeployed at
similar utilization or pricing levels.
We may grow through acquisitions and our failure to properly plan and manage those acquisitions may adversely
affect our performance.
We have completed and may, in the future, pursue asset acquisitions or acquisitions of businesses. We must plan and
manage any acquisitions and integrations effectively to achieve revenue growth and maintain profitability in our evolving
market. If we fail to manage acquisitions and integrations effectively, our results of operations could be adversely affected.
Seasonal weather conditions and natural disasters could severely disrupt normal operations and harm our business.
Our operations are located in different regions of the United States, some of which are prone to periods of heavy snow, ice
or rain and others of which may be prone to certain natural disasters such as tornadoes or prolonged periods of drought. The
occurrence of any such severe weather conditions or natural disasters could cause our E&P customers to suspend operations,
thereby reducing the demand for our systems and services and our ability to generate revenues.
We engage in transactions with related parties and such transactions present possible conflicts of interest that could
have an adverse effect on us.
We have entered into transactions with related parties. The details of certain of these transactions are set forth in Note 13.
“Related Party Transactions” under Part II, Item 8. “Financial Statements and Supplementary Data.” Related party
transactions create the possibility of conflicts of interest with regard to our management or directors. Such a
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conflict could cause an individual in our management or on our board of directors to seek to advance his or her economic
interests above ours. Further, the appearance of conflicts of interest created by related party transactions could impair the
confidence of our investors. Our board of directors, or a committee thereof, regularly reviews these transactions.
Notwithstanding this, it is possible that a conflict of interest could have a material adverse effect on our liquidity, results of
operations and financial condition.
Our failure to protect our proprietary information and intellectual property rights, or any successful intellectual
property challenges or infringement proceedings against us, could result in a loss in our competitive advantage or market
share.
Because of the technical nature of our business, we rely on a combination of patent, copyright, trademark and trade secret
laws, and restrictions on disclosure to protect our intellectual property. We also rely on third-party intellectual property
licenses in connection with our business. We may not be able to successfully preserve these intellectual property rights in the
future or they may be invalidated. Third parties may knowingly or unknowingly infringe our patents or other proprietary
rights, third parties may challenge patents or proprietary rights held by us, and pending and future trademark and patent
applications may not be approved. It is possible that our competitors or others could independently develop the same or
similar technologies or otherwise obtain access to our unpatented technologies. Policing unauthorized use of intellectual
property rights can be difficult and expensive, and adequate remedies may not be available. Alternatively, third parties may
initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwise violates
intellectual property rights and we may be required to obtain necessary licenses or substantially re-engineer our products in
order to avoid infringement. Failure to protect, monitor and control the use of our existing intellectual property rights or any
successful intellectual property challenges or infringement proceedings against us could materially and adversely affect our
competitive advantage and result in us being enjoined from using or offering such products or technology and cause us to
incur significant expenses.
Technological advancements in well service products and technologies, including those that reduce the amount of
proppant or chemicals required for hydraulic fracturing operations, could have a material adverse effect on our business,
financial condition and results of operations.
Our industry is characterized by rapid and significant technological advancements and introductions of new products and
services using new technologies. As competitors and others use or develop new technologies, or technologies comparable to
ours, in the future, we may lose market share or be placed at a competitive disadvantage. Further, we may face competitive
pressure to implement or acquire certain new technologies at a substantial cost. Some of our competitors may have greater
financial, technical and personnel resources than we do, which may allow them to gain technological advantages or implement
new technologies more rapidly than us. Limits on our ability to effectively use, implement or adapt to new technologies may
have a material adverse effect on our business, financial condition and results of operations.
We may be subject to interruptions or failures in our information technology systems.
We rely on sophisticated information technology systems and infrastructure to support our business, including but not
limited to our Solaris Lens® inventory management systems. Any of these systems may be susceptible to outages due to fire,
floods, power loss, telecommunications failures, usage errors by employees, computer viruses, cyber-attacks or other security
breaches, or similar events. The failure of any of our information technology systems may cause disruptions in our or our
customers’ operations, which could adversely affect our reputation, sales and profitability.
We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption,
operational disruption and/or financial loss.
We depend on digital and information technologies to deliver our systems and perform many of our services and to
process and record financial and operating data and in the ordinary course of our business, we collect and store sensitive data,
including our proprietary business information and personally identifiable information of our employees. Our technologies,
systems and networks, and those of our customers, vendors, suppliers and other business partners, may become the target of
cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss
or destruction of proprietary and other information, or other disruption of business
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operations. This could result in significant losses, loss of customers and business opportunities, reputation damage, litigation,
regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our
business, financial condition or results of operations. Our systems and controls for protecting against cyber security risks, and
those used by our business partners, may not be sufficient. As cyber incidents continue to evolve, we will likely be required to
expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any
vulnerability to cyber incidents. In addition, any technology required for any mandate by authorities requiring the transition to
remote work increases our vulnerability to cybersecurity threats, including threats to gain unauthorized access to sensitive
information or to render data or systems. Any material disruption in our information technology systems or systems that affect
our business operations, delays or difficulties in implementing or integrating new systems or enhancing current systems, or
any vulnerabilities rending data or systems unusable following any mandated remote work situations, could have an adverse
effect on our business and results of operations.
Increasing attention to environmental, social and governance (ESG) matters may impact our business.
Increasing attention to climate change, increasing societal expectations on companies to address climate change, and
potential consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our customers’
hydrocarbon products and our services, reduced profits, increased investigations and litigation, and negative impacts on our
stock price and access to capital markets. Increasing attention to climate change, for example, may result in demand shifts for
our customers’ hydrocarbon products and additional governmental investigations and private litigation against those
customers.
In addition, organizations that provide information to investors on corporate governance and related matters have
developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some
investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to increased negative investor
sentiment toward us or our customers and to the diversion of investment to other industries which could have a negative
impact on our stock price and/or our access to and costs of capital.
We rely on a few key employees whose absence or loss could adversely affect our business.
Many key responsibilities within our business have been assigned to a small number of employees. The loss of their
services, whether permanently or temporarily could adversely affect our business. We do not have any written employment
agreements with our executives at this time. Further, we do not maintain "key person" life insurance policies on any of our
employees. As a result, we are not insured against any losses resulting from the death of our key employees.
If we are unable to access the services of a sufficient number of skilled and qualified workers, or are required to
significantly increase wages to attract or retain such workers, our capacity and profitability could be diminished and our
growth potential could be impaired.
The manufacture and delivery of our products and performance of our services requires skilled and qualified workers with
specialized skills and experience who can perform physically demanding work. As a result of the volatility of the oilfield
services industry and the demanding nature of the work, workers may choose to pursue employment in fields that offer a more
desirable work environment at wage rates that are competitive. Increased competition for their services could result in a loss
of available, skilled workers or at a price that is not as advantageous to our business, both of which could negatively affect our
operating results. Though our historical turnover rates have been significantly lower than those of our competitors, if we are
unable to retain or meet growing demand for skilled technical personnel, our operating results and our ability to execute our
growth strategies may be adversely affected.
Unsatisfactory safety performance may negatively affect our customer relationships and, to the extent we fail to retain
existing customers or attract new customers, adversely impact our revenues.
Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to
demonstrate that we can reliably and safely operate our business in a manner that is consistent with applicable laws, rules and
permits, which legal requirements are subject to change. Multiple or particularly severe accidents and high employee
turnover, can contribute to a deterioration of our safety record. If one or more accidents were to occur in
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connection with the use of our systems or performance of our services, the affected customer may seek to terminate or cancel
its use of our services which could cause us to lose substantial revenues. Furthermore, our ability to attract new customers
may be impaired if they elect not to engage us because they view our safety record as unacceptable.
Risks Related to Financial Condition:
Our business depends on domestic capital spending by the oil and natural gas industry, and reductions in capital
spending could have a material adverse effect on our liquidity, results of operations and financial condition.
Our business is directly affected by capital spending to explore for, develop and produce oil and natural gas in the United
States. The oil and natural gas industry is cyclical and historically has experienced periodic downturns in activity. If oil and
natural gas prices decline below current levels for an extended period of time, certain of our customers may be unable to pay
their vendors and service providers, including us, as a result of the decline in commodity prices. Reduced activity in our areas
of operation as a result of decreased capital spending may also have a negative long-term impact on our business, even in an
environment of stronger oil and natural gas prices. Any of these conditions or events could adversely affect our operating
results. If the recent recovery does not continue or our customers fail to further increase their capital spending, it could have a
material adverse effect on our liquidity, results of operations and financial condition.
Industry conditions are influenced by numerous factors over which we have no control, including:
● expected economic returns to E&P companies of new well completions;
● domestic and foreign economic conditions and supply of and demand for oil and natural gas;
● the level of prices, and expectations about future prices, of oil and natural gas;
● the level of global oil and natural gas exploration and production, and inventories;
● the supply of and demand for hydraulic fracturing and equipment in the United States, including the supply and
demand for lower emissions hydraulic fracturing equipment;
● federal, state and local regulation of hydraulic fracturing and exploration and production activities;
● United States federal, tribal, state and local and non-United States governmental laws, regulations and taxes,
including the policies of governments regarding the exploration for and production and development of their oil
and natural gas reserves;
● changes in the transportation industry that services our business, including the price and availability of
transportation;
● political and economic conditions in oil and natural gas producing countries;
● the current supply and demand imbalance for crude oil and actions by the members of OPEC with respect to oil
production levels and announcements of potential changes in such levels, including the failure of such countries
to comply with supply limitation and production cuts;
● global or national health concerns including health epidemics such as the outbreak of COVID-19 at the
beginning of 2020;
● political or civil unrest in the United States or elsewhere;
● worldwide political, military and economic conditions;
● stockholder activism or activities by non-governmental organizations to limit certain sources of funding for the
energy sector or restrict the exploration, development and production of oil and natural gas;
● advances in exploration, development and production technologies or in technologies affecting energy
consumption; and
● the potential acceleration of development of alternative fuels.
We may be adversely affected by uncertainty in the global financial markets or the deterioration of the financial
condition, and resulting credit risk, of our customers.
Our future results may be impacted by the uncertainty caused by an economic downturn, weak economic conditions and
widespread financial distress, volatility or deterioration in the debt and equity capital markets, inflation, deflation or other
adverse economic conditions that may negatively affect us or parties with whom we do business resulting in a reduction in our
customers' spending and their non-payment or inability to perform obligations owed to us, such as the
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failure of customers to honor their commitments or the failure of major suppliers to complete orders. Additionally, during
times when the natural gas or crude oil markets weaken, our customers are more likely to experience financial difficulties,
including being unable to access debt or equity financing, which could result in a reduction in our customers' spending for our
systems and services. Our credit procedures and policies may not be adequate to fully reduce customer credit risk. If we are
unable to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their
creditworthiness, any resulting bankruptcy or increase in nonpayment or nonperformance by them and our inability to re-
market or otherwise use our equipment could have a material adverse effect on our business, financial condition, prospects or
results of operations.
Our 2019 Credit Agreement subjects us to various financial and other restrictive covenants. These restrictions may
limit our operational or financial flexibility and could subject us to potential defaults under our 2019 Credit Agreement.
Our 2019 Credit Agreement subjects us to significant financial and other restrictive covenants, including, but not limited
to, restrictions on incurring additional debt and certain distributions. Our 2019 Credit Agreement contains certain financial
covenants, including a certain leverage ratio and a certain minimum fixed charge coverage ratio we must maintain. Please see
Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation—Debt Agreements."
Our ability to comply with these financial condition tests can be affected by events beyond our control. If we are unable to
remain in compliance with the financial covenants of our 2019 Credit Agreement, then amounts outstanding thereunder may
be accelerated and become due immediately or we may be unable to access the funds available. Any such acceleration could
have a material adverse effect on our financial condition and results of operations.
Our ability to use net operating loss carryovers may be limited.
As of December 31, 2020, the Company had approximately $203.9 million of federal net operating loss carryovers and
$58.0 million of state net operating loss carryovers. $138.1 million of such federal net operating loss carryovers have no
expiration date and the remaining federal net operating loss carryovers expire in 2037. State net operating loss carryovers will
expire in varying amounts beginning in 2037. Utilization of our NOLs depends on many factors, including our future income,
which cannot be assured. In addition, Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), generally
imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has
undergone an “ownership change” (as determined under Section 382 of the Code). An ownership change generally occurs if
one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of the relevant corporation’s
stock change their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-
year period. In the event that an ownership change has occurred, or were to occur, utilization of the NOLs would be subject to
an annual limitation under Section 382 of the Code, determined by multiplying the value of the relevant corporation’s stock at
the time of the ownership change by the applicable long-term tax-exempt rate as defined in Section 382 of the Code, and
potentially increased for certain gains recognized within five years after the ownership change if we have a net built-in gain in
our assets at the time of the ownership change. Any unused annual limitation may be carried over to later years until they
expire. As a result, some or all of our U.S. federal, state or foreign NOLs could expire before they can be used. In addition,
future ownership changes or changes to the U.S. tax laws could limit our ability to utilize our NOLs. To the extent we are not
able to offset our future income with our NOLs, this would adversely affect our operating results and cash flows if we attain
profitability.
Risks Related to Regulatory Matters
Laws, regulations, executive orders and other regulatory initiatives relating to hydraulic fracturing could increase our and
our customers costs of doing business and result in restrictions, delays or cancellations that may serve to limit future oil
and natural gas exploration and production activities and could have a material adverse effect on our business, results of
operations and financial condition.
Although we do not directly engage in hydraulic fracturing, our operational services support our E&P customers in such
activities. The practice continues to be controversial in certain parts of the country, resulting in increased scrutiny and
regulation of the hydraulic fracturing process, including by federal and state agencies and local municipalities. Additionally,
with concerns about seismic activity being triggered by the injection of produced wastewaters into
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underground disposal wells, certain regulators are also considering additional requirements related to seismic safety for
hydraulic fracturing activities. Our customers' inability to locate or contractually acquire and sustain the receipt of sufficient
amounts of water could also adversely impact their exploration and production operations and result in a corresponding
reduction in demand for our services. See Part I, Item 1. “Business – Environmental and Occupational Health and Safety
Regulations” for more discussion on these hydraulic fracturing, seismicity and water availability matters. The adoption of any
federal, state or local laws or the implementation of regulations or issuance of executive orders regarding hydraulic fracturing,
seismic activities, or leasing activities on federal properties, or the inability of our customers to maintain adequate water
supplies could potentially cause a decrease in the completion of new oil and gas wells and an associated decrease in demand
for our services and increased compliance costs and time, which could have a material adverse effect on our business, results
of operations, and financial condition.
We are subject to environmental and occupational health and safety laws and regulations that may expose us to
significant costs and liabilities.
Our operations and the operations of our customers are subject to stringent federal, tribal, regional, state and local laws
and regulations governing worker health and safety, protection of the environment, including natural resources, and the
management, transportation and disposal of wastes and other materials. In addition, our business activities present risks of
incurring significant environmental costs and liabilities, including costs and liabilities resulting from our management,
transportation and disposal of regulated materials, such as oilfield and other wastes, because of air emissions and wastewater
discharges related to our operations, and due to historical oilfield industry operations and waste disposal practices. See Part I,
Item 1. “Business – Environmental and Occupational Health and Safety Regulations” for more discussion on these matters.
Compliance with these regulations and other regulatory initiatives, or any other new environmental laws, regulations and
executive actions could impact our customers, increase the costs associated with our business or reduce demand for our
services, any of which could have a material adverse effect on our business, results of operations and financial condition.
Fuel conservation measures could reduce demand for oil and natural gas which would in turn reduce the demand for
our systems and services.
Fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil and
natural gas could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas may have
a material adverse effect on our business, financial condition, prospects, results of operations and cash flows. Additionally, the
increased competitiveness of alternative energy sources (such as wind, solar, geothermal, tidal, and biofuels) could reduce
demand for hydrocarbons and therefore for our systems and services, which would lead to a reduction in our revenues.
Our and our customers' operations are subject to a number of risks arising out of the threat of climate change,
including regulatory, political, litigation, and financial risks, which could result in increased operating and capital costs
for our customers and reduced demand for the products and services we provide.
The threat of climate change continues to attract considerable attention in the United States and foreign countries. As a
result, numerous proposals have been made and are likely to continue to be made at the international, national, regional and
state levels of government to monitor and limit emissions of GHGs as well as to eliminate such future emissions. As a result,
our operations as well as the operations of our E&P customers are subject to a series of regulatory, political, litigation and
financial risks associated with the production and processing of fossil fuels and emission of GHGs. See Part I, Item 1.
“Business – Environmental and Occupational Health and Safety Regulations” for more discussion on the threat of climate and
restriction of GHG emissions. The adoption and implementation of any international, federal, regional or state legislation,
executive actions, regulations or other regulatory initiatives that impose more stringent standards that restrict the areas in
which this sector may produce oil and natural gas or generate GHG emissions could result in increased compliance costs or
costs of consuming fossil fuels, which could reduce demand for our products and services and could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
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The Endangered Species Act, the Migratory Bird Treaty Act and other laws intended to protect certain species of
wildlife govern our and our oil and natural gas exploration and production customers’ operations, which constraints could
have an adverse impact on our ability to expand some of our existing operations or limit our customers’ ability to develop
new oil and natural gas wells.
The federal Endangered Species Act and comparable state laws were established to protect endangered and threatened
species. See Part I, Item 1. “Business – Environmental and Occupational Health and Safety Regulations”. The designation of
previously unidentified endangered or threatened species could indirectly cause our customers to incur additional costs, cause
our or our oil and natural gas E&P customers’ operations to become subject to operating restrictions or bans, and limit future
development activity in affected areas, which could reduce demand for our products and services to those customers.
Anti-indemnity provisions enacted by many states may restrict or prohibit a party's indemnification of us.
We typically enter into agreements with our customers governing the use and operation of our systems and services,
which usually include certain indemnification provisions for losses resulting from operations. Such agreements may require
each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party;
however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party
against the consequences of its own negligence. Furthermore, certain states, including Louisiana, New Mexico, Texas and
Wyoming have enacted statutes generally referred to as "oilfield anti-indemnity acts" expressly prohibiting certain indemnity
agreements contained in or related to oilfield services agreements. Such anti-indemnity acts may restrict or void a party's
indemnification of us, which could have a material adverse effect on our business, financial condition, prospects and results of
operations.
Risks Related to Our Class A Common Stock
Solaris Inc. is a holding company. Solaris Inc.’s sole material asset is its equity interest in Solaris LLC and Solaris Inc.
is accordingly dependent upon distributions from Solaris LLC to pay taxes, make payments under the Tax Receivable
Agreement and cover its corporate and other overhead expenses.
Solaris Inc. is a holding company and has no material assets other than its equity interest in Solaris LLC. Solaris Inc. has
no independent means of generating revenue. To the extent that Solaris Inc. needs funds, including making payments under
the Tax Receivable Agreement, and Solaris LLC or its subsidiaries are restricted from making such distributions or payments
under applicable law or regulation or under the terms of the 2019 Credit Agreement or any future financing arrangements, or
are otherwise unable to provide such funds, Solaris Inc.’s liquidity and financial condition could be materially adversely
affected.
Our stock price could be volatile, and you may not be able to resell shares of your Class A common stock at or above
the price you paid.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Class A
common stock. In addition, the market price of our Class A common stock may fluctuate significantly in response to a number
of factors outside of our control, including public reaction to our releases and filings, actions by our competitors and actions
by our stockholders. Additionally, if our results fail to meet analyst expectations or if analysts cease coverage of our Company,
fail to publish reports on us regularly, or downgrade our Class A common stock, our stock price or trading volume could
decline. Volatility in the market price of our Class A common stock may prevent you from being able to sell your Class A
common stock at or above the price at which you purchased the stock. As a result, you may suffer a loss on your investment.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall
market and in the market price of a company's securities. Such litigation, if instituted against us, could result in substantial
costs, divert our management's attention and resources and harm our business, operating results and financial condition.
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Future sales of our Class A common stock in the public market, or the perception that such sales may occur, could
reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may
dilute your ownership in us.
We may sell additional shares of our Class A common stock in subsequent offerings. In addition, subject to certain
limitations and exceptions, the Original Investors may redeem their Solaris LLC Units (together with a corresponding number
of shares of Class B common stock) for shares of Class A common stock (on a one-for-one basis, subject to conversion rate
adjustments for stock splits, stock dividends and reclassification and other similar transactions) and then sell those shares of
Class A common stock. Sales of substantial amounts of our Class A common stock (including shares issued in connection with
an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A
common stock.
Holders of our Class A common stock may not receive dividends on our Class A common stock.
We declared our first dividend to Class A stockholders in the fourth quarter of 2018 and have continued to declare
dividends on a quarterly basis. See Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities” of this Annual Report. We are not required to declare future dividends and holders of
our Class A common stock are entitled to receive only such dividends as our board of directors may declare out of funds
legally available for such payments. Any determination to pay dividends and other distributions in cash, stock or property by
us in the future will be at the discretion of our board of directors and will be dependent on then-existing conditions, including
business conditions, our financial condition, results of operations, liquidity, capital requirements, contractual restrictions
including restrictive covenants contained in debt agreements and other factors.
Our principal stockholders collectively hold a significant amount of the voting power of our common stock.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to
our stockholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation,
and the members of Solaris LLC immediately prior to the IPO (collectively, the “Original Investors”) own a substantial
majority of our Class B common stock, which represents approximately 35% of our combined economic interest and voting
power.
Although the Original Investors are entitled to act separately in their own respective interests with respect to their
ownership in us, if the Original Investors choose to act in concert, they will together have the ability to strongly influence the
election of the members of our board of directors, and thereby our management and affairs. In addition, they will be able to
strongly influence the outcome of all matters requiring stockholder approval, including mergers and other material
transactions. The existence of significant stockholders may also have the effect of deterring hostile takeovers, delaying or
preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve
transactions that they may deem to be in the best interests of our company. Moreover, this concentration of stock ownership
may also adversely affect the trading price of our Class A common stock to the extent investors perceive a disadvantage in
owning stock of a company with a controlling stockholder.
Certain Designated Parties are not limited in their ability to compete with us, and the corporate opportunity provisions
in our amended and restated certificate of incorporation could enable such Designated Parties and their respective
affiliates to benefit from corporate opportunities that might otherwise be available to us.
Our governing documents provide that Yorktown, Wells Fargo Central Pacific Holdings, Inc. and our directors who are
not also our officers, including William A. Zartler, our Chief Executive Officer and the Chairman of our board of directors,
and their respective portfolio investments and affiliates (collectively, the "Designated Parties") are not restricted from owning
assets or engaging in businesses that compete directly or indirectly with us.
In particular, subject to the limitations of applicable law, our amended and restated certificate of incorporation, among
other things:
● permits such Designated Parties to conduct business that competes with us and to make investments in any kind
of property in which we may make investments; and
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● provides that if such Designated Parties, or any employee, partner, member, manager, officer or director of such
Designated Parties who is also one of our directors, becomes aware of a potential business opportunity,
transaction or other matter, they will have no duty to communicate or offer that opportunity to us.
The Designated Parties may become aware, from time to time, of certain business opportunities (such as acquisition
opportunities) and may direct such opportunities to other businesses in which they have invested, in which case we may not
become aware of or otherwise have the ability to pursue such opportunity. Furthermore, such businesses may choose to
compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be
more expensive for us to pursue. In addition, the Designated Parties may dispose of oil and natural gas service assets in the
future, without any obligation to offer us the opportunity to purchase any of those assets. As a result, our renouncing our
interest and expectancy in any business opportunity that may be from time to time presented to the Designated Parties could
adversely impact our business or prospects if attractive business opportunities are procured by such parties for their own
benefit rather than for ours or become more expensive for us to pursue.
Certain of our directors, including our Chairman and Chief Executive Officer, have significant duties with, and spend
significant time serving, entities that may or may not compete with us and, accordingly, may have conflicts of interest in
allocating time or pursuing business opportunities.
Certain of our executive officers and directors, who are responsible for managing the direction of our operations, hold
positions of responsibility with other entities (including affiliated entities) that are in the oil and natural gas industry. These
executive officers and directors may have conflicts of interest in allocating their time between these entities or whether to
present potential business opportunities to other entities prior to presenting them to us, which could cause additional conflicts
of interest. They may also decide that certain opportunities are more appropriate for other entities with which they are
affiliated, and as a result, they may elect not to present those opportunities to us. These conflicts may not be resolved in our
favor. For additional discussion of our directors' business affiliations and the potential conflicts of interest of which our
stockholders should be aware, see Note 13. “Related Party Transactions” under Part II, Item 8. “Financial Statements and
Supplementary Data.”
Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law,
contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price
of our Class A common stock and could deprive our investors of the opportunity to receive a premium for their shares.
Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one
or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including
preferences over our Class A common stock respecting dividends, voting rights, rights and terms of redemption, redemption
price or prices and liquidation preferences of such series and distributions, as our board of directors may determine. The terms
of one or more classes or series of preferred stock could adversely impact the voting power or value of our Class A common
stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or
on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights
or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the Class A common
stock.
If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In
addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could
make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our
stockholders. These provisions include, among other things: a staggered, or classified, board of directors; permitting the
majority of directors then in office, even if less than a majority, the right to fill vacancies; restricting the ability of stockholders
to act by written consent or call special meetings of stockholders; supermajority requirements (75%) to
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remove directors from office; prohibitions on cumulative voting of directors; advance notice requirements for stockholders
proposals; and express power to our board of directors to adopt, or alter or repeal our bylaws.
In addition, certain change of control events have the effect of accelerating the payment due under the Tax Receivable
Agreement, which could be substantial and accordingly serve as a disincentive to a potential acquirer of our company. Please
see "—In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the
actual benefits, if any, Solaris Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement."
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as
the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which
could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers,
employees or agents.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the
sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of
breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any
action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the "DGCL"), our
amended and restated certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us that is governed
by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the
indispensable parties named as defendants therein. Section 27 of the Exchange Act creates exclusive federal jurisdiction over
all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations promulgated
thereunder. As a result, the exclusive forum provision will not apply to actions arising under the Exchange Act or the rules and
regulations promulgated thereunder. However, Section 22 of the Securities Act provides for concurrent federal and state court
jurisdiction over actions under the Securities Act and the rules and regulations promulgated thereunder, subject to a limited
exception for certain “covered class actions” as defined in Section 16 of the Securities Act and interpreted by the courts.
Accordingly, we believe that the exclusive forum provision would apply to actions arising under the Securities Act or the rules
and regulations promulgated thereunder, except to the extent a particular action fell within the exception for covered class
actions or the exception in the certificate of incorporation described above otherwise applied to such action, which could occur
if, for example, the action also involved claims under the Exchange Act. Stockholders will not be deemed, by operation of
Article 14 of the certificate of incorporation alone, to have waived claims arising under the federal securities laws and the
rules and regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have
notice of, and consented to, the provisions of our amended and restated certificate of incorporation described in the preceding
sentence. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us
and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of
incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we
may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our
business, financial condition or results of operations.
Solaris Inc. will be required to make payments under the Tax Receivable Agreement for certain tax benefits that it may
claim, and the amounts of such payments could be significant.
In connection with the closing of the IPO, Solaris Inc. entered into a Tax Receivable Agreement with the TRA Holders (as
defined herein). 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 initial public offering as a result of certain increases in tax basis and certain benefit
attributable to imputed interest. Solaris Inc. will retain the benefit of the remaining 15% of these cash savings. For additional
information, see “Payables Related to the Tax Receivable Agreement” inNote 10. “Income Taxes” and Note. 13 “Related Party
Transactions” under Part II, Item 8. “Financial Statements and Supplementary
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Data.” The term of the Tax Receivable Agreement will continue until all tax benefits that are subject to the Tax Receivable
Agreement have been utilized or expired, unless Solaris Inc. exercises its right to terminate the Tax Receivable Agreement (or
the Tax Receivable Agreement is terminated due to other circumstances, including Solaris Inc.’s breach of a material
obligation thereunder or certain mergers, asset sales or other forms of business combinations or other changes of control), and
Solaris Inc. makes the termination payment specified in the Tax Receivable Agreement.
The payment obligations under the Tax Receivable Agreement are Solaris Inc.'s obligations and not obligations of Solaris
LLC, and Solaris Inc. expects that the payments it will be required to make under the Tax Receivable Agreement will be
substantial. Estimating the amount and timing of payments that may become due under the Tax Receivable Agreement is by its
nature imprecise. For purposes of the Tax Receivable Agreement, cash savings in tax generally are calculated by comparing
Solaris Inc.’s actual tax liability (determined by using the actual applicable United States federal income tax rate and an
assumed combined state and local income and franchise tax rate) to the amount Solaris Inc. would have been required to pay
had it not been able to utilize any of the tax benefits subject to the Tax Receivable Agreement. The actual increase in tax basis,
as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number
of factors, including the timing of any redemption of Solaris LLC Units, the price of Solaris Inc.’s Class A common stock at
the time of each redemption, the extent to which such redemptions are taxable transactions, the amount and timing of the
taxable income Solaris Inc. generates in the future, the United States federal income tax rates then applicable, and the portion
of Solaris Inc.’s payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or
amortizable tax basis.
The payments under the Tax Receivable Agreement are not conditioned upon a holder of rights under the Tax Receivable
Agreement having a continued ownership interest in Solaris Inc. or Solaris LLC. For additional information regarding the Tax
Receivable Agreement, see Note 10. “Income Taxes” under Part II, Item 8. “Financial Statements and Supplementary Data.”
In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the
actual benefits, if any, Solaris Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement.
If we experience a change of control (as defined in the Tax Receivable Agreement), which includes certain mergers, asset
sales and other forms of business combinations, or the Tax Receivable Agreement terminates early, we would be required to
make a substantial, immediate lump-sum payment. This payment would equal the present value of hypothetical future
payments that could be required to be paid under the Tax Receivable Agreement (determined by applying a discount rate of
one year London Interbank Offered Rate (“LIBOR”) plus 100 basis points). The calculation of hypothetical future payments
will be based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement, including that (i)
Solaris Inc. has sufficient taxable income to fully utilize the tax benefits covered by the Tax Receivable Agreement (including
having sufficient taxable income to currently utilize any accumulated net operating loss carryforwards) and (ii) any Solaris
LLC Units (other than those held by Solaris Inc.) outstanding on the termination date are deemed to be redeemed on the
termination date. Any early termination payment may be made significantly in advance of, and may materially exceed, the
actual realization, if any, of the future tax benefits to which the termination payment relates. If we experience a change of
control, such potential termination payment could have a substantial negative impact on Solaris Inc.’s liquidity and could have
the effect of delaying, deferring or preventing certain mergers, asset sales or other forms of business combinations or changes
of control.
For example, if the Tax Receivable Agreement were terminated immediately after the filing of this Annual Report the
estimated termination payments would, in the aggregate, be approximately $87.6 million (calculated using a discount rate
equal to one year LIBOR plus 100 basis points, applied against an undiscounted liability of $93.1 million, based upon the last
reported closing sale price of our Class A common stock on December 31, 2020). The foregoing number is merely an estimate
and the actual payment could differ materially. There can be no assurance that we will be able to finance our obligations under
the Tax Receivable Agreement. Please read Note 10. “Income Taxes” under Part II, Item 8. “Financial Statements and
Supplementary Data” for additional information.
Additionally, holders of our Class A common stock could receive substantially less consideration in connection with a
change of control transaction than they would receive in the absence of such obligation. Further, Solaris Inc.’s payment
obligations under the Tax Receivable Agreement will not be conditioned upon the TRA Holders having a continued
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interest in Solaris Inc. or Solaris LLC. Accordingly, the TRA Holders' interests may conflict with those of the holders of our
Class A common stock.
Finally, payments under the Tax Receivable Agreement will be based on the tax reporting positions that we will
determine. The TRA Holders will not reimburse us for any payments previously made under the Tax Receivable Agreement if
any tax benefits that have given rise to payments under the Tax Receivable Agreement are subsequently disallowed. As a
result, in such circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be
able to recoup those payments, which could adversely affect our liquidity.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange
Act, and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract
management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company, we need to comply with laws, regulations and requirements, certain corporate governance
provisions of the Sarbanes-Oxley Act and related regulations of the SEC and the requirements of the New York Stock
Exchange (the “NYSE”). Complying with these statutes, regulations and requirements occupies a significant amount of time
of our board of directors and management and significantly increases our costs and expenses.
Furthermore, while we must comply with Section 404 of the Sarbanes-Oxley Act, we are not required to have our
independent registered public accounting firm attest to the effectiveness of our internal controls until our first annual report
subsequent to our ceasing to be an "emerging growth company" within the meaning of Section 2(a)(19) of the Securities Act.
Accordingly, we may not be required to have our independent registered public accounting firm attest to the effectiveness of
our internal controls until as late as our annual report for the fiscal year ending December 31, 2022. Once it is required to do
so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the
level at which our controls are documented, designed, operated or reviewed. Compliance with these requirements may strain
our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a
timely or cost-effective manner.
In addition, being a public company subject to these rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and
retain qualified individuals to serve on our board of directors or as executive officers.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting
requirements, including those relating to internal controls, accounting standards and disclosure about our executive
compensation, that apply to other public companies.
Under Section 404(a) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) our management is required to
assess and report annually on the effectiveness of our internal control over financial reporting and identify any material
weaknesses in our internal control over financial reporting. Once we are no longer an emerging growth company, Section
404(b) of the Sarbanes-Oxley Act will require our independent registered public accounting firm to issue an annual report that
addresses the effectiveness of our internal control over financial reporting. If material weaknesses are discovered in the future,
the Company’s financial statements could contain additional errors which, in turn, could lead to errors in our financial reports
and/or delays in our financial reporting, which could require us to further restate our operating results. As a result, investors
may lose confidence in our operating results, the price of our Class A common stock could decline and we may be subject to
litigation or regulatory enforcement actions, including delisting from the NYSE.
Additionally, for as long as we are an emerging growth company, unlike other public companies, we will not be required
to, among other things: (i) comply with any new requirements if adopted by the Public Company Accounting Oversight Board
(United States) (“PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor's report in which the
auditor would be required to provide additional information about the audit and the financial statements of the issuer; (ii)
provide certain disclosures regarding executive compensation required of larger public companies; or (iii) hold nonbinding
advisory votes on executive compensation.
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To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less
information about our executive compensation and internal control over financial reporting than issuers that are not emerging
growth companies. If some investors find our Class A common stock to be less attractive as a result, there may be a less active
trading market for our Class A common stock and our stock price may be more volatile.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal properties are described in Item 1. “Business” under the caption “—Our Properties.”
Item 3. Legal Proceedings
Disclosure concerning legal proceedings is incorporated by reference to “Part II. Item 8. “Financial Statements and
Supplementary Data—Note 3. Legal Proceedings” in this Annual Report.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Shares of our Class A common stock trade on the NYSE under the symbol “SOI.”
As of February 18, 2021, we had approximately 6 holders of record of our Class A common stock. This number excludes
owners for whom Class A common stock may be held in "street" name.
There is no market for our Class B common stock. As of February 18, 2021, we had 16 holders of record of our Class B
common stock.
Dividend Policy
The Company paid quarterly cash dividends of $0.105 per share of Class A common stock. We currently intend to
continue paying the quarterly dividend while retaining the balance of future earnings, if any, to finance the growth of our
business. However, our future dividend policy is within the discretion of our board of directors and will depend upon then-
existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities,
statutory restrictions on our ability to pay dividends and other factors our board of directors may deem relevant. In addition,
our 2019 Credit Agreement contains certain restrictions on our ability to pay cash dividends to holders of our Class A common
stock.
Stock Performance Graph
The graph below compares the cumulative total shareholder return on our common stock with the cumulative total return
on the Standard & Poor’s 500 Stock Index and the Oilfield Service Index since May 12, 2017, the first day our Class A
common stock traded on the NYSE.
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The graph assumes $100 was invested in our common stock on May 12, 2017 and in each of the indexes and further
assumes the reinvestment of dividends. We elected to include the Oilfield Service Index as our published industry or line-of-
business index as we believe it is an appropriate benchmark for our line of business/industry.
Source: Bloomberg. Assumes dividend reinvestment on pay date.
Securities Authorized for Issuance under Equity Compensation Plans
The information relating to our equity compensation plans required by Item 5 is incorporated by reference to such
information as set forth in Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” contained herein.
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Issuer Purchases of Equity Securities
The following table presents the total number of shares of our Class A common stock that we purchased during the year
ended December 31, 2020 and the average price paid per share:
Period
January 1 - January 31
February 1 - February 28
March 1 - March 31
April 1 - April 30
May 1 - May 31
June 1 - June 30
July 1 - July 31
August 1 - August 31
September 1 - September 30
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
Total Number of Maximum Dollar
Shares Purchased as Value of Shares
Total Number of
Average Price
Part of Publicly
that May Yet be
Shares
Purchased
Paid Per
Share
Announced
Purchased Under
Plan (1)
the Plan (1)
438,253 (2)$
1,010,200
969,308 (2)
1,944 (3)
16,483 (3)
782 (3)
2,258 (3)
23,550 (3)
—
—
358 (3)
—
2,463,136
$
12.97
12.05
9.65
5.27
5.63
8.39
7.12
7.53
—
—
6.53
—
11.17
1,010,200
375,000
—
—
—
—
—
—
—
—
—
431,692 $ 16,150,515
3,974,807
—
—
—
—
—
—
—
—
—
—
—
1,816,892 $
(1) In December 2019, our Board of Directors authorized and announced the repurchase of up to $25 million of our Class A
common stock, which was completed in March 2020.
(2) Includes 6,561 and 37,108 shares of Class A common stock withheld for the payment of withholding taxes upon the
exercise of options and the vesting of restricted stock in January and March, respectively, as well as $5 million of our
Class A common stock purchased in March pursuant to Rule 10b-18.
(3) Represents shares of stock withheld for the payment of withholding taxes upon the vesting of restricted stock.
Sales of Unregistered Equity Securities
None.
Item 6. Selected Financial Data
Solaris Inc. was formed in February 2017 and did not have any historical financial or operating results prior to the IPO.
Following the IPO, Solaris Inc. became the sole managing member for Solaris LLC. As a result, Solaris Inc. consolidates the
financial results of Solaris LLC and its subsidiaries and reports noncontrolling interest related to the portion of Solaris LLC
Units not owned by Solaris Inc., which reduces net income (loss) attributable to the holders of Solaris Inc.'s Class A stock. For
periods prior to the completion of the IPO, the accompanying consolidated financial statements include the historical financial
position and results of operations of Solaris LLC, our predecessor.
The following selected historical financial and operating information was derived from our Consolidated Financial
Statements as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016. The selected financial data should
be read in conjunction with the Company’s Consolidated Financial Statements and the accompanying Notes to
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Consolidated Financial Statements in “Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and “Part II, Item 8. “Financial Statements and Supplementary Data.”
2020
2019
Year ended
December 31,
2018
2017
2016
(in thousands, except per share and operating data)
Statement of Operations Data:
Total revenue
Total operating costs and expenses (1)
Total other income (expense)
Income (loss) before income tax expense
Provision for income taxes
Net income (loss)
Less: net (income) loss related to
Solaris LLC
Less: net income (loss) related to non-
controlling interests
Net income (loss) attributable to Solaris Inc.
Earnings (loss) per share of Class A
common stock—basic (2)
Earnings (loss) per share of Class A
common stock—diluted (2)
Distribution per unit and dividend per share
paid to Solaris LLC unitholders and Class A
common shareholders
Basic weighted-average shares of Class A
common stock outstanding (2)
Diluted weighted-average shares of Class A
common stock outstanding (2)
Balance Sheet Data (at period end):
Cash
Property, plant and equipment, net
Total assets
Long-term debt (including current portion)
Total liabilities
Total liabilities, stockholders' and members’
equity
Cash Flow Statement Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing
activities
Other Data:
Adjusted EBITDA (3)
Fully utilized systems (4)
$ 102,976
162,876
(162)
(60,062)
8,969
$ 241,687
133,757
(634)
107,296
(16,936)
$ (51,093) $ 90,360
$ 197,196 $ 67,395 $ 18,157
15,296
(15)
2,846
(43)
$ 2,803
97,909
(374)
98,913
(12,961)
85,952
41,934
22,925
48,386
(33,709)
$ 14,677
$
—
—
—
(3,665)
(2,803)
21,752
(38,353)
$ (29,341) $ 52,007
$
$
(1.03) $
1.69
(1.03) $
1.69
$
0.420
$
0.405
28,915
30,141
28,915
30,185
$ 60,366
245,884
411,896
—
96,417
$ 66,882
306,583
505,072
—
95,414
$
$
$
$
$
(43,521)
42,431
(15,186)
$ (4,174) $
1.60
1.59
$
$
(0.34) $
(0.34) $
0.100
$
— $
25,678
12,117
25,829
12,117
—
—
—
—
—
—
—
25,057
296,538
458,607
13,628
117,729
$ 63,421
151,163
299,743
212
45,500
$ 3,568
54,350
77,236
3,041
5,890
411,896
505,072
458,607
299,743
77,236
$ 43,853
(3,775)
$ 114,871
(34,002)
$ 116,365
(160,545)
$ 26,729
(98,984)
$ 4,521
(10,935)
(46,594)
(39,044)
5,816
132,108
3,059
$ 25,591
45
$ 113,413
110
$ 122,835
111
$ 39,923
46
$ 6,788
16
(1) Total operating costs and expenses include stock-based compensation expense as follows:
Cost of system rental
Cost of system services
Cost of transloading services
Selling, general and administrative
Stock-based compensation expense
29
$
2017
2019
2020
Year ended
December 31,
2018
(in thousands, except per share and operating data)
21
412
15
4,287
$ 4,735
— $
—
—
3,701
$ 3,701
34
262
13
4,167
$ 4,476
6
191
3
3,661
$ 3,861
$
$
$
$
2016
—
—
—
127
127
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(2) Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock
outstanding for the period following the May 17, 2017 IPO.
(3) Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation to our
most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of Non-GAAP
Financial Measures."
(4) The fully utilized system count is calculated as the total number of revenue days divided by the number of days in the
period.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, references in this Annual Report to the "Company," "Solaris," "we," "us" and "our"
refer to (i) Solaris Oilfield Infrastructure, LLC ("Solaris LLC") and its consolidated subsidiaries prior to the completion of
our initial public offering and (ii) Solaris Oilfield Infrastructure, Inc. ("Solaris Inc.") and its consolidated subsidiaries
following the completion of our initial public offering. 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. This section
of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019.
Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can
be found in “Part II, Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 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” and “Risk
Factors” included elsewhere in this Annual Report, 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 165 mobile proppant management systems, 14 mobile chemical management
systems and three mobile 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.
During 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 and recovered throughout the course of 2020. The Baker Hughes US Land rig count decreased 55% to 417 average
rigs in 2020 from 920 average rigs in 2019. This compares to a 59% decline to an average of 45 fully utilized mobile proppant
systems rented during 2020 compared to 2019.
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The Baker Hughes US Land rig count bottomed at 231 rigs in the third quarter of 2020, down 70% from its prior recent
peak, and recovered 45% to 331 rigs by year end. Since the start of 2021, the Baker Hughes US Land rig count has increased
another 14% to 380 rigs and WTI oil prices have recovered to pre-pandemic levels. Absent significant changes in market
share, we would expect our activity to follow the general trends of the US land drilling and completion activity. 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. We expect continued financial discipline from most public operators despite near-term fluctuations in commodity prices
as they continue prioritizing balance sheets and dividends in additional to recent merger and acquisition activity.
During 2020, we reduced our capital expenditures to under $5 million compared to approximately $35 million in 2019.
For full year 2021, we expect our capital spending to be in the range of $5 to $10 million.
How We Generate Revenue
We generate the majority of our revenue by providing sand storge equipment and services and logistics services, including
transportation of proppant to the well site, transportation of our systems field supervision and support under a variety of
contract structures, primarily master service agreements as supplemented by individual work orders detailing statements of
work, pricing agreements and specific quotes. Our systems and services provided to customers are generally priced based on
prevailing market conditions at the time the services are provided, giving consideration to the specific requirements and
activity levels of the customer.
At our transload facility in Oklahoma (the “Kingfisher Facility”), we generally charge our customers a throughput fee for
rail-to-truck transloading and high-efficiency sand silo storage and transloading services. We also earn fees for storing railcars
at the facility.
Finally, we generate revenue through our Railtronix® inventory management software. We generally charge our
customers a throughput fee to monitor proppant that is loaded into a railcar, stored at a transload facility or loaded into a truck
at either a transload facility or mine.
Costs of Conducting Our Business
The principal costs associated with operating our business are direct costs of personnel, costs of maintaining our
equipment, facilities and software, insurance and property taxes related to our equipment, transportation costs to move our
equipment and proppant to the well site, general and administrative expenses, and depreciation and amortization. A large
portion of the costs we incur in our business are variable based on the requirements of our equipment and services provided to
our customers. We manage the level of our fixed costs, except depreciation and amortization, based on several factors,
including industry conditions and expected demand for our equipment and services.
We use a variety of qualitative, operational and financial metrics to assess our performance. Among other measures,
management considers revenue, fully utilized system count, tons transloaded, EBITDA and Adjusted EBITDA.
How We Evaluate Our Operations
Revenue
We analyze our revenue by comparing actual monthly revenue to our internal projections for a given period and to prior
periods to assess our performance. We also assess our revenue in relation to the number of systems we have deployed to
customers.
Fully Utilized System Count
The fully utilized system count is calculated as the combined number of days that a system generates revenue in a given
period divided by the number of days in that period. We view the fully utilized system count as the best measure to track
utilization and changes in rental activity on a period-over-period basis as the majority of our systems are rented on a monthly
basis.
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EBITDA and Adjusted EBITDA
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
extraordinary, unusual or non-recurring gains, losses or expenses.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Results of Operations
Revenue
System rental
System services
Transloading services
Inventory software services
Total revenue
Operating costs and expenses:
Cost of system rental (excluding $24,175 and $22,389 of depreciation and
amortization for the years ended December 31, 2020 and 2019, respectively,
shown separately)
Cost of system services (excluding $971 and $1,548 of depreciation and
amortization for the years ended December 31, 2020 and 2019, respectively,
shown separately)
Cost of transloading services (excluding $411 and $1,643 of depreciation and
amortization for the year ended December 31, 2020 and 2019, shown
separately)
Cost of inventory software services (excluding $772 and $772 of depreciation
and amortization for the years ended December 31, 2020 and 2019,
respectively, shown separately)
Depreciation and amortization
Selling, general and administrative (excluding $692 and $573 of depreciation
and amortization for the years ended December 31, 2020 and 2019,
respectively, shown separately)
Impairment losses
Other operating expenses
Total operating costs and expenses
Operating income (loss)
Interest expense, net
Total other expense
Income (loss) before income tax expense
Benefit (provision) for income taxes
Net income (loss)
Less: net (income) loss related to non-controlling interests
Net income (loss) attributable to Solaris
System Rental
Year Ended
December 31,
2020
2019
(in thousands)
Change
$ 52,171
48,625
1,250
930
102,976
$ 142,022
63,871
34,105
1,689
241,687
$ (89,851)
(15,246)
(32,855)
(759)
(138,711)
5,501
9,707
(4,206)
58,767
74,749
(15,982)
1,040
2,601
(1,561)
456
27,021
604
26,925
(148)
96
16,481
47,828
5,782
162,876
(59,900)
(162)
(162)
(60,062)
8,969
(51,093)
21,752
$ (29,341)
18,586
—
585
133,757
107,930
(634)
(634)
107,296
(16,936)
90,360
(38,353)
$ 52,007
(2,105)
47,828
5,197
29,119
(167,830)
472
472
(167,358)
25,905
(141,453)
60,105
$ (81,348)
System rental revenue decreased $89.9 million, or 63%, to $52.2 million for the year ended December 31, 2020 compared
to $142.0 million for the year ended December 31, 2019. This decrease was primarily due to a decrease in
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mobile proppant systems on a fully utilized basis, due to severe contraction in oil company completion activities that occurred
in response to global oil market volatility, including the impact of COVID-19.
Cost of system rental decreased $4.2 million, or 43%, to $5.5 million for the year ended December 31, 2020 compared to
$9.7 million for the year ended December 31, 2019, excluding depreciation and amortization expense. Cost of system rental
decreased primarily due to a decrease in mobile proppant systems on a fully utilized basis. Cost of system rental as a
percentage of system rental revenue was 11% and 7% for the year ended December 31, 2020 and 2019, respectively.
System Services
System services revenue decreased $15.2 million, or 24%, to $48.6 million for the year ended December 31, 2020
compared to $63.9 million for the year ended December 31, 2019. This decrease was primarily due to a decrease in mobile
proppant systems on a fully utilized basis, which was offset by an increase in services provided to coordinate proppant
delivered into our systems.
Cost of system services decreased $16.0 million, or 21%, to $58.8 million for the year ended December 31, 2020
compared to $74.7 million for the year ended December 31, 2019, excluding depreciation and amortization expense. Cost of
system services decreased due to lower field support activity and third-party trucking services required to support fewer fully
utilized systems, which was offset by an increase in services provided to coordinate proppant delivered to systems. Cost of
system services as a percentage of system services revenue was 121% and 117% for the year ended December 31, 2020 and
2019, respectively.
Transloading Services
Transloading services revenue decreased $32.9 million, or 96%, to $1.3 million for the year ended December 31, 2020
compared to $34.1 million for the year ended December 31, 2019. This decrease was primarily due to recognition of $27.1
million of deferred revenue in the year ended December 31, 2019 related to contract termination payments. The remaining
decrease in revenues, as well as the decrease in Cost of transloading services, is related to a reduction in transloading and
storage activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $2.1 million, or 11%, to $16.5 million for the year ended
December 31, 2020 compared to $18.6 million for the year ended December 31, 2019, excluding depreciation and
amortization. The decrease is due primarily to cost cutting measures, including headcount, salary and support cost reductions,
in response to the reduction in industry activity, including the impact of COVID-19.
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 certain actions by oil producers globally, which have been exacerbated by COVID-19, and the expected
impact on our business, results of operations and earnings, 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, right of use
assets, and inventories and other assets, respectively, in the year ended December 31, 2020.
Other Operating Expenses
Other operating expenses increased $5.2 million, or 888% to $5.8 million for the year ended December 31, 2020
compared to the $0.6 million for the year ended December 31, 2019. Other operating expenses in the year ended December
31, 2020 primarily relate to credit losses, loss on disposal of assets, severance costs and the write off of prepaid purchase
orders that were not fulfilled. Other operating expenses in the year ended December 31, 2019 primarily relate to $0.5 million
loss on disposal of assets.
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Provision for Income Taxes
During the year ended December 31, 2020, we recognized a combined United States federal and state benefit for income
taxes of $9.0 million, an increase of $25.9 million as compared to the $16.9 million income tax expense we recognized during
the year ended December 31, 2019. This change was attributable to lower operating income. The effective combined United
States federal and state income tax rates were 14.9% and 15.8% for the year ended December 31, 2020 and 2019, 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.
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.
Year ended
December 31,
2020
2019
(in thousands)
Change
Net income (loss)
Depreciation and amortization
Interest expense, net
Income taxes (1)
EBITDA
Stock-based compensation expense (2)
Loss on disposal of assets
Impairment loss
Severance
Credit losses
Other write-offs (3)
Transaction costs (4)
Transload contract termination (5)
Adjusted EBITDA
(1) Federal and state income taxes.
$ (51,093) $ 90,360 $ (141,453)
96
(472)
(25,905)
$ (167,734)
259
965
47,828
318
2,728
73
603
27,138
$ (87,822)
26,925
634
16,936
$ 134,855
4,476
463
—
229
—
528
—
(27,138)
$ 113,413
27,021
162
(8,969)
$ (32,879)
4,735
1,428
47,828
547
2,728
601
603
—
$ 25,591
(2) Represents stock-based compensation expense related to restricted stock awards of $4.7 million and $4.5 million in the
years ended December 31, 2020 and 2019, respectively.
(3) Write-off of prepaid and cancelled purchase orders in the year ended December 31, 2020 and unamortized debt issuance
costs in the year ended December 30, 2019 when the Amended and Restated Credit Agreement, dated as of January 19,
2018, was replaced in its entirety by the 2019 Credit Agreement.
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Table of Contents
(4) Costs related to the pursuit of acquisitions.
(5) Deferred revenue related to full termination of a sand storage and transloading agreement.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019: EBITDA and Adjusted EBITDA
EBITDA decreased $167.7 million to ($32.9) million for the year ended December 31, 2020 compared to $134.9 million
for the year ended December 31, 2019. Adjusted EBITDA decreased $87.8 million to $25.6 million for the year ended
December 31, 2020 compared to $113.4 million for the year ended December 31, 2019. The decreases in EBITDA and
Adjusted EBITDA were primarily due to the changes in revenues and expenses, discussed above.
Overview
Liquidity and Capital Resources
Our primary sources of liquidity to date have been cash flows from operations, borrowings under our credit agreements
and proceeds from the IPO and a November 2017 offering. Our primary uses of capital have been to fund ongoing operations,
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 December 31, 2020, cash and cash equivalents totaled $60.4 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:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net change in cash
$
$
Year Ended
December 31,
2020
2019
(in thousands)
114,871
(34,002)
(39,044)
41,825
43,853 $
(3,775)
(46,594)
(6,516)
$
Change
2020 vs. 2019
$
$
(71,018)
30,227
(7,550)
(48,341)
Analysis of Cash Flow Changes for Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Operating Activities. Net cash provided by operating activities was $43.9 million for the year ended December 31, 2020,
compared to net cash provided by operating activities of $114.9 million for the year ended December 31, 2019. The decrease
of $71.0 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 $3.8 million for the year ended December 31, 2020,
compared to $34.0 million for the year ended December 31, 2019. The decrease in investing activities of $30.2 million is
primarily due to a decrease in the manufacturing rate of new proppant systems. Investing activities for the year ended
December 31, 2020 include system enhancements offset by the sale of assets. Investing activities for the year ended December
31, 2019 primarily include $34.9 million of capital expenditures related to manufacturing new systems.
Financing Activities. Net cash used in financing activities of $46.6 million for the year ended December 31, 2020, was
primarily related to $26.7 million of share repurchases and quarterly distributions and dividends of $19.0 million. Net cash
used in financing activities of $39.0 million for the year ended December 31, 2019 was primarily related to
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quarterly distributions and dividends of $19.3 million, $13.0 million to repay borrowings under the 2019 Credit Agreement,
$3.2 million of share repurchases and $2.5 million for payments under insurance premium financing.
Senior Secured Credit Facility
Debt Agreements
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 million revolving loan commitment (the “Loan”)
with a $25.0 million uncommitted accordion option to increase the Loan availability to $75.0 million. The term of the 2019
Credit Agreement expires on April 26, 2022.
Our obligations under the Loan are generally secured by a pledge of substantially all of the assets of Solaris LLC and its
subsidiaries, and such obligations are guaranteed by Solaris LLC’s domestic subsidiaries other than Immaterial Subsidiaries
(as defined in the 2019 Credit Agreement). We have the option to prepay the loans at any time without penalty.
Borrowings under the 2019 Credit Agreement bear interest at either LIBOR or an alternate base rate plus an applicable
margin, and interest is payable quarterly. 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.
The 2019 Credit Agreement requires that we maintain ratios of (a) consolidated EBITDA to interest expense of not less
than 2.75 to 1.00, (b) senior indebtedness to consolidated EBITDA of not more than 2.50 to 1.00 and (c) the sum of 100% of
eligible accounts, inventory and fixed assets to the total revolving exposure of not less than 1.00 to 1.00 when the total
leverage ratio is greater than 2.00 to 1.00 and total revolving exposure under the Loan exceeds $3.0 million. For the purpose
of these tests, certain items are subtracted from indebtedness and senior indebtedness. EBITDA, as defined in the 2019 Credit
Agreement, excludes certain noncash items and any extraordinary, unusual or non-recurring gains, losses or expenses.
The 2019 Credit Agreement also 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 million, taking into account certain
adjustments. Capital expenditures are not restricted unless borrowings under the Loan exceed $5.0 million for any 180
consecutive day period, in which case capital expenditures will be permitted up to $100.0 million plus any unused availability
for capital expenditures from the immediately preceding fiscal year.
As of December 31, 2020, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw $50.0
million and we were in compliance with all covenants.
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The table below provides estimates of the timing of future payments that we are contractually obligated to make based on
agreements in place at December 31, 2020.
Contractual Obligations
Operating lease obligations (1)
Finance lease obligations (2)
Commitment fees on Revolving Loan (3)
Purchase commitments (4)
Other commitments
Total
$ 1,138
33
125
1,136
255
$ 2,687
$ 1,169
33
40
—
37
$ 1,279
2021
2022
Thereafter
Total
$
2025
For the Year Ending December 31,
2024
2023
(in thousands)
$ 1,109
33
—
—
—
$ 1,142
$ 1,165
33
—
—
2
$ 1,200
$
966
5
—
—
$ 7,389
—
—
—
$ 12,936
137
165
1,136
294
14,668
971
$ 7,389
(1) Operating lease obligations are related to our 30-year land lease with the State of Oklahoma related to the Company's
Kingfisher Facility, as well as other office, land and equipment leases.
(2) Finance lease obligations are related to our finance lease of a building at our Early Facility.
(3) Commitment fees on our Revolving Loan were calculated based on the unused portion of lender commitments, at the
applicable commitment fee rate of 0.25%. See “Debt Agreements - Senior Secured Credit Facility” above for interest
requirements per the 2019 Credit Agreement.
(4) Purchase commitments primarily relate to our agreement with our suppliers for material and parts purchases to be used in
the manufacturing of our systems. The purchase commitments represent open purchase orders to our suppliers.
As of December 31, 2020, our liability under the Tax Receivable Agreement was $68.7 million, representing 85% of the
calculated net cash savings in United States federal, state and local income tax or franchise tax that Solaris Inc. anticipates
realizing in future years.
Income Taxes
Solaris Inc. is a corporation and, as a result, is subject to United States federal, state and local income taxes. For the year
ended December 31, 2020 we recognized a combined United States federal and state benefit for income taxes of $9.0 million.
For the year ended December 31, 2019 we recognized an income tax expense of $16.9 million. Solaris LLC is treated as a
partnership for United States federal income tax purposes and therefore does not pay federal income tax on its taxable income.
Instead, the Solaris LLC members are liable for federal income tax on their respective shares of the Company’s taxable
income reported on the members’ United States federal income tax returns.
We determine deferred tax assets and liabilities on the basis of the differences between the book value and tax bases of
assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the
enactment date occurs.
We routinely evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets
will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred tax
liabilities, estimates of future taxable income, tax planning strategies and results of operations. Estimating future taxable
income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results
and incorporate certain assumptions, including revenue growth and operating margins, among others. As of December 31,
2020 and 2019, we had $59.8 million and $51.4 million of deferred tax assets, respectively.
See Note 10. “Income Taxes” under Part II, Item 8. “Financial Statements and Supplementary Data.” for additional
information.
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Tax Receivable Agreement
As described in Note 10. “Income Taxes” under Part II, Item 8. “Financial Statements and Supplementary Data”, Solaris
Inc. is a party to the Tax Receivable Agreement under which it is contractually committed to pay the TRA Holders 85% of the
calculated net cash savings in United States federal, state and local income tax and franchise tax that Solaris Inc. anticipates
realizing in future years from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result
of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units in
connection with the IPO or pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the Solaris
LLC Agreement).
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our
estimates, which could significantly impact the liability relating to the Tax Receivable Agreement. The Company accounts for
amounts payable under the Tax Receivable Agreement in accordance with Accounting Standard Codification (“ASC”) Topic
450, Contingencies.
Critical Accounting Policies and Estimates
The preparation of financial statements requires the use of judgments and estimates. Our critical accounting policies are
described below to provide a better understanding of how we develop our assumptions and judgments about future events and
related estimates and how they can impact our financial statements. A critical accounting estimate is one that requires our most
difficult, subjective or complex estimates and assessments and is fundamental to our results of operations.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to
the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. We believe the following are the critical accounting
policies used in the preparation of our combined financial statements, as well as the significant estimates and judgments
affecting the application of these policies. This discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes included in this report.
Revenue Recognition
Our revenue is derived from short-term contracts and consists of fees charged to customers for the use of our patented
mobile proppant management systems and patent-pending mobile chemical management systems, for services including field
supervision, mobilization and transportation of our systems, for support and services coordinating proppant delivery to our
systems, for transloading services and for inventory software services, each of which are considered to be separate
performance obligations.
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when we
satisfy a performance obligation by transferring control of the promised goods or providing services to our customers at either
a point in time or over time as the customer simultaneously receives and consumes the benefits provided by the Company’s
performance obligation, in an amount specified in the contract with our customer and that reflects the consideration we expect
to be entitled to in exchange for those goods or services. For contracts with multiple performance obligations, we allocate
revenue to each performance obligation based on its relative standalone selling price. Contracts with customers are typically
on thirty- to sixty-day payment terms.
See Note 2. “Summary of Significant Accounting Policies — Recently Issued Accounting Standards” under Item 8.
“Financial Statements and Supplementary Data” for additional information regarding revenue recognition.
Value of Long-Lived Assets, Definite-Lived Intangible Assets and Goodwill
We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, goodwill, and other
intangibles. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value, and
any impairment charge that we record reduces our operating income. Goodwill is the excess of the cost of an acquired entity
over the net of the amounts assigned to assets acquired and liabilities assumed. We conduct impairment
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tests on goodwill annually, on October 31, or more frequently whenever events or changes in circumstances indicate an
impairment may exist. We conduct impairment tests on long-lived assets, other than goodwill, whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Key estimates relate to the fair value and recoverability of carrying values of long-lived assets, definite-lived intangible
assets and goodwill. These estimates include management’s short-term and long-term forecast of operating performance,
including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential
of the assets, a discount rate based on our weighted average cost of capital, forecasted capital expenditures and the timing of
expected future cash flows based on market conditions. Impairment assessments also incorporate inherent uncertainties,
including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult
to predict in volatile economic and actual results could materially differ from the estimated assumptions utilized in our
forecasts.
See Note 2. “Summary of Significant Accounting Policies — Recently Issued Accounting Standards” under Item 8.
“Financial Statements and Supplementary Data” for impairments and other charges recorded during the year ended
December 31, 2020. If market conditions further deteriorate, including crude oil prices significantly declining and remaining
at low levels for a sustained period of time, we could be required to record additional impairments of the carrying value of our
long-lived assets, definite-lived intangible assets or goodwill in the future which could have a material adverse impact on our
operating results.
Recent Accounting Pronouncements
See Note 2. “Summary of Significant Accounting Policies — Recently Issued Accounting Standards” under Item 8.
“Financial Statements and Supplementary Data” for a discussion of recent accounting pronouncements.
Under 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 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to
potential changes in the fair value of our long lived assets and long-term debt due to fluctuations in applicable market interest
rates. Going forward our market risk exposure generally will be limited to those risks that arise in the normal course of
business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative
instruments for trading purposes. Please see Part I, Item 1A. “Risk Factors” for more information regarding market risks.
Commodity Price Risk
The market for our services is indirectly exposed to fluctuations in the price of crude oil and natural gas to the extent such
fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the
exploration and production and oilfield services industries. We do not currently intend to hedge our indirect exposure to
commodity price risk.
Interest Rate Risk
We are subject to interest rate risk on a portion of our long-term debt under the 2019 Credit Agreement. As of December
31, 2020, however, we had no outstanding borrowings under our 2019 Credit Agreement and therefore a change in interest
rates as of such date would not have resulted in increased or decreased interest expense.
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Credit Risk
The majority of our accounts receivable have payment terms of 60 days or less. As of December 31, 2020, four customers
collectively accounted for 42% of our total accounts receivable. A concentration of counterparties operating in the oil and
natural gas industry may increase our overall exposure to credit risk in that the counterparties may be similarly affected by
changes in economic, regulatory or other conditions. If a customer defaults, our gross profit and cash flows may be adversely
affected. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our
customers.
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Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
Solaris Oilfield Infrastructure, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and
2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to the Consolidated Financial Statements
42
43
44
45
46
47
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Solaris Oilfield Infrastructure, Inc.
Houston, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Solaris Oilfield Infrastructure, Inc. (the “Company”) as of
December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2017.
Houston, Texas
February 23, 2021
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SOLARIS OILFIELD INFRASTRUCTURE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $1,099 and $339, respectively
Prepaid expenses and other current assets
Inventories
Total current assets
Property, plant and equipment, net
Non-current inventories
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax assets, net
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of payables related to Tax Receivable Agreement
Current portion of operating lease liabilities
Current portion of finance lease liabilities
Other current liabilities
Total current liabilities
Operating lease liabilities, net of current
Finance lease liabilities, net of current
Payables related to Tax Receivable Agreement
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
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 and 28,943 shares issued and
outstanding as of December 31, 2020 and 30,928 issued and 30,765 outstanding as of December
31, 2019
Class B common stock, $0.00 par value, 180,000 shares authorized, 15,685 shares issued and
outstanding as of December 31, 2020 and 15,939 shares issued and outstanding as of December
31, 2019
Additional paid-in capital
Retained earnings
Treasury stock (at cost), 163 shares as of December 31, 2019
Total stockholders' equity attributable to Solaris
Non-controlling interest
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2020
December 31,
2019
$
$
$
$
60,366
18,243
2,169
954
81,732
245,884
3,318
4,708
13,004
2,982
59,805
463
411,896
6,863
11,986
606
647
30
75
20,207
7,419
100
68,097
594
96,417
—
290
—
180,415
20,549
—
201,254
114,225
315,479
411,896
$
$
$
$
66,882
38,554
5,002
7,144
117,582
306,583
—
7,871
17,236
3,761
51,414
625
505,072
3,824
14,447
1,416
596
30
74
20,387
7,855
130
66,582
460
95,414
—
308
—
191,843
74,222
(2,526)
263,847
145,811
409,658
505,072
The accompanying notes are an integral part of these financial statements.
43
SOLARIS OILFIELD INFRASTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amount)
Table of Contents
Revenue:
System rental
System services
Transloading services
Inventory software services
Total revenue
Operating costs and expenses:
Cost of system rental (excluding $24,175, $22,389 and $14,920 of depreciation and amortization for
the years ended December 31, 2020, 2019 and 2018, respectively, shown separately) (1)
Cost of system services (excluding $971, $1,548 and $1,274 of depreciation and amortization for the
years ended December 31, 2020, 2019 and 2018, respectively, shown separately) (1)
Cost of transloading services (excluding $411, $1,643 and $954 of depreciation and amortization for
the year ended December 31, 2020, 2019, and 2018, shown separately) (1)
Cost of inventory software services (excluding $772, $772 and $794 of depreciation and amortization
for the years ended December 31, 2020, 2019 and 2018, respectively, shown separately)
Depreciation and amortization
Selling, general and administrative (excluding $692, $573 and $480 of depreciation and amortization
for the years ended December 31, 2020, 2019 and 2018, respectively, shown separately) (1)
Impairment losses
Other operating expenses
Total operating costs and expenses
Operating income (loss)
Interest expense, net
Total other income (expense)
Income (loss) before income tax expense
(Provision) benefit for income taxes
Net income (loss)
Less: net (income) loss related to non-controlling interests
Net income (loss) attributable to Solaris
Earnings (loss) per share of Class A common stock - basic
Earnings (loss) per share of Class A common stock - diluted
Basic weighted-average shares of Class A common stock outstanding
Diluted weighted-average shares of Class A common stock outstanding
(1) The consolidated statements of operations include stock-based compensation expense as follows:
Cost of system rental
Cost of system services
Cost of transloading services
Selling, general and administrative
Stock-based compensation expense
For the Years
Ended December 31,
2019
2018
2020
$
$
$
$
$
$
52,171
48,625
1,250
930
102,976
5,501
58,767
1,040
456
27,021
16,481
47,828
5,782
162,876
(59,900)
(162)
(162)
(60,062)
8,969
(51,093)
21,752
(29,341)
(1.03)
(1.03)
28,915
28,915
21
412
15
4,287
4,735
$
142,022
$
143,646
63,871
34,105
1,689
241,687
9,707
74,749
2,601
604
26,925
18,586
—
585
133,757
107,930
(634)
(634)
107,296
(16,936)
90,360
(38,353)
52,007
1.69
1.69
30,141
30,185
34
262
13
4,167
4,476
$
$
$
$
$
43,010
8,083
2,457
197,196
7,230
50,633
2,242
797
18,422
16,758
—
1,827
97,909
99,287
(374)
(374)
98,913
(12,961)
85,952
(43,521)
42,431
1.60
1.59
25,678
25,829
6
191
3
3,661
3,861
$
$
$
$
$
The accompanying notes are an integral part of these financial statements.
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SOLARIS OILFIELD INFRASTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
Balance at January 1, 2018
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A
common stock
Deferred tax asset and payables related to parties pursuant 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
Stock option exercises
Stock-based compensation
Vesting of restricted stock
Other
Solaris LLC distribution paid to Solaris LLC unitholders at $0.10 per Solaris LLC Unit
Dividends paid ($0.10 per share of Class A common stock)
Net income
Balance at December 31, 2018
Effect of ASU No. 2016-02 implementation (Refer to Note 2)
Share repurchases
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A
common stock
Deferred tax asset and payables related to parties pursuant 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
Stock option exercises
Stock-based compensation
Vesting of restricted stock
Solaris LLC distribution paid to Solaris LLC unitholders at $0.405 per Solaris LLC Unit
Dividends paid ($0.405 per share of Class A common stock)
Net income
Balance at December 31, 2019
Share and unit repurchases and retirements
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A
common stock
Deferred tax asset and payables related to parties pursuant 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
Stock option exercises
Stock-based compensation
Vesting of restricted stock
Cancelled shares withheld for taxes from RSU vesting
Solaris LLC distribution paid to Solaris LLC unitholders at $0.42 per Solaris LLC Unit
Dividends paid ($0.42 per share of Class A common stock)
Treasury stock retirements
Solaris LLC distribution to unitholders for income tax withholding
Net income (loss)
Balance at December 31, 2020
Class A
Common Stock
Class B
Common Stock
Shares Amount Shares Amount
Additional
Paid-in
Capital
Retained
Earnings
(Deficit)
19,010 $
190
26,811 $ — $ 117,638
$
(4,174)
Non-
Total
Treasury Stock
Shares Amount
(261)
16 $
controlling Stockholders'
Interest
Equity
$ 140,850 $
254,243
7,184
72
(7,184)
—
39,558
—
—
—
(39,630)
—
—
327
—
570
—
—
—
—
27,091 $
—
(252)
—
3
—
6
—
—
—
—
271
—
(2)
—
—
—
—
—
—
—
—
649
—
1,530
—
2,609
—
2,042
—
60
—
—
—
—
—
—
—
19,627 $ — $ 164,086
—
—
—
—
—
186
(2,916)
28,496
3,687
36
(3,687)
—
76
—
163
—
—
—
30,765 $
—
1
—
2
—
—
—
308
—
—
—
—
—
—
—
(2,383)
—
649
—
3,030
—
695
—
—
—
—
—
—
—
15,940 $ — $ 191,843
—
—
—
—
—
—
(2,750)
42,431
35,507
(532)
—
—
—
—
—
—
—
(12,760)
52,007
74,222
(10,177)
$
$
(2,374)
(24)
—
255
4
(255)
—
—
(14,804)
2,023
—
—
—
(9)
1
—
—
(1,144)
74
—
—
—
—
—
—
—
—
91 $ (1,414)
—
—
—
—
—
—
—
(592)
2,292
(2,050)
—
(1,963)
—
43,521
$ 142,428 $
(186)
(331)
649
932
4,901
(1,146)
60
(1,963)
(2,750)
85,952
340,878
(532)
(3,249)
(28,532)
—
—
—
(427)
28
—
—
(685)
44
—
—
—
—
—
—
163 $ (2,526)
—
(356)
1,633
(698)
(6,500)
—
38,353
$ 145,811 $
—
—
—
—
(1,712)
(2,027)
—
7
—
37
—
—
—
(207)
—
—
— $
—
(25)
1,775
(958)
(102)
(6,635)
—
—
(80)
—
(373)
—
—
—
2,979
—
—
— $ 114,225 $
(150)
(21,752)
(2,383)
(133)
4,663
(686)
(6,500)
(12,760)
90,360
409,658
(26,717)
—
(1,485)
(4)
4,991
(373)
(290)
(6,635)
(12,391)
—
(182)
(51,093)
315,479
—
—
—
—
—
—
2
—
—
(32)
—
—
—
(12,391)
—
(1,732)
—
—
—
(29,341)
290
20,549
The accompanying notes are an integral part of these financial statements.
(1,485)
—
101
—
3,216
—
956
—
(156)
—
—
—
—
—
(1,247)
—
(32)
—
—
—
15,685 $ — $ 180,415
—
16
—
326
(45)
—
—
—
—
—
28,943 $
—
—
—
—
—
—
—
—
—
—
$
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SOLARIS OILFIELD INFRASTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended
December 31,
2019
2018
2020
Cash flows from operating activities:
Net income (loss)
Adjustment to reconcile net income to net cash provided by operating activities:
$
(51,093)
$
90,360
$
Depreciation and amortization
Impairments
Loss on disposal of asset
Stock-based compensation
Amortization of debt issuance costs
Allowance for credit losses
Write-off of deposit
Deferred income tax expense
Other
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Inventories
Accounts payable
Accrued liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Investment in property, plant and equipment
Cash received from insurance proceeds
Proceeds from disposal of assets
Investment in intangible assets
Net cash used in investing activities
Cash flows from financing activities:
Distribution and dividend paid to Solaris LLC unitholders and Class A common shareholders
Share and unit repurchases
Payments under finance leases
Payments under insurance premium financing
Proceeds from stock option exercises
Cancelled shares withheld for taxes from RSU vesting
Payments related to purchase of treasury stock
Proceeds from borrowings under the senior secured credit facility
Repayment of senior secured credit facility
Payments related to debt issuance costs
Distribution to Solaris LLC unitholder for income tax withholding
Other
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment
Capitalized stock based compensation
Property and equipment additions incurred but not paid at period-end
Property, plant and equipment additions transferred from inventory
Financing:
Insurance premium financing
Cash paid for:
Interest
Income taxes
$
$
27,021
47,828
1,428
4,735
176
2,910
—
(9,153)
(193)
17,400
2,423
(235)
3,051
(2,445)
—
43,853
(4,661)
100
786
—
(3,775)
(19,026)
(26,717)
(35)
—
64
(276)
(454)
—
—
—
(150)
—
(46,594)
(6,516)
66,882
60,366
613
255
172
358
—
282
796
$
$
26,925
—
261
4,475
753
339
202
16,122
(150)
853
2,332
(2,744)
(3,582)
4,183
(25,458)
114,871
(34,852)
618
232
—
(34,002)
(19,260)
(3,249)
(35)
(2,485)
294
—
(1,112)
—
(13,000)
(197)
—
—
(39,044)
41,825
25,057
66,882
735
189
82
5,882
1,869
275
663
$
$
The accompanying notes are an integral part of these financial statements.
46
85,952
18,422
—
318
3,861
296
—
—
12,277
620
(26,766)
(686)
(10,470)
4,469
2,614
25,458
116,365
(161,079)
540
—
(6)
(160,545)
(4,713)
—
(28)
(1,275)
932
—
(1,146)
13,000
—
(1,014)
—
60
5,816
(38,364)
63,421
25,057
688
110
3,909
7,532
1,552
281
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SOLARIS OILFIELD INFRASTRUCTURE, INC.
Notes to the Consolidated Financial Statements
(Dollars in thousands)
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.
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 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.
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Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all short-term, highly liquid, investments with
an original maturity of three months or less to be cash equivalents. Cash is deposited in demand accounts in federally insured
domestic institutions to minimize risk. Accounts of each institution are insured by Federal Deposit Insurance Corporation.
Cash balances at times may exceed federally-insured limits. We have not incurred losses related to these deposits.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consists of trade receivables recorded at the invoice amount, plus accrued revenue that is not yet
billed, less an estimated allowance for doubtful accounts. The Company accounts for credit losses in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”),
Financial Instruments – Credit Losses. The Company applied ASC Topic 326 to all trade receivables existing at or
commencing after January 1, 2020. The adoption of ASC 326 on January 1, 2020, did not have an impact on our condensed
consolidated financial statements.
Inventories
Inventories consist of materials used in the manufacturing and maintenance of the Company’s systems, which include raw
materials which are stated at the lower of cost or net realizable value. Net realizable value is determined, giving consideration
to quality, excessive levels, obsolescence and other factors. Adjustments that reduce stated amounts will be recognized as
impairments in the consolidated statements of operations. There were no impairments recorded for the years ended December
31, 2019 and 2018. The Company recognized a write down of the carrying value of inventory of $2,565 to its net realizable
value during the year ended December 31, 2020.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, or fair value for assets acquired in a business combination, less
accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful service lives of
the assets as noted below:
Systems and related equipment
Machinery and equipment
Furniture and fixtures
Computer hardware and software
Vehicles
Transloading facility and equipment
Buildings and leasehold improvements
Useful Life
Up to 15 years
3-10 years
5 years
3-10 years
5 years
15-30 years
15 years
Systems and equipment that are in the process of being manufactured are considered property, plant and equipment.
However, the systems do not depreciate until they are fully completed. Systems in process are a culmination of material, labor
and overhead.
Expenditures for maintenance and repairs are expensed as incurred. Betterments that increase the value or materially
extend the life of the related assets are capitalized. Upon sale or disposition of property and equipment, the cost and related
accumulated depreciation and amortization are removed from the consolidated financial statements and any resulting gain or
loss is recognized in the consolidated statements of operations.
Refer to Impairment of Long-Lived Assets, Definite-lived Intangible Assets and Right of Use (“ROU”) Assets below for
discussion of impairment triggers in the year ended December 31, 2020.
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Definite-lived Intangible Assets
Identified intangible assets with determinable lives consist primarily of customer relationships, a non-competition
agreement and software acquired, as well as patents that were filed for our systems and other intellectual property.
Amortization on these assets is calculated on the straight-line method over the estimated useful lives of the assets, which is
five to fifteen years. The Company recorded amortization expense of $779, $779, and $801 for the years ended December 31,
2020, 2019 and 2018, respectively.
Identified intangible assets by major classification consist of the following:
As of December 31, 2020:
Customer relationships
Software acquired in the acquisition of Railtronix
Non-competition agreement
Patents and other
Total identifiable intangibles
As of December 31, 2019:
Customer relationships
Software acquired in the acquisition of Railtronix
Non-competition agreement
Patents and other
Total identifiable intangibles
Leases
Accumulated
Net Book
Gross
Amortization
Value
$
$
$
$
4,703
346
225
114
5,388
4,703
346
225
114
5,388
$
$
$
$
(2,072)
(152)
(139)
(43)
(2,406)
(1,400)
(103)
(94)
(30)
(1,627)
$
$
$
$
2,631
194
86
71
2,982
3,303
243
131
84
3,761
The Company accounts for leases in accordance with FASB ASC Topic 842, Leases (“ASC Topic 842”) effective January
1, 2019. The Company applied ASC Topic 842 to all leases existing at or commencing after January 1, 2019 and elected the
package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1)
whether any of our contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company also
elected the practical expedient to adopt the new lease requirements through a cumulative effect adjustment in the period of
adoption and did not adjust comparative periods. As a result of the adoption of ASC Topic 842 on January 1, 2019, the
Company recorded operating ROU assets of $8,503, operating lease liabilities of $9,016 and a cumulative effect adjustment to
retained earnings for operating leases of $532.
We determine if an arrangement is a lease at inception. The Company made the election to not apply the recognition
requirements in ASC Topic 842 to short-term leases (i.e., leases of twelve months or less). Instead, the Company recognizes
the lease payments in profit or loss on a straight-line basis over the lease term. Operating leases are included in operating lease
ROU assets, current portion of operating lease liabilities, and operating lease liabilities, net of current in the Company’s
consolidated balance sheets. Finance leases are included in property and equipment, current portion of finance lease liabilities,
and finance lease liabilities, net of current in the Company’s consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date
based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit
rate, we use our incremental borrowing rate in determining the present value of lease payments based on the information
available at the commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay
to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic
environment. We use the implicit rate when readily determinable. The ROU asset also includes any lease payments made and
excludes lease incentives received. The Company’s lease terms may
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include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense
for lease payments is recognized on a straight-line basis over the lease term. See Note 7.
Refer to Impairment of Long-Lived Assets, Definite-lived Intangible Assets and ROU Assets below for discussion of
impairment triggers in the year ended December 31, 2020.
Goodwill
Goodwill represents the excess of the purchase price of a business over the estimated fair value of the identifiable assets
acquired and liabilities assumed. As of December 31, 2020, the Company reported $13,004 of goodwill related to the purchase
of the silo manufacturing business from Loadcraft Industries Ltd. As of December 31, 2019, the Company reported $17,236 of
goodwill related to the 2014 purchase of the silo manufacturing business from Loadcraft Industries Ltd. and the 2017 purchase
of the assets of Railtronix, LLC. The Company evaluates goodwill for impairment annually, as of October 31, or more often as
facts and circumstances warrant. Factors such as unexpected adverse economic conditions, competition and market changes
may require more frequent assessments.
Before employing detailed impairment testing methodologies, the Company may first evaluate the likelihood of
impairment by considering qualitative factors relevant to the business, such as macroeconomic, industry, market or any other
factors that have a significant bearing on fair value. If the Company first utilizes a qualitative approach and determines that it
is more likely than not that goodwill is impaired, detailed testing methodologies are then applied. Otherwise, the Company
concludes that no impairment has occurred. The Company may also choose to bypass a qualitative approach and opt instead to
employ detailed testing methodologies, regardless of a possible more likely than not outcome. If the Company determines
through the qualitative approach that detailed testing methodologies are required, or if the qualitative approach is bypassed,
the Company compares the fair value of a reporting unit with its carrying amount. If the estimated fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a
reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.
Due to the ongoing impact of the outbreak of COVID-19 and recent oil market developments on our business, we also
updated our goodwill impairment assessment as of March 31, 2020. As of March 31, 2020, we estimated the fair value for
each reporting unit using an income approach including a discounted cash flow analysis and the use of significant
unobservable inputs representative of a Level 3 fair value measurement. Some of the more significant assumptions inherent in
the income approach include the estimated future net annual cash flows for each reporting unit and the discount rate. The
Company selected assumptions used in the discounted cash flow projections using historical data supplemented by current and
anticipated market conditions and estimated growth rates. These estimates are based upon assumptions believed to be
reasonable. However, given the inherent uncertainty in determining the assumptions underlying a discounted cash flow
analysis, particularly in the current volatile market, actual results may differ from those used in the Company’s valuations
which could result in additional impairment charges in the future. The discount rates used to value the Company’s reporting
units were between 10.35% and 13.00%. As a result of the March 31, 2020 evaluation of goodwill, $4,231 of goodwill
associated with the 2017 purchase of the assets of Railtronix was impaired. The goodwill associated with the Loadcraft
Industries Ltd. purchase was not impaired. An impairment charge would have resulted if our estimate of fair value was
approximately 40% less than the amount determined. A qualitative approach was used for the annual evaluation of goodwill
for impairment as of October 31, 2020 and no additional impairments were recognized. There was no impairment for the years
ended December 31, 2019 and 2018.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets
Long-lived assets, such as property, plant, equipment and definite-lived intangible assets and ROU Assets, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, such
as insufficient cash flows or plans to dispose of or sell long-lived assets before the end of their previously estimated useful
lives. For assets classified as held for use, we first group individual assets based on the lowest level for which identifiable cash
flows are largely independent of the cash flows from other assets. We then compare estimated future undiscounted cash flows
expected to result from the use and eventual disposition of the asset group to its carrying amount. If the asset group's
undiscounted cash flows are less than its carrying amount, we then determine the asset group's fair value by using a
discounted cash flow analysis and recognize any resulting impairment.
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This analysis is based on estimates such as management’s short-term and long-term forecast of operating performance,
including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential
of the assets within the asset group, and a discount rate based on our weighted average cost of capital. An impairment loss is
measured and recorded as the amount by which the asset group's carrying amount exceeds its fair value.
As a result of recent volatility in global oil markets driven by significant reductions in demand for oil due to certain
actions by oil producers globally, which have been exacerbated by COVID-19, and the expected impact on our business,
results of operations and earnings, the Company concluded that such circumstances warranted an evaluation of whether
indicators of impairment are present for its asset groups. Based on this evaluation, the Company performed tests for
recoverability of the carrying value of these assets using forecasted undiscounted cash flows as of March 31, 2020.
The Company noted that the undiscounted future cash flows of our proppant management systems and inventory
management software exceeded the carrying value of their respective asset groups and were thus deemed
recoverable. However, undiscounted cash flows as well as the fair value of the assets associated with our Kingfisher Facility
were below their carrying values and the Company recognized impairment losses of $37,775, $2,845 and $410 for property,
plant and equipment, ROU assets and other receivables, respectively, during the year ended December 31, 2020. These
impairments resulted from an accumulation of factors leading to the loss of significant customers, reduced operating activities
and earnings, including impacts resulting from continued volatility in global oil markets and the COVID-19 pandemic. If these
conditions persist for an extended period of time, additional impairment losses may be recognized.
Given the inherent uncertainty in determining the assumptions underlying both undiscounted and discounted cash flow
analyses, particularly in the current volatile market, actual results may differ which could result in additional impairment
charges. We estimated the fair value of the Kingfisher Facility using an income approach including a discounted cash flow
analysis and the use of significant unobservable inputs representative of a Level 3 fair value measurement. Some of the more
significant assumptions inherent in the income approach include the estimated future net annual cash flows for each reporting
unit and the discount rate. The Company selected assumptions used in the discounted cash flow projections using historical
data supplemented by current and anticipated market conditions and estimated growth rates. These estimates are based upon
assumptions believed to be reasonable. The discount rates used to value the asset group were between 10.35% and 13.00%.
Limited marketability for the asset groups exist in the current volatile market and the analysis resulted in a full impairment of
the long-lived assets of the Kingfisher Facility.
There were no impairments for the years ended December 31, 2019 and 2018.
Revenue Recognition
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreement, the
following steps must be performed at contract inception: (i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct
in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration;
(iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy
each performance obligation. For contracts that contain multiple performance obligations, we allocate the transaction price to
each performance obligation identified in the contract using a residual approach based on relative standalone prices, and
recognize the related revenue as each individual service is performed, in satisfaction of the corresponding performance
obligations.
Revenues from system rental consist primarily of fixed monthly fees charged to customers for the use of our patented
mobile proppant management systems that unload, store and deliver proppant and chemicals at oil and natural gas well sites
which is considered to be our performance obligation. Contracts with customers are typically on thirty- to sixty-day payment
terms. Revenues are recognized over time as the performance obligations are satisfied under the terms of the customer
contract. We determined that the performance obligation is satisfied over time as the customer simultaneously receives and
consumes the benefits provided by the entity’s performance of services, typically as our systems are used by the customer. We
measure progress using an input method based on resources consumed or
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expended relative to the total resources expected to be consumed or expended. We typically charge our customers for the use
of our systems on a monthly basis.
Revenues from system services consist primarily of the fees charged to customers for services including mobilization and
transportation of our systems, field supervision and support and services coordinating proppant delivery to systems, each of
which are considered to be separate performance obligations. Contracts with customers are typically on thirty- to sixty-day
payment terms. When the Company provides system services including field supervision and support, we determined that the
performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits provided by
the entity’s performance of the services, typically based on fixed weekly or monthly contractual rates for field supervision and
support and when the Company provides services coordinating proppant delivery. We measure progress using an input method
based on resources consumed or expended relative to the total resources expected to be consumed or expended. When the
Company provides mobilization and transportation of our systems on behalf of our customers, we determined that the
performance obligation is satisfied at a point in time when the system has reached its intended destination.
Revenues from transloading services consist primarily of the fees charged to customers for transloading and storage of
proppant or railcars at our transloading facility, which is considered to be our performance obligation. We provide rail-to-truck
transloading, high-efficiency sand silo storage and transloading services, and railcar storage at the facility. Contracts with
customers are typically on thirty- to sixty-day payment terms. Revenues are typically recognized over time as the customer
simultaneously receives and consumes the benefits provided by the entity’s performance of the transloading service based on a
throughput fee per ton rate for proppant delivered to and transloaded or fixed railcar storage fees at the facility. We measure
progress based on the proppant delivered and transloaded or railcars stored at the facility. Under our agreements at the facility,
quarterly minimum throughput volumes are required and the Company is entitled to short fall payments if such minimum
quarterly contractual obligations are not maintained. These shortfalls are based on fixed minimum volumes at a fixed rate and
are recognized over time as throughput volumes transloaded are below minimum throughput volumes required. The Company
recorded $1,332 of shortfall revenue during the year ended December 31, 2019.
Revenues from inventory software services consist primarily of the fees charged to customers for the use of our
Railtronix® inventory management software, which is considered to be our performance obligation. Revenues are recognized
over time as the customer simultaneously receives and consumes the benefits provided by the entity’s performance based on a
throughput fee to monitor proppant that is loaded into a railcar, stored at a transload facility or loaded into a truck.
Stock-based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is amortized to
compensation expense on a straight-line basis over the awards’ vesting period, which is generally the requisite service period.
For options to purchase Class A common stock, we have historically and consistently calculated fair value using the Black-
Scholes option-pricing model. This valuation approach involves significant judgments and estimates, including estimates
regarding our future operations, price variation and the risk-free rate of return. Our estimates of these variables are made for
the purpose of using the valuation model to determine an expense for each reporting period and are not subsequently adjusted.
We recognize expense related to the estimated vesting of our performance share units granted.
Research and Development
The Company expenses research and development costs as incurred, which is included in selling, general and
administrative expenses in the consolidated statements of operations. No research and development costs were incurred for the
years ended December 31, 2020, 2019 and 2018.
Financial Instruments
The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, notes receivable,
accounts payable and insurance premium financing, approximates their fair value due to the short maturity of
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such instruments. Financial instruments also consist of a revolving credit facility and term loans, for which fair value
approximates carrying value as the debt bears interest at a variable rate which is reflective of current rates otherwise available
to the Company. As of December 31, 2020 and 2019, we had no borrowings under the 2019 Credit Agreement (as defined
below) outstanding. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments other than allowance for credit losses described in
Accounts Receivable and Allowance for Credit Losses.
Fair Value Measurements
The Company’s financial assets and liabilities, as well as other recurring and nonrecurring fair value measurements such
as goodwill impairment and long lived assets impairment, are to be measured using inputs from the three levels of the fair
value hierarchy, of which the first two are considered observable and the last unobservable, which are as follows:
● Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the
Company has the ability to access at the measurement date;
● Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active or other inputs corroborated by observable market data for substantially the full term of the
assets or liabilities; and
● Level 3—Unobservable inputs that reflect the Company’s assumptions that market participants would use in
pricing assets or liabilities based on the best information available.
Income Taxes
Solaris Inc. is a corporation and, as a result, is subject to United States federal, state and local income taxes. For the year
ended December 31, 2020, we recognized a combined United States federal and state benefit for income taxes of $8,969. For
the years ended December 31, 2019 and 2018, we recognized income tax expense of $16,936 and $12,961, respectively.
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.
We recognize deferred tax assets and liabilities for the expected future tax consequences of events included in the
condensed consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis
of the differences between the book value and tax bases of assets and liabilities by using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period in which the enactment date occurs.
We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making
such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax planning strategies and recent results of operations.
We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more-likely-
than-not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions
meeting the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50%
likely to be realized upon ultimate settlement with the related tax authority.
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Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in our consolidated
statement of operations. We have not incurred any significant interest or penalties related to income taxes in any of the periods
presented.
See Note 10. “Income Taxes” for additional information regarding income taxes.
Payable Related to the Tax Receivable Agreement
Solaris Inc. entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the members of Solaris
LLC (each such person and any permitted transferee, a “TRA Holder,” and together, the “TRA Holders”). 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 or 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 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
makes under the Tax Receivable Agreement. Solaris Inc. will retain the benefit of the remaining 15% of these cash savings. As
of December 31, 2020 and 2019, Solaris Inc. recorded a payable related to the Tax Receivable Agreement of $68,703 and
$67,998, respectively, $606 and $1,416 of which has been recorded as a current liability. 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 year ended December 31, 2020.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the
environment. Management has established procedures for the ongoing evaluation of the Company’s operations, to identify
potential environmental exposures and to comply with regulatory policies and procedures. Environmental expenditures that
relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused
by past operations and do not contribute to current or future revenue generation are expensed as incurred. Liabilities are
recorded when environmental costs are probable, and the costs can be reasonably estimated. The Company maintains
insurance which may cover in whole or in part certain environmental expenditures. As of December 31, 2020 and 2019, no
liabilities were recorded with respect to any environmental matters as no environmental costs were deemed probable.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to
allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The
Company and the Chief Executive Officer view the Company’s operations and manage its business as one operating segment.
All long-lived assets of the Company reside in the United States.
Accounting Standards Recently Issued But Not Yet Adopted
In March 2020, the FASB issued 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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3. Allowance for Credit Losses
Accounts receivable consists of trade receivables recorded at the invoice amount, plus accrued revenue that is not yet
billed, less an estimated allowance for credit losses (if any). Accounts receivable are generally due within 60 days or less, or in
accordance with terms agreed with customers. We do not accrue interest on delinquent receivables. Total unbilled revenue
included in accounts receivable as of December 31, 2020 and 2019 was $7,265 and $7,423, respectively.
In our determination of the allowance for credit losses, we pool receivables with similar risk characteristics and consider a
number of current conditions, past events and other factors, including the length of time trade accounts receivable are past
due, previous loss history, and the condition of the general economy and the industry as a whole, and apply an expected loss
percentage. The expected credit loss percentage is determined using historical loss data adjusted for current conditions and
forecasts of future economic conditions. The related expense associated with the recognition of the allowance for credit losses
was included in Other operating expense on our condensed consolidated statements of operations. Adjustments to the
allowance may be required depending on how potential issues are resolved and when receivables are collected. Accounts
deemed uncollectible are reflected as a write-off applied against the allowance for credit losses and occur when the financial
condition of our customers deteriorate and result in an impairment of their ability to make payments, include the impact of
customer bankruptcies.
The following activity related to our allowance for credit losses on customer receivables for the year ended December 31,
2020 and 2019 reflects the estimated impact of the current economic environment on our receivable balance:
Balance, December 31, 2018
Credit losses
Balance, December 31, 2019
Credit losses
Adjustments
Less write-offs
Balance, December 31, 2020
$
$
$
—
339
339
3,073
(163)
(2,150)
1,099
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other currents assets were comprised of the following at December 31, 2020 and 2019:
Prepaid purchase orders
Prepaid insurance
Deposits
Other assets
Prepaid expenses and other current assets
55
December 31,
December 31,
2020
2019
$
$
243
554
77
1,295
2,169
$
$
1,055
865
1,245
1,837
5,002
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5. Property, Plant and Equipment
Property, plant and equipment was comprised of the following at December 31, 2020 and 2019:
Systems and related equipment
Systems in process
Transloading facility and equipment
Computer hardware and software
Machinery and equipment
Vehicles
Buildings
Land
Furniture and fixtures
Property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net
6. Accrued Liabilities
Accrued liabilities were comprised of the following at December 31, 2020 and 2019:
Property, plant and equipment
Employee related expenses
Selling, general and administrative
Cost of revenue
Excise, franchise and sales taxes
Ad valorem taxes
Other
Accrued liabilities
7. Leases
December 31,
December 31,
2020
299,413
12,601
—
1,004
5,272
3,591
4,342
612
348
327,183
(81,299)
245,884
$
$
2019
294,547
11,867
40,272
1,335
5,214
7,633
4,339
612
284
366,103
(59,520)
306,583
2020
2019
231
4,300
1,236
4,272
1,813
107
27
11,986
$
$
47
4,129
1,016
5,062
2,526
1,598
69
14,447
$
$
$
$
The Company leases land and equipment under operating leases which expire at various dates through February
2047. These land leases included commitments related to 30-year land lease with the State of Oklahoma related to the
Company’s Kingfisher Facility. Equipment leases include locomotives rented from third-parties in order to facilitate rail
transloading activities at the Kingfisher Facility. Upon completion of the primary term, both parties have substantive rights to
terminate the leases. As a result enforceable rights and obligations do not exist under the rental agreements subsequent to the
primary term.
Additionally, the Company leases offices and storage from third-parties for our corporate and field locations under
operating leases, which include commitments related to the guarantee of lease agreement with Solaris Energy Management,
LLC, a related party of the Company, related to the rental to the office space for the Company’s corporate headquarters. Refer
to Note 13. “Related Party Transactions” for additional information regarding related party transactions recognized. Upon
completion of the primary term, both parties have substantive rights to terminate the leases. As a result, enforceable rights and
obligations do not exist under the rental agreements subsequent to the primary term.
Solaris LLC leases property from the City of Early, Texas under an agreement classified as a finance lease. The lease
expires on February 25, 2025. The finance lease obligation is payable in monthly installments including imputed
56
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interest. As of December 31, 2020 and 2019, the Company had property, plant and equipment under capital leases with a cost
of $299 and $299, respectively, and accumulated depreciation of $128 and $105, respectively.
The Company’s lease agreements do not include both lease and non-lease components, extension options or residual
value guarantees, and there are no leases that have yet to commence. Additionally, our lease agreements do not impose
restrictions on our ability to pay dividends or incur financing obligations.
The components of lease expense were as follows:
Operating lease cost (1) (2)
Finance lease cost
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
(1) Includes short term leases.
December 31, 2020
1,022
$
December 31, 2019
1,187
$
30
5
35
$
29
6
35
$
(2) Operating lease costs of $741, $78 and $203 were reported in Selling, general and administrative, Cost of
system services and Cost of transloading services for the year ended December 31, 2020, respectively. Operating
lease costs of $741, $78 and $368 were reported in Selling, general and administrative, Cost of system services
and Cost of transloading services for the year ended December 31, 2019, respectively.
Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 were as follows:
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: effects of discounting
Total lease liabilities
Supplemental cash flow information related to leases were as follows:
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Other information related to leases was as follows:
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
57
$
Operating Leases Finance Leases
33
33
33
33
6
—
138
(8)
130
1,138
1,169
1,165
1,109
966
7,389
12,936
(4,870)
8,066
$
$
December 31, 2020
$
1,141
35
December 31,
2020
13.2 years
4.2 years
6.3%
3.3%
Table of Contents
8. Senior Secured Credit Facility
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 replaced, in its entirety, 2018 credit agreement (the “2018 Credit
Agreement”) by and among the Company, as borrower, each of the lenders party thereto and Woodforest National Bank, as
administrative agent. The 2019 Credit Agreement consists of an initial $50,000 revolving loan commitment (the “Loan”) with
a $25,000 uncommitted accordion option to increase the Loan availability to $75,000. The term of the 2019 Credit Agreement
expires on April 26, 2022.
Our obligations under the Loan are generally secured by a pledge of substantially all the assets of Solaris LLC and its
subsidiaries, and such obligations are guaranteed by Solaris LLC’s domestic subsidiaries other than Immaterial Subsidiaries
(as defined in the 2019 Credit Agreement). We have the option to prepay the loans at any time without penalty.
Borrowings under the 2019 Credit Agreement bear interest at either LIBOR or an alternate base rate plus an applicable
margin, and interest is payable quarterly. 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.
The 2019 Credit Agreement requires that we maintain ratios of (a) consolidated EBITDA to interest expense of not less
than 2.75 to 1.00, (b) senior indebtedness to consolidated EBITDA of not more than 2.50 to 1.00 and (c) the sum of 100% of
eligible accounts, inventory and fixed assets to the total revolving exposure of not less than 1.00 to 1.00 when the total
leverage ratio is greater than 2.00 to 1.00 and total revolving exposure under the Loan exceeds $3,000. For the purpose of
these tests, certain items are subtracted from indebtedness and senior indebtedness. EBITDA, as defined in the 2019 Credit
Agreement, excludes certain noncash items and any extraordinary, unusual or nonrecurring gains, losses or expenses.
The 2019 Credit Agreement also 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 $20,000, taking into account certain
adjustments. Capital expenditures are not restricted unless borrowings under the Loan exceed $5,000 for any 180 consecutive
day period, in which case capital expenditures will be permitted up to $100,000 plus any unused availability for capital
expenditures from the immediately preceding fiscal year.
As of December 31, 2020, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw
$50,000.
As of December 31, 2020 we were in compliance with all covenants in accordance with the 2019 Credit Agreement.
9. Equity
Dividends
Solaris LLC paid distributions totaling $19,026 and $19,260 to all Solaris LLC unitholders in the years ended December
31, 2020 and 2019, respectively, of which $12,391 and $12,760 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 totaling $12,391 and
$12,760 in the years ended December 31, 2020 and 2019, including $314 and $282 related to shares of restricted stock,
respectively.
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Share Repurchase Program
On December 3, 2019, the Company’s board of directors authorized a share repurchase plan to repurchase up to $25,000
of the Company’s Class A common stock until the plan terminates pursuant to its provisions. On February 27, 2020, the
Company’s board of directors approved an additional $5,000 repurchase of the Company’s Class A common stock. During the
three months ended March 31, 2020, Solaris Inc. purchased and retired 2,374,092 shares of the Company’s Class A common
stock for $26,746, or $11.27 average price per share, and, in connection therewith, Solaris LLC purchased and retired
2,374,092 Solaris LLC Units from the Company for the same amount. As of March 31, 2020, the share repurchase plan was
completed. During the year ended December 31, 2019, Solaris Inc. purchased and retired 251,930 shares of the Company’s
Class A common stock for $3,254, or $12.90 average price per share, and, in connection therewith, Solaris LLC purchased and
retired 251,930 Solaris LLC Units from the Company for the same amount. During the full share repurchase plan, Solaris Inc.
purchased and retired 2,626,022 shares of the Company’s Class A common stock for $30,000, or $11.41 average price per
share, and, in connection therewith, Solaris LLC purchased and retired 2,626,022 Solaris LLC Units from the Company for
the same amount.
Stock-based compensation
The Company’s long-term incentive plan for employees, directors and consultants of the Company and its affiliates (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. Class A common stock withheld to satisfy exercise prices
or tax withholding obligations will be available for delivery pursuant to other awards. The LTIP will be administered by the
Board, the Compensation Committee of the Board or an alternative committee appointed by the Board.
A total of 591,261 options to purchase Class A common stock of the Company have been issued to employees, directors
and consultants under the LTIP at an exercise price of $2.87 per option, and a weighted average grant date fair value of $12.04
per option. All options were vested by November 13, 2017. During the year ended December 31, 2020, 22,421 options were
exercised in exchange for an equal number of shares of Class A common stock and a total of 6,561 shares were surrendered
and cancelled. Cash received from option exercises for the year ended December 31, 2020 was $64. The actual tax expense
realized for the tax deductions from option exercises totaled $18 for the year ended December 31, 2020. During the year
ended December 31, 2019, 103,207 options were exercised in exchange for an equal number of shares of Class A common
stock and a total of 27,578 shares were surrendered and recorded as treasury stock on the consolidated balance sheets. Cash
received from option exercises for the year ended December 31, 2019 was $294. The actual tax expense realized for the tax
deductions from option exercises totaled $33 for the year ended December 31, 2019. During the year ended December 31,
2018, 327,594 options were exercised in exchange for an equal number of shares of Class A common stock and a total of 539
shares were surrendered and recorded as treasury stock on the consolidated balance sheets. Cash received from option
exercises for the year ended December 31, 2018 was $932. The actual tax expense realized for the tax deductions from option
exercises totaled $128 for the year ended December 31, 2018. As of December 31, 2020, 544,706 options have been exercised,
33,350 forfeited and 13,205 remain outstanding.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.
Expected volatility is based on implied volatilities from historical trading of publicly traded companies which are in the same
industry sector. The simplified method is used to derive an expected term. The expected term represents an estimate of the
time options are expected to remain outstanding. The risk-free rate for periods within the contractual life of the option is based
on the United States treasury yield curve in effect at the time of grant.
Compensation cost, as measured at the grant date fair value of the award, is recognized as an expense over the employee's
requisite service period for service-based awards (generally the vesting period of the award of four years).
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Table of Contents
For the years ended December 31, 2020, 2019 and 2018, the Company did not recognize stock-based compensation expense
on options.
The following is a summary of the option activity under the LTIP for the years ended December 31, 2020, 2019 and 2018:
Options Outstanding
Balance, January 1, 2018
Exercisable, January 1, 2018
Canceled
Granted
Exercised
Forfeited
Balance, December 31, 2018
Exercisable, December 31, 2018
Canceled
Granted
Exercised
Forfeited
Balance, December 31, 2019
Exercisable, December 31, 2019
Canceled
Granted
Exercised
Forfeited
Balance, December 31, 2020
Exercisable, December 31, 2020
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual
Term (years)
6.79
6.79
2.87
2.87
$
$
Aggregate
Intrinsic Value
(in thousands)
8,648
$
8,648
$
—
—
—
—
1,280
1,280
—
—
—
—
397
397
—
—
—
—
70
70
$
$
$
$
—
—
2.87
—
2.87
2.87
—
—
2.87
2.87
2.87
2.87
—
—
2.87
2.87
2.87
2.87
6.92
6.92
5.92
5.92
4.92
4.92
Options
466,431
466,431
$
$
—
—
(327,594)
138,837
138,837
—
$
$
—
—
(103,207)
(4)
35,626
35,626
$
$
—
—
(22,421)
—
$
$
13,205
13,205
As of December 31, 2020, the Company had no unvested options outstanding.
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Table of Contents
The Company accounts for its stock-based compensation including grants of restricted stock in the consolidated
statements of operations based on their estimated fair values on the date of grant. The following table further summarizes
activity related to restricted stock for the years ended December 31, 2020, 2019 and 2018:
Unvested at January 1, 2018
Awarded
Vested
Forfeited
Unvested at December 31, 2018
Awarded
Vested
Forfeited
Unvested at December 31, 2019
Awarded
Vested
Forfeited
Unvested at December 31, 2020
Restricted Stock Awards
Number of Shares
1,218,265
88,664
(644,387)
(251,045)
411,497
448,745
(208,697)
(24,294)
627,251
536,301
(360,891)
(99,546)
703,115
Weighted Average
Grant Date Fair
Value ($)
$
$
$
$
12.61
16.92
12.58
12.49
13.67
16.62
15.13
15.52
15.23
9.72
14.48
13.14
12.33
As of December 31, 2020, total unrecognized compensation cost related to non-vested restricted stock was $5,698, which
is expected to be recognized over a weighted-average period of 0.93 years. 344,164 shares, 254,209 shares, and 104,742
shares of restricted stock vest in 2021, 2022 and 2023, respectively.
The number of shares remaining available for future issuance under LTIP is 2,893,892.
Earnings (Loss) Per Share
Basic earnings (loss) per share of Class A common stock is computed by dividing net income attributable to Solaris by the
weighted-average number of shares of Class A common stock outstanding during the same period. Diluted earnings (loss) per
share is computed giving effect to all potentially dilutive shares.
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Table of Contents
The following table sets forth the calculation of earnings (loss) per share, or EPS, for the years ended December 31, 2020,
2019 and 2018:
Basic net income (loss) per share:
Numerator
Net income (loss) attributable to Solaris
Less income attributable to participating securities (1)
Net income (loss) attributable to common stockholders
Year Ended December,
2019
2020
2018
$ (29,341) $ 52,007
(1,120)
$ (29,655) $ 50,887
(314)
$ 42,431
(1,230)
$ 41,201
Denominator
Weighted average number of unrestricted outstanding common shares used to
calculate basic net income per share
Effect of dilutive securities:
Stock options (2)
Diluted weighted-average shares of Class A common stock outstanding used to
calculate diluted net income per share
28,915
30,141
25,678
—
44
151
28,915
30,185
25,829
Earnings (loss) per share of Class A common stock - basic
Earnings (loss) per share of Class A common stock - diluted
$
$
(1.03) $
(1.03) $
1.69
1.69
$
$
1.60
1.59
(1) The Company's restricted shares of common stock are participating securities.
(2) The years ended December 31, 2019 and 2018 include 44 and 151 shares of Class A common stock resulting from an
assumed exercise of the stock options in the calculation of the denominator for diluted earnings per common share as
these shares were dilutive.
The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted
earnings per share because the effect of including such potentially dilutive shares would have been antidilutive upon
conversion:
Class B common stock
Stock options
Restricted stock awards
Total
62
Year Ended December,
2019
16,688
—
320
17,008
2020
15,842
13
38
15,893
2018
20,727
—
412
21,139
Table of Contents
10. Income Taxes
Income Tax (Benefit) Expense
The components of the income tax (benefit) expense are:
Current:
Federal
State
Deferred:
Federal
State
Income tax (benefit) expense
Year Ended December 31,
2019
2018
2020
$
$
— $
184
184
— $
814
814
—
684
684
(8,166)
(987)
(9,153)
(8,969)
$
14,452
1,670
16,122
16,936
11,410
867
12,277
12,961
$
Income tax (benefit) expense differs from the amount computed by applying the statutory federal income tax rate of 21%
to income (loss) before taxes as follows:
Income (loss) before income taxes
Less: net income (loss) before income taxes attributable to noncontrolling
interest
Income (loss) attributable to Solaris Oilfield Infrastructure, Inc. stockholders
before income taxes
Income tax expense (benefit) at the federal statutory rate
State income taxes, net of federal benefit
Remeasurement of deferred taxes
Other
Income tax (benefit) expense
Deferred Tax Assets and Liabilities
Year Ended December 31,
2020
$ (60,062)
2019
$ 107,296
2018
98,913
$
(21,752)
38,353
43,521
(38,310)
(8,176)
(350)
(348)
(95)
(8,969)
$
$
68,943
14,548
1,740
—
648
16,936
55,392
11,632
1,373
—
(44)
12,961
$
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. Significant
components of the deferred tax assets and liabilities are as follows:
Assets:
Investments in subsidiaries
Imputed interest
Net operating loss carryforward
Total deferred tax assets
Liabilities:
Investments in subsidiaries
Total deferred tax liabilities
Net deferred tax asset
63
December 31,
2020
2019
$
$
13,686
1,594
45,339
60,619
—
—
60,619
$
$
7,099
1,587
43,543
52,229
—
—
52,229
Table of Contents
As of December 31, 2020, the Company had approximately $203,870 of federal net operating loss carryovers and
$57,976 of state net operating loss carryovers. $138,061 of such federal net operating loss carryovers have no expiration date
and the remaining federal net operating loss carryovers expire in 2037. State net operating loss carryovers will expire in
varying amounts beginning in 2037.
The Company regularly reviews its deferred tax assets, including net operating loss carryovers, for recoverability, and a
valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset may not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences are deductible. In assessing the need for a valuation allowance, the Company
makes estimates and assumptions regarding projected future taxable income, its ability to carry back operating losses to prior
periods, the reversal of deferred tax liabilities and the implementation of tax planning strategies. 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 these assumptions in the future, changes in forecasted taxable income may
alter this expectation and may result in an increase to 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 tax attributes.
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 year ended December 31,
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, 2020. 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.
Uncertain Tax Benefits
The Company evaluates its tax positions and recognizes only tax benefits that, more likely than not, will be sustained
upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the
position. The tax position is measured at the largest amount of benefit that has a greater than 50.0% likelihood of being
realized upon settlement. As of December 31, 2020 and 2019, the Company’s uncertain tax benefits totaling $816 and $816,
respectively, are reported as a component of the net deferred tax asset in the consolidated balance sheets. The full balance of
unrecognized tax benefits as of December 31, 2020, if recognized, would affect the effective tax rate. However, we do not
believe that any of the unrecognized tax benefits will be realized within the coming year. The Company has elected to
recognize interest and penalties related to unrecognized tax benefits in income tax expense notwithstanding the fact that, as of
December 31, 2020, the Company has not accrued any penalties or interest. The addition to uncertain tax benefits during the
year ended December 31, 2018 related to the treatment of certain costs incurred in connection with the IPO and November
Offering. Changes in the Company’s gross unrecognized tax benefits are as follows:
Balance, January 1,
Additions for the current year tax
Additions related to prior years
Balance, December 31,
64
Year Ended December 31,
2019
2018
2020
$
$
816
—
—
816
$
$
816
—
—
816
$
$
812
—
4
816
Table of Contents
Payables Related to the Tax Receivable Agreement
As of December 31, 2020, our liability under the Tax Receivable Agreement was $68,703, representing 85% of the
calculated net cash savings in United States federal, state and local income tax or franchise tax that Solaris Inc. anticipates
realizing in future years from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result
of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units in
connection with the IPO or pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the Solaris
LLC Agreement).
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our
estimates, which could significantly impact our liability under the Tax Receivable Agreement. Therefore, in accordance with
ASC 450, Contingencies, we have recorded a liability under the Tax Receivable Agreement related to the tax savings we may
realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of Solaris Inc.’s
acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units in connection with the
IPO or pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the Solaris LLC Agreement).
11. Concentrations
For the year ended December 31, 2020, one customer accounted for 14% of the Company’s revenue. For the year ended
December 31, 2019, two customers accounted for 19% and 10% of the Company’s revenue. For the year ended December 31,
2018, three customers accounted for 15%, 10% and 10% of the Company’s revenue. As of December 31, 2020, four customers
accounted for 42% of the Company’s accounts receivable. As of December 31, 2019, one customer accounted for 15% of the
Company’s accounts receivable.
For the year ended December 31, 2020, one supplier accounted for 24% of the Company’s total purchases. For the year
ended December 31, 2019, one supplier accounted for 19% of the Company’s total purchases. For the year ended December
31, 2018, two suppliers accounted for 13% and 11% of the Company’s total purchases. As of December 31, 2020, two
suppliers accounted for 13% and 10% of the Company’s accounts payable. As of December 31, 2019, one supplier accounted
for 44% of the Company’s accounts payable.
12. 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 consolidated
financial statements.
Other Commitments
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 $4,280 as of December 31, 2020. Refer to Note 13.
“Related Party Transactions” for additional information regarding related party transactions recognized and Note 7. “Leases”
for operating lease discussion.
13. Related Party Transactions
The Company recognizes certain costs incurred in relation to transactions with entities owned or partially owned by
William A. Zartler, the Chief Executive Officer and Chairman of the Board. These costs include rent paid for office space,
travel services, personnel, consulting and administrative costs. For the years ended December 31, 2020, 2019 and 2018,
Solaris LLC paid $723, $1,127 and $1,022 , respectively, for these services. As of December 31, 2020 and 2019, the Company
included $103 and $233, respectively, in prepaid expenses and other current assets on the consolidated balance sheets.
Additionally, as of December 31, 2020 and 2019, the Company included $55 and $74, respectively, of accruals to related
parties in accrued liabilities on the consolidated balance sheet.
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Table of Contents
These costs are primarily incurred in connection with the administrative services agreement, dated May 17, 2017,
between Solaris LLC and Solaris Energy Management, LLC, a company partially owned by William A. Zartler.
Payables Related to the Tax Receivable Agreement
In connection with the IPO, Solaris Inc. entered into the Tax Receivable Agreement with the TRA Holders on May 17,
2017, including certain of our officers, directors and employees. See Note 10. “Income Taxes” for further discussion of the
impact of the Tax Receivable Agreement on Solaris Inc.
14. Subsequent Events
None.
15. Selected Quarterly Financial Data (Unaudited)
2020
Total revenue
Operating loss
Net loss
Net loss attributable to Solaris
Earnings per share of Class A common stock - basic
Earnings per share of Class A common stock - diluted
2019
Total revenue
Operating income
Net income
Net income attributable to Solaris
Earnings per share of Class A common stock - basic
Earnings per share of Class A common stock - diluted
Three Months Ended
March 31,
June 30,
September 30,
December 31,
(in thousands, except per share amounts)
$
$ 47,830
(39,341)
(33,152)
(19,081)
$
$
(0.65) $
(0.65) $
$
9,339
(10,733)
(9,496)
(5,540)
(0.20) $
(0.20) $
$ 20,531
(6,406)
(5,603)
(3,283)
(0.12) $
(0.12) $
25,276
(3,420)
(2,842)
(1,437)
(0.06)
(0.06)
$ 55,124
27,727
23,435
12,317
0.43
0.43
$
$
$ 64,101
27,323
22,509
13,275
0.42
0.42
$
$
$ 59,604
22,793
19,082
11,398
0.36
0.36
$
$
$
$
$
62,858
30,087
25,334
15,017
0.48
0.48
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of 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 December 31, 2020. 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 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
December 31, 2020, 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.
Management’s Annual Report on Internal Control over Financial Reporting
Management, including the principal executive officer and principal financial officer, is responsible for establishing and
maintaining adequate internal control over financial reporting for the registrant, as defined in Rule 13a-15(f) under the
Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in
accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020, using the
criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation, management, including the Chief Executive Officer and Chief
Financial Officer, believes that our internal control over financial reporting was effective as of December 31, 2020.
Management’s Annual Report on Internal Control over Financial Reporting
This annual report does not include an attestation report of our independent registered public accounting firm regarding
internal controls over financial reporting. We are not required to have, nor did we engage our independent audit firm to
perform, an audit of the effectiveness of our internal controls over financial reporting for as long as we are an “emerging
growth company” pursuant to the provisions of the JOBS Act.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
67
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Information as to Item 10 will be set forth in the Proxy Statement for the Annual Meeting of Shareholders to be held on
May 12, 2021 (the “Annual Meeting”) and is incorporated herein by reference.
The Company’s Code of Business Conduct and Ethics (“Code of Conduct”) can be found on the Company’s website
located at www.solarisoilfield.com, under the “Governance Documents” tab within the “Investor Relations” tab. Any
shareholder may request a printed copy of the Code of Conduct by submitting a written request to the Company’s Chief Legal
Officer. If the Company amends the Code of Conduct or grants a waiver, including an implicit waiver, on behalf of the Chief
Executive Officer, Chief Financial Officer or Chief Accounting Officer from the Code of Conduct, the Company will disclose
the information on its website. The waiver information will remain on the website for at least 12 months after the initial
disclosure of such waiver.
Item 11. Executive Compensation
Information as to Item 11 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information as to Item 12 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information as to Item 13 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services
Information as to Item 14 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by
reference.
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Table of Contents
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements
Part IV
The consolidated financial statements of Solaris Oilfield Infrastructure, Inc. and Subsidiaries and the Report of
Independent Registered Public Accounting Firm are included in Part II, Item 8 “Financial Statements and Supplementary
Data” of this Annual Report. Reference is made to the accompanying Index to Consolidated Financial Statements.
(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not applicable or the required information is
presented in the financial statements or the notes thereto.
(3) Index to Exhibits
The exhibits required to be filed or furnished pursuant to Item 601 of Regulation S-K are set forth below.
Exhibit No.
Description
3.1
3.2
4.1
4.2
4.3
10.1†
10.2†
10.3†
10.4
10.5
10.6
10.7
10.8
10.9
10.10
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).
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).
Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.1 to the Registrant’s Form
S-3 (File No. 333-227758) filed with the Commission on October 9, 2018).
Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit 4.2 to the Registrant’s
Form S-3 (File No. 333-227758) filed with the Commission on October 9, 2018).
Description of Securities Registered under Section 12(b) of the Act.
Solaris Oilfield Infrastructure, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 4.3 to the
Registrant’s Form S-8 Registration Statement (File No. 333 216721) filed with the Commission on May 16,
2017).
Form of Restricted Stock Agreement under the Solaris Oilfield Infrastructure, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 4.4 to the Registrant’s Form S-8 Registration Statement (File No. 333
216721) filed with the Commission on May 16, 2017).
Form of Stock Option Agreement under the Solaris Oilfield Infrastructure, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 4.5 to the Registrant’s Form S-8 Registration Statement (File No. 333
216721) filed with the Commission on May 16, 2017).
Second Amended and Restated Limited Liability Company Agreement of Solaris Oilfield Infrastructure, LLC
Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 001 38090) filed with the
Commission on May 17, 2017).
Indemnification Agreement (William A. Zartler) (incorporated by reference to Exhibit 10.2 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (Kyle S. Ramachandran) (incorporated by reference to Exhibit 10.4 to the
Registrant’s Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (Kelly L. Price) (incorporated by reference to Exhibit 10.5 to the Registrant’s Form
8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (Cynthia M. Durrett) (incorporated by reference to Exhibit 10.6 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (Lindsay R. Bourg) (incorporated by reference to Exhibit 10.7 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (James R. Burke) (incorporated by reference to Exhibit 10.8 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
69
Table of Contents
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18+
10.19+
10.20
10.21
21.1
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
Indemnification Agreement (Edgar R. Giesinger) (incorporated by reference to Exhibit 10.9 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (W. Howard Keenan, Jr.) (incorporated by reference to Exhibit 10.10 to the
Registrant’s Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (F. Gardner Parker) (incorporated by reference to Exhibit 10.11 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (A. James Teague) (incorporated by reference to Exhibit 10.12 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on May 17, 2017).
Indemnification Agreement (Ray N. Walker, Jr.) (incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 8-K (File No. 001 38090) filed with the Commission on August 14, 2018).
Tax Receivable Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No.
001-38090) filed with the Commission on May 23, 2017).
Amended and Restated Administrative Services Agreement (incorporated by reference to Exhibit 10.3 to the
Registrant’s Form 8-K (File No. 001-38090) filed with the Commission on May 23, 2017).
Sand Storage and Transload Agreement, dated July 27, 2017, between Solaris Logistics, LLC and Devon Energy
Production Company, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K/A (File No.
001-38090) filed with the Commission on October 19, 2017).
First Amendment to Sand Storage and Transload Agreement, dated December 17, 2018, between Solaris
Logistics, LLC and Devon Energy Production Company, L.P. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K (File No. 001-38090) filed with the Commission on December 20, 2018).
Credit Agreement, dated as of April 26, 2019, by and among Solaris Oilfield Infrastructure, Inc., as borrower,
each of the lenders party thereto and Wells Fargo Bank, as administrative agent (incorporated by reference to
Exhibit 10.1 to the Registrant’s Form 10-Q (File No. 001-38090) filed with the Commission on May 1, 2019).
Indemnification Agreement (Christopher M. Powell) (incorporated by reference to Exhibit 10.2 to the
Registrant’s Form 10-Q (File No. 001-38090) filed with the Commission on November 2, 2017).
List of Subsidiaries of Solaris Oilfield Infrastructure, Inc. (incorporated by reference to Exhibit 21.1 to the
Registrant’s Form 10-K (File No. 001-038090) filed with the Commission on February 27, 2019).
Consent of BDO USA, LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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.
Inline XBRL Instance Document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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
Annual Report 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.
† Management contract or compensatory plan or arrangement.
+ Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been separately
filed with the Securities and Exchange Commission.
70
Table of Contents
Item 16. Form 10-K Summary
None.
71
Table of Contents
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.
Signatures
SOLARIS OILFIELD INFRASTRUCTURE, INC.
By:
/s/ William A. Zartler
William A. Zartler
Chairman and Chief Executive Officer
Date: February 23, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on February 23, 2021.
Signature
/s/ William A. Zartler
William A. Zartler
/s/ Kyle S. Ramachandran
Kyle S. Ramachandran
/s/ Lindsay R. Bourg
Lindsay R. Bourg
/s/ James R. Burke
James R. Burke
/s/ Cynthia M. Durrett
Cynthia M. Durrett
/s/ Edgar R. Giesinger
Edgar R. Giesinger
/s/ W. Howard Keenan, Jr.
W. Howard Keenan, Jr.
/s/ F. Gardner Parker
F. Gardner Parker
/s/ A. James Teague
A. James Teague
/s/ Ray N. Walker, Jr.
Ray N. Walker, Jr.
Title
Chairman and Chief Executive Officer (Principal Executive Officer)
President and Chief Financial Officer (Principal Financial Officer)
Chief Accounting Officer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
72
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Solaris Oilfield Infrastructure, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-227758) and on
Form S- 8 (No. 333-218043) of Solaris Oilfield Infrastructure, Inc. of our report dated February 23, 2021, relating to the
consolidated financial statements, which appears in this Annual Report on Form 10-K.
/s/BDO USA, LLP
Houston, Texas
February 23, 2021
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, William A. Zartler, certify that:
1. I have reviewed this annual report on Form 10-K 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)
d)
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;
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: February 23, 2021
/s/ William A. Zartler
William A. Zartler
Chairman and Chief Executive Officer (Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Kyle S. Ramachandran, certify that:
1. I have reviewed this annual report on Form 10-K 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;
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: February 23, 2021
/s/ Kyle S. Ramachandran
Kyle S. Ramachandran
President and Chief Financial Officer (Principal Financial Officer)
CERTIFICATION 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)
Exhibit 32.1
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 Annual Report on Form 10-K for the year ended December 31, 2020 (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:
February 23, 2021
/s/ William A. Zartler
William A. Zartler
Chairman and Chief Executive Officer
The foregoing certification is being furnished solely 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) and is not being filed as part of the Report or
as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained
by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
CERTIFICATION 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)
Exhibit 32.2
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 Annual Report on Form 10-K for the year ended December 31, 2020 (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:
February 23, 2021
/s/ Kyle S. Ramachandran
Kyle S. Ramachandran
President and Chief Financial Officer
The foregoing certification is being furnished solely 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) and is not being filed as part of the Report or
as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained
by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.