Solaris Oilfield Infrastructure Inc

Item 1: Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN**STOCKHOLDERS’**EQUITY

(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN**STOCKHOLDERS’**EQUITY

(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

SOLARIS OILFIELD INFRASTRUCTURE, INC.**

**Notes to the Condensed Consolidated Financial Statements

(Dollars in millions, except share and per share amounts)

1. Description of Business

We design and manufacture specialized equipment, which combined with field technician support, last mile and mobilization 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 that reduce operational footprint and costs during the completion phase of well development. We service most 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 a non-controlling interest related to the portion of the units in Solaris LLC (the “Solaris LLC Units”) not owned by Solaris Inc., which will reduce net income attributable to the holders of Solaris Inc.’s Class A common stock.

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements reflect all normal recurring adjustments that are necessary for fair presentation. Operating results for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the full year or for any interim period.

The unaudited interim condensed consolidated financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with Solaris Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023 and notes thereto.

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

Reclassifications

Our current period presentation of outstanding shares of Class A common stock includes our unvested restricted stock grants. As a result, our prior period presentation was made to conform to current period presentation and had no effect on previously reported basic and diluted earnings per share. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation.

Allowance for Credit Losses

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. Along with the expected credit loss percentage approach, the Company applies a case-by-case review on individual trade receivables when deemed appropriate. 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

written off against the allowance for credit losses when our customers’ financial condition deteriorates, impairing their ability to make payments, including in cases of customer bankruptcies.

The following activity related to our allowance for credit losses on customer receivables reflects the estimated impact of the current economic environment on our receivable balance.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenues from Contracts with Customers”. We recognize revenue based on the transfer of control, or the customer’s ability to benefit from our services and products, in an amount that reflects the consideration expected to be received in exchange for those services and products. We assess our customers’ ability and intention to pay, which is based on a variety of factors, including historical payment experience and financial condition, and we typically charge our customers on a weekly or monthly basis. Contracts with customers are normally on thirty- to sixty-day payment terms.

Our contracts may contain bundled pricing covering multiple performance obligations, such as contracts containing a combination of systems, mobilization services and / or sand transportation coordination services. In these instances, we allocate the transaction price to each performance obligation identified in the contract based on relative stand-alone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations.

Variable consideration typically may relate to discounts, price concessions and incentives. The Company estimates variable consideration based on the amount of consideration we expect to receive. The Company accrues revenue on an ongoing basis to reflect updated information for variable consideration as performance obligations are met.

Disaggregation of Revenue

The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three and six months ended June 30, 2024 and 2023:

Fair Value Measurements

The Company’s financial assets and liabilities, as well as certain 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:

The carrying value of the Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other current liabilities including insurance premium financing, approximate their fair value due to their short-term nature. The carrying amounts of the Company’s borrowings under the credit agreement approximate fair value based on their nature, terms, and variable interest rates.

3. Property, Plant and Equipment

Property, plant and equipment consists of the following:

During the three months ended June 30, 2024 and 2023, we recorded depreciation expense of $9.4 million and $8.9 million, respectively. During the six months ended June 30, 2024 and 2023, we recorded depreciation expense of $19.1 million and $17.1 million, respectively.

During the six months ended June 30, 2024, we reclassified $3.0 million of systems and related equipment from assets held for sale to property, plant and equipment as these assets no longer met the criteria for being classified as held for sale.

4. Accrued Liabilities

Accrued liabilities consist of the following:

5. Senior Secured Credit Facility

Our senior secured credit facility matures on April 25, 2025. As of June 30, 2024, the outstanding balance of $16.0 million is classified under current liabilities as the “current portion of credit agreement”.

As of June 30, 2024, we were in compliance with all covenants of our senior secured credit facility and had the capacity to draw an additional $47.8 million. In July 2024, we borrowed a total of $33.0 million, reducing the availability under the facility to $14.8 million. Of the $33.0 million borrowed, $29.8 million was loaned to Mobile Energy Rental LLC (“MER”) in connection with a certain financing agreement with MER. Refer to Note 12. “Subsequent Events” for additional information.

6. Other Current Liabilities

As of June 30, 2024 and December 31, 2023, the other current liabilities balance consisted of insurance premium financing of $3.0 million and $0.4 million, respectively.

In the second quarter of 2024, we entered into insurance premium financing agreements with an aggregate financed amount of $3.6 million. The notes carry an annual interest rate of 8.1% and include payments of approximately $0.3 million due monthly from May 2024 to April 2025. The remaining principal outstanding on these loans as of June 30, 2024 was $3.0 million.

In the second quarter of 2023, we entered into insurance premium financing agreements with a financed amount of $1.5 million. The note carried an annual interest rate of 8.0% and included payments of approximately $0.1 million due monthly from June 2023 to April 2024. The remaining principal outstanding on these loans as of December 31, 2023 was $0.4 million.

7. Equity

Dividends

Solaris LLC paid dividend distributions totaling $5.3 million and $4.9 million to all Solaris LLC unitholders in the three months ended June 30, 2024 and 2023, respectively, of which $3.6 million and $3.4 million was paid to Solaris Inc. Solaris LLC paid dividend distributions totaling $10.6 million and $10.1 million to all Solaris LLC unitholders in the six months ended June 30, 2024 and 2023, respectively, of which $7.3 million and $7.0 million 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.

Share Repurchase Program

On March 1, 2023, the Company’s board of directors authorized a share repurchase plan to repurchase up to $50.0 million of the Company’s Class A common stock until the plan terminates pursuant to its provisions. During the three months ended June 30, 2024, Solaris Inc. did not purchase and retire any shares of the Company’s Class A common stock. During the six months ended June 30, 2024, Solaris Inc. purchased and retired 1,108,349 shares of the Company’s Class A common stock at an aggregate cost of $8.1 million, or $7.30 per share, under the share repurchase program. As of June 30, 2024, we had purchased and retired 4,272,127 shares of Class A common stock for $34.6 million, or $8.09 per share, resulting in $15.4 million remaining available for future repurchases authorized under the share repurchase plan. The 1% U.S. federal excise tax on certain repurchases of stock by publicly traded U.S. corporations enacted as part of the Inflation Reduction Act of 2022 applies to our share repurchase program. As of June 30, 2024, we recorded accrued stock repurchase excise tax of $0.3 million in accrued liabilities in the condensed consolidated balance sheets.

Earnings Per Share

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

The following table sets forth the calculation of earnings per share for the three and six months ended June 30, 2024 and 2023:

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:

8. Income Taxes

Income Taxes

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

For the three months ended June 30, 2024 and 2023, we recognized a combined United States federal and state expense for income taxes of $1.3 million and $2.7 million, respectively. For the six months ended June 30, 2024 and 2023, we recognized a combined United States federal and state expense for income taxes of $3.2 million and $5.1 million, respectively. The effective combined United States federal and state income tax rates were 12.0% and 17.8% for the three months ended June 30, 2024 and 2023, respectively. The effective combined United States federal and state income tax rates were 15.8% and 17.5% for the six months ended June 30, 2024 and 2023, respectively. For the three

and six months ended June 30, 2024 and 2023, our effective tax rate differed from the statutory rate primarily due to Solaris LLC’s treatment as a partnership for United States federal income tax purposes.

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

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

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

Payables Related to the Tax Receivable Agreement

On May 17, 2017, in connection with its initial public offering, Solaris Inc. entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the then-existing members of Solaris LLC. The Tax Receivable Agreement was later amended on June 27, 2023. As of June 30, 2024, our liability under the Tax Receivable Agreement was $71.5 million, of which $2.7 million was current, representing 85% of the 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 our initial public offering or pursuant to previous exercises of the Redemption Right or the Call Right (each as defined in the Solaris LLC Agreement) and additional tax basis arising from any payments Solaris Inc. makes under the Tax Receivable 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 previous exercises of the Redemption Right or the Call Right (each as defined in the Solaris LLC Agreement) and additional tax basis arising from any payments Solaris Inc. makes under the Tax Receivable Agreement. Solaris LLC may make cash distributions to Solaris Inc. in order for Solaris Inc. to satisfy its obligations under the Tax Receivable Agreement and will be required to distribute cash pro rata to each of the other members of Solaris LLC, in accordance with the number of Solaris LLC Units owned by each member at that time.

9. Concentrations

For the three months ended June 30, 2024, three customers accounted for 18%,13% and 12% of the Company’s revenues. For the three months ended June 30, 2023, two customers accounted for 15% and 11% of the Company’s revenues. For the six months ended June 30, 2024, three customers accounted for 14%,13%, and 11% of the Company’s revenues. For the six months ended June 30, 2023, three customers accounted for 13%,11% and 11% of the Company’s

revenues. As of June 30, 2024, three customers accounted for 17%,12% and 11% of the Company’s accounts receivable. As of December 31, 2023, two customers accounted for 12% and 10% of the Company’s accounts receivable.

For the three months ended June 30, 2024, one supplier accounted for 18% of the Company’s total purchases. For the three months ended June 30, 2023, one supplier accounted for 15% of the Company’s total purchases. For the six months ended June 30, 2024, one supplier accounted for 14% of the Company’s total purchases. For the six months ended June 30, 2023, no supplier accounted for more than 10% of the Company’s total purchases. As of June 30, 2024, three suppliers accounted for 18%,11% and 10% of the Company’s accounts payable. As of December 31, 2023, two suppliers accounted for 17% and 12% of the Company’s accounts payable.

10. Commitments and Contingencies

Tax Matters

We are subject to a number of state and local taxes that are not income-based. As many of these taxes are subject to assessment and audit by the taxing authorities, it is possible that an assessment or audit could result in additional taxes due. We accrue additional taxes when we determine that it is probable that we will have incurred a liability and we can reasonably estimate the amount of the liability. On June 16, 2022, Cause Number CV20-09-372, styled Solaris Oilfield Site Services v. Brown County Appraisal District, was presented to the 35th District Court of Brown County, Texas. The 35 th District Court of Brown County ruled in favor of Brown County Appraisal District regarding the disqualification of our equipment for certain property tax exemptions. On July 20, 2022, we filed an appeal with the Eleventh District of Texas – Eastland Court of Appeals, and an appellate hearing relating thereto was held on April 13, 2023. A final ruling from the Eastland Court of Appeals was received on April 18, 2024. The appellate court ruled in our favor and upheld most, but not all, of our disputed property tax exemptions. On June 14, 2024, we reached a settlement agreement with Brown County Appraisal District for $0.9 million. As a result, in the three and six months ended June 30, 2024, we reversed $4.3 million of property tax expenses previously recorded through 2023 in connection with this case. Of this amount, $2.5 million was presented as gain on reversal of property tax contingency and $1.8 million reduced the cost of services in our condensed consolidated statements of operations.

Litigation and Claims

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

On February 28, 2024, the Company was served with a lawsuit by Masaba Inc. in the Wyoming District Court related to alleged intellectual property infringement. The complaint seeks, among other relief, unspecified compensatory damages, rescission, pre-judgment and post-judgment interest, costs and expenses. The Company believes these claims are without merit and will vigorously defend against them. At this time, we are unable to predict the ultimate outcome of this case or estimate the range of possible loss, if any.

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. The total future guarantee under the guarantee of lease agreement with Solaris Energy Management, LLC is $2.6 million as of June 30, 2024. Refer to Note 11. “Related Party Transactions” below for additional information regarding related party transactions recognized.

11. Related Party Transactions

The Company incurs costs for services provided by Solaris Energy Management, LLC, a company owned by William A. Zartler, the Chief Executive Officer and Chairman of the Board. These costs include rent paid for office space, travel services and other administrative costs, included in selling, general and administrative costs and other operating expense in the condensed consolidated statement of operations. For the three months ended June 30, 2024 and

2023, Solaris LLC paid $0.1 million and $0.3 million, respectively, for these services. For the six months ended June 30, 2024 and 2023, Solaris LLC paid $0.2 million and $0.8 million, respectively, for these services. As of June 30, 2024 and December 31, 2023, the Company included $0.1 million and $0.1 million, respectively, in prepaid expenses and other current assets on the condensed consolidated balance sheets.

As of June 30, 2024, THRC Holdings, LP, an entity managed by THRC Management, LLC (collectively, “THRC”), owned shares representing 10.5% of the outstanding shares of the Company’s Class A common stock. THRC is affiliated with certain of the Company’s customers, such as ProFrac Services, LLC, and with certain of the Company’s suppliers, including Automatize Logistics, LLC, IOT-EQ, LLC and Cisco Logistics, LLC (collectively, “THRC Affiliates”). For the three months ended June 30, 2024 and 2023, the Company recognized revenues of $4.2 million and $7.3 million, respectively, from services provided to THRC Affiliates. For the six months ended June 30, 2024 and 2023, the Company recognized revenues of $7.5 million and $12.2 million, respectively, from services provided to THRC Affiliates. Accounts receivable from THRC Affiliates as of June 30, 2024 and December 31, 2023 was $4.4 million and $2.4 million, respectively. For the three and six months ended June 30, 2024, the Company didnot incur costs for services provided by THRC Affiliates. For the three and six months ended June 30, 2023, the Company incurred costs of $0.6 million and $1.7 million, respectively, for services provided by THRC Affiliates. There was $0.1 million in accounts payable related to THRC Affiliates as of June 30, 2024 andnone as of December 31, 2023.

The Company is the dedicated wellsite sand storage provider (“Services”) for certain THRC Affiliates. The Company provides volume-based pricing for the Services and may be required to pay up to $0.5 million in payments throughout a term ending in 2024, contingent upon the ability of these affiliates to meet minimum Services revenue thresholds. As of June 30, 2024, there was $0.1 million of accounts payable to THRC Affiliates related to the Services andno accounts payable as of December 31, 2023.

12. Subsequent Events

MER Acquisition

On July 9, 2024, Solaris Inc. and Solaris LLC entered into a definitive agreement to acquire MER, a premier provider of distributed power solutions serving the energy and commercial and industrial end-markets (the “MER Acquisition”). Transaction consideration includes$60.0 million of cash, subject to certain adjustments based on the Company’s capital expenditures prior to the close of the transaction (including the obligation by the Company to assume MER’s acquisition of approximately$308.0 million of on-order turbines); and the issuance of approximately 16.5 million Solaris LLC Units and an equal number of shares of the Company’s Class B common stock to MER’s founders and management team, who will join the Company post-closing.

The Company’s board of directors has approved the MER Acquisition. The proposed transaction is contingent upon shareholder approval of the issuance of shares of the Company’s Class B common stock, receipt of regulatory approvals and other customary closing conditions. The Company anticipates the transaction to close by the end of the third quarter of 2024.

Senior Secured Bridge Term Loan Facility

On July 9, 2024, in connection with the planned MER Acquisition, the Company secured committed financing from Banco Santander, Texas Capital Securities and Woodforest National Bank in the form of a $300.0 million senior secured bridge term loan facility with a 364-day term (the “Bridge Loan”). The Company paid $4.8 million in loan structuring and commitment fees on the same day. Funds from the Bridge Loan are undrawn and only available to the Company if we close on the loan. The Company expects to obtain alternative financing for its cash needs relating to the MER acquisition prior to closing the transaction; if this alternative financing is obtained, the Company would not close on the Bridge Loan.

Secured Demand Note

On July 30, 2024, Solaris LLC entered into a definitive agreement whereby Solaris LLC loaned $29.8 million (the “Loan”) to MER to fund certain progress payments to meet MER’s outstanding commitments. In connection with this

financing agreement, the Company drew $30.0 million from its existing senior secured credit facility. The Loan bears interest at 10% and is fully secured by substantially all of MER’s assets. If the Loan is not called, payment would be due on December 6, 2024.

Dividends

On July 25, 2024, the Company’s board of directors approved a quarterly cash dividend of $0.12 per share of Class A common stock, to be paid on September 6, 2024 to holders of record as of August 23, 2024, and a distribution of $0.12 per unit to Solaris LLC unitholders, which is subject to the same payment and record dates.