Solaris Energy Infrastructure Inc
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
SEI$57.77+14.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001697500-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001697500-24-000052
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 68 previous paragraphs and 69 current paragraphs.
17 unchanged; 17 reworded; 34 added; 34 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 9 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
Executive Overview
Current report
We provide mobile and scalable equipment-based solutions for use in distributed power generation as well as the management of raw materials used in the completion of oil and natural gas wells. Headquartered in Houston, Texas, Solaris serves multiple U.S. end markets, including energy, data centers, and other commercial and industrial sectors.
Current report
We operate through two reportable business segments:
Current report
On September 11, 2024, we acquired MER, a company providing configurable, primarily natural gas-powered mobile turbines and ancillary equipment across energy, data center, and other commercial and industrial markets. This acquisition marks our entry into the scaled distributed power solutions market, strengthening our position as a mobile equipment and logistics solution provider in the oil and gas sector while diversifying our overall business.
Current report
We successfully completed the acquisition of MER on September 11, 2024. The results of MER’s operations have been included in our condensed consolidated financial statements from the acquisition date through September 30, 2024. For further details regarding the acquisition, please refer to Note 2. “MER Acquisition” in the notes to our condensed consolidated financial statements.
Current report
Debt Financing
Current report
On September 11, 2024, we entered into a senior secured term loan agreement totaling $325.0 million, primarily to fund the acquisition of MER. The remaining proceeds are restricted for capital expenditures to support our growth initiatives. The term loan bears a variable interest rate with interest payments due beginning in October 2024. Repayments of 1.25% of the original principal amount are due in quarterly installments beginning on September 30, 2025. The term loan matures on September 11, 2029.
Current report
Additionally, on the same day, we extinguished our prior revolving credit facility using a portion of the term loan proceeds. Subsequently, on October 2, 2024, we established a new revolving credit facility that allows for borrowings up
Current report
to $75.0 million, with a potential increase of up to an additional $50.0 million, contingent on certain conditions. This facility also includes provisions for up to $10.0 million in letters of credit. For further details regarding our debt agreements, please refer to Note 10. “Debt” in the notes to our condensed consolidated financial statements.
Current report
Market Trends and Outlook
Current report
Demand for our services varies across each of our business segments, Solaris Logistics Solutions and Solaris Power Solutions, due to differences in end market exposure.
Current report
For Solaris Logistics Solutions, demand is predominantly influenced by the level of oil and natural gas well drilling and completion activity in the U.S. During the third quarter of 2024, our fully utilized system count remained relatively flat, which was in line with a relatively stable Baker Hughes U.S. Land Rig count. For the fourth quarter of 2024, we expect our fully utilized system count to decline roughly 10% primarily due to seasonality, which includes the impact of weather, holidays and customer budget completion. The level of demand over the longer term will depend on multiple factors, including commodity price levels, customer consolidation that can drive activity and procurement strategy changes and industry efficiency gains, geopolitical risk, economic activity, potential regulatory changes and potential impacts from geopolitical disruptions.
Current report
For Solaris Power Solutions, demand is predominantly influenced by accelerating needs for power in the U.S., juxtaposed against constrained electrical grid infrastructure, which is due to a number of factors including, but not limited to, aging transmission and distribution networks, extreme weather, and long lead times for various electric infrastructure equipment. Solaris’ turbine offerings are configurable and can be scaled to match power demand on a “behind-the-meter” basis in a shorter timeline than many grid-based providers can service.
Current report
Today, Solaris Power Solutions’ primary customers include a large data center and several energy companies requiring power for hydrocarbon production, processing, transportation, and refining applications. Power demand for data centers is primarily driven by rapid demand growth for generative artificial intelligence (“AI”) computing applications. Power demand for energy customers is primarily driven by hydrocarbon production and processing operations in geographies where grid infrastructure may not be available or reliable or is prone to supply disruption. Many of our customers face multi-year delays to receive grid-based power and are turning to configurable, “behind-the-meter” solutions such as ours to bridge this gap. The availability of low-cost fuel as a result of the abundant supply of natural gas domestically enhances the cost-competitiveness of our mobile natural gas-powered turbine technology as compared to conventional grid-based power.
Current report
During the third quarter, Solaris Power Solutions generated revenue from an average of approximately 156 megawatts (“MW”) of generation capacity. Due to the continued market demand we forecast for behind-the-meter power generation, Solaris Power Solutions has secured deliveries for turbines and ancillary equipment that will significantly increase our power generation fleet to approximately 535 MW by the third quarter of 2025. The Company estimates approximately 450 MW, or 84% of total expected delivered capacity, is currently committed to customers under commercial agreements that range in tenor from two to four years.
Current report
We expect total company capital expenditures over the next four quarters of approximately $295 million, of which $130 million is expected in the fourth quarter of 2024. The majority of these capital expenditures are to support Solaris Power Solutions capital growth. Capital expenditures for Solaris Logistics Solutions represents approximately $10-15 million of our total expected capital expenditures over the next four quarters. We intend to fund our current planned capital expenditures with proceeds from our recent debt financing and cash flow from operations.
Current report
The sustainability of this favorable supply-demand dynamic in the power sector will depend on multiple factors, including continued demand growth for generative AI computing applications, supply chain availability for electrical equipment, potential regulatory changes, overall economic activity levels, the level and pace at which the power industry can invest in power infrastructure, and the pace of continued electrification-driven demand growth.
Current report
Revenues
Current report
Solaris Logistics Solutions. Solaris Logistics Solutions revenue remained relatively flat in the third quarter of 2024, increasing by $0.6 million, or 1%, to $70.3 million compared to $69.7 million in the same period of 2023. This modest growth was primarily due to an increase in last mile tonnage during the quarter. However, this was partially offset by a decrease in fully utilized systems, which decreased to 91 in the third quarter of 2024, down from 108 in the same period of 2023.
Current report
Solaris Power Solutions. Solaris Power Solutions revenue increased by $4.7 million in the three and nine months ended September 30, 2024, compared to the same periods of 2023. This increase was due to the MER Acquisition completed on September 11, 2024.
Current report
Cost of Revenue, exclusive of depreciation and amortization
Current report
Solaris Power Solutions. Solaris Power Solutions cost of revenue increased by $1.3 million in the three and nine months ended September 30, 2024, compared to the same period of 2023. The increase was due to the MER Acquisition completed on September 11, 2024.
Current report
Solaris Power Solutions cost of revenue as a percentage of revenue was 27% for the three and nine months ended September 30, 2024.
Current report
Depreciation and amortization increased by $1.8 million, or 20%, to $11.0 million in the third quarter of 2024 compared to $9.2 million in the same period of 2023. This increase was primarily due to depreciation of $1.4 million from assets acquired in the MER Acquisition.
Current report
Depreciation and amortization increased by $3.8 million, or 14%, to $30.5 million in the first nine months of 2024, compared to $26.7 million in the same period of 2023. This increase was driven by depreciation from the MER Acquisition and additional depreciable assets resulting from capital expenditures to develop and upgrade systems fleet for our Solaris Logistics Solutions segment.
Current report
Other Operating Expense, net
Current report
Our primary sources of liquidity are cash flows from operations, borrowings under our debt financing agreements and available capacity from our revolving credit facility. We utilize this liquidity to support ongoing operations, fund capital expenditures for growth, such as new turbines and related ancillary equipment for our power solutions segment and pay dividends. Additionally, while no assurance can be given, we may seek to issue additional securities through opportunistic capital markets transactions, depending upon market conditions and other relevant factors.
Current report
As of September 30, 2024, we had outstanding borrowings of $325.0 million under our senior secured term loan agreement, with $4.1 million in principal payments due within the next twelve months. The interest rate on the term loan was 11.1% as of that date and is subject to periodic repricing. Assuming this rate remains constant, we estimate our interest payments for the next twelve months will total approximately $36.6 million. Additionally, we had outstanding purchase commitments of $219.2 million related to growth capital expenditures, payable within the next twelve months.
Current report
Dividends
Current report
Refer to Note 14. “Commitments and Contingencies” –Purchase Obligations included in the notes to our condensed consolidated financial statements contained herein for a discussion of our off-balance sheet arrangements.
Current report
Critical Accounting Policies and Estimates
Current report
For detailed information, please refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no changes to our critical accounting policies since December 31, 2023, except for the following additional critical accounting estimate.
Current report
Fair Value Measurements in Business Combinations
Current report
When accounting for a business acquisition, we allocate the purchase consideration to the various acquired assets and assumed liabilities based on their fair values. Our measurement of fair value involved significant estimates and assumptions and we have up to one year post-acquisition to finalize these measurements if necessary. For tangible and identifiable intangible assets acquired, we employ various valuation methodologies, including discounted cash flow analyses. These analyses rely on assumptions regarding the timing and amount of future revenues and expenses. Key assumptions include discount rates, future revenues, operating costs, and projections of capital expenditures, aligned with those used by principal market participants. Given the complexity of these calculations, we engage third-party specialists to assist in evaluating our assumptions and appropriately measuring the fair value of the assets acquired and liabilities assumed.
Removed paragraphs (34)
Previous report
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.
Previous report
Recent Trends and Outlook
Previous report
Demand for our services is predominantly influenced by the level of oil and natural gas well drilling and completion activity in the U.S. During the quarter ended June 30, 2024, U.S. drilling and completion activity, as measured by the Baker Hughes U.S. Land Rig Count, was down 7% which reflects the net impact of a 5% decrease in the number of oil-directed rigs and a 13% decrease in gas-directed rigs. Average WTI oil prices remained in a range of $70 to $90 per barrel during the quarter ended June 30, 2024. Average Henry Hub natural gas prices remained in a low-$2 per MMBtu range, which reflects a 15% decline from the start of the year and was the primary driver of the decrease in gas-directed drilling activity.
Previous report
For the second quarter ended June 30, 2024, our fully utilized total system count averaged 92 systems, which dropped from 102 systems for the first quarter ended March 31, 2024 and was relatively in line with overall drilling and completion trends in the U.S.
Previous report
Today oil-directed drilling activity comprises over 80% of the total Baker Hughes U.S. Land rig count. Oil prices currently remain in the mid-$70s per barrel range, which we believe should support a sustained level of oil-directed U.S. drilling and completion activity. For the remainder of 2024, we expect the Company’s revenue and profitability to track the overall direction of U.S. drilling and completion activity.
Previous report
Our capital expenditures of approximately $4 million during the first six months of 2024 were down approximately 90% compared to the first six months of 2023 following the completion of our prior growth capital program in 2023.
Previous report
The sustainability of favorable supply-demand dynamics and a strong commodity environment will depend on multiple factors, including any supply chain disruptions, potential regulatory changes, uncertainty around a potential economic slowdown and potential impacts from geopolitical disruptions, including the war in Ukraine and continued conflicts in the Middle East. Additionally, consolidation can drive procurement strategy changes, which has historically resulted in both market share gains and losses for the Company. We expect both consolidation and financial discipline will likely continue to be important themes for the energy industry going forward.
Previous report
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.
Previous report
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.
Previous report
Senior Secured Bridge Term Loan Facility
Previous report
On July 9, 2024, in connection with the planned MER Acquisition, we 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 (“Bridge Loan”). We 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 us if we close on the loan. We expect to obtain alternative financing for our cash needs relating to the MER acquisition prior to closing the transaction; if this alternative financing is obtained, we would not close on the Bridge Loan.
Previous report
Secured Demand Note
Previous report
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.
Previous report
Revenue
Previous report
Total revenue decreased by $3.3 million, or 4%, to $73.9 million in the second quarter of 2024 compared to $77.2 million in the same period of 2023. This result was primarily due to a decrease in fully utilized systems, which dropped to 92 for the second quarter of 2024 from 108 for the second quarter of 2023. This decrease was partially offset by an increase in last mile tonnage in the second quarter of 2024 compared to the same period of 2023.
Previous report
Cost of Services
Previous report
Cost of services, excluding depreciation and amortization expense, decreased by $12.9 million, or 13%, to $86.0 million in the first six months of 2024 compared to $98.9 million in the same period of 2023. This result was primarily
Previous report
Depreciation and amortization increased by $0.5 million, or 5%, to $9.6 million in the second quarter of 2024 compared to $9.1 million in the same period of 2023. Depreciation and amortization increased by $2.0 million, or 11%, to $19.5 million in the first six months of 2024, compared to $17.5 million in the same period of 2023. Depreciation increased primarily due to investment in capital spending to develop and upgrade the systems fleet, resulting in the addition of depreciable assets from June 30, 2023 to June 30, 2024.
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Other Operating Expense (Income), net
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Comparison of Non-GAAP Financial Measures
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EBITDA and Adjusted EBITDA
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We view EBITDA and Adjusted EBITDA as important indicators of performance. We use them to assess our results of operations because it allows us, our investors and our lenders to compare our operating performance on a consistent basis across periods by removing the effects of varying levels of interest expense due to our capital structure, depreciation and amortization due to our asset base and other items that impact the comparability of financial results from period to period. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding trends and other factors affecting our business in addition to measures calculated under generally accepted accounting principles in the United States (“GAAP”).
Previous report
We define EBITDA as net income, plus (i) depreciation and amortization expense, (ii) interest expense and (iii) income tax expense. 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.
Previous report
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 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.
Previous report
The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of Adjusted EBITDA.
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Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023: EBITDA and Adjusted EBITDA
Previous report
EBITDA decreased $3.4 million to $21.4 million for the three months ended June 30, 2024 compared to $24.9 million for the three months ended June 30, 2023. Adjusted EBITDA decreased $6.0 million to $20.8 million for the three months ended June 30, 2024 compared to $26.8 million for the three months ended June 30, 2023. EBITDA decreased $6.8 million to $41.3 million for the six months ended June 30, 2024 compared to $48.1 million for the six months ended June 30, 2023. Adjusted EBITDA decreased $8.5 million to $43.5 million for the six months ended June 30, 2024 compared to $51.9 million for the six months ended June 30, 2023. The changes in EBITDA and Adjusted EBITDA were primarily due to the changes in revenues and expenses, discussed above.
Previous report
Overview
Previous report
Our primary sources of liquidity to date have been cash flows from operations, borrowings under our credit agreement and proceeds from equity offerings. 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.
Previous report
In connection with the MER Acquisition, we have secured a $300.0 million Bridge Loan with a 364-day term. Funds from the Bridge Loan are undrawn and only available to the Company if we close on the loan. We expect to obtain alternative financing for our cash needs relating to the MER acquisition prior to closing the transaction; if this alternative financing is obtained, we would not close on the Bridge Loan.
Previous report
In July 2024, we borrowed $33.0 million from our senior secured credit facility, approximately $3.0 million of which was used to partly cover loan structuring and commitment fees for the Bridge Loan and $29.8 million was used for the Loan to MER. Currently, we have the capacity to draw an additional $14.8 million from our senior secured credit facility.
Previous report
Critical Accounting Estimates
Previous report
We had no material changes in our critical accounting estimates during the three and six months ended June 30, 2024, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.
Previous report
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.
Reworded paragraphs (17)
Previous wording
References to “we,” “us,” “our,” “Solaris Inc.” or the “Company” refer to Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires). The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and “Risk Factors” included in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated by our subsequent filings with the SEC, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.
Current wording
References to “we,” “us,” “our,” “Solaris” or the “Company” refer to Solaris Energy Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires). The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and “Risk Factors” included in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated by our subsequent filings with the SEC, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.
Previous wording
Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023
Current wording
Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023
Previous wording
Total revenue decreased by $18.1 million, or 11%, to $141.8 million in the first six months of 2024 compared to $159.9 million in the same period of 2023. This result was primarily due to a decrease in last mile logistics services revenue. The decrease in revenue was also due to a decrease in fully utilized systems, which dropped to 97 for the first six months of 2024 from 113 for the first six months of 2023.
Current wording
Solaris Logistics Solutions revenue decreased by $17.5 million, or 8%, to $212.1 million in the first nine months of 2024 compared to $229.6 million in the same period of 2023. This decline was primarily due to a decrease in fully utilized systems, which dropped to 95 for the first nine months of 2024 from 112 in the same period of 2023.
Previous wording
Cost of services, excluding depreciation and amortization expense, slightly increased by $0.5 million, or 1%, to $46.1 million in the second quarter of 2024 compared to $45.7 million in the same period of 2023, primarily due to a $2.9 million increase in last mile and ancillary service costs associated with an increase in last mile tonnage. This increase was almost offset by a $0.6 million reduction in system costs due to lower fully utilized system count and reversal of $1.8 million accrued property taxes following a settlement agreement with Brown County Appraisal District. Refer to Note 10, “Commitments and Contingencies,” in the notes to the condensed consolidated financial statements for additional information.
Current wording
Solaris Logistics Solutions. Solaris Logistics Solutions cost of revenue increased by $3.5 million, or 8%, to $45.6 million in the third quarter of 2024 compared to $42.1 million in the same period of 2023, primarily due to a $7.4 million increase in last mile and ancillary service costs associated with an increase in last mile tonnage. This increase was partially offset by a $3.8 million reduction in system costs due to lower fully utilized system count and reversal of $1.8 million accrued property taxes following a settlement agreement with Brown County Appraisal District. Refer to Note 14. “Commitments and Contingencies –Tax Matters” in the notes to our condensed consolidated financial statements for additional information.
Previous wording
due to the reversal of accrued property taxes following settlement with Brown County Appraisal District discussed above, cost saving efforts on ancillary services and lower system count.
Current wording
Solaris Logistics Solutions cost of revenue decreased by $9.3 million, or 7%, to $131.7 million in the first nine months of 2024 compared to $141.0 million in the same period of 2023. This reduction was primarily due to lower system count, lower last mile trucking costs for ancillary services and the reversal of accrued property taxes following settlement with Brown County Appraisal District. Refer to Note 14. “Commitments and Contingencies –Tax Matters,” in the notes to our condensed consolidated financial statements for additional information on the property tax settlement.
Previous wording
Cost of services, excluding depreciation and amortization, as a percentage of revenue was 62% and 61% for the three and six months ended June 30, 2024, respectively, compared to 59% and 62% for the same periods ended June 30, 2023.
Current wording
Solaris Logistics Solutions cost of revenue as a percentage of revenue was 65% and 62% for the three and nine months ended September 30, 2024, respectively, compared to 60% and 61% for the same periods ended September 30, 2023.
Previous wording
On June 14, 2024, we reached a settlement agreement with Brown County Appraisal District in Texas, following a favorable ruling by the Eastland Court of Appeals on April 18, 2024. 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 costs of services in our condensed consolidated statements of operations.
Current wording
On June 14, 2024, we reached a settlement agreement with Brown County Appraisal District in Texas, following a favorable ruling by the Eastland Court of Appeals on April 18, 2024. As a result, in the nine months ended September 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 costs of services in our condensed consolidated statements of operations.
Previous wording
Selling, general and administrative expenses increased by $1.4 million, or 21%, to $8.3 million in the second quarter of 2024 compared to $6.8 million in the same period of 2023. Selling, general and administrative expenses increased by $2.9 million, or 22%, to $16.2 million in the first six months of 2024 compared to $13.4 million in the same period of 2023. The increase in these periods was primarily due to an increase in salaries, benefits and wages driven by an increase in average headcount, as well as increased professional fees and office rent.
Current wording
Selling, general and administrative expenses increased by $2.4 million, or 38%, to $8.8 million in the third quarter of 2024 compared to $6.4 million in the same period of 2023. Selling, general and administrative expenses increased by $5.3 million, or 27%, to $25.0 million in the first nine months of 2024 compared to $19.7 million in the same period of 2023. The increase in these periods was primarily due to an increase in salaries, benefits and wages driven by an increase in average headcount, as well as increased professional fees and office rent.
Previous wording
Other operating expense (income) increased by $0.7 million to $0.6 million in the second quarter of 2024 compared to income of $0.1 million in the same period of 2023. Other operating expense (income) increased by $1.1 million, to $0.7 million in the first six months of 2024 compared to income of $0.5 million in the same period of 2023. Other operating expense for the three and six months ended June 30, 2024 primarily relate to transaction costs and credit losses, partially offset with sales tax rebates, sublease income and other settlements. Other operating income for the three and six months ended June 30, 2023 primarily relate to gain on sale of assets and sales tax rebates.
Current wording
Other operating expense increased by $2.4 million to $3.0 million in the third quarter of 2024 compared to $0.6 million in the same period of 2023. Other operating expense increased by $3.6 million, to $3.7 million in the first nine months of 2024 compared to $0.1 million in the same period of 2023. Other operating expense for the three and nine months ended September 30, 2024 primarily relate to acquisition-related costs and credit losses. Other operating expense for the three and nine months ended September 30, 2023 primarily relate to loss on sale of assets and credit losses, partially offset with sales tax rebates.
Previous wording
During the second quarter of 2024, we recognized a combined United States federal and state expense for income taxes of $1.3 million, a decrease of $1.3 million as compared to the $2.6 million income tax expense we recognized during the same period in 2023. During the first six months of June 30, 2024, we recognized a combined United States federal and state expense for income taxes of $3.2 million, a decrease of $1.9 million as compared to the $5.1 million income tax expense we recognized during the same period in 2023. This change was attributable to changes in operating gains. The effective combined United States federal and state income tax rates were 12.0% and 17.8% for the second quarter of 2024 and 2023, respectively. The effective combined United States federal and state income tax rates were 15.8% and 17.5% for the first six months of 2024 and 2023, 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.
Current wording
During the third quarter of 2024, we recognized a combined United States federal and state expense for income taxes of $0.5 million, a decrease of $0.8 million as compared to the $1.3 million income tax expense we recognized during the same period in 2023. During the first nine months of 2024, we recognized a combined United States federal and state expense for income taxes of $3.7 million, a decrease of $2.8 million as compared to the $6.5 million income tax expense we recognized during the same period in 2023. This change was attributable to changes in operating gains. The effective combined United States federal and state income tax rates were -26.3% and 14.6% for the third quarter of 2024 and 2023, respectively. The effective combined United States federal and state income tax rates were 19.7% and
Previous wording
As of June 30, 2024, our senior secured credit facility had outstanding borrowings of $16.0 million. With the additional $33.0 million borrowed in July 2024, our total obligations under this facility amounted to $49.0 million, which is due within the next twelve months. We believe that our current cash reserves, operating cash flow, receipt of Loan repayment from MER, available borrowings under our senior secured credit facility and senior secured bridge term loan facility and the potential to issue additional equity, if needed, will provide adequate liquidity to meet our future operational needs, including repayment of outstanding debt obligations, dividend payments and financing the MER Acquisition.
Current wording
We believe that our current cash reserves, operating cash flow, available capacity under our new revolving credit facility and the potential to issue additional equity, if needed, will provide adequate liquidity to meet our future operational needs, including repayment of debt service obligations and dividend payments.
Previous wording
On July 25, 2024, our 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.
Current wording
On October 30, 2024, the Company’s board of directors approved a quarterly cash dividend of $0.12 per share of Class A common stock, payable on December 16, 2024, to holders of record as of December 6, 2024. Additionally, a distribution of $0.12 per unit will be made to Solaris LLC unitholders, with the same payment and record dates.
Previous wording
The Company’s board of directors authorized a share repurchase program on March 1, 2023, with an approved limit of $50.0 million and no set term limits. During the three months ended June 30, 2024, we did not repurchase nor retire any shares of Class A common stock under the share repurchase program. During the six months ended June 30, 2024, we purchased and retired 1,108,349 shares of 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 have collectively repurchased 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 under the authorized share repurchase program.
Current wording
The Company’s board of directors authorized a share repurchase program on March 1, 2023, with an approved limit of $50.0 million and no set term limits. During the three months ended September 30, 2024, we did not repurchase nor retire any shares of Class A common stock under the share repurchase program. During the nine months ended September 30, 2024, we purchased and retired 1,108,349 shares of Class A common stock at an aggregate cost of $8.1 million, or $7.30 per share, under the share repurchase program. As of September 30, 2024, we have collectively repurchased 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 under the authorized share repurchase program.
Previous wording
Operating Activities. Net cash provided by operating activities decreased to $35.8 million for the six months ended June 30, 2024, compared to $43.8 million for the same period in 2023. This $8.0 million decline is primarily attributed to reduced business activity, reflected in the decrease in our fully utilized systems and lower revenue from last-mile logistics services. Consequently, our net income, adjusted for non-cash items, was $44.9 million for the six months ended June 30, 2024, compared to $50.3 million in the same period in 2023. Additionally, changes in working capital led to a $9.1 million decrease in cash for the six months ended June 30, 2024, compared to a $6.5 million decrease in cash in the same period in 2023.
Current wording
Operating Activities. Net cash provided by operating activities decreased to $46.3 million for the nine months ended September 30, 2024, compared to $64.7 million for the same period in 2023. This $18.4 million decline is primarily attributed to reduced business activity, reflected in the decrease in our fully utilized systems. Consequently, our net income, adjusted for non-cash items, was $61.9 million for the nine months ended September 30, 2024, compared to $72.5 million in the same period in 2023. Additionally, changes in working capital led to a $15.7 million decrease in cash for the nine months ended September 30, 2024, compared to a $7.8 million decrease in cash in the same period in 2023.
Previous wording
Investing Activities. Net cash used in investing activities was $3.6 million for the six months ended June 30, 2024, a significant decrease from $39.9 million during the same period in 2023. The $36.3 million reduction is mainly attributed to decreased capital expenditures following the completion of our previous growth capital program in 2023.
Current wording
Investing Activities. Net cash used in investing activities was $189.9 million for the nine months ended September 30, 2024, an increase from $54.8 million during the same period in 2023. The $135.1 million increase is mainly attributed to $122.1 million used in the business acquisition of MER and $55.2 million paid for turbine progress payments. This increase was partially offset by the absence of capital expenditures from our previous growth capital program in 2023.
Previous wording
Financing Activities. For the six months ended June 30, 2024, net cash used in financing activities totaled $32.9 million. This amount primarily reflects net repayments of $14.0 million on our credit agreement, $8.1 million for share repurchases, $7.3 million in quarterly dividends to Class A common stock shareholders and $3.3 million in distributions to Solaris LLC unitholders. In comparison, net cash used in financing activities was $3.4 million for the six months ended June 30, 2023. This was largely due to $25.8 million spent on share repurchases, $7.0 million in quarterly dividends to Class A common stock shareholders and $3.5 million in distributions to Solaris LLC unitholders, partially offset by $35.0 million in net borrowings under our senior secured credit facility.
Current wording
Financing Activities. For the nine months ended September 30, 2024, net cash provided by financing activities totaled $254.4 million. This amount primarily reflects net debt financing proceeds of $295.0 million, partially offset by payments of $14.5 million on debt financing and debt extinguishment costs, $10.9 million in quarterly dividends to Class A common stock shareholders, $8.1 million on share repurchases, and $4.9 million in distributions to Solaris LLC unitholders. In comparison, net cash used in financing activities was $15.2 million for the nine months ended September 30, 2023. This was largely due to $25.8 million spent on share repurchases, $10.4 million in quarterly dividends to Class A common stock shareholders and $5.0 million in distributions to Solaris LLC unitholders, partially offset by $29.0 million in net borrowings under our senior secured credit facility.
Previous wording
Our material cash commitments consist primarily of obligations under our senior secured credit facility, Tax Receivable Agreement, insurance premium financing, obligations under our finance and operating leases, dividend payments, purchase obligations as part of normal operations and financing of our planned MER Acquisition, which we expect to close by the end of the third quarter of 2024.
Current wording
Our material cash commitments consist primarily of obligations under our debt financing, purchase commitments as part of the power generation fleet growth program, Tax Receivable Agreement, insurance premium financing, obligations under our finance and operating leases, dividend payments, and purchase obligations as part of normal operations.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
16.9% for the first nine months of 2024 and 2023, 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.