Solaris Energy Infrastructure Inc

Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our Class A common stock are described under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024. As of the date of this filing, there have been no material updates to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 except as disclosed in our Quarterly Report on Form 10-Q for the three months ended June 30, 2024 and described herein.

Solaris faces a variety of risks related to its entry into a new line of business following the completion of the MER Acquisition.

Solaris’s entry into scaled distributed power solutions is expected to enhance Solaris’s position as a mobile equipment and logistics solution provider to the oil and gas industry as well as diversify its business.

Entry into a new line of business may also subject Solaris to new laws and regulations with which it is not familiar and may lead to increased litigation and regulatory risk. Further, Solaris’s management team has not directly engaged in the distributed power solutions business before, and its lack of experience may result in delays or further complications to the new business. If Solaris is unable to successfully implement the acquired business of MER, its revenue and profitability may not grow as it expects, its competitiveness may be materially and adversely affected, and its reputation and business may be harmed.

The market price for our Class A common stock following the closing of the MER Acquisition may be affected by factors different from those that historically have affected or currently affect our Class A common stock.

Results of operations of Solaris following the completion of the MER Acquisition may be affected by some factors that are different from those that have affected Solaris’s results of operations in the past. Accordingly, the market price and performance of our Class A common stock is likely to be different from the performance of our Class A common stock in the absence of the MER Acquisition. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

Solaris incurred significant additional indebtedness in connection with the MER Acquisition, which indebtedness may limit the Company’s operating or financial flexibility and could subject the Company to potential defaults under the applicable financing agreements.

Upon closing of the MER Acquisition Solaris entered into a senior secured term loan agreement in the principal amount of $325 million to fund the MER Acquisition and the capital commitments contemplated at the acquisition closing date. Solaris also entered into a new revolving credit facility, which provides for borrowings up to the lesser of $75 million and a borrowing base determined by a percentage of eligibles accounts. These financing agreements could have negative consequences on Solaris, including, among other things, (i) requiring Solaris to dedicate a larger portion of cash flow from operations to servicing and repayment of the debt, (ii) reducing funds available for strategic initiatives and opportunities, working capital and other general corporate needs, (iii) limiting Solaris’s ability to incur additional indebtedness, which could restrict flexibility to react to changes in the business, its industry and economic condition following the Contribution, and (iv) placing Solaris at a competitive disadvantage compared to competitors that have less debt.

Additionally, the financing agreements subject the Company to significant financial and other restrictive covenants, including, but not limited to, restrictions on incurring additional debt and certain distributions, as well as a certain leverage and minimum fixed charge coverage ratios Solaris must maintain. Solaris’s ability to comply with these financial condition tests can be affected by events beyond its control. If it is unable to remain in compliance with the financial covenants of the financing agreements, then amounts outstanding thereunder may be accelerated and become due immediately or Solaris may be unable to access the funds available. Any such acceleration or unavailability of funds could have a material adverse effect on Solaris’s financial condition and results of operations.

The Company’s Solaris Power Solutions segment is dependent on its relationships with key suppliers to obtain equipment for its business.

The power generation business is dependent on a limited number of key suppliers for access to the unique equipment used in the provision of the Company’s offering. If the Company fails to maintain adequate relationships with such suppliers or if it fails to receive equipment from its suppliers in a timely manner, then its competitive position may be harmed and its operations, financial conditions and/or cash flows may be negatively impacted.

In addition, the prices of certain equipment may continue to experience inflationary pressures that could further increase such costs. The Company may not be able to pass on these costs to its customers, which could have a material adverse impact on its results of operations, financial condition and/or cash flows.

Unavailability of, and lengthy delays in obtaining, the necessary equipment may result from a number of factors affecting the Company’s suppliers including capacity constraints, labor shortages or disputes, supplier product quality issues and suppliers’ allocations to other purchasers. These risks can be magnified in a weak economic environment or following increases in demand arising from an economic downturn, but are also generally present due to the nature of the Company’s business and its dependence on highly-specialized equipment. Such disruptions could result in the Company’s inability to effectively meet the needs of its customers and could result in a material adverse effect on operations, financial condition and/or cash flows.

Many of the Company’s power systems involve long sales cycles.

The sales cycle for the Company’s power systems, from initial contact with potential customers to the commencement of field delivery, may be lengthy. Customers generally consider a wide range of solutions before making a decision to rent or to purchase power systems. Before a customer commits to rent or purchase power systems, they often require a significant technical review, assessment of competitive offerings and approval at a number of management levels within their organization. During the time the Company’s customers are evaluating its offerings, the Company may incur substantial sales and marketing, engineering, and research and development expenses.

The Company’s customers may not continue to outsource their power system needs.

The Company’s customers can evaluate a wide range of applications and equipment to address standby and/or prime power generation needs. As a result of the significant resources and expertise required to develop these systems, certain of these customers have historically chosen to outsource the provision of power generation to the Company. To a significant extent, the Company depends on customers continuing to outsource their power generation needs. Customers may not continue to outsource as much or any of their power generation needs in the future or may seek alternative solutions.