UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10‑Q~~10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: ~~001‑38090~~001-38090

SOLARIS OILFIELD INFRASTRUCTURE, INC.

(Exact name of registrant as specified in its charter)


Delaware		~~81‑5223109~~81-5223109
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9811 Katy Freeway, Suite ~~900~~700 Houston, Texas		77024
(Address of principal executive offices)		(Zip code)

(281) ~~501‑3070~~501-3070
(Registrant’s telephone number, including area code)

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


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, $0.01 par value	“SOI”		New York Stock Exchange

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

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

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


Large accelerated filer	☐	Accelerated filer	☐☒
Non-accelerated filer	☒☐	Smaller reporting company	☐
~~(Do not check if a smaller reporting company)~~		Emerging growth company	☒

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

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

As of ~~November 2, 2017,~~October 25, 2019, the registrant had ~~11,316,438~~31,648,317 shares of Class A common stock, $0.01 par value per share, and ~~32,365,823~~15,939,169 shares of Class B common stock, $0.00 par value per share, outstanding.

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10‑Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Our forward-looking statements include statements about our business strategy, our industry, our future profitability, our expected capital expenditures and the impact of such expenditures on our performance, the costs of being a publicly traded corporation and our capital programs.

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;

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

volatility of oil and natural gas prices;

changes in general economic and geopolitical conditions;

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

technological advancements in well ~~service~~completion technologies;

competitive conditions in our industry;

inability to fully protect our intellectual property rights;

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

changes in the long-term supply of and demand for oil and natural gas;

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

fluctuations in transportation costs or the availability or reliability of transportation to supply our ~~proppant management systems;~~systems and transloading services;

changes in the availability and cost of capital;

our ability to successfully implement our business plan;

our ability to complete growth projects on time and on budget;

the price and availability of debt and equity financing (including changes in interest rates);

changes in our tax status;

our ability to successfully develop our research and technology capabilities and implement technological developments and ~~enhancements;~~enhancements and expand our product and service offerings;

changes in market price and availability of materials;

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the effects of existing and future laws and governmental regulations (or the interpretation thereof);

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

failure to secure or maintain contracts with our largest customers;

the effects of future litigation;

credit markets;

leasehold or business acquisitions;

uncertainty regarding our future operating results;

significant changes in the transportation industries that service our business, such as increased regulation and embargoes; and

~~other factors discussed~~plans, objectives, expectations and intentions contained in this ~~report.~~Quarterly Report that are not historical.

All forward-looking statements speak only as of the date of this Quarterly Report. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under Item 1A, “Risk Factors” ~~included~~ in our ~~final prospectus dated May 11, 2017, as filed with~~Annual Report on Form 10-K/A for the ~~Securities and Exchange Commission (“SEC”) on May 15, 2017 (the “Final Prospectus”),~~year ended December 31, 2018, this Quarterly Report and in our other filings with the ~~SEC,~~Securities and Exchange Commission (the “SEC”), which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.

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PART 1: FINANCIAL INFORMATION

Item 1: Financial Statements

SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In ~~thousands)~~thousands, except per share amounts)

(Unaudited)


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2019		2018
Assets
Current assets:
Cash	$	53,996	$	3,568	$	51,686	$	25,057
Accounts receivable, net		9,543		4,510		44,115		39,746
Prepaid expenses and other current assets		4,011		403		5,246		5,492
Inventories		6,675		1,365		7,481		10,470
Total current assets		74,225		9,846		108,528		80,765
Property, plant and equipment, net		100,006		54,350		311,253		296,538
Operating lease right-of-use assets						8,032		—
Goodwill		13,004		13,004		17,236		17,236
Intangible assets, net		67		36		3,956		4,540
Deferred tax assets		29,648		—		56,475		58,074
Other assets		239		—		660		1,454
Total assets	$	217,189	$	77,236	$	506,140	$	458,607
Liabilities and Members’ Equity
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,209	$	705	$	3,502	$	9,127
Accrued liabilities		4,733		2,144		16,834		12,658
Current portion of capital lease obligations		33		26
Current portion of notes payable		—		169
Current portion of senior secured credit facility		—		31
Current portion of deferred revenue						12,990		12,990
Current portion of operating lease liabilities						598		—
Current portion of finance lease liabilities						30		35
Other current liabilities						1,115		515
Total current liabilities		9,975		3,075		35,069		35,325
Capital lease obligations, net of current portion		186		213
Notes payable, net of current portion		—		282
Senior secured credit facility, net of current portion		—		2,320
Payable related to parties pursuant to tax receivable agreements		11,475		—
Senior secured credit facility						—		13,000
Deferred revenue, net of current						2,960		12,468
Operating lease liabilities, net of current						7,961		—
Finance lease liabilities, net of current						137		154
Payables related to Tax Receivable Agreement						67,987		56,149
Other long-term liabilities		154		—		494		633
Total liabilities		21,790		5,890		114,608		117,729
Commitments and contingencies (Note 12)
Stockholders' and Members’ equity:
Members’ equity		—		69,267
Commitments and contingencies (Note 11)
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, 10,100 shares issued and outstanding as of September 30, 2017 and none issued and outstanding as of December 31, 2016		101		—
Class B common stock, $0.00 par value, 180,000 shares authorized, 32,366 shares issued and outstanding as of September 30, 2017 and none issued and outstanding as of December 31, 2016		—		—
Class A common stock, $0.01 par value, 600,000 shares authorized, 31,179 issued and 31,016 outstanding as of September 30, 2019 and 27,182 issued and 27,091 outstanding as of December 31, 2018						310		271
Class B common stock, $0.00 par value, 180,000 shares authorized, 15,940 shares issued and outstanding as of September 30, 2019 and 19,627 issued and outstanding as of December 31, 2018						—		—
Additional paid-in capital		60,657		—		194,153		164,086
Accumulated earnings		1,536		2,079
Total stockholders' equity attributable to Solaris and members' equity		62,294		71,346
Retained earnings						62,517		35,507
Treasury stock (at cost), 163 shares and 91 shares as of September 30, 2019 and December 31, 2018, respectively						(2,522)		(1,414)
Total stockholders' equity attributable to Solaris						254,458		198,450
Non-controlling interest		133,105		—		137,074		142,428
Total stockholders' and members' equity		195,399		71,346
Total liabilities, stockholders' and members’ equity	$	217,189	$	77,236
Total stockholders' equity						391,532		340,878
Total liabilities and stockholders' equity					$	506,140	$	458,607

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

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016
Revenue:








Proppant management system rental

$
15,062

$
3,846

$
34,560

$
8,679
Proppant management system services

3,416

902

7,631

2,189
Total revenue

18,478

4,748

42,191

10,868
Operating costs and expenses:








Cost of proppant management system rental (excluding $1,523 and $857, and $3,748 and $2,418, of depreciation and amortization for the three and nine months ended September 30, 2017 and 2016, respectively, shown separately)

641

386

1,588

1,181
Cost of proppant management system services (excluding $129 and $42, and $283 and $111, of depreciation and amortization for the three and nine months ended September 30, 2017 and 2016, respectively, shown separately)

3,933

1,501

8,640

3,301
Depreciation and amortization

1,742

959

4,276

2,739
Salaries, benefits and payroll taxes (1)

2,942

635

5,687

1,992
Selling, general and administrative (excluding $90 and $60, and $245 and $210, of depreciation and amortization for the three and nine months ended September 30, 2017 and 2016, respectively, shown separately)

1,176

543

3,653

1,842
Other operating expenses

(38)

—

3,770

—
Total operating costs and expenses

10,396

4,024

27,614

11,055
Operating income (loss)

8,082

724

14,577

(187)
Interest expense

(27)

(5)

(71)

(14)
Other income (expense)

(32)

6

(119)

7
Total other income (expense)

(59)

1

(190)

(7)
Income (loss) before income tax expense

8,023

725

14,387

(194)
Provision for income taxes

(617)

(14)

(1,137)

(26)
Net income (loss)

7,406

711

13,250

(220)
Less: net (income) loss related to Solaris LLC

—

(711)

(3,665)

220
Less: net (income) related to non-controlling interests

(6,027)

—

(8,049)

—
Net income attributable to Solaris

$
1,379

$
—

$
1,536

$
—

Earnings per share of Class A common stock - basic (2)

$
0.13

$
—

$
0.14

$
—
Earnings per share of Class A common stock - diluted (2)

$
0.12

$
—

$
0.14

$
—

Basic weighted-average shares of Class A common stock outstanding (2)

10,100

—

10,100

—
Diluted weighted-average shares of Class A common stock outstanding (2)

10,563

—

10,552

—


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue:
System rental	$	36,638	$	42,031	$	113,726	$	104,563
System services		18,153		12,053		48,621		29,499
Transloading services		4,417		2,000		15,131		3,847
Inventory software services		396		602		1,351		1,950
Total revenue		59,604		56,686		178,829		139,859

Operating costs and expenses:							��
Cost of system rental (excluding $5,773 and $4,133 and $16,481 and $10,128 of depreciation and amortization for the three and nine months ended September 30, 2019 and 2018, respectively, shown separately) (1)		2,838		1,949		7,737		5,050
Cost of system services (excluding $384 and $347 and $1,173 and $889 of depreciation and amortization for the three and nine months ended September 30, 2019 and 2018, respectively, shown separately) (1)		21,072		13,906		56,366		34,691
Cost of transloading services (excluding $411 and $529 and $1,231 and $544 of depreciation and amortization for the three and nine months ended September 30, 2019 and 2018, respectively, shown separately) (1)		652		597		2,051		1,464
Cost of inventory software services (excluding $193 and $193 and $579 and $598 of depreciation and amortization for the three and nine months ended September 30, 2019 and 2018, respectively, shown separately)		160		191		460		614
Depreciation and amortization		6,908		5,328		19,875		12,514
Selling, general and administrative (excluding $147 and $126 and $411 and $355 of depreciation and amortization for the three and nine months ended September 30, 2019 and 2018, respectively, shown separately) (1)		4,933		3,869		13,967		12,662
Other operating expenses		248		56		529		1,752
Total operating costs and expenses		36,811		25,896		100,985		68,747
Operating income		22,793		30,790		77,844		71,112
Interest expense, net (2)		(8)		(116)		(775)		(271)
Total other expense		(8)		(116)		(775)		(271)
Income before income tax expense		22,785		30,674		77,069		70,841
Provision for income taxes		(3,703)		(4,237)		(12,042)		(9,541)
Net income		19,082		26,437		65,027		61,300
Less: net income related to non-controlling interests		(7,684)		(13,418)		(28,036)		(31,754)
Net income attributable to Solaris	$	11,398	$	13,019	$	36,991	$	29,546

Earnings per share of Class A common stock – basic	$	0.36	$	0.49	$	1.33	$	1.13
Earnings per share of Class A common stock – diluted	$	0.36	$	0.49	$	1.33	$	1.12

Basic weighted-average shares of Class A common stock outstanding		30,951		26,197		27,270		25,216
Diluted weighted-average shares of Class A common stock outstanding		30,980		26,329		27,317		25,380

(1)

~~Salaries, benefits and payroll taxes~~The condensed consolidated statements of operations include stock-based compensation expense as follows:

Stock-based compensation expense

$
1,412

$
36

$
2,097

$
108


Cost of system rental	$	10	$	—	$	24	$	5
Cost of system services		71		51		187		132
Cost of transloading services		5		1		12		1
Selling, general and administrative		1,139		286		3,042		3,002
Stock-based compensation expense	$	1,225	$	338	$	3,265	$	3,140

(2)Interest expense includes $528 of unamortized debt issuance costs written-off in the nine months ended September 30, 2019 in connection with the amended and restated 2019 Credit Agreement.

~~(2)~~

Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from May 17, 2017 through September 30, 2017, the period following the reorganization transactions and IPO. See Note 9.

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

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ ~~AND~~ ~~MEMBERS’~~ EQUITY

(In thousands)

(Unaudited)

Total

Class A

Class B

Stockholders'

Common Stock

Common Stock

Additional

Accumulated

Non-

and

Members’

Paid-in

Earnings/

controlling

Members’


Equity

Shares

Amount

Shares

Amount

Capital

(Deficit)

Interest

Equity
Balance at December 31, 2016

$
71,346

—

$
—

—

$
—

$
—

$
—

$
—

$
71,346
Additional members’ equity related to accrued interest on notes receivable that were exchanged for membership units prior to the Reorganization

84

—

—

—

—

—

—

—

84
Accrued interest related to notes receivable that were exchanged for membership units prior to the Reorganization

(84)

—

—

—

—

—

—

—

(84)
Proceeds from pay down of promissory note and interest related to membership units prior to the Reorganization

3,724

—

—

—

—

—

—

—

3,724
Unit-based compensation expenses prior to the Reorganization

43

—

—

—

—

—

—

—

43
Net Income prior to the Reorganization

3,665

—

—

—

—

—

—

—

3,665
Effect of the Reorganization

(78,778)

10,100

101

32,366

—

77,256

—

125,056

123,635
Deferred tax asset and payable related to parties pursuant to Tax Receivable Agreements from the Reorganization

—

—

—

—

—

(19,149)

—

—

(19,149)
Stock-based compensation subsequent to the Reorganization

—

—

—

—

—

2,054

—

—

2,054
Additional members’ equity related to accrued interest on notes receivable that were exchanged for membership units subsequent to the Reorganization

21

21
Accrued interest related to notes receivable that were exchanged for membership units subsequent to the Reorganization

(21)

(21)
Proceeds from pay down of promissory note and interest related to membership units subsequent to the Reorganization

—

—

—

—

—

496

—

—

496
Net income subsequent to the Reorganization

—

—

—

—

—

—

1,536

8,049

9,585
Balance at September 30, 2017

$
—

10,100

$
101

32,366

$
—

$
60,657

$
1,536

$
133,105

$
195,399


	Nine Months Ended September 30, 2019
	Class A			Class B			Additional							Non-		Total
	Common Stock			Common Stock			Paid-in		Retained		Treasury Stock			controlling		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Interest		Equity
Balance at January 1, 2019	27,091	$	271	19,627	$	—	$	164,086	$	35,507	91	$	(1,414)	$	142,428	$	340,878
Effect of ASU No. 2016-02 implementation (Refer to Note 2)	—		—	—		—		186		(532)	—		—		(186)		(532)
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	3,245		32	(3,245)		—		24,925		—	—		—		(24,957)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(1,895)		—	—		—		—		(1,895)
Stock option exercises	65		1	—		—		601		—	28		(427)		(336)		(161)
Stock-based compensation	—		—	—		—		553		—	—		—		346		899
Vesting of restricted stock	—		—	—		—		2		��	—		(4)		(2)		(4)
Solaris LLC distribution paid to Solaris LLC unitholders at $0.10 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,638)		(1,638)
Dividends paid ($0.10 per share of Class A common stock)	—		—	—		—		—		(3,119)	—		—		—		(3,119)
Net income	—		—	—		—		—		12,317	—		—		11,118		23,435
Balance at March 31, 2019	30,401		304	16,382		—		188,458		44,173	119		(1,845)		126,773		357,863
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	442		4	(442)		—		3,571		—	—		—		(3,575)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(397)		—	—		—		—		(397)
Stock option exercises	11		—	—		—		48		—	—		—		(20)		28
Stock-based compensation	—		—	—		—		809		—	—		—		428		1,237
Vesting of restricted stock	51		1	—		—		245		—	16		(299)		(246)		(299)
Solaris LLC distribution paid to Solaris LLC unitholders at $0.10 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,594)		(1,594)
Dividends paid ($0.10 per share of Class A common stock)	—		—	—		—		—		(3,164)	—		—		—		(3,164)
Net income	—		—	—		—		—		13,275	—		—		9,234		22,509
Balance at June 30, 2019	30,905	$	309	15,940	$	—	$	192,734	$	54,284	135	$	(2,144)	$	131,000	$	376,183
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		143		—	—		—		—		143
Stock-based compensation	—		—	—		—		833		—	—		—		429		1,262
Vesting of restricted stock	111		1	—		—		443		—	28		(378)		(445)		(379)
Solaris LLC distribution paid to Solaris LLC unitholders at $0.10 per Solaris LLC Unit	—		—	—		—		—		—	—		—		(1,594)		(1,594)
Dividends paid ($0.10 per share of Class A common stock)	—		—	—		—		—		(3,165)	—		—		—		(3,165)
Net income	—		—	—		—		—		11,398	—		—		7,684		19,082
Balance at September 30, 2019	31,016	$	310	15,940	$	—	$	194,153	$	62,517	163	$	(2,522)	$	137,074	$	391,532

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

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Nine Months Ended September 30, 2018
	Class A			Class B			Additional							Non-		Total
	Common Stock			Common Stock			Paid-in		Retained		Treasury Stock			controlling		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Interest		Equity
Balance at January 1, 2018	19,010	$	190	26,811	$	—	$	117,638	$	(4,174)	16	$	(261)	$	140,850	$	254,243
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	5,904		59	(5,904)		—		31,317		—	—		—		(31,376)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		(171)		—	—		—		—		(171)
Stock option exercises	235		3	—		—		1,047		—	—		—		(374)		676
Stock-based compensation	—		—	—		—		989		—	—		—		885		1,874
Net income	—		—	—		—		—		5,930	—		—		7,485		13,415
Balance at March 31, 2018	25,149		252	20,907		—		150,820		1,756	16		(261)		117,470		270,037
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	269		3	(269)		—		1,549		—	—		—		(1,552)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		753		—	—		—		—		753
Stock option exercises	56		—	—		—		171		—	—		—		(11)		160
Stock-based compensation	—		—	—		—		964		—	—		—		781		1,745
Vesting of restricted stock	346		3	—		—		895		—	—		—		(898)		—
Other	—		—	—		—		60		—	—		—		—		60
Net income	—		—	—		—		—		10,597	—		—		10,851		21,448
Balance at June 30, 2018	25,820	$	258	20,638	$	—	$	155,212	$	12,353	16	$	(261)	$	126,641	$	294,203
Exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	528		5	(528)		—		3,417		—	—		—		(3,422)		—
Net effect of deferred tax asset and payables related to Tax Receivable Agreement from the exchange of Solaris LLC Units and shares of Class B common stock for shares of Class A common stock	—		—	—		—		842		—	—		—		—		842
Stock option exercises	36		—	—		—		312		—	1		(9)		(207)		96
Stock-based compensation	—		—	—		—		222		—	—		—		310		532
Vesting of restricted stock	223		3	—		—		1,111		—	74		(1,140)		(1,114)		(1,140)
Net income	—		—	—		—		—		13,019	—		—		13,418		26,437
Balance at September 30, 2018	26,607	$	266	20,110	$	—	$	161,116	$	25,372	91	$	(1,410)	$	135,626	$	320,970

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

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Nine Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2017		2016		2019		2018
Cash flows from operating activities:
Net income (loss)	$	13,250	$	(220)
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
Net income					$	65,027	$	61,300
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,276		2,739		19,875		12,514
Loss on disposal of asset		451		—		181		222
Provision for bad debt		—		85
Stock-based compensation		2,097		108		3,265		3,140
Amortization of debt issuance costs		35		—		709		218
Amortization of prepaid expenses and other assets		879		—
Write-off of deposit						202		—
Deferred income tax expense		1,059		—		11,284		9,000
Other		(19)		—		(165)		651
Changes in assets and liabilities:
Changes in operating assets and liabilities:
Accounts receivable		(5,033)		(2,169)		(4,369)		(21,599)
Prepaid expenses and other assets		(4,504)		3		2,088		(3,667)
Inventories		(6,675)		507		(2,555)		(8,575)
Accounts payable		4,504		154		(3,909)		441
Accrued liabilities		2,679		(439)		6,424		3,894
Deferred revenue						(9,508)		—
Net cash provided by operating activities		12,999		768		88,549		57,539
Cash flows from investing activities:
Investment in property, plant and equipment		(49,015)		(5,926)		(32,914)		(125,013)
Proceeds from disposal of assets						130		—
Investment in intangible assets		(34)		(25)		—		(6)
Cash received from insurance proceeds						618		160
Net cash used in investing activities		(49,049)		(5,951)		(32,166)		(124,859)
Cash flows from financing activities:
Payments under capital leases		(20)		(19)
Payments under notes payable		(451)		(142)
Proceeds from borrowings under the credit facility		3,000		—
Repayment of credit facility		(5,500)		—
Proceeds from pay down of promissory note related to membership units		4,303		—
Payments under finance leases						(26)		(21)
Payments under insurance premium financing						(1,443)		(841)
Proceeds from stock option exercises						294		932
Payments related to purchase of treasury stock						(1,108)		(1,140)
Repayment of senior secured credit facility						(13,000)		8,000
Payments related to debt issuance costs		(111)		—		(197)		(1,014)
Proceeds from issuance of Class A common stock sold in initial public offering, net of offering costs		111,075		—
Distributions paid to unitholders		(25,818)		—
Distribution and dividend paid to Solaris LLC unitholders and Class A common shareholders						(14,274)		—
Other						—		60
Net cash provided by (used in) financing activities		86,478		(161)		(29,754)		5,976

Net increase (decrease) in cash		50,428		(5,344)		26,629		(61,344)
Cash at beginning of period		3,568		6,923		25,057		63,421
Cash at end of period	$	53,996	$	1,579	$	51,686	$	2,077

Non-cash activities
Investing:
Capitalized depreciation in property, plant and equipment	$	492	$	515	$	559	$	501
Property and equipment additions incurred but not paid at period-end						235		6,309
Property, plant and equipment additions transferred from inventory						5,355		7,532
Financing:
Notes payable issued for property, plant and equipment		—		257
Accrued interest from notes receivable issued for membership units		109		250
Insurance premium financing						1,869		1,552
Cash paid for:
Interest		96		14		200		118
Income taxes		45		35
Income Taxes						663		314

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

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SOLARIS OILFIELD INFRASTRUCTURE, INC.

Notes to the Condensed Consolidated Financial Statements

(Dollars in thousands)

1. Organization and Background of Business

Description of Business

We are an independent provider of supply chain management and logistics solutions designed to drive efficiencies and reduce costs for the oil and natural gas industry. We manufacture and provide patented mobile proppant and chemical management systems that unload, store and deliver proppant atand chemicals used in hydraulic fracturing of oil and natural gas ~~well sites.~~wells. The systems are designed to address the challenges associated with transferring large quantities of proppant and chemicals to the well site, including the cost and management of last mile ~~logistics.~~

~~The~~logistics, which includes coordinating proppant delivery to systems. Our systems are deployed in ~~many~~most of the ~~most~~ active oil and natural gas basins in the ~~U.S., including the Permian Basin, the Eagle Ford Shale, the SCOOP/STACK Formations and the Haynesville Shale.~~United States.

We ~~are also developing the first~~operate an independent, unit-train capable, high speed transload facility in ~~Oklahoma. We expect construction to be fully completed in August 2018. In July 2017, we entered into a seven-year contract with a leading STACK exploration~~Oklahoma (the “Kingfisher Facility”) that provides rail-to-truck transloading and ~~production company to provide proppant~~high-efficiency sand silo storage and transloading ~~service~~services. Commercial operations at the ~~facility.~~

~~Initial Public Offering~~

~~Solaris Oilfield Infrastructure, Inc.~~ ~~(“Solaris” or the “Company”)~~ ~~was incorporated on February 2, 2017 as a Delaware corporation.~~

~~Solaris was formed for the purpose of completing an initial public offering of equity~~ ~~(the “IPO” or the “Offering”)~~Kingfisher Facility commenced in January 2018 and ~~related transactions in order to carry on the business of Solaris Oilfield Infrastructure, LLC and its subsidiaries (“Solaris LLC”). On May 11, 2017, i~~n connection with the closing of the offering, Solaris became a holding company whose sole material asset consists of units in Solaris LLC (“Solaris LLC Units”). Solaris became the managing member of Solaris LLC and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business.

On May 17, 2017, Solaris completed the Offering of 10,100,000 shares of the Class A common stock, par value $0.01 per share (“Class A Common Stock”), at a price to the public of $12.00 per share ($11.28 net of underwriting discounts and commissions). After deducting underwriting discounts and commissions payable by Solaris, Solaris received net proceeds of approximately $113.9 million. After deducting offering expenses of approximately $2.8 million, Solaris received approximately $111.1 million. Solaris contributed all of the net proceeds of the IPO to Solaris LLC in exchange for Solaris LLC Units. Solaris LLC used the net proceeds (i) to fully repay borrowings under its Credit Facility (as defined below) of $5.5 million, (ii) to pay approximately $3.1 million in cash bonuses to certain employees and consultants and (iii) to distribute approximately $25.8 million to its existing members (the “Original Investors”) as part of the corporate reorganization undertaken in connection with the IPO. Solaris LLC has used a portion of the proceeds and intends to continue to use the remaining proceeds for general corporate purposes, including funding the remainder of its 2017 capital program.

As the sole managing member of Solaris LLC, Solaris operates and controls all of the business and affairs of Solaris LLC, and through Solaris LLC and its subsidiaries, conducts its business. As a result, Solaris consolidates the financial results of Solaris LLC and its subsidiaries and reports non-controlling interest related to the portion of Solaris LLC Units not owned by Solaris, ~~which will reduce net income (loss) attributable to the holders of Solaris’ Class A Common Stock.~~ ~~As of September 30, 2017, Solaris owned 25.9% of Solaris LLC, including unvested restricted stock.~~

~~Reorganization Transactions~~

~~In connection with the IPO,~~ we completed ~~a series~~construction at the end of ~~reorganization transactions on May 17, 2017 (the “Reorganization Transactions”), including:~~July 2018.

Solaris LLC’s limited liability company agreement was amended and restated to, among other things, appoint Solaris as sole managing member, and all of the membership interests in Solaris LLC held by the

~~Table~~We also provide software solutions to remotely monitor proppant inventory from the source mine to well site through our Railtronix® and Solaris Lens™ inventory management systems. Our customers use data from our software solutions to manage distribution of ~~Contents~~proppant and chemicals throughout their supply chain.

Original Investors were converted into (i) a single class of Solaris LLC Units, representing in the aggregate 32,365,823 Solaris LLC Units and (ii) the right to receive the distributions of cash and shares of Solaris’ Class B common stock (“Class B Common Stock”) described in clauses (c) and (d) below;

Solaris issued and contributed 32,365,823 shares of its Class B Common Stock and all of the net proceeds of the IPO to Solaris LLC in exchange for a number of Solaris LLC Units equal to the number of shares of Class A Common Stock issued in the IPO;

Solaris LLC used a portion of the proceeds from the IPO to distribute to the Original Investors, on a pro rata basis, an aggregate amount of cash equal to 2,288,800 times the initial public offering price per share of Class A Common Stock after underwriting discounts and commissions; and

~~Solaris LLC distributed to each of the Original Investor one share of Class B Common Stock for each Solaris LLC Unit such Original Investor held.~~

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying interim unaudited condensed consolidated financial statements of Solaris Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the 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 nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 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 should be read in conjunction with ~~Solaris’ final prospectus, dated May 11, 2017, filed in connection with~~Solaris Inc.’s Annual Report on Form 10-K/A for the ~~IPO pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC on May 15, 2017 (the “Prospectus”).~~year ended December 31, 2018.

~~As discussed in Note 1,~~Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as ~~a result of~~ the ~~Reorganization Transactions,~~context requires, “Solaris Inc.” or the ~~Company~~“Company”) is the ~~sole~~ managing member of Solaris Oilfield Infrastructure, LLC (“Solaris LLC”) and is responsible for all operational, management and administrative decisions relating to Solaris ~~LLC and~~LLC's business. Solaris Inc. consolidates ~~entities in which it has a controlling financial interest. The Reorganization Transactions were considered transactions between entities under common control. As a result,~~ the financial ~~statements for periods prior to the IPO and the Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes.~~

~~Thus, for periods prior to the completion of the offering, the accompanying condensed consolidated financial statements include the historical financial position and~~ results ~~of operations~~ of Solaris LLC and its subsidiaries ~~Solaris Oilfield Site Services Operating, LLC, Solaris Oilfield Early Property, LLC, Solaris Oilfield Site Services Personnel, LLC, Solaris Oilfield Infrastructure Personnel, LLC~~ and ~~Solaris Logistics, LLC (collectively, the “Subsidiaries”). For periods after the completion of the offering, the financial position and results of operations include those of the Company and the Subsidiaries and report~~reports non-controlling interest related to the portion of the units in Solaris LLC ~~Units~~(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.

Use of Estimates

The preparation of condensed 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. Significant estimates used in the preparation of these condensed consolidated financial statements include, but are not limited to, stock-based compensation, depreciation associated with property, plant and equipment and related impairment considerations of those assets, determination of fair value of intangible assets acquired in business combinations, determination of the present value of lease payments and right-of-use assets and certain other assets and

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liabilities. Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material.

~~Table of Contents~~

Cash

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 atof 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

Accounts receivable consists of trade receivables recorded at the invoice amount, plus accrued revenue that is ~~earned but~~ not yet billed, less an estimated allowance for doubtful accounts (if any). Accounts receivable are generally due within 60 days or less, or in accordance with terms agreed with ~~customers, and are stated at amounts due from customers net of any allowance for doubtful accounts.~~customers. The Company considers accounts outstanding longer than the payment terms past due. The Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Accounts receivable are written off when they are deemed uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of December 31, 2016, Solaris LLC had $131 of allowance for doubtful accounts which was subsequently deemed uncollectible. The allowance for doubtful accounts of $131 and the related accounts receivable balance were fully extinguished in the first quarter of 2017. Allowance for doubtful accounts iswas zero as of September 30, ~~2017.~~2019 and December 31, 2018.

Inventories

Inventories consist of materials used in the manufacturing of the Company’s systems, which include raw materials and purchased ~~parts. Inventory purchases are recorded initially at cost, adjusted each quarter to measure inventory~~parts and is stated at the lower of cost or net realizable ~~value, where net~~value. Net realizable value ~~approximates estimated selling prices in the ordinary course of business.~~is determined, giving consideration to quality, excessive levels, obsolescence and other factors. Adjustments that reduce ~~the average cost~~stated amounts will be recognized as impairments in the condensed consolidated statements of operations. There were no impairments recorded for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

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:


		Useful Life
~~Proppant management systems~~Systems and related equipment		Up to 15 years
Machinery and equipment		~~2-10~~3-10 years
Furniture and fixtures		5 years
Computer ~~equipment~~hardware and software		33-10 years
Vehicles		5 years
Transloading facility and equipment		15-30 years
Buildings and leasehold improvements		15 years

Systems that are in the process of being manufactured are considered property, plant and equipment. However, the systems ~~in process~~ 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 charged against income ~~(loss)~~ 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 condensed consolidated financial statements and any resulting gain or loss is recognized in the condensed consolidated statements of operations.

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The Company, on occasion, has had vehicles that are pledged against the respective notes payables for those vehicles. As of September 30, 2017, there were no vehicles pledged against notes payable. As of December 31, 2016, the cost of vehicles pledged was $859.

Definite-lived Intangible Assets

~~As of September 30, 2017 and December 31, 2016, the Company reported $67 and $36, respectively, of costs that were capitalized as definite-lived intangible assets. These~~Identified intangible assets ~~are related to~~with determinable lives consist primarily of customer relationships, a non-competition agreement and software acquired in the acquisition of Railtronix, LLC (“Railtronix”), as well as patents that were filed for ~~its systems.~~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~~years. The Company recorded amortization expense of $195 for each of the three months ended September 30, 2019 and 2018. The Company recorded amortization expense of $584 and $606 for the nine months ended September 30, 2019 and 2018, respectively.

Identified intangible assets by major classification consist of the following:


			Accumulated		Net Book
	Gross		Amortization		Value
As of September 30, 2019:
Customer relationships	$	4,703	$	(1,232)	$	3,471
Software acquired in the acquisition of Railtronix		346		(91)		255
Non-competition agreement		225		(82)		143
Patents and other		114		(27)		87
Total identifiable intangibles	$	5,388	$	(1,432)	$	3,956

As of December 31, 2018:
Customer relationships	$	4,703	$	(727)	$	3,976
Software acquired in the acquisition of Railtronix		346		(54)		292
Non-competition agreement		225		(49)		176
Patents and other		114		(18)		96
Total identifiable intangibles	$	5,388	$	(848)	$	4,540

Leases

The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC Topic 842”), which the Company adopted under ASU No. 2016-02 “Leases (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 right-of-use (“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 condensed 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 condensed consolidated balance sheets.

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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 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.

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 September 30, 2019 and December 31, 2018, 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. 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. There was no impairment for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

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. ~~The first step in~~If the ~~goodwill impairment test~~Company determines through the qualitative approach that detailed testing methodologies are required, or if the qualitative approach is ~~to compare~~bypassed, the Company compares the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the ~~business to~~amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of ~~net assets, including~~ goodwill ~~of the respective~~allocated to that reporting unit. If the carrying amount of the business exceeds its fair value, step two in the goodwill impairment test requires goodwill to be written down to its implied fair value through a charge to operating expense based on a hypothetical purchase price allocation.

Impairment of Long-Lived Assets and Definite-lived Intangible Assets

Long-lived assets, such as property, plant, equipment and definite-lived intangible 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. If the carrying amount is not recoverable, the Company recognizes an impairment loss equal to the amount by which the carrying amount exceeds fair value. The Company estimates fair value based on projected future discounted cash flows. Fair value calculations for long-lived assets and intangible assets contain uncertainties because it requires the Company to apply judgment and estimates concerning future cash flows, strategic plans, useful lives and market performance. The Company also applies judgment in the selection of a discount rate that reflects the risk inherent in the current business model. There was no impairment indicators for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

Revenue Recognition

~~The Company currently generates~~In determining the appropriate amount of revenue ~~primarily through~~to be recognized as we fulfill our obligations under the ~~rental~~agreement, the following steps must be performed at contract inception: (i) identification of ~~its systems and related~~the promised goods or services ~~including transportation~~in the contract; (ii) determination of ~~its systems and field supervision and support. The system rentals and provision of related~~whether the promised goods or services are ~~performed under a variety~~performance obligations, including whether they are distinct in the context of ~~contract structures,~~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.

Revenues from system rental consist primarily ~~master service agreements as supplemented by individual work orders detailing statements~~ of ~~work, pricing agreements and specific quotes. The master service agreements generally establish terms and conditions~~fixed monthly fees charged to customers for the ~~provision~~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 ~~Company’s systems~~customer contract. We determined that the performance obligation is satisfied over time as the customer simultaneously receives and ~~service on a well site, indemnification, damages, confidentiality, intellectual property protection and payment terms and provisions. The~~consumes the benefits provided by the entity’s performance of services, ~~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.~~

~~All revenue is recognized when persuasive evidence of an arrangement exists, the service is complete, the amount is determinable and collectability is reasonably assured. Revenue is recognized~~typically as ~~services are performed.~~

our

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systems are used by the customer. We measure progress using an input method based on resources consumed or expended relative to the total resources expected to be consumed or expended. We typically charge our customers for the rental of our systems on a monthly basis under agreements requiring the rental of a minimum number of systems for a period of twelve months. The Company is typically entitled to short fall payments if such minimum contractual obligations are not maintained by our customers. Minimum contractual obligations have been maintained and thus the Company has not recognized revenues related to shortfalls on such take or pay contractual obligations to date.

~~Taxes collected~~Revenues from system services consist primarily of the fees charged to customers for services including mobilization and ~~remitted~~transportation of our systems, field supervision and support and services coordinating proppant delivery to ~~governmental authorities~~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 proppant at our transloading facility, which is considered to be our performance obligation. Transloading services operations commenced in January 2018. We provide rail-to-truck transloading and high-efficiency sand silo storage and transloading services 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 at the facility. We measure progress based on the proppant delivered and transloaded 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 $221 and $522 of shortfall revenue during the three and nine months ended September 30, 2019, respectively.

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.

Deferred Revenue

Deferred revenue consists of a $25,980 partial termination payment fee received in December 2018 in accordance with a contract modification which is accounted for onprospectively. The partial termination payment fee represents the distinct unsatisfied portion of a ~~net basis~~contract to provide transloading services and ~~therefore~~ are ~~excluded~~considered part of the transaction price and will be allocated to the remaining performance obligations under the contract. Deferred revenues in the condensed consolidated balance sheets were $15,950 and $25,458 as of September 30, 2019 and December 31, 2018, respectively, which will be recognized as revenue from ~~revenues~~transloading services. The Company recognized $3,203 and $9,508 of deferred revenue as revenue from transloading services in the condensed consolidated statements of ~~operations.~~operations for the three and nine months ended September 30, 2019, respectively. Refer to Note 13. “Subsequent Events” for termination information on this agreement and recognition of the remaining deferred revenue. No deferred revenue was recorded or recognized as revenue during the three and nine months ended September 30, 2018.

Stock-based Compensation

The Company accounts for its stock-based compensation including grants of restricted stock and options in the condensed consolidated statements of operations based on their ~~estimated~~ fair ~~values.~~values on the date of grant. The Company

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recognizes expense on a straight-line basis over the awards’ vesting period, ofwhich is generally the ~~respective grant.~~

Solaris LLC previously sponsored a stock-based management compensation program called the 2015 Membership Unit Option Plan (the “Plan”). Solaris LLC accounted for the units under the Plan as compensation cost measured at the fair value of the award on the date of grant using the Black-Scholes option-pricing model.

~~In connection with the Offering, the options granted under the Plan were modified by a conversion into options under the Solaris Long-Term Incentive Plan (the “LTIP”). Refer also to Note 9.~~requisite service period.

Research and Development

The Company expenses research and development costs as incurred, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations. ~~For the three months ended September 30, 2017 and 2016,~~There were no research and development costs ~~were $1~~for the three and ~~$42, respectively. For the~~ nine months ended September 30, ~~2017~~2019 and ~~2016, research and development costs were $197 and $468, respectively.~~2018.

Financial Instruments

The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, notes receivable, accounts payable and ~~accrued expenses,~~insurance premium financing, approximates their fair value due to the short maturity of such instruments. Financial instruments also consist of ~~the Revolving Facility~~a revolving credit facility and ~~Advance Loan Facility (each as defined below),~~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 September 30, 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.

Fair Value Measurements

The Company’s financial assets and liabilities 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 ~~U.S.~~United States federal, state and local income taxes. For the three months ended September 30, 2019 and 2018, we recognized a combined United States federal and state provision for income taxes of $3,703 and $4,237, respectively. For the nine months ended September 30, 2019 and 2018, we recognized a combined United States federal and state provision for income taxes of $12,042 and $9,541, 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 members are liable for United States federal income tax on their respective shares of the Company’s taxable income reported on the members’ United States federal income tax returns.

Our revenues are derived through transactions in several states, which may be subject to state and local taxes. Accordingly, we have recorded a liability for state and local taxes that management believes is adequate for activities as of September 30, 2019 and December 31, 2018.

We account for income taxes under the asset and liability method, which requires the recognition of 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

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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.

Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in our condensed consolidated statement of operations. We have not incurred any significant interest or penalties related to income taxes in any of the periods presented.

~~Solaris LLC is treated as a partnership~~See Note 9. “Income Taxes” for ~~U.S. federal~~additional information regarding income tax purposes and therefore does not pay U.S. federal income tax on its taxable income. Instead, the Solaris LLC members are liable for U.S. federal income tax on their respective shares of the Company’s taxable income reported on the members’ U.S. federal income tax returns.

~~Our revenues are derived through transactions in several states, which may be subject to state and local~~ taxes. ~~Accordingly, we have recorded a liability for state and local taxes that management believes is adequate for activities as of September 30, 2017 and as of December 31, 2016.~~

We are subject to a franchise tax imposed by the State of Texas. The franchise tax rate is 1%, calculated on taxable margin. Taxable margin is defined as total revenue less deductions for cost of goods sold or compensation and benefits in which the total calculated taxable margin cannot exceed 70% of total revenue. Total expenses related to the Texas franchise tax were approximately $30 and $13 for the three months ended September 30, 2017 and 2016, respectively. Total expenses related to the Texas franchise tax were approximately $75 and $26 for the nine months ended September 30, 2017 and 2016, respectively.

Payable to Related ~~Parties Pursuant~~ to the Tax Receivable Agreement

In connection with the ~~Offering,~~Solaris Inc.’s initial public offering (the “IPO” or the ~~Company~~“Offering”), Solaris Inc. entered into a Tax Receivable Agreement (the “Tax Receivable Agreement”) with the ~~Original Investors and permitted transferees~~members of Solaris LLC immediately prior to the IPO (each such person and any permitted transferee, a “TRA ~~Holder”~~Holder,” and together, the “TRA Holders”) on May 17, 2017. This agreement generally provides for the payment by Solaris Inc. to each TRA Holder of 85% of the net cash savings, if any, in ~~U.S.~~United States federal, state and local income tax orand franchise tax that Solaris Inc. actually realizes (computed using simplifying assumptions to address the impact of state and local ~~taxes~~taxes) or is deemed to realize in certain ~~circumstances)~~circumstances in periods after the IPO as a result of (i) certain increases in tax basis that occur as a result of ~~Solaris’~~Solaris Inc.’s acquisition (or deemed acquisition for ~~U.S.~~United States federal income tax purposes) of all or a portion of such TRA Holder’s Solaris LLC Units in connection with the IPO or pursuant to the exercise of the Redemption Right or the Call Right (each as defined in Solaris LLC’s ~~amended~~Second Amended and ~~restated limited liability company agreement)~~Restated Limited Liability Company Agreement (the “Solaris LLC Agreement”)) and (ii) imputed interest deemed to be paid by Solaris Inc. as a result of, and additional tax basis arising from, any payments Solaris makes under the Tax Receivable Agreement. Solaris Inc. will retain the benefit of the remaining 15% of these cash savings. As of September 30, 2019 and December 31, 2018, Solaris Inc. recorded a payable related to the Tax Receivable Agreement of $67,987 and $56,149, respectively. The increase in payables related to the Tax Receivable Agreement is a result of Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of Solaris LLC Units from TRA Holders during the nine months ended September 30, 2019.

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.

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The Company maintains insurance which may cover in whole or in part certain environmental expenditures. As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, there were no environmental matters 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

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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.

~~Recent Accounting Pronouncements~~

~~In May 2017, the Financial~~ Accounting Standards ~~Board (the “FASB”)~~Recently Issued But Not Yet Adopted

There are no accounting standards recently issued, ~~Accounting Standards Update (“ASU”) No. 2017 09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~ (“ASU 2017-09”). ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 should be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim period for public business entities or reporting periods for which financial statements havebut not yet ~~been issued. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.~~

~~In February 2017, the FASB issued ASU No. 2017‑05,~~ ~~Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets~~ (Subtopic 610‑20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017‑05"). ASU 2017‑05 clarifies the scope of Subtopic 610‑20 and adds guidance for partial sales of nonfinancial assets. Subtopic 610‑20 was issued in May 2014 as part of ASU No. 2014‑09, ~~Revenue from Contracts with Customers (Topic 606)~~ and provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The amendments in ASU 2017‑05 clarify that a financial asset is within the scope of Subtopic 610‑20 if it meets the definition of an in substance nonfinancial asset. The amendments also clarify that nonfinancial assets within the scope of Subtopic 610‑20 may include nonfinancial assets transferred within a legal entity to a counterparty. The amendments in ASU 2017‑05 are effective at the same time as the amendments in ASU 2014‑09,adopted which are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. An entity may electexpected to apply the amendments in ASU 2017‑05 either retrospectively to each period presented in the financial statements in accordance with the guidance on accounting changes (retrospective approach) or retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption (modified retrospective approach). The Company is currently evaluating the impact ~~of adopting this guidance on its consolidated financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017‑04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (“ASU 2017‑04”). ASU 2017‑04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in this update, an entity should perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unity with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017‑04 should be applied on a prospective basis and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 provides a screen for an entity to use to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset

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or a group of similar identifiable assets, the asset is not a business. If the screen is not met, ASU 2017-01 requires that to be considered a business, a set of assets and activities must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. ASU 2017-01 also removes the evaluation of whether a market participant could replace missing elements. ASU 2017-01 09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016 09 in the third quarter of 2017 which did not have a material impact on theour condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ("ASU 2016-18"). ASU 2016-18 is intended to add and clarify guidance on the classification and presentation of restricted cash on the statement of cash flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is in the initial stages of evaluating the potential impact this new standard may have on the consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016‑15,~~ ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments~~ ("ASU 2016-15"), seeking to eliminate diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016‑15 address eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under FASB ASC 230, Statement of Cash Flows. The amendments in ASU 2016‑15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The new standard will be effective during the first quarter ending March 31, 2018. The Company is in the initial stages of evaluating the potential impact this new standard may have on the consolidated financial statements.

~~In March 2016, the FASB issued ASU 2016‑09,~~ ~~Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting~~ ("ASU 2016-09"). ASU 2016‑09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016‑09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016‑09 in the first quarter of 2017 which did not have a material impact on the condensed consolidated financial statements.

ASU 2016-09 requires prospective recognition of excess tax benefits resulting from stock-based compensation vesting and exercises to be recognized as a reduction of income taxes and reflected in operating cash flows. Previously, these amounts would have been recognized in additional paid in capital and presented as a financing activity on the statement of cash flows. No net excess tax benefits were recognized as a reduction of income taxes for the three or nine months ended September 30, 2017 and 2016.

~~The Company has elected to prospectively account for forfeitures as they occur per ASU 2016-09, contrary to previously estimating the expected forfeitures.~~

ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes to be reported as financing activities in the statement of cash flows. Previously, these cash flows would have been included in operating activities. The Company has elected to adopt this prospectively, as permitted by ASU 2016-09. This change resulted in no impact on the condensed consolidated statement of cash flows for the nine months ended September 30, 2017 and 2016.

~~In February 2016, the FASB issued ASU No. 2016‑02,~~ ~~Leases (Topic 842)~~, as part of a joint project with the International Accounting Standards Board to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To satisfy the foregoing objective, the FASB is creating Topic 842, Leases, which supersedes Topic 840. Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with

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lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard will be effective during the first quarter ending March 31, 2019. The Company is in the initial stages of evaluating the potential impact this new standard may have on the consolidated financial statements.

~~In July 2015, the FASB issued ASU No. 2015‑11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~ (“ASU 2015-11”). This ASU requires entities measuring inventories under the first-in, first-out or average cost methods to measure inventory at the lower of cost or net realizable value, where net realizable value is “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” Inventory was previously required to be measured at the lower of cost or market, where the measurement of market value had several potential outcomes. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted ASU 2015‑11 in the first quarter of 2017 which did not have a material impact on the condensed consolidated financial statements.

~~In August 2014, the FASB issued ASU No. 2014‑15,~~ ~~Presentation of Financial Statements-Going Concern (Subtopic 205‑40)-Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern~~ (“ASU 2014-15”). ASU 2014‑15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014‑15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plan, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). For public business entities, the amendments are effective for fiscal years ending after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2014‑15 for the year ended December 31, 2016, which did not impact the condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014‑09,~~ ~~Revenue from Contracts with Customers~~ (“ASU 2014-09”). The objective of ASU 2014‑19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014‑09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract;(3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014‑09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 for public companies. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that year. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014‑09. The Company is substantially complete with our analysis to review revenue streams, customer contracts and transactions that may be impacted by the adoption of this ASU. To date, the Company has not identified changes to its revenue recognition policies that would result in a material adjustment to its financial position, results of operations or cash flows. The Company still needs to establish proper presentation and disclosures. The Company has not yet selected a transition method. We intend to adopt ASU 2014-09 as of its effective date in the first quarter of 2018.

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3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other currents assets were comprised of the following at September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2019		2018
Prepaid purchase orders	$	2,850	$	126	$	1,106	$	2,802
Prepaid insurance		662		69		1,481		576
Deposits		237		114		901		882
Other receivables		262		94
Incentive receivables and other assets						1,758		1,232
Prepaid expenses and other current assets	$	4,011	$	403	$	5,246	$	5,492

~~Prepaid purchase orders have increased primarily related to deposits with vendors for steel and generators used in the manufacturing and operation of our systems.~~

4. Property, Plant and Equipment

Property, plant and equipment was comprised of the following at September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2019		2018
Proppant management systems and related equipment	$	89,011	$	51,899
Systems and related equipment					$	287,565	$	258,600
Systems in process						16,437		11,245
Transloading facility and equipment						40,254		40,218
Computer hardware and software						1,238		1,185
Machinery and equipment		4,269		3,916		5,216		5,126
Furniture and fixtures		78		7
Computer equipment		1,552		829
Vehicles		3,323		1,235		8,044		8,334
Buildings		3,237		3,008		4,339		4,280
Logistics systems in process		4,793		—
Proppant management systems in process		5,999		1,252
Land		578		578		612		612
Furniture and fixtures						284		282
Property, plant and equipment, gross		112,840		62,724		363,989		329,882
Less: accumulated depreciation		(12,834)		(8,374)		(52,736)		(33,344)
Property, plant and equipment, net	$	100,006	$	54,350	$	311,253	$	296,538

Depreciation expense for the three months ended September 30, ~~2017~~2019 and ~~2016~~2018 was ~~$1,742~~$6,713 and ~~$959,~~$5,133, respectively, of which ~~$1,523~~$5,773 and ~~$857~~$4,133 is attributable to cost of ~~proppant management~~ system rental, ~~$129~~$384 and ~~$42~~$347 is attributable to cost of ~~proppant management~~ system services, $411 and ~~$90~~$529 is attributable to cost of transloading services and ~~$60~~$145 and $124 is attributable to selling, general and administrative expenses, respectively. Depreciation expense for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 was ~~$4,276~~$19,291 and ~~$2,739,~~$11,908, respectively, of which ~~$3,748~~$16,481 and ~~$2,418~~$10,128 is attributable to cost of ~~proppant management~~ system rental, ~~$283~~$1,173 and ~~$111~~$889 is attributable to cost of ~~proppant management~~ system services, $1,231 and ~~$245~~$544 is attributable to cost of transloading services and ~~$210~~$406 and $347 is attributable to selling, general and administrative expenses, respectively. The Company capitalized ~~$172~~$187 and ~~$173~~$182 of depreciation expense associated with machinery and equipment used in the manufacturing of its systems for the three months ended ~~as of~~ September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The Company capitalized ~~$492~~$559 and ~~$515~~$501 of depreciation expense associated with machinery and equipment used in the manufacturing of its systems for the nine months ended ~~as of~~ September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

In July 2017, the company acquired a lease for $250 in connection with the Kingfisher Facility described in Note 12. Refer to Note 12 for commitments and contingencies in connection with additional construction plans for this asset. This asset as well as construction costs incurred through September 30, 2017 are recognized in property, plant and equipment as Logistics systems in process.

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5. Accrued Liabilities

Accrued liabilities were comprised of the ~~following:~~following at September 30, 2019 and December 31, 2018:

September 30,

December 31,

2017

2016
Employee related expenses

$
2,374

$
1,237
Accrued real estate taxes

357

440
Accrued excise, franchise and sales taxes

335

83
Accrued operating expenses and other (1)

1,667

384
Accrued liabilities

$
4,733

$
2,144


	September 30,		December 31,
	2019		2018
Property, plant and equipment	$	194	$	2,153
Employee related expenses		3,996		4,500
Selling, general and administrative		1,491		944
Cost of revenue		5,700		2,702
Excise, franchise and sales taxes		4,045		1,461
Ad valorem taxes		1,306		774
Other		102		124
Accrued liabilities	$	16,834	$	12,658

~~(1)Accrued operating expenses and other has increased as a result of increases in manufacturing costs associated with adding systems and increases in general and administrative costs.~~

6. ~~Capital~~ Leases

The Company leases land and equipment under operating leases which expire at various dates through February 2047. These land leases include commitments related to a 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 office and storage from third parties for our corporate and field locations under operating leases, which include commitments related to 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. Refer to Note 12. “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 ~~capital~~finance lease. The lease expires on February ~~28,~~25, 2025. The ~~capital~~finance lease obligation is payable in monthly installments ~~of $3~~ including imputed ~~interest at a rate~~interest. The Company also leases certain office equipment with purchase options upon the end of ~~3.25%.~~

~~Future principal minimum payments under the capital~~ lease terms which are accounted for as ~~follows:~~

Year Ending December 31,

Amount
2017 (remainder of)

$
8
2018

33
2019

33
2020

33
2021

33
Thereafter

107
Total payments

247
Less: amount representing imputed interest at 3.25%

(28)
Present value of payments

219
Less: current portion

(33)
Capital lease obligation, net of current portion

$
186

~~7. Notes Payable~~

~~Solaris LLC has, on occasion, financed its annual insurance policies and certain vehicles.~~finance leases with various expiration dates. As of September 30, ~~2017, there were no outstanding notes payable.~~

~~Notes payable was comprised of the following at September 30, 2017~~2019 and December 31, ~~2016:~~2018, the Company had property, plant and equipment under finance leases with a cost of $299 and accumulated depreciation of $101 and $85, 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:

September 30,

December 31,

2017

2016
Notes payable to insurance finance company

$
—

$
11
Notes payable to vehicle companies

—

440
Total notes payable

—

451
Less: current maturities

—

(169)
Notes payable, net of current portion

$
—

$
282


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease cost (1) (2)	$	297	$	890

Finance lease cost
Amortization of ROU assets		8		25
Interest on lease liabilities		1		1
Total finance lease cost	$	9	$	26

(1)

Includes short term leases.

1716

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(2)

Operating lease costs of $185, $20 and $92 were reported in Selling, general and administrative, Cost of system services and Cost of transloading services for the three months ended September 30, 2019, respectively. Operating lease costs of $556, $58 and $276 were reported in Selling, general and administrative, Cost of system services and Cost of transloading services for the nine months ended September 30, 2019, respectively. No variable lease costs were recognized during the three and nine months ended September 30, 2019.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2018 were as follows:


Year Ending December 31,	Amount
2019	$	1,432
2020		1,375
2021		1,299
2022		1,093
2023		1,092
Thereafter		9,725
Total minimum lease payments	$	16,016

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows:


Year Ending December 31,	Operating Leases		Finance Leases
2019 (remainder of)	$	243		14
2020		1,116		35
2021		1,060		33
2022		1,091		33
2023		1,100		33
Thereafter		9,463		36
Total future minimum lease payments		14,073		184
Less: effects of discounting		(5,514)		(17)
Total lease liabilities	$	8,559	$	167

Supplemental cash flow information related to leases was as follows:


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	243	$	877
Financing cash flows from finance leases		9		26

Other information related to leases was as follows:


	September 30,
	2019
Weighted Average Remaining Lease Term
Operating leases		13.9 years
Finance leases		5.4 years
Weighted Average Discount Rate
Operating leases		6.3%
Finance leases		3.3%

7. Senior Secured Credit Facility

On ~~May 17, 2017, the Company~~April 26, 2019, Solaris LLC entered into an ~~amendment (the “First Amendment”) to the~~Amended and Restated Credit Agreement ~~dated as of December 1, 2016~~ (the ~~“Credit~~“2019 Credit Agreement” ~~and as amended by the First Amendment, the “Amended Credit Facility”~~) by and among ~~the Company,~~Solaris LLC, as borrower, each of the lenders party thereto and ~~Woodforest~~Wells Fargo Bank, National ~~Bank,~~

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Association, as administrative ~~agent (the “Administrative Agent”)~~agent. The 2019 Credit Agreement replaced, in its entirety, Solaris LLC’s 2018 Credit Agreement (as defined herein). The ~~First Amendment, among other things, modified~~2019 Credit Agreement consists of an initial $50,000 revolving loan commitment (the “Loan”) with a $25,000 uncommitted accordion option to increase the ~~terms~~Loan availability to $75,000. The term of the 2019 Credit Agreement ~~to (i) increase~~expires on April 26, 2022.

Our obligations under the ~~Credit Agreement’s revolving credit commitments (the “Revolving Facility”) from $1.0 million to $20.0 million, (ii) decrease~~Loan are generally secured by a pledge of substantially all the ~~Credit Agreement’s advance term loan commitments (the “Advance Loan Facility”) from $10.0 million to $0~~assets of Solaris LLC and ~~(iii) amend both the scheduled maturity date of the Revolving Facility~~its subsidiaries, and ~~the Advance Loan Facility to be May 17, 2021. Additionally, the First Amendment increased the accordion feature of the Revolving Facility from $1.0 million to $10.0 million, which may be elected~~such obligations are guaranteed by the Company at any time prior to the scheduled maturity date of the Revolving Facility so long as no default or event of default shall have occurred and be continuing and provided that no lender has any obligation to increase its own revolving credit commitment.

The Amended Credit Facility permits extensions of credit up to the lesser of $20.0 million and a borrowing base that is determined by calculating the amount equal to the sum of (i) 80% of the Eligible AccountsSolaris LLC’s domestic subsidiaries other than Immaterial Subsidiaries (as defined in the ~~Amended~~2019 Credit ~~Facility), (ii) 65% of~~Agreement). We have the ~~Eligible Inventory/Equipment Value (Appraised) (as defined in~~option to prepay the Amended Credit Facility) and (iii) 75% of the Eligible Inventory/Equipment Value (New Build, Acquired or Upgraded) (as defined in the Amended Credit Facility). The borrowing base is calculated on a monthly basis pursuant to a borrowing base certificate delivered by us to the Administrative Agent and an annual appraisal on the equipment delivered to the Administrative Agent (provided that the Administrative Agent may,loans at its discretion, require a desktop appraisal on equipment every six months). As of September 30, 2017, the borrowing base certificate delivered by us under the Revolving Facility reflected a borrowing base as of such date of $20.0 million.any time without penalty.

Borrowings under the ~~Amended~~2019 Credit ~~Facility~~Agreement bear interest at ~~a one-month London Interbank Offered Rate,~~either LIBOR or ~~LIBOR,~~an alternate base rate plus an applicable margin, and interest ~~shall be~~is payable ~~monthly.~~quarterly. The applicable margin ranges from ~~3.00%~~1.75% to ~~4.00%~~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 ~~Revolving Facility also includes a monthly commitment fee~~2019 Credit Agreement requires that we pay a quarterly commitment fee on undrawn amounts of the ~~Revolving Facility in a range~~Loan, ranging from ~~0.1875%~~0.25% to ~~0.50%~~0.375% depending ~~on our~~upon the total leverage ratio; provided, however that we will not be required to pay such commitment fee for any month when we have outstanding borrowings greater than 50.0% of the commitments under the Revolving Facility. During the continuance of an event of default, overdue amounts under the Amended Credit Facility has a scheduled maturity date of May 17, 2021.ratio.

The 2019 Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, (iv) notification of certain events and (v) solvency.

The Amended Credit Facility contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on our ability to (i) incur indebtedness, (ii) issue preferred equity, (iii) pay dividends or make other distributions, (iv) prepay, redeem or repurchase certain debt, (v) make loans and investments, (vi) sell assets, (vii) acquire assets, (viii) incur liens, (ix) enter into transactions with affiliates, (x) consolidate or merge and (xi) enter into hedging transactions. Our Company’s obligations under the Amended Credit Facility are secured by substantially all of our assets.

~~The Amended Credit Facility initially~~ requires that we maintain ~~at all times, a ratio~~ratios of ~~net funded~~(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 ~~provided that net funded indebtedness is subject to a cash adjustment with respect to any unrestricted cash~~ and ~~cash equivalents~~(c) the sum of ~~the Borrower~~100% of eligible accounts, inventory and ~~its subsidiaries in an amount equal~~fixed assets to the ~~lesser~~total revolving exposure of ~~$10.0 million~~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 ~~50% of unrestricted cash and cash equivalents of the Company and its subsidiaries.~~ non-recurring gains, losses or expenses.

The ~~Amended~~2019 Credit ~~Facility~~Agreement also requires that we ~~maintain, at all times, a~~prepay any outstanding borrowings under the Loan in the event our total leverage ratio ofis greater than 1.00 to 1.00 and our consolidated ~~EBITDA to fixed charges of~~cash balance exceeds $20,000, taking into account certain adjustments. Capital expenditures are not ~~less than 1.25 to 1.00. We were~~restricted unless borrowings under the Loan exceed $5,000 for any 180 consecutive day period, in ~~compliance with all such ratios as of September 30, 2017. Additionally, our capacity to make~~which case capital expenditures ~~is capped at $80.0 million for each fiscal year~~will be permitted up to $100,000 plus ~~for fiscal years beginning on January 1, 2019,~~ any unused availability for capital expenditures from the immediately preceding fiscal ~~year; provided, however,~~year.

As of September 30, 2019, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw $50,000.

As of September 30, 2019 we were in compliance will all covenants in accordance with the 2019 Credit Agreement.

On January 19, 2018, Solaris LLC entered into a credit agreement (the “2018 Credit Agreement”) which consisted of a $50,000 advancing term loan (the “Advance Loan”) and a $20,000 revolving loan, with a $10,000 uncommitted accordion option to increase the total revolving loans (the “Revolving Loan”, and together with the Advance Loan, the “Loans”). The 2019 Credit Agreement replaced, in its entirety, the 2018 Credit Agreement.

As of December 31, 2018 we had $13,000 of borrowings outstanding under the 2018 Credit Agreement. During the three and nine months ended September 30, 2019, all outstanding borrowings were repaid and as of September 30, 2019.

Borrowings under the 2018 Credit Agreement bore interest at one-month LIBOR plus an applicable margin and interest were payable monthly. The applicable margin ranged from 3.00% to 3.50% depending on our senior leverage ratio. Borrowings under the Revolving Loan had a weighted average interest rate of 5.49% for the nine months ended September 30, 2019. The 2018 Credit Agreement required that we ~~are permitted~~pay a monthly commitment fee on undrawn amounts of the Revolving Loan, ranging from 0.25% to ~~make any capital expenditures in an amount equal~~0.50% depending upon the average outstanding balance of the obligations relative to the Revolving Loan commitments.

8. Equity

On September 26, 2019, Solaris Inc. paid a quarterly cash dividend of $0.10 per share of Class A common stock. Solaris LLC paid a distribution of $4,759, or $0.10 per Solaris LLC Unit, to all Solaris LLC unitholders as of September 19, 2019, $3,165 of which was paid to Solaris Inc. Solaris Inc. used the proceeds ~~of equity contributions made~~from the distribution to ~~us used to fund such capital expenditures.~~

pay the

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Asdividend to all holders of shares of Class A common stock as of September ~~30, 2017, we had no borrowings under~~19, 2019, which totaled $3,165, including $64 related to shares of restricted stock.

On June 26, 2019, Solaris Inc. paid a quarterly cash dividend of $0.10 per share of Class A common stock. Solaris LLC paid a distribution of $4,758, or $0.10 per Solaris LLC Unit, to all Solaris LLC unitholders as of June 14, 2019, $3,164 of which was paid to Solaris Inc. Solaris Inc. used the ~~Revolving Credit Facility outstanding with $20.0 million revolving commitments available.~~proceeds from the distribution to pay the dividend to all holders of shares of Class A common stock as of June 14, 2019, which totaled $3,164, including $74 related to shares of restricted stock.

~~9. Equity~~On March 29, 2019, Solaris Inc. paid a quarterly cash dividend of $0.10 per share of Class A common stock. Solaris LLC paid a distribution of $4,757, or $0.10 per Solaris LLC Unit, to all Solaris LLC unitholders as of March 22, 2019, $3,119 of which was paid to Solaris Inc. Solaris Inc. used the proceeds from the distribution to pay the dividend to all holders of shares of Class A common stock as of March 22, 2019, which totaled $3,119, including $79 related to shares of restricted stock.

Stock-based compensation

~~In 2016 and 2017, there were no additional membership units issued by Solaris LLC under the Plan.~~

~~Effective May 17, 2017, both the Board of Directors of Solaris (the “Board”) and the holder of all Solaris’ then-outstanding equity interests adopted the LTIP~~The Company’s long-term incentive plan for ~~the benefit of~~ employees, directors and consultants of the Company and its ~~affiliates. The LTIP~~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 ~~U.S.~~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’~~Solaris Inc.’s Class A ~~Common Stock~~common stock have been reserved for issuance pursuant to awards under the LTIP. Class A ~~Common Stock~~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.

~~In connection with the Offering, the options granted under the Plan were converted into options under the LTIP.~~ A total of 591,261 options to purchase Class A ~~Common Stock~~common stock of the Company ~~were~~have been issued to employees, directors and consultants under the LTIP at an exercise price of $2.87 per ~~share~~option and a weighted average grant date fair value of $12.04 per share and had the same fair value as immediately prior to the conversion. The vesting terms from the options under the LTIP were accelerated from the previous vesting terms under the Plan such that, twenty-five percent (25%) of theoption. All options were ~~considered~~ vested ~~upon the conversion, an additional 25% of the options vested on July 24, 2017 and the remaining options will vest on~~by November 13, 2017. As of September 30, 2019, 522,285 options have been exercised, 33,348 forfeited and 35,628 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 ~~U.S.~~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~~service-based awards (generally the vesting period of the award of four years). For the three months ended September 30, 2017 and 2016, the Company recognized $110 and $36 of stock-based compensation expense on options, respectively. For the nine months ended September 30, 2017 and 2016, the Company recognized $268 and $108 of stock-based compensation expense on options, respectively.

In connection with the Offering, a total of 648,676 shares of restricted stock were granted to certain employees, directors and consultants under the LTIP. 203,222 shares of the restricted stock were issued with a one-year vesting period and 445,454 shares of the restricted stock were issued with a three-year vesting period.

On July 18, 2017, 156,250 shares of restricted stock were granted to two employees under the LTIP. The 156,250 shares of restricted stock were issued with a vesting period of the later of one-year or the completion of rail and silo construction in connection with the first phase of development of the core infrastructure for the Kingfisher Facility and fully satisfy the related customer contract described in Note 12.

~~On August 23, 2017, 423,737 shares of restricted stock were granted to certain employees, directors and consultants under the LTIP with a three-year vesting period.~~

~~For the three~~ and nine months ended September 30, ~~2017,~~2019 and 2018, the Company ~~recognized $1,302 and $1,829, of~~did not recognize stock-based compensation expense on ~~restricted stock, respectively.~~options.

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~~Notes receivable from unit-holders~~

~~Solaris LLC’s Limited Liability~~The Company ~~Agreement authorized Solaris LLC to issue Solaris LLC Units at a value~~accounts for its stock-based compensation including grants of ~~$100 per unit to Solaris LLC’s employees~~restricted stock in exchange for a promissory note. The promissory notes are partial recourse, accrue interest at 6% per annum and mature through various dates during 2022. Principal and accrued interest are due and payable upon the ~~earlier~~condensed consolidated statements of ~~employee termination or~~operations based on their estimated fair values on the ~~maturity~~ date of grant. The following table further summarizes activity related to restricted stock for the ~~note.~~three and nine months ended September 30, 2019 and 2018:


	Restricted Stock Awards
	2019	2018
Unvested at January 1,	411,497	1,218,265
Awarded	375,068	2,120
Vested	(706)	—
Forfeited	(405)	(848)
Unvested at March 31,	785,454	1,219,537
Awarded	29,847	—
Vested	(67,674)	(345,520)
Forfeited	(7,896)	(21,495)
Unvested at June 30,	739,731	852,522
Awarded	43,830	86,544
Vested	(138,821)	(297,371)
Forfeited	(9,644)	(223,988)
Unvested at September 30,	635,096	417,707

For the three months ended September 30, 2019, the Company recognized $10, $71, $5 and $1,139 of stock-based compensation expense on restricted stock in cost of system rental, cost of system services, cost of transloading services and selling, general and administrative, respectively, in the condensed consolidated statements of operations and $37 within property, plant and equipment, net in the condensed consolidated balance sheets. For the nine months ended September 30, 2019, the Company recognized $24, $187, $12 and $3,042 of stock-based compensation expense on restricted stock in cost of system rental, cost of system services, cost of transloading services and selling, general and administrative, respectively, in the condensed consolidated statements of operations and $133 within property, plant and equipment, net in the condensed consolidated balance sheets. Compensation expense includes adjustment for forfeitures as incurred. As of September 30, ~~2017, there were 8,367 Solaris LLC Units~~2019, 635,096 shares of restricted stock are issued to non-executive officer employees and consultants under promissory notes. In 2016 and 2017, there were no additional Solaris LLC Units issued. In March 2017, certain employees paid off their applicable promissory notes of $2.7 million principal and $315 of accrued interest in cash for previously assigned 27,368 Solaris LLC Units. In connection with the Offering, certain Original Investors used portions of their pro rata distributions to pay off portions of their applicable promissory notes of $668 principal and $88 of accrued interest for previously assigned 6,680 Solaris LLC Units. On May 22, 2017, June 2, 2017 and June 5, 2017, certain employees paid off portions of their applicable promissory notes of $446 principal and $50 of accrued interest for previously assigned 4,460 Solaris LLC Units.

As of September 30, 2017 and December 31, 2016, the outstanding principal for the notes totaled $837 and $4,688 and accrued interest for the notes totaled $108 and $457, respectively. These notes are recorded in stockholders’ and members’ equity as the notes were originally received in exchange for the issuance of membership units and are ~~netted against the value~~outstanding. 1,497 shares, 350,907 shares, 149,688 shares and 133,004 shares of ~~the respective units issued.~~restricted stock vest in 2019, 2020, 2021 and 2022, respectively.

~~Earnings(Loss)~~Earnings Per Share

Basic earnings per share of Class A ~~Common Stock~~common stock is computed by dividing net income attributable to Solaris ~~for the period from May 17, 2017 through September 30, 2017, the period following the Reorganization Transactions and IPO,~~ by the weighted-average number of shares of Class A ~~Common Stock~~common stock outstanding during the same period. Diluted earnings per share is computed giving effect to all potentially dilutive shares.

~~There were no shares~~

Table of ~~Class A Common Stock or Class B Common Stock outstanding prior to May 17, 2017, therefore no earnings per share information has been presented for any period prior to that date.~~Contents

The following table sets forth the calculation of earnings per share, or EPS, for the three and nine months ended September 30, ~~2017:~~2019 and 2018:


	Three Months Ended		Nine Months Ended		Three Months Ended September 30,				Nine Months Ended September 30,
Basic net income per share:	September 30, 2017		September 30, 2017		2019		2018		2019		2018
Numerator
Net income attributable to Solaris	$	1,379	$	1,536	$	11,398	$	13,019	$	36,991	$	29,546
Less income attributable to participating securities (1)		(104)		(108)		(245)		(251)		(817)		(1,042)
Net income attributable to common stockholders	$	1,275	$	1,428	$	11,153	$	12,768	$	36,174	$	28,504

Denominator
Weighted average number of unrestricted outstanding common shares used to calculate basic net income per share		10,100		10,100		30,951		26,197		27,270		25,216
Effect of dilutive securities:
Stock options ~~(2)~~		463		452		29		132		47		164
Diluted weighted-average shares of Class A Common Stock outstanding used to calculate diluted net income per share		10,563		10,552
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net income per share						30,980		26,329		27,317		25,380

Earnings per share of Class A Common Stock - basic	$	0.13	$	0.14
Earnings per share of Class A Common Stock - diluted	$	0.12	$	0.14
Earnings per share of Class A common stock - basic					$	0.36		0.49		1.33		1.13
Earnings per share of Class A common stock - diluted					$	0.36		0.49		1.33		1.12

~~(1)~~

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

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~~(2)~~

The three and nine months ended September 30, 2017 include 463 shares and 452 shares of Class A Common Stock resulting from an assumed conversion 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:


	Three Months Ended		Nine Months Ended		Three Months Ended September 30,				Nine Months Ended September 30,
	September 30, 2017		September 30, 2017		2019		2018		2019		2018
Class B Common Stock		32,366		32,366
Class B common stock						15,939		20,398		15,598		21,085
Restricted stock awards		132		12		129		195		242		524
		32,498		32,378
Total						16,068		20,593		15,840		21,609

~~10.~~9. Income Taxes

Income Taxes

~~The Company~~Solaris Inc. is a corporation and, as a result is subject to ~~U.S.~~United States federal, state and local income taxes. Solaris LLC is treated as a pass-through entity for ~~U.S.~~United States federal tax purposes and in most state and local jurisdictions. As such, Solaris LLC’s members, including the ~~Company,~~Solaris Inc., are liable for federal and state income taxes on their respective shares of Solaris LLC’s taxable income. Solaris LLC is liable for income taxes in those states not recognizing its pass-through status.

~~Our~~The effective combined United States federal and state income tax rates were 14.80% and 13.98% for the three months ended September 30, 2019 and 2018, respectively. The effective combined United States federal and state income tax rates were 14.88% and 13.54% for the nine months ended September 30, 2019 and 2018, respectively. For the three and nine months ended September 30, 2019 and 2018, our effective tax rate ~~of 6.68% for~~differed from the ~~three-months ending September 30, 2017 and 7.91% for the nine-months ending September 30, 2017 differs from~~ statutory ~~rates~~rate primarily due to Solaris LLC’s pass-through treatment for ~~U.S.~~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

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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 membership interest in Solaris LLC (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock, and a contribution of Class A common stock 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 ~~a substantial portion of~~ our deferred tax assets in the future. ~~However,~~As the Company reassesses these assumptions in the future, changes in forecasted taxable income may alter this expectation and may result in an increase in to the valuation allowance and an increase in the effective tax rate.

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 September 30, 2019 and December 31, 2018, the Company’s ~~assessment, we have recorded~~uncertain tax benefits totaling $816 are reported as a ~~valuation allowance of $3.7 million for the~~ component of the net deferred tax ~~assets that are less than more-likely-than not to reverse~~asset in the ~~foreseeable future.~~

condensed consolidated balance sheets. The full balance of unrecognized tax benefits as of September 30, 2019, 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 ~~recognized no uncertain~~elected to recognize interest and penalties related to unrecognized tax ~~positions. Although~~benefits in income tax expense notwithstanding the fact that, as of September 30, 2019, the Company has not filed a corporate tax return, the basis of tax positions applied to our tax provisions substantially comply with applicable federal and state tax regulations, and we acknowledge the respective taxing authorities may take contrary positions based on their interpretation of the law. A tax position successfully challenged by a taxing authority could result in an adjustment to our provisionaccrued any penalties or ~~benefit for income taxes in the period in which a final determination is made.~~interest.

~~Payable to~~Payables Related ~~Parties Pursuant~~ to the Tax Receivable Agreement

As of September 30, ~~2017,~~2019, our liability under the Tax Receivable Agreement was ~~$11.5 million,~~$67,987, representing ~~approximately~~ 85% of the calculated net cash savings in United States federal, state and local income tax ~~savings based on~~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 ~~portion~~IPO or pursuant to an exercise of the ~~original basis adjustments we anticipated being able to utilize~~Redemption Right or the Call Right (each as defined in ~~future years.~~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. We have determined it is more-likely-than-not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we have recorded a liability under the Tax Receivable Agreement related to the tax savings we may realize from ~~the depreciation~~certain increases in tax basis and ~~amortization related~~certain tax benefits attributable to ~~basis adjustments under Section 754~~imputed interest as a result of ~~the Internal Revenue Code~~Solaris Inc.’s acquisition (or deemed acquisition for United States federal income tax purposes) of ~~1986, as amended, created~~Solaris LLC Units in connection with the ~~IPO.~~IPO or pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the Solaris LLC Agreement). If we determine the utilization of these deferred tax assets is not more-likely-than-not in the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our condensed consolidated statement of operations.

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~~11.~~10. Concentrations

For the three months ended September 30, 2019, two customers accounted for 14% and 12% of the Company’s revenue. For the three months ended September 30, 2018, two customers accounted for 13%, and 10% of the Company’s revenue. For the nine months ended September 30, ~~2017,~~2019, four customers accounted for ~~61%~~14%, 11%, 11% and ~~63%~~10% of ~~our revenue, respectively.~~the Company’s revenue. For the ~~three and~~ nine months ended September 30, ~~2016,~~2018, three customers accounted for 16%, 10% and 10% of the Company’s revenue. As of September 30, 2019, four customers accounted for ~~73%~~14%, 14%, 12% and ~~72%~~10% of ~~our revenue, respectively. At September 30, 2017, two~~the Company’s accounts receivable. As of December 31, 2018, three customers accounted for ~~46%~~20%, 10% and 10% of ~~our~~the Company’s accounts receivable.

For the three months ended September 30, ~~2017 and 2016, four~~2019, one supplier accounted for 38% of the Company’s total purchases. For the three months ended September 30, 2018, two suppliers accounted for ~~34%~~17% and ~~33%~~12% of ~~our~~the Company’s total purchases. For the nine months ended September 30, ~~2017 and 2016, six~~2019, one supplier accounted for 17% of the Company’s total

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purchases. For the nine months ended September 30, 2018, two suppliers accounted for ~~approximately 40%~~14% and ~~34%~~12% of ~~our~~the Company’s total ~~purchases, respectively.~~purchases. As of September 30, ~~2017, two suppliers~~2019, one supplier accounted for ~~24%~~77% of ~~our~~the Company’s accounts payable. As of December 31, 2018, one supplier accounted for 13% of the Company’s accounts payable.

~~12.~~11. Commitments and Contingencies

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

~~Operating Leases~~

The ~~Company leases land and equipment under operating leases which expire~~table below provides estimates of the timing of future payments that we are contractually obligated to make based on agreements in place at ~~various dates through February 2047.~~

~~The Company’s future minimum payments under non-cancelable operating leases are as follows:~~September 30, 2019:

Year Ending December 31,

Amount
2017 (remainder of)

$
67
2018

336
2019

316
2020

268
2021 and thereafter

5,915
Total minimum lease payments

$
6,902


	For the Year Ending December 31,
	2019		2020		2021		2022		2023		Thereafter		Total
	(in thousands)
Operating lease obligations (1)	$	243	$	1,116	$	1,060	$	1,091	$	1,100	$	9,463	$	14,073
Finance lease obligations (2)		14		35		33		33		33		36		184
Commitment fees on Revolving Loan (3)		32		125		125		40		—		—		322
Purchase commitments (4)		—		2,588		2,217		—		—		—		4,805
Other commitments		32		274		255		37		2		—		600
Total	$	321	$	4,138	$	3,690	$	1,201	$	1,135	$	9,499		19,984

~~The above amounts include $6.2 million of commitments~~(1)Operating lease obligations are related to aour 30-year land lease with the State of Oklahoma related to the ~~Company’s independent, unit-train capable transload~~Company's Kingfisher Facility, as well as other office, land and equipment leases. Refer to Note 6. “Leases.”

(2)Finance lease obligations are related to our finance lease of a building at our Early, Texas manufacturing facility ~~in Oklahoma (the “Kingfisher Facility”) further described below.~~ with the City of Early and leases of certain office equipment with purchase options upon the end of lease terms which are accounted for as finance leases with various expiration dates. Refer to Note 6. “Leases.”

(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 Note 7. “Senior Secured Credit Facility,” 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.

Other Commitments

In the normal course of business, the Company has certain short-term purchase obligations and commitments for products and services, primarily related to purchases of materials used in the manufacturing of its systems. AtAs of September 30, ~~2017, Solaris LLC~~2019 and December 31, 2018, the Company had commitments of approximately ~~$7.0 million.~~$4,805 and $18,998, respectively, related to these commitments.

On July 27, 2017, Solaris Logistics, LLC, a wholly owned subsidiary of Solaris LLC, entered into a seven year customer contract with an exploration and production company to provide proppant transloading service at the Kingfisher Facility, which is effective upon the construction of the Kingfisher Facility.

Estimated capital investment for the first phase of development to complete core infrastructure and fully support the customer contract totals approximately $40 million and will be funded from available cash raised inIn connection with the ~~IPO and cash flow from operations. This investment includes capital expenditures related~~acquisition of Railtronix, the seller is entitled to ~~engineering and site preparation, as well as rail and silo construction that is scheduled to be fully completed by August 2018. This investment also includes~~ certain ~~performance based~~performance-based cash awards ~~and performance based equity awards in the form of 156,250 shares of restricted stock, both contingent~~totaling $2,500 upon the ~~completion~~achievement of ~~construction for the first phase of development that will be recognized during the period that such milestones are considered probable.~~certain financial milestones. As of September 30, ~~2017,~~2019, one milestone had been achieved and the Company paid and recognized $1,625 in June 2018 in other operating expense in the condensed consolidated statements of operations. However, as of September 30, 2019, the Company had not concluded that the remaining milestone will be achieved and thus has not recognized additional obligations ~~related to executed agreements~~ in ~~connection with construction activities at~~ the ~~Kingfisher Facility of approximately $1.9 million.~~

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condensed consolidated financial statements.

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

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under the guarantee of lease agreement with Solaris Energy Management, LLC is ~~$2.8 million~~$9,477 as of September 30, ~~2017.~~2019. Refer to Note 1312. “Related Party Transactions” for additional information regarding related party transactions ~~recognized.~~recognized and Note 6. “Leases” for operating lease discussion.

~~13.~~12. 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~~The costs incurred in connection with these services include rent paid for office space, travel services, personnel, consulting and administrative costs. For the three months ended September 30, 2019 and 2018, Solaris LLC paid $217 and $164, respectively, for these services. For the nine months ended September 30, ~~2017,~~2019 and 2018, Solaris LLC paid ~~$104~~$836 and ~~$810~~$503, respectively, for these ~~services~~services. As of ~~which $23~~September 30, 2019 and ~~$452 was~~December 31, 2018, the Company included $231 and $232, respectively, in ~~salaries, benefits~~prepaid expenses and ~~payroll taxes, and $81 and $358 was included in selling, general and administrative expenses in~~other current assets on the condensed consolidated ~~statement~~balance sheets. As of ~~operations, respectively.~~September 30, 2019 and December 31, 2018, the Company included $78 and $103, respectively, of accruals to related parties in accrued liabilities on the condensed consolidated balance sheets.

These costs are primarily incurred in connection with the amended and restated administrative services agreement, dated ~~November 22, 2016, by and~~May 17, 2017, between Solaris LLC and Solaris Energy Management, LLC, ~~(“SEM”),~~ a company partially owned by William A. ~~Zartler (as amended,~~Zartler.

Payables Related to the ~~“Amended Services Agreement”).~~Tax Receivable Agreement

~~All related party transactions are immaterial and have not been shown separately~~In connection with the IPO, Solaris Inc. entered into the Tax Receivable Agreement with the TRA Holders on ~~the face~~May 17, 2017. See Note 9. “Income Taxes” for further discussion of the ~~condensed consolidated financial statements.~~impact of the Tax Receivable Agreement on Solaris Inc.

13. Subsequent Events

Kingfisher Facility

The Company has received notice from the customer party to the Company’s agreement for sand storage and transloading at the Company’s Kingfisher Facility that the customer intends to terminate the agreement effective December 31, 2019. The remaining term of the agreement will provide for replacement volumes by which the transloading activity of a third party during the fourth quarter of 2019 can be used to offset existing minimum contracted volumes related to the agreement. The agreement was previously partially terminated in December 2018, at which point the Company received a $25,980 partial termination fee. As of September 30, 2019, $15,950 of the partial termination fee is reported as deferred revenue in the Company’s Condensed Consolidated Balance Sheets. The Company anticipates being paid $1,680 in 2020 after termination of the agreement. Assuming termination occurs during the fourth quarter of 2019, deferred revenue of $17,630 will be recognized over the term of the remaining performance obligations of the Company, which would conclude on December 31, 2019. The Company is currently engaged in discussions with potential customers regarding utilization of capacity at the Kingfisher Facility. The Company will continue to assess the carrying values of the assets at the Kingfisher Facility and if circumstances lead the Company to believe they may not be recoverable, the Company may incur an impairment charge in the future.

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

~~Unless~~Solaris Oilfield Infrastructure, Inc. (either individually or together with its subsidiaries, as the context requires, ~~otherwise, references in this report to~~“we,” “us,” “our,” “Solaris Inc.” or the ~~"Company," "we," "us," and "our" refer to Solaris Oilfield Infrastructure, Inc and its consolidated subsidiaries.~~“Company”). The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and “Risk Factors” included in the ~~Prospectus filed by Solaris, this Quarterly~~Annual Report on Form ~~10-Q and in~~10-K/A for the ~~other related Solaris~~year ended December 31, 2018 as updated by our subsequent filings with the Securities and Exchange Commission ~~(“SEC”~~(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.

~~Our Predecessor and Solaris~~Overview

Solaris ~~Oilfield Infrastructure,~~ LLC ~~(“Solaris LLC”)~~ was formed in July 2014. Solaris Inc. was ~~formed~~incorporated as a Delaware corporation in February ~~2017. In connection with its~~2017 for the purpose of completing an initial public offering of equity in May 2017 (the “IPO” or the “Offering”), and related transactions. On May 11, 2017, in connection with the IPO, Solaris Inc. became a holding company whose sole material asset consists of units in Solaris LLC (“Solaris LLC Units”). Solaris Inc. became the managing member of Solaris LLC and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business and consolidates the financial results of Solaris LLC and its subsidiaries.

~~Overview~~Executive Summary

We design, manufacture, rent and ~~provide~~service specialized equipment that helps oil and natural gas operators and their suppliers drive efficiencies and reduce costs during the completion phase of well development. The majority of our revenue is currently derived from the rental and service of our patented mobile proppant management systems that unload, store and deliver proppant atused in hydraulic fracturing of oil and natural gas ~~well sites. Our systems reduce our customers’ cost and time to complete~~ wells, ~~by improving the efficiency of proppant logistics,~~ as well as ~~enhancing~~coordinating the delivery of proppant to the well site safety. In addition, we are currently constructing an independent, unit-train-capable transload facility in Oklahoma (the “Kingfisher Facility”) in order to further integrate our supply chain management and drive additional proppant logistics efficiencies for our customers. Our customers include oil and natural gas exploration and production (“E&P”) companies, such as EOG Resources, Inc., Devon Energy and Apache Corporation, as well as oilfield service companies, such as ProPetro Holding Corp.site. Our systems are deployed in ~~many~~most of the ~~most~~ active oil and natural gas basins in the ~~U.S., including~~United States.

In 2018 and early 2019, we introduced a new product line and product enhancements, which we believe will help us maintain and expand our total revenue opportunity in the ~~Permian Basin,~~United States completions equipment and service space. We introduced our mobile chemical management system to the ~~Eagle Ford Shale,~~market in late 2018 and we have begun commercializing the ~~SCOOP/STACK formations~~offering in 2019. Product enhancements introduced in 2018 include our AutoHopper technology, which we are deploying across our fleet to automate the delivery of proppant into the blender, and the ~~Haynesville Shale. Since commencing operations in April 2014, we have grown~~latest version of our ~~fleet from two~~Solaris Lens™ software, which is available on our systems and allows customers to ~~68 systems.~~

~~Our mobile proppant management system is designed to address~~view the ~~challenges associated with transferring large quantities of proppant to the well site, including the cost and management of~~entire last mile ~~logistics, which we define as the transportation of~~ proppant from transload terminal or regional proppant mine to the well site. Today’s horizontal well completion designs require between 400 and 1,000 truckloads of proppant delivered to the well site per well which creates bottleneckssupply chain in the storage, handling and delivery of proppant. Our patented systems typically provide 2.5 million pounds of proppant storage capacity in a footprint that is considerably smaller than traditional or competing well site proppant storage equipment. Our systems have the ability to unload up to 24 pneumatic proppant trailers simultaneously. In addition, we have recently deployed our non-pneumatic loading option to provide additional proppant transportation flexibility for our customers, allowing them to use belly-dump trucks in addition to the industry standard pneumatic trucks to fill and maintain inventory in our proppant management systems. This nonpneumatic loading option is compatible with our existing fleet with minimal modification. Importantly, the proppant storage silos in our systems can be filled from trucks while simultaneously delivering proppant on-demand directly to the blender for hydraulic fracturing operations. Accordingly, our systems can maintain high rates of proppant delivery for extended periods of time, which helps achieve a greater number of frac stages per day, driving a reduction in our customers’ costs. Our systems also reduce the amount of truck demurrage, or wait time, at the well site which can result in significant cost savings for our customers.

In July 2017, we entered into a seven-year contract with an exploration and production company to provide proppant transloading service at the Kingfisher Facility constructed and operated by Solaris in Kingfisher, Oklahoma.

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The Kingfisher Facility will be located central to the active SCOOP/STACK plays and we believe it will be the first independent, unit-train capable, high speed transload facility in Oklahoma. The Kingfisher Facility will initially provide proppant transloading services, but will also have capacity to provide transloading services for other drilling and completion related consumables.

The Kingfisher Facility will be located on a 300-acre parcel of land, directly on the Union Pacific Railroad. Solaris has secured a 30-year land lease with the State of Oklahoma and has started ordering long-lead construction items, breaking ground in August 2017. The facility is designed to service multiple large volume customers with dedicated storage and unit train loop tracks, including an initial 8,000 foot unit-train loop and 18,000 feet of rail sidetrack. Initial storage will include 30,000 tons of vertical storage in six silos with individual capacity of 5,000 tons per silo. The facility will also service manifest trains and provide direct rail-to-truck transloading.real time.

Recent Trends and Outlook

Demand for our ~~systems~~products and services is predominantly ~~influenced~~driven by the level of oil and natural gas well drilling and completion ~~by E&P companies,~~activity, which, in turn, ~~depends largely on~~is determined by the current and anticipated profitability of developing oil and natural gas reserves. ~~More specifically, demand for our systems~~

The Baker Hughes US Land rig count decreased 7% in third quarter 2019 sequentially from second quarter 2019 and ~~services is~~was down 13% from third quarter 2018. The US land rig count continued to decrease in the fourth quarter 2019, down 10% as of October 18, 2019, from average third quarter 2019 levels. These recent declines have been partially driven by demand for proppant, which, in turn, is primarily driven by advancements in oil and natural gas drilling and well completion technology and techniques, such as horizontal drilling and hydraulic fracturing, which have made the extraction of oil and natural gas increasingly cost-effective in formations that historically would have been uneconomic to develop.

~~While overall drilling and completion activities have declined in North America from their highs in late 2014~~continued efficiency gains as a result of ~~the downturn in hydrocarbon prices, the industry has witnessed an increase in such activity~~new technologies deployed in the ~~third~~oilfield that have reduced the time required to drill and ~~fourth quarters~~complete oil and gas wells.

As a result of ~~2016~~these decreased drilling and ~~throughout 2017 as hydrocarbon prices have recovered. Recently, there has been an increase in proppant demand as E&P companies have shifted toward:~~

~~drilling more and longer horizontal wells;~~

~~completing more hydraulic fracturing stages and utilizing more proppant per lateral foot;~~

~~utilizing multi-well pads; and~~

~~accelerating completion rates through “zipper fracs,” or the process of completing multiple adjacent wells simultaneously.~~

Wecompletion times, we believe ~~that the demand for proppant will increase over the medium~~oil and ~~long term as commodity prices rise from their recent lows, which will lead producers to resume completion~~gas operators spent a disproportionate amount of their ~~inventory of drilled but uncompleted wells and undertake new drilling activities. Further, recent agreements by~~annual budgets in the ~~Organization~~first half of the ~~Petroleum Exporting Countries (“OPEC”)~~year, which resulted in lower spending and non-OPEC members to reduce their oil production quotas have also provided upward momentum for WTI prices, which have increased to $54.30 per Bbl as of November 1, 2017, up from a low of $26.21 per Bbl in February 2016.

While we do not currently anticipate any shortages in the supply of the proppant used in hydraulic fracturing operations, supplies of high-quality raw frac sand, the most prevalent proppant used, are limited to select areas, predominantly in western Wisconsin and limited areas of Minnesota and Illinois. Accordingly, transportation costs often represent a significant portion of our customer’s overall product cost, and transferring large quantities of proppant to the well site presents a number of challenges, including the cost and management of last mile logistics. Additionally, increased focus on cost control and increased health, safety and environmental regulation has created numerous operational challenges that cannot be addressed with labor intensive proppant storage equipment, such as those that utilize individual containers for on-site proppant storage and handling.

These supply and demand trends have contributed to our significant growth since our formation in 2014. We have increased our total system revenue days, defined as the combined number of days our systems earned revenues, in eleven of the last twelve quarters beginning in the fourth quarter of 2014. Since commencing operations in April 2014, we have also grown our fleet from two systems to 68 systems. The increase in total system revenue days is attributable to an

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~~increase~~activity that began in September and impacted third quarter results, but could also reduce the level of capital spending, and related equipment demand, in the ~~number~~fourth quarter of systems available for rental and an increase in the number of systems deployed to customers. Our total system revenue days increased to 4,564 in the three months ended September 30, 2017 from 1,512 in the three months ended September 30, 2016, an increase of approximately 202%. Our total system revenue days increased to 10,566 in the nine months ended September 30, 2017 from 3,610 in the nine months ended September 30, 2016, an increase of approximately 193%.

The number of systems in our fleet increased to an average of 49.8 during the three months ended September 30, 2017 from an average of 24.0 during the three months ended September 30, 2016, an increase of approximately 108%. The average number of systems deployed to customers increased to 49.6 in the three months ended September 30, 2017 from 16.4 in the three months ended September 30, 2016, an increase of approximately 202%.2019. In addition, ~~our utilization rate increased~~some oil and gas operators have recently committed to generate free cash flow and spend within budgets, a significant change from ~~69%~~recent years where operators outspent their cash flow.

Our system rental activity in 2019 has followed these overall trends. During the ~~three months ended September 30, 2016~~third quarter 2019 we averaged 115 fully utilized mobile proppant systems, which was down 7% sequentially from the second quarter 2019 and down 10% from third quarter 2018.

Our fleet currently consists of 166 mobile proppant management systems, which is up 14% from 146 systems a year ago, and 14 mobile chemical management systems. We do not expect to ~~100% in~~add any additional systems for the ~~three months ended September 30, 2017, an increase~~remainder of ~~45%.~~2019.

The number of systems in our fleet increased to an average of 39.9 during the nine months ended September 30, 2017 from an average of 23.0 during the nine months ended September 30, 2016, an increase of approximately 73%. The average number of systems deployed to customers increased to 38.7 in the nine months ended September 30, 2017 from 13.2 in the nine months ended September 30, 2016, an increase of approximately 193%. In addition, our utilization rate increased from 57% in the nine months ended September 30, 2016 to 97% in the nine months ended September 30, 2017, an increase of 70%.

~~For the purposes of the above paragraph, the following terms are defined as:~~

~~utilization rate: the number of total system revenue days in a period divided by the number of available days in a period; and~~

available days: the total number of days our systems are available to generate revenue in a period, which takes into account the date on which new systems are added to the fleet. If a system is added to the fleet during a period, the remaining days in the period are considered available days.

How We Generate Revenue

We ~~currently~~ generate the majority of our revenue ~~primarily~~ through the rental of our systems and related services, including transportation of our systems, transportation of proppant to the well site and field supervision and support. The system ~~rentals~~rental and provision of related services are performed 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. The master service agreements generally establish terms and conditions for the provision of our systems and service on a well site, indemnification, damages, confidentiality, intellectual property protection and payment terms and provisions. The rentals and services 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. We typically ~~rent~~charge our customers for the rental of our systems and related services on a monthly basis.

In ~~addition from time-to-time,~~early 2018, we ~~have evaluated~~began generating revenue for our transloading services at our independent, transload facility in Oklahoma (the “Kingfisher Facility”). We generally charge our customers a throughput fee for rail-to-truck transloading and ~~completed individual system sales on~~high-efficiency sand silo storage and transloading services at the Kingfisher Facility.

Finally, we generate revenue through our Railtronix® inventory management software. We generally charge our customers a ~~case-by-case basis.~~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:

Cost of ~~proppant management~~ system rental (excluding depreciation and amortization);

Cost of ~~proppant~~system services (excluding depreciation and amortization);

Cost of transloading services (excluding depreciation and amortization);

Cost of software inventory management ~~system~~ services (excluding depreciation and amortization);

Depreciation and amortization associated primarily with the costs to build our ~~systems;~~

~~Salaries, benefits~~systems and ~~payroll taxes;~~the costs to develop rail and storage assets;

Selling, general and administrative expenses; and

Other operating expenses.

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Our cost of ~~proppant management~~ system rental (excluding depreciation and amortization) consists primarily of the costs of maintaining our equipment, developing and maintaining our Solaris Lens software, as well as insurance and property taxes related to our equipment.

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Our cost of ~~proppant management~~ system services (excluding depreciation and amortization) consists primarily of direct labor costs, and related travel and lodging expenses, system transportation costs and ~~system~~proppant transportation costs. A large portion of our cost of ~~proppant management~~ system services (excluding depreciation and amortization) are variable based on the number of systems deployed with customers.

Our cost of transloading services (excluding depreciation and amortization) consists primarily of direct labor costs, fuel, utilities, and maintenance.

Our cost of software inventory management services (excluding depreciation and amortization) consists primarily of direct labor and software subscriptions.

Our depreciation and amortization expense primarily consists of the depreciation expense related to our systems and related manufacturing machinery and equipment as well as rail and transloading equipment. The costs to build our systems, including any upgrades, are capitalized and depreciated over a life ranging from ~~two~~three to ~~fifteen~~15 years. The costs to build our rail and transloading storage assets are capitalized and depreciated over a life of 15 to 30 years.

Our salaries, benefits and payroll taxes are comprised of the salaries and related benefits for several functional areas of our organization, including sales and commercial, research and development, ~~manufacturing administrative,~~ accounting and corporate administrative.

Our selling, general and administrative expenses are comprised ~~primarily~~ of the salaries and related benefits for several functional areas of our organization, including sales and commercial, research and development, accounting and corporate administrative, as well as office rent, marketing expenses and third-party professional service providers.

How We Evaluate Our Operations

We use a variety of qualitative, operational and financial metrics to assess our performance. Among other measures, management considers revenue, revenue days, fully utilized system count, tons transloaded, EBITDA and Adjusted EBITDA.

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 ~~proppant management~~ systems we have deployed to customers and the amount of proppant and chemicals transloaded at our Kingfisher Facility from period to period.

Revenue Days

We view revenue days as an important indicator of our performance. We calculate revenue days as the combined number of days our sand and chemical systems earn revenue in a period. We assess our revenue days from period to period in relation to the number of ~~proppant management~~sand and chemical systems we have available in our fleet.

Fully Utilized System Count

The fully utilized system count is calculated as the total number of revenue days divided by the number of days in the 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.

Tons Transloaded

We view tons transloaded as an important indicator of our performance. We calculate the number of tons transloaded as the combined number of proppant tons and chemicals that are transloaded at our Kingfisher Facility in a period. We assess the number of tons transloaded from period to period in relation to prior periods and contracted minimum volumes.

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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, ~~(loss),~~ 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 ~~charges~~items and any extraordinary, unusual or non-recurring ~~charges.~~gains, losses or expenses.

Note Regarding Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Net income (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

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~~Factors Impacting Comparability of Our Financial Results~~

Our future results of operations may not be comparable to the historical results of operations of our accounting predecessor, Solaris LLC, for the periods presented, primarily for the reasons described below.

~~Corporate Reorganization~~

The historical condensed consolidated financial statements included in this report are based on the financial statements of our accounting predecessor, Solaris LLC, prior to our corporate reorganization consummated in connection with the IPO. As a result, the historical consolidated financial data may not give you an accurate indication of what our actual results would have been if the corporate reorganization had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. In connection with the IPO and the transactions related thereto, Solaris became a holding company whose sole material asset consists of Solaris LLC Units. Solaris is the managing member of Solaris LLC and is responsible for all operational, management and administrative decisions relating to Solaris LLC’s business and consolidates the financial results of Solaris LLC and its subsidiaries.

In addition, in connection with the IPO, Solaris entered into a tax receivable agreement (the “Tax Receivable Agreement”) with the existing members of Solaris LLC (collectively, the “Original Investors”) and permitted transferees (each such person, a “TRA Holder”) on May 17, 2017. This agreement generally provides for the payment by Solaris to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Solaris 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 acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Solaris LLC Units in connection with the series of reorganization transactions completed on May 17, 2017 (the “Reorganization Transactions”) or pursuant to the exercise of the Redemption Right or the Call Right (each as defined in Solaris LLC’s amended and restated limited liability company agreement) and (ii) imputed interest deemed to be paid by Solaris as a result of, and additional tax basis arising from, any payments Solaris makes under the Tax Receivable Agreement. Solaris will retain the benefit of the remaining 15% of these cash savings.

We anticipate that we will account for the effects of these increases in tax basis and associated payments under the Tax Receivable Agreement arising from any future redemptions of Solaris LLC Units from our Original Investors as follows:

~~we will record an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the redemption;~~

to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we will reduce the deferred tax asset with a valuation allowance; and

we will record 85% of the estimated realizable tax benefit as an increase to our payables associated with the future payments due under the Tax Receivable Agreement and the remaining 15% of the estimated realizable tax benefit as an increase to additional paid-in capital.

All of the effects of changes in any of our estimates after the date of the exchange will be included in net income for the period in which those changes occur. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income for the period in which the change occurs.

~~Fleet Growth~~

~~We have experienced significant growth over the past three years. Since commencing operations in April 2014, we have grown our fleet from two systems to~~  systems and the number of major oil and gas basins in which our systems are deployed has increased from two as of April 2014 to five as of November 2, 2017. Since the fourth quarter of 2014, we have increased our total system revenue days, defined as the combined number of days our systems earned revenues, in twelve of the last thirteen quarters. We have increased our system revenue days by more than 2,523% from the second

~~Table of Contents~~

quarter of 2014 to the third quarter of 2017, representing a 173% compound annual growth rate. The increase in total system revenue days is attributable to both an increase in the number of systems available for rental and an increase in the rate at which our systems are utilized.

~~Public Company Expenses~~

Upon the completion of the IPO, we incur direct, incremental general and administrative (“G&A”) expenses as a result of being a publicly traded company, including, but not limited to, costs associated with hiring new personnel, implementation of compensation programs that are competitive with our public company peer group, annual and quarterly reports to stockholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and incremental director compensation. These direct, incremental G&A expenses are not included in our results of operations prior to the IPO.

~~Income Taxes~~

Solaris is a corporation and as a result, is subject to U.S. federal, state and local income taxes. Although Solaris LLC is subject to franchise tax in the State of Texas (at less than 1% of modified pre-tax earnings) it passes through its taxable income to its owners, including Solaris, for U.S. federal and other state and local income tax purposes and thus is not subject to U.S. federal income tax or other state or local income taxes. Accordingly, the financial data attributable to Solaris LLC contains no provision for U.S. federal income tax or income taxes in any state or locality other than franchise tax in the State of Texas.

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Results of Operations

Three Months Ended September 30, ~~2017~~2019 Compared to Three Months Ended September 30, ~~2016~~2018


	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2017		2016		Change		2019		2018		Change
	(in thousands)						(in thousands)
Revenue
Proppant management system rental	$	15,062	$	3,846	$	11,216
Proppant management system services		3,416		902		2,514
System rental							$	36,638	$	42,031	$	(5,393)
System services								18,153		12,053		6,100
Transloading services								4,417		2,000		2,417
Inventory software services								396		602		(206)
Total revenue		18,478		4,748		13,730		59,604		56,686		2,918
Operating costs and expenses:
Cost of proppant management system rental (excluding $1,523 and $857 of depreciation and amortization for the three months ended September 30, 2017 and 2016, respectively, shown separately)		641		386		255
Cost of proppant management system services (excluding $129 and $42 of depreciation and amortization for the three months ended September 30, 2017 and 2016, respectively, shown separately)		3,933		1,501		2,432
Cost of system rental (excluding $5,773 and $4,133 of depreciation and amortization for the three months ended September 30, 2019 and 2018, respectively, shown separately) (1)								2,838		1,949		889
Cost of system services (excluding $384 and $347 of depreciation and amortization for the three months ended September 30, 2019 and 2018, respectively, shown separately) (1)								21,072		13,906		7,166
Cost of transloading services (excluding $411 and $529 of depreciation and amortization for the three months ended September 30, 2019 and 2018, respectively, shown separately) (1)								652		597		55
Cost of inventory software services (excluding $193 and $193 of depreciation and amortization for the three months ended September 30, 2019 and 2018, respectively, shown separately)								160		191		(31)
Depreciation and amortization		1,742		959		783		6,908		5,328		1,580
Salaries, benefits and payroll taxes		2,942		635		2,307
Selling, general and administrative (excluding $90 and $60 of depreciation and amortization for the three months ended September 30, 2017 and 2016, respectively, shown separately)		1,176		543		633
Selling, general and administrative (excluding $147 and $126 of depreciation and amortization for the three months ended September 30, 2019 and 2018, respectively, shown separately)								4,933		3,869		1,064
Other operating expenses		(38)		—		(38)		248		56		192
Total operating costs and expenses		10,396		4,024		6,372		36,811		25,896		10,915
Operating income		8,082		724		7,358		22,793		30,790		(7,997)
Interest expense, net		(27)		(5)		(22)		(8)		(116)		108
Other income (expense)		(32)		6		(38)
Total other income (expense)		(59)		1		(60)
Total other expense								(8)		(116)		108
Income before income tax expense		8,023		725		7,298		22,785		30,674		(7,889)
Benefit (provision) for income taxes		(617)		(14)		(603)
Provision for income taxes								(3,703)		(4,237)		534
Net income		7,406		711		6,695		19,082		26,437		(7,355)
Less: net (income) loss related to Solaris LLC		—		(711)		711
Less: net (income) related to non-controlling interests		(6,027)		—		(6,027)
Less: net income related to non-controlling interests								(7,684)		(13,418)		5,734
Net income attributable to Solaris	$	1,379	$	—	$	1,379	$	11,398	$	13,019	$	(1,621)

Revenue

~~Proppant Management~~ System Rental Revenue. Our ~~proppant management~~ system rental revenue ~~increased $11.3~~decreased $5.4 million, or ~~297%~~13%, to ~~$15.1~~$36.6 million for the three months ended September 30, ~~2017~~2019 compared to ~~$3.8~~$42.0 million for the three months ended September 30, ~~2016.~~2018. This ~~increase~~decrease was primarily due to a ~~202% increase~~11% decrease in ~~the number of revenue days, or 3,052 days, coupled with an increase in rental rates charged to customers~~mobile proppant systems on a fully utilized basis, due to ~~increasing demand for our systems.~~lower rig count and hydraulic fracturing activities as a result of operating efficiencies in completion activities and substantial spend by oil and gas companies relative to their full year budgets.

~~Proppant Management~~ System Services Revenue. Our ~~proppant management~~ system services revenue increased ~~$2.5~~$6.1 million, or ~~278%~~50%, to ~~$3.4~~$18.2 million for the three months ended September 30, ~~2017~~2019 compared to ~~$0.9~~$12.1 million for the three months ended September 30, ~~2016. Proppant management system~~2018. System services revenue ~~related~~increased $7.6 million due to an increase in services provided to coordinate proppant delivered into our systems, partially offset by a decrease of $1.5 million in field ~~technicians and transportation has increased as a result of the increasing number of systems we have deployed. Once systems are deployed, the Company provides services~~technician support to maintain ~~such~~ systems ~~on-site for customers~~ and ~~to coordinate the~~ transportation of systems between customer sites.

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Transloading Services Revenue. Our transloading services revenue increased $2.4 million, or 120%, to $4.4 million for the three months ended September 30, 2019 compared to $2.0 million for the three months ended September 30, 2018. This increase was primarily due to recognition of $3.2 million of deferred revenue partially offset by a decrease in the number of tons transloaded at our Kingfisher Facility. We generally charge our customers a throughput fee for providing rail-to-truck transloading and high-efficiency sand silo storage and transloading services in relation to proppant and chemicals delivered to the Kingfisher Facility.

Inventory Software Services Revenue. Our inventory software services revenue decreased $0.2 million, or 33%, to $0.4 million for the three months ended September 30, 2019 compared to $0.6 million for the three months ended September 30, 2018, related to 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.

Operating Expenses

Total operating costs and expenses for the three months ended September 30, ~~2017~~2019 and ~~2016~~2018 were ~~$10.4~~$36.8 million and ~~$4.0~~$25.9 million, respectively, which represented ~~56%~~62% and ~~85%~~46% of total revenue, respectively. Total operating costs and expenses increased year-over-year primarily as a result of an increase in ~~salaries, benefits~~the number of our systems where we coordinate proppant delivered into our systems, coupled with an increase in depreciation and ~~payroll taxes related to increases in indirect personnel and deferred compensation. Cost~~amortization expense. Total operating costs as a percentage of ~~proppant management system services~~total revenue increased as a result of an increase in ~~the number of field technicians and amount of~~ system ~~transportation required~~services expense in relation to support the increase in our total systems deployed to customers. The average number of systems deployed to customers have increased to 49.6 in the three months ended September 30, 2017 from 16.4 in the three months ended September 30, 2016. Depreciation and amortization expense also increased, primarily due to the addition of new systems that were manufactured and added to our fleet in 2016 and the first nine months of 2017. Selling, general and administrative expenses increased related to increases in indirect personnel and general business expenses resulting from increased manufacturing and rental operations and incremental public company expenses.proppant delivery coordination services provided. Additional details regarding the changes in operating expenses are presented below.

Cost of ~~Proppant Management~~ System ~~Rental.~~Rental (excluding depreciation and amortization). Cost of ~~proppant management~~ system rental increased ~~$0.2~~$0.9 million, or ~~50%~~47%, to ~~$0.6~~$2.8 million for the three months ended September 30, ~~2017~~2019 compared to ~~$0.4~~$1.9 million for the three months ended September 30, ~~2016,~~2018, excluding depreciation and amortization expense. Cost of ~~proppant management~~ system rental as a percentage of ~~proppant management~~ system rental revenue was 4%8% and ~~10%~~5% for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~These~~Cost of system rental increased primarily due to an increase in maintenance expense, in addition to ad valorem and other fixed costs as a ~~percentage~~result of ~~related rental revenue decreased due to lower repairs and maintenance costs relative to~~an increase in the ~~increase in~~number of systems that were ~~deployed~~added to ~~customers.~~ our fleet. The average number of mobile proppant systems in the fleet increased to 165 systems in the three months ended September 30, 2019 from 134 systems in the three months ended September 30, 2018.

Cost of ~~proppant management~~ system rental including depreciation and amortization expense increased ~~$0.9~~$2.5 million, or ~~69%~~41%, to ~~$2.2~~$8.6 million for the three months ended September 30, ~~2017~~2019 compared to ~~$1.3~~$6.1 million for the three months ended September 30, ~~2016.~~2018. This increase was primarily attributable to anthe increase in depreciation expense related to the additional systems that were manufactured and added to our fleet.

Cost of ~~Proppant Management~~ System ~~Services.~~Services (excluding depreciation and amortization). Cost of ~~proppant management~~ system services increased ~~$2.4~~$7.2 million, or ~~160%~~52%, to ~~$3.9~~$21.1 million for the three months ended September 30, ~~2017~~2019 compared to ~~$1.5~~$13.9 million for the three months ended September 30, ~~2016.~~2018. This increase was primarily due to an increase of $7.9 million in ~~labor and related costs of $1.2 million, or 180%, and travel and lodging costs of $0.4 million, or 233%, both of which were driven~~relation to services provided to coordinate proppant delivered to systems, partially offset by ~~an increase in the number of field technicians required to support the increased revenue days during the three months ended September 30, 2017, coupled with an increase~~decreases in third-party trucking services of $0.5 million ~~or 93%~~ to transport incremental systems deployed to customers.

For the three months ended September 30, ~~2017,~~2019, the cost of ~~proppant management~~ system services as a percentage of ~~proppant management~~ system services revenue ~~decreased~~increased to ~~115%~~116% compared to ~~166% the three months ended September 30, 2016. Cost of proppant management system services as a percentage of proppant management system services revenue decreased~~115% for the three months ended September 30, ~~2017 as a result of increased operating efficiencies in regards to the service costs necessary to support our systems deployed to customers.~~2018.

Cost of ~~proppant management~~ system services including depreciation and amortization expense increased ~~$2.6~~$7.2 million, or ~~163%~~51%, to ~~$4.1~~$21.4 million for the three months ended September 30, ~~2017~~2019 compared to ~~$1.5~~$14.3 million for the three months ended September 30, ~~2016.~~2018. This increase was primarily attributable to the factors mentioned ~~above, as well as an increase~~above.

Cost of Transloading Services (excluding depreciation and amortization). Cost of transloading services increased $0.1 million, or 17%, to $0.7 million for the three months ended September 30, 2019 compared to $0.6 million for the three months ended September 30, 2018 primarily due to increases in direct labor costs, fuel, utilities and maintenance related to transloading services activity at our Kingfisher Facility.

Cost of transloading services including depreciation and amortization expense decreased $0.1 million, or 9%, to $1.1 million for the three months ended September 30, 2019 compared to $1.1 million for the three months ended

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September 30, 2018 due to depreciation expense related to ~~additional light-duty field trucks that we purchased~~transloading facility and equipment, which commenced upon completion of the construction of the Kingfisher Facility in the third quarter of 2018.

Cost of Inventory Software Services (excluding depreciation and amortization). Cost of inventory software services, which remained consistent at $0.2 million for the three months ended September 30, 2019 and 2018, primarily includes labor and software subscription costs related to ~~support our increased activity.~~Railtronix inventory management software.

Cost of inventory software services including depreciation and amortization expense remained consistent at $0.4 million for the three months ended September 30, 2019 and 2018. Amortization consists of customer relationships, a non-competition agreement and software acquired in the acquisition of Railtronix.

Depreciation and Amortization. Depreciation and amortization increased ~~$0.7~~$1.6 million, or ~~70%~~30%, to ~~$1.7~~$6.9 million for the three months ended September 30, ~~2017~~2019 compared to ~~$1.0~~$5.3 million for the three months ended September 30, ~~2016.~~2018. This increase was primarily attributable to additional depreciation expense related to additional systems that were manufactured and added to our ~~fleet.~~fleet and our transloading facility and equipment placed in service in 2018 and during the nine months ended September 30, 2019.

~~Salaries, Benefits~~Selling, General and ~~Payroll Taxes.~~Administrative Expenses (excluding depreciation and amortization). ~~Salaries, benefits~~Selling, general and ~~payroll taxes~~administrative expenses increased ~~$2.3~~$1.1 million, or ~~383%~~28%, to ~~$2.9~~$5.0 million for the three months ended September 30, ~~2017~~2019 compared to ~~$0.6~~$3.9 million for the three months ended September 30, ~~2016. The increase was due to an increase in stock based compensation expense of $1.4 million as a result of the~~

~~Table of Contents~~

issuance of restricted shares in connection with, and subsequent to, the Offering and an increase of $0.8 million was due to additions in corporate and manufacturing administrative personnel in response to the increase in our manufacturing activity, demand for our systems, and industry activity.

~~Selling, General and Administrative Expenses.~~ Selling, general and administrative expenses increased $0.7 million, or 140%, to $1.2 million for the three months ended September 30, 2017 compared to $0.5 million for the three months ended September 30, 20162018 due primarily to an increase ~~of $0.5 million~~ in ~~professional fees~~stock-based compensation, labor and ~~employee recruiting~~professional fees.

Other Operating Expenses. Other operating expenses ~~in 2017 are~~for the three months ended September 30, 2019 and 2018 were primarily ~~a change in payable~~ related to ~~parties pursuant to tax receivable agreements, partially offset by~~ loss on disposal of ~~field equipment~~assets.

Provision for Income Taxes. During the three months ended September 30, 2019, we recognized a combined United States federal and ~~non-recurring transaction costs.~~state provision for income taxes of $3.7 million, a decrease of $0.5 million as compared to $4.2 million we recognized during the three months ended September 30, 2018. This decrease was attributable to lower operating income. The effective combined United States federal and state income tax rates were 14.80% and 13.98% for the three months ended September 30, 2019 and 2018, respectively. For the three months ended September 30, 2019 and 2018, our effective tax rate differed from the statutory rate primarily due to Solaris LLC’s pass-through treatment for United States federal income tax purposes.

Net Income

Net income ~~increased $6.7~~decreased $7.4 million, or 28%, to ~~$7.4~~$19.1 million for the three months ended September 30, ~~2017~~2019 compared to ~~a net income of $0.7~~$26.4 million for the three months ended September 30, ~~2016,~~2018, due to the changes in revenues and expenses discussed above.

Comparison of Non-GAAP Financial Measures

We believe that our presentation of EBITDA and Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. 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 (loss) to EBITDA and Adjusted EBITDA for each of the periods indicated.

Three months ended

September 30,


2017

2016

Change

(in thousands)
Net income

$
7,406

$
711

$
6,695
Depreciation and amortization

1,742

959

783
Interest expense, net

27

5

22
Income taxes (1)

617

14

603
EBITDA

$
9,792

$
1,689

$
8,103
Stock-based compensation expense (2)

795

36

759
IPO bonuses (3)

617

—

617
Change in payable related to parties pursuant to tax receivable agreements

(83)

—

(83)
Loss on disposal of assets

41

—

41
Other (4)

36

—

36
Adjusted EBITDA

$
11,198

$
1,725

$
9,473

~~(1)~~

~~Income taxes include add-back for federal and state taxes.~~

~~(2)~~

~~Represents stock-based compensation costs of $0.7 million related to restricted stock awards and $0.1 million related to the options issued under the Plan.~~

~~(3)~~

Represents stock-based compensation expense of $0.6 million related to restricted stock awards with one-year vesting that were granted to certain employees and consultants in connection with the Offering.

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~~(4)~~

~~Non-recurring transaction costs.~~

~~Three Months Ended September 30, 2017, Compared to Three Months Ended September 30, 2016: EBITDA and Adjusted EBITDA~~

EBITDA increased $8.1 million to $9.8 million for the three months ended September 30, 2017 and Adjusted EBITDA increased $9.5 million to $11.2 million for the three months ended September 30, 2017 compared to $1.7 million for the three months ended September 30, 2016. EBITDA and Adjusted EBITDA increased 480% and 559%, respectively, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increases were primarily due to an increase in the number of revenue days and the number of systems deployed to customers, as well as an increase in the rental rates charged to customers due to increasing demand for our systems.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

Nine Months Ended

September 30,


2017

2016

Change

(in thousands)
Revenue






Proppant management system rental

$
34,560

$
8,679

$
25,881
Proppant management system services

7,631

2,189

5,442
Total revenue

42,191

10,868

31,323
Operating costs and expenses:






Cost of proppant management system rental (excluding $3,748 and $2,418 of depreciation and amortization for the nine months ended September 30, 2017 and 2016, respectively, shown separately

1,588

1,181

407
Cost of proppant management system services (excluding $283 and $111 of depreciation and amortization for the nine months ended September 30, 2017 and 2016, respectively, shown separately

8,640

3,301

5,339
Depreciation and amortization

4,276

2,739

1,537
Salaries, benefits and payroll taxes

5,687

1,992

3,695
Selling, general and administrative (excluding $245 and $210 of depreciation and amortization for the nine months ended September 30, 2017 and 2016, respectively, shown separately

3,653

1,842

1,811
Other operating expenses

3,770

—

3,770
Total operating costs and expenses

27,614

11,055

16,559
Operating income (loss)

14,577

(187)

14,764
Interest expense, net

(71)

(14)

(57)
Other income (expense)

(119)

7

(126)
Total other income (expense)

(190)

(7)

(183)
Income (loss) before income tax expense

14,387

(194)

14,581
Benefit (provision) for income taxes

(1,137)

(26)

(1,111)
Net income (loss)

13,250

(220)

13,470
Less: net (income) loss related to Solaris LLC

(3,665)

220

(3,885)
Less: net (income) related to non-controlling interests

(8,049)

—

(8,049)
Net income attributable to Solaris

$
1,536

$
—

$
1,536

~~Revenue~~

~~Proppant Management System Rental Revenue.~~ ~~Our proppant management system rental revenue increased $25.9 million,~~gains, losses or 298%, to $34.6 million for the nine months ended September 30, 2017 compared to $8.7 million for the nine months ended September 30, 2016. This increase was primarily due to a 193% increase in the number of revenue days, from 3,610 days in the nine months ended September 30, 2016 to 10,566 days in the nine months ended

~~Table of Contents~~

~~September 30, 2017, coupled with an increase in rental rates charged to customers due to increasing demand for our systems.~~

~~Proppant Management System Services Revenue.~~ Our proppant management system services revenue increased $5.4 million, or 245%, to $7.6 million for the nine months ended September 30, 2017 compared to $2.2 million for the nine months ended September 30, 2016. Proppant management system services revenue related to field technicians and transportation has increased as a result of the increasing number of systems we have deployed. Once systems are deployed, the Company provides services to maintain such systems on-site for customers and to coordinate the transportation of systems between customer sites.

~~Operating Expenses~~

Total operating costs and expenses for the nine months ended September 30, 2017 and 2016 were $27.6 million and $11.1 million, respectively, which represented 65% and 102% of total revenue, respectively. Other operating expenses are primarily related to non-recurring charges, including those related to the Reorganization Transactions. Excluding other operating expenses, total operating costs and expenses for the nine months ended September 30, 2017 and 2016 were $23.8 million and $11.1 million, respectively, which represented 57% and 102% of total revenue, respectively. Total operating expenses increased year-over-year primarily as a result of an increase in the cost of proppant management system services which includes direct labor and related maintenance and transportation costs. Cost of proppant management system service increased as a result of an increase in the number of field technicians and amount of system transportation required to support the increase in our total systems deployed to customers. The average number of systems deployed to customers have increased to 38.7 in the nine months ended September 30, 2017 from 13.2 in the nine months ended September 30, 2016. Depreciation and amortization expense also increased, primarily due to the addition of new systems that were manufactured and added to our fleet in 2016 and throughout 2017. Salaries, benefits and payroll taxes and selling, general and administrative expenses, increased related to increases in indirect personnel and general business expenses resulting from increased manufacturing and rental operations. Additional details regarding the changes in operating expenses are presented below.

~~Cost of Proppant Management System Rental.~~ Cost of proppant management system rental increased $0.4 million, or 33%, to $1.6 million for the nine months ended September 30, 2017 compared to $1.2 million for the nine months ended September 30, 2016, excluding depreciation and amortization expense. Cost of proppant management system rental as a percentage of proppant management system rental revenue was 5% and 14% for the nine months ended September 30, 2017 and 2016, respectively. These costs as a percentage of related rental revenue decreased due to lower repairs and maintenance costs relative to the increase in systems that were deployed to customers.

Cost of proppant management system rental including depreciation and amortization expense increased $1.7 million, or 47%, to $5.3 million for the nine months ended September 30, 2017 compared to $3.6 million for the nine months ended September 30, 2016. This increase was primarily attributable to an increase in depreciation expense related to additional systems that were manufactured and added to our fleet.

~~Cost of Proppant Management System Services.~~ Cost of proppant management system services increased $5.3 million, or 161%, to $8.6 million for the nine months ended September 30, 2017 compared to $3.3 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in labor and related costs of $2.4 million, or 143%, and travel and lodging costs of $0.7 million, or 170%, both of which were driven by an increase in the number of field technicians required to support the increased revenue days during the nine months ended September 30, 2017, coupled with an increase in third-party trucking services of $1.6 million, or 180%, to transport incremental systems deployed to customers.

For the nine months ended September 30, 2017, the cost of proppant management system services as a percentage of proppant management system services revenue decreased to 113% compared to 151% for the nine months ended September 30, 2016. Cost of proppant management system services as a percentage of proppant management system services revenue decreased for the nine months ended September 30, 2017 as a result of increased operating efficiencies in regards to the service costs necessary to support our systems deployed to customers.

~~Table of Contents~~

Cost of proppant management system services including depreciation and amortization expense increased $5.5 million, or 162%, to $8.9 million for the nine months ended September 30, 2017 compared to $3.4 million for the nine months ended September 30, 2016. This increase was primarily attributable to the factors mentioned above, as well as an increase in depreciation expense related to additional light-duty field trucks that we purchased to support our increased activity.

~~Depreciation and Amortization.~~ Depreciation and amortization increased $1.6 million, or 56%, to $4.3 million for the nine months ended September 30, 2017 compared to $2.7 million for the nine months ended September 30, 2016. This increase was primarily attributable to additional depreciation expense related to additional systems that were manufactured and added to our fleet.

~~Salaries, Benefits and Payroll Taxes.~~ Salaries, benefits and payroll taxes increased $3.7 million, or 185%, to $5.7 million for the nine months ended September 30, 2017 compared to $2.0 million for the nine months ended September 30, 2016. The increase was primarily due to an increase in stock based compensation expense of $2.0 million as a result of the issuance of restricted shares in connection with, and subsequent to, the Offering. The remaining increase was due to additions in corporate and manufacturing administrative personnel in response to the increase in our manufacturing activity, demand for our systems, and industry activity.

~~Selling, General and Administrative Expenses.~~ Selling, general and administrative expenses increased $1.9 million, or 106%, to $3.7 million for the nine months ended September 30, 2017 compared to $1.8 million for the nine months ended September 30, 2016 due primarily to an increase of $1.6 million in professional fees and non-payroll employee costs.

~~Other Operating Expense.~~ Other operating expenses in 2017 are primarily one-time bonuses of $3.1 million paid to certain employees in connection with the offering, loss on disposal of field equipment and vehicles of $0.5 million, certain non-recurring organizational costs associated with the IPO of $0.3 million.

~~Net Income (loss)~~

Net income (loss) increased $13.5 million to $13.3 million for the nine months ended September 30, 2017 compared to a net loss of $0.2 million for the nine months ended September 30, 2016, due to the changes in revenues and expenses discussed above. Excluding other operating expenses which are primarily related to the Reorganization Transactions, Net income increased $17.2 million to $17.0 million for the nine months ended September 30, 2017 compared to a net loss of $0.2 million for the nine months ended September 30, 2016, due to the change in revenues and expenses discussed above.

~~Comparison of Non-GAAP Financial Measures~~

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income (loss), 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 charges and unusual or non-recurring charges.expenses.

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titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of Net income ~~(loss)~~ to EBITDA and Adjusted EBITDA for each of the periods indicated.


	Nine months ended						Three months ended
	September 30,						September 30,
	2017		2016		Change		2019		2018		Change
	(in thousands)						(in thousands)
Net income (loss)	$	13,250	$	(220)	$	13,470
Net income							$	19,082	$	26,437	$	(7,355)
Depreciation and amortization		4,276		2,739		1,537		6,908		5,328		1,580
Interest expense, net		71		14		57		8		116		(108)
Income taxes (1)		1,137		26		1,111		3,703		4,237		(534)
EBITDA	$	18,734	$	2,559	$	16,175	$	29,701	$	36,118	$	(6,417)
IPO bonuses (2)		4,046		—		4,046
Stock-based compensation expense (3)		1,172		108		1,064
Stock-based compensation expense (2)								1,225		338		887
Loss on disposal of assets		451		—		451		99		51		48
Non-recurring organizational costs (4)		348		—		348
Change in payable related to parties pursuant to tax receivable agreements		(83)		—		(83)
Other (5)		36		—		36
Severance								154		—		154
Adjusted EBITDA	$	24,704	$	2,667	$	22,037	$	31,179	$	36,507	$	(5,328)

(1)

~~Income taxes include add-back for federal~~Federal and state income taxes.

(2)

~~One-time cash bonuses of $3.1 million and~~Represents stock-based compensation expense ~~of $0.9 million~~ related to restricted stock awards ~~with one-year vesting that were paid or granted to certain employees~~of $1.2 million and ~~consultants~~$0.3 million in ~~connection with~~ the ~~Offering.~~three months ended September 30, 2019 and 2018, respectively.

(3)

Other is primarily related to severance costs.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018: EBITDA and Adjusted EBITDA

EBITDA decreased $6.4 million to $29.7 million for the three months ended September 30, 2019 compared to $36.1 million for the three months ended September 30, 2018. Adjusted EBITDA decreased $5.3 million to $31.2 million for the three months ended September 30, 2019 compared to $36.5 million for the three months ended September 30, 2018. EBITDA and Adjusted EBITDA decreased 18% and 15% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, respectively. The decreases were primarily due to lower rig count and hydraulic fracturing activities as a result of operating efficiencies in completion activities and substantial spend by oil and gas companies relative to their full year budgets.

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Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018


	Nine Months Ended
	September 30,
	2019		2018		Change
	(in thousands)
Revenue
System rental	$	113,726	$	104,563	$	9,163
System services		48,621		29,499		19,122
Transloading services		15,131		3,847		11,284
Inventory software services		1,351		1,950		(599)
Total revenue		178,829		139,859		38,970
Operating costs and expenses:
Cost of system rental (excluding $16,481 and $10,128 of depreciation and amortization for the nine months ended September 30, 2019 and 2018, respectively, shown separately)		7,737		5,050		2,687
Cost of system services (excluding $1,173 and $889 of depreciation and amortization for the nine months ended September 30, 2019 and 2018, respectively, shown separately)		56,366		34,691		21,675
Cost of transloading services and other (excluding $1,231 and $544 of depreciation and amortization for the nine months ended September 30, 2019 and 2018, respectively, shown separately)		2,051		1,464		587
Cost of inventory software services (excluding $579 and $598 of depreciation and amortization for the nine months ended September 30, 2019 and 2018, respectively, shown separately)		460		614		(154)
Depreciation and amortization		19,875		12,514		7,361
Selling, general and administrative (excluding $411 and $355 of depreciation and amortization for the nine months ended September 30, 2019 and 2018, respectively, shown separately)		13,967		12,662		1,305
Other operating expenses		529		1,752		(1,223)
Total operating costs and expenses		100,985		68,747		32,238
Operating income		77,844		71,112		6,732
Interest expense, net		(775)		(271)		(504)
Total other expense		(775)		(271)		(504)
Income before income tax expense		77,069		70,841		6,228
Provision for income taxes		(12,042)		(9,541)		(2,501)
Net income		65,027		61,300		3,727
Less: net income related to non-controlling interests		(28,036)		(31,754)		3,718
Net income attributable to Solaris	$	36,991	$	29,546	$	7,445

Revenue

System Rental Revenue. Our system rental revenue increased $9.2 million, or 9%, to $113.7 million for the nine months ended September 30, 2019 compared to $104.6 million for the nine months ended September 30, 2018. This increase was primarily due to a 9% increase in mobile proppant systems on a fully utilized basis, due to increasing demand for our systems and enhancements to our product offering.

System Services Revenue. Our system services revenue increased $19.1 million, or 65%, to $48.6 million for the nine months ended September 30, 2019 compared to $29.5 million for the nine months ended September 30, 2018. System services revenue increased $17.0 million due to an increase in services provided to coordinate proppant delivered into our systems, in addition to a $2.1 million increase in field technician support to maintain systems and transportation of systems between customer sites.

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Transloading Services Revenue. Our transloading services revenue increased $11.3 million, or 297%, to $15.1 million for the nine months ended September 30, 2019 compared to $3.8 million for the nine months ended September 30, 2018. This increase was primarily due to recognition of $9.5 million of deferred revenue and an increase in the number of tons transloaded at our Kingfisher Facility. We generally charge our customers a throughput fee for providing rail-to-truck transloading and high-efficiency sand silo storage and transloading services in relation to proppant and chemicals delivered to the Kingfisher Facility.

Inventory Software Services Revenue. Our inventory software services revenue, which decreased $0.6 million, or 30% to $1.4 million for the nine months ended September 30, 2019 compared to $2.0 million for the nine months ended September 30, 2018, is related to 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.

Operating Expenses

Total operating costs and expenses for the nine months ended September 30, 2019 and 2018 were $101.0 million and $68.7 million, respectively, which represented 56% and 49% of total revenue, respectively. Total operating costs and expenses increased year-over-year primarily as a result of the deployment of additional systems to our customers and services thereof, coupled with the related increase in depreciation and amortization expense. Total operating costs as a percentage of total revenue increased as a result of an increase in system services expense in relation to proppant delivery coordination services provided. Additional details regarding the changes in operating expenses are presented below.

Cost of System Rental (excluding depreciation and amortization). Cost of system rental increased $2.6 million, or 51%, to $7.7 million for the nine months ended September 30, 2019 compared to $5.1 million for the nine months ended September 30, 2018, excluding depreciation and amortization expense. Cost of system rental as a percentage of system rental revenue was 7% and 5% for the nine months ended September 30, 2019 and 2018, respectively. Cost of system rental increased primarily due to an increase in ad valorem and other fixed costs as a result of an increase in the number of systems that were added to our fleet. The average number of systems deployed to customers increased to 117 systems in the nine months ended September 30, 2019 from 107 systems in the nine months ended September 30, 2018.

Cost of system rental including depreciation and amortization expense increased $9.0 million, or 59%, to $24.2 million for the nine months ended September 30, 2019 compared to $15.2 million for the nine months ended September 30, 2018. This increase was primarily attributable to the increase in systems that were deployed to customers and an increase in depreciation expense related to the additional systems that were manufactured and added to our fleet.

Cost of System Services (excluding depreciation and amortization). Cost of system services increased $21.7 million, or 63%, to $56.4 million for the nine months ended September 30, 2019 compared to $34.7 million for the nine months ended September 30, 2018. This increase was primarily due to an increase of $17.3 million in relation to services provided to coordinate proppant delivered to systems. Cost of system services also increased due to an increase in field labor and related costs of $2.1 million, coupled with increased third-party trucking services of $1.4 million to transport incremental systems deployed to customers. The increase in field labor and related costs was driven by an increase in the number of field technicians required to support the increased number of systems deployed during the nine months ended September 30, 2019. For the nine months ended September 30, 2019, the cost of system services as a percentage of system services revenue decreased to 116% compared to 118% for the nine months ended September 30, 2018.

Cost of system services including depreciation and amortization expense increased $22.0 million, or 62%, to $57.5 million for the nine months ended September 30, 2019 compared to $35.6 million for the nine months ended September 30, 2018. This increase was primarily attributable to the factors mentioned above, as well as an increase in depreciation expense related to additional light-duty field trucks that we purchased to support our increased activity.

Cost of Transloading Services (excluding depreciation and amortization). Cost of transloading services increased $0.6 million, or 40%, to $2.1 million for the nine months ended September 30, 2019 compared to $1.5 million for the nine months ended September 30, 2018 primarily due to increases in direct labor costs, fuel, utilities and maintenance related to increased transloading services activity at our Kingfisher Facility.

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Cost of transloading services including depreciation and amortization expense increased $1.3 million, or 65%, to $3.3 million for the nine months ended September 30, 2019 compared to $2.0 million for the nine months ended September 30, 2018 due to depreciation expense related to transloading facility and equipment, which commenced upon completion of the construction of the Kingfisher Facility in the third quarter of 2018.

Cost of Inventory Software Services (excluding depreciation and amortization). Cost of inventory software services, which decreased $0.1 million, or 17%, to $0.5 million for the nine months ended September 30, 2019 compared to $0.6 million for the nine months ended September 30, 2018, primarily includes labor and software subscription costs related to Railtronix inventory management software.

Cost of inventory software services including depreciation and amortization expense decreased $0.2 million, or 17%, to $1.0 million for the nine months ended September 30, 2019 compared to $1.2 million for the nine months ended September 30, 2018. This decrease was primarily attributable to the labor and software subscription costs. Amortization consists of customer relationships, a non-competition agreement and software acquired in the acquisition of Railtronix.

Depreciation and Amortization. Depreciation and amortization increased $7.4 million, or 59%, to $19.9 million for the nine months ended September 30, 2019 compared to $12.5 million for the nine months ended September 30, 2018. This increase was primarily attributable to additional depreciation expense related to additional systems that were manufactured and added to our fleet and our transloading facility and equipment placed in service in 2018.

Selling, General and Administrative Expenses (excluding depreciation and amortization). Selling, general and administrative expenses increased $1.3 million, or 10%, to $14.0 million for the nine months ended September 30, 2019 compared to $12.7 million for the nine months ended September 30, 2018 due primarily to an increase in stock-based compensation, salaries, benefits and payroll taxes and professional fees.

Other Operating Expenses. Other operating expenses decreased $1.3 million, or 72%, to $0.5 million for the nine months ended September 30, 2019 compared to $1.8 million for the nine months ended September 30, 2018. Other operating expenses in the nine months ended September 30, 2019 were primarily related to $0.4 million loss on disposal of assets. Other operating expenses in the nine months ended September 30, 2018 were primarily related to certain performance-based cash awards totaling $1.7 million in connection with the purchase of Railtronix upon the achievement of certain financial milestones.

Provision for Income Taxes. During the nine months ended September 30, 2019, we recognized a combined United States federal and state provision for income taxes of $12.0 million, an increase of $2.5 million as compared to $9.5 million we recognized during the nine months ended September 31, 2018. This increase was attributable to higher operating income. The effective combined United States federal and state income tax rates were 14.88% and 13.54% for the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, our effective tax rate differed from the statutory rate primarily due to Solaris LLC’s pass-through treatment for United States federal income tax purposes.

Net Income

Net income increased $3.7 million to $65.0 million for the nine months ended September 30, 2019 compared to $61.3 million for the nine months ended September 30, 2018, due to the changes in revenues and expenses discussed above.

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.

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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.


	Nine months ended
	September 30,
	2019		2018		Change
	(in thousands)
Net income	$	65,027	$	61,300	$	3,727
Depreciation and amortization		19,875		12,514		7,361
Interest expense, net		775		271		504
Income taxes (1)		12,042		9,541		2,501
EBITDA	$	97,719	$	83,626	$	14,093
Stock-based compensation expense (2)		3,265		2,200		1,065
Loss on disposal of assets		383		77		306
Severance		154		—		154
Non-recurring cash bonuses (3)		—		1,679		(1,679)
IPO bonuses (4)		—		896		(896)
Adjusted EBITDA	$	101,521	$	88,478	$	13,939

(1)

Federal and state income taxes.

(2)

Represents stock-based compensation ~~costs of $0.9 million~~expense related to restricted stock awards of $3.3 million and $2.2 million in the nine months ended September 30, 2019 and 2018, respectively.

(3)

Certain performance-based cash awards paid in connection with ~~three-year vesting and $0.3 related to~~ the ~~options issued under~~purchase of Railtronix upon the ~~Plan.~~achievement of certain financial milestones.

(4)

~~Certain non-recurring organizational costs associated~~Represents stock-based compensation expense related to restricted stock awards with ~~our~~one-year vesting of $0.9 million in the nine months ended September 30, 2018 that were granted to certain employees and consultants in connection with the IPO.

~~(5)~~

~~Non-recurring transaction costs.~~

Nine Months Ended September 30, ~~2017,~~2019 Compared to Nine Months Ended September 30, ~~2016:~~2018: EBITDA and Adjusted EBITDA

EBITDA increased ~~$16.1~~$14.1 million to ~~$18.7~~$97.7 million for the nine months ended September 30, ~~2017 and Adjusted EBITDA increased $22.0 million~~2019 compared to ~~$24.7~~$83.6 million for the nine months ended September 30, ~~2017 compared to EBITDA and Adjusted EBITDA of $2.6 million and $2.7 million, for the three and nine months ended September 30, 2016, respectively. EBITDA and~~2018. Adjusted EBITDA increased ~~632% and 815%, respectively,~~$13.0 million to $101.5 million for the nine months ended September 30, ~~2017~~2019 compared to $88.5 million for the nine months ended September 30, 2018. EBITDA and Adjusted EBITDA increased 17% and 15% for the nine months ended September 30, 2019 compared to the nine months ended September 30, ~~2016.~~2018, respectively. The increases were primarily due to an increase in the number of ~~revenue days and the number of~~ systems deployed ~~to customers, as well as an increase in the rental rates charged~~ to customers due to increasing demand for our ~~systems.~~systems and enhancements to our product offering.

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Liquidity and Capital Resources

Overview

Our primary sources of liquidity to date have been capital contributions from our ~~owners,~~founding investors, cash flows from operations, borrowings under our ~~Amended Credit Facility (as defined above)~~credit agreements and proceeds from the ~~IPO.~~IPO and the November 2017 Offering. Our primary uses of capital have been capital expenditures to ~~support organic growth, construction of~~expand and enhance our proppant and chemical management system fleets, construct the Kingfisher Facility, ~~and the acquisition of~~acquire our manufacturing facility and certain intellectual ~~property.~~property and acquire the assets of Railtronix. We strive to maintain financial flexibility and proactively monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements and to permit us to manage the cyclicality associated with our ~~business.~~industry.

On ~~May 17, 2017,~~October 9, 2018, Solaris ~~completed~~Inc. filed a universal shelf registration statement on Form S-3 (the “Universal Shelf”) with the ~~offering~~SEC. Under the Universal Shelf, Solaris Inc. may offer and sell up to $500 million of ~~10,100,000 shares of its~~ Class A common stock, ~~par value $0.01 per share (“~~preferred stock, debt securities or any combination of such securities during the three-year period that commenced upon the Universal Shelf becoming effective on October 16, 2018. Additionally, certain stockholders of the Company (the “Selling Stockholders”) may offer and sell up to an aggregate of 18,366,612 shares of Class A ~~Common Stock”),~~common stock under the Universal Shelf. Under the Universal Shelf, Solaris Inc. may periodically offer one or more types of securities in amounts, at ~~a price~~prices and on terms announced, if and when the securities are ever offered. Solaris Inc. will not receive any proceeds, if any, from the sale of shares of Class A common stock by the Selling Stockholders. Alternatively, the Selling Stockholders from time to ~~the public~~time may sell shares of $12.00 per share ($11.28 net of underwriting discounts and commissions). After deducting underwriting discounts and commissions and offering expenses payable by Solaris, Solaris received net proceeds of approximately $113.9 million. ~~Solaris contributed all~~Class A common stock pursuant to an exemption under Rule 144 of the net proceeds of the IPO to Solaris LLC in exchange for Solaris LLC Units. Solaris LLC used the net proceeds (i) to fully repay our existing balance of approximately $5.5 million under the Credit Facility, (ii) to pay $3.1 million in cash bonuses to certain employees and consultants and (iii) to distribute approximately $25.8 million to the Original Investors as part of the corporate reorganization being undertaken in connection with the IPO. Securities Act.

We ~~have used a portion of the proceeds and intend to use the remaining proceeds for general corporate purposes, including funding our 2017 capital program. Following the IPO, we~~ intend to finance most of our capital expenditures, contractual obligations and working capital needs with our current cash balance, cash generated from future operations ~~proceeds from the IPO~~ and borrowings under our ~~Amended~~2019 Credit Facility. We currently estimate that our capital expenditures for 2017 will range from $80.0 million to $95.0 million, the majority of which we expect will be used to manufacture additional systems for our fleet and advance construction of the Kingfisher Facility. Based upon our current contracted capacity at the Kingfisher Facility, we estimate that approximately $40.0 million of capital expenditures will be required to complete the initial phase of the facility’s construction. However, to the extent that we are successfulAgreement (as defined in ~~contracting additional capacity at the Kingfisher Facility with other customers, additional capital expenditures may be required to further advance the construction of the facility.~~“—Debt Agreements”). We continuously evaluate our capital expenditures and the amount we ultimately spend will depend on a number of factors, including expected industry activity levels and company initiatives. We believe that our operating cash flow ~~proceeds from the IPO~~ and available borrowings under our ~~Amended~~2019 Credit ~~Facility~~Agreement will be sufficient to fund our operations for at least the next ~~twelve~~12 months.

As of September 30, ~~2017,~~2019, cash totaled ~~$54.0~~$51.7 million.

Cash Flows

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


	Nine Months Ended						Nine Months Ended
	September 30,						September 30,				Change
	2017		2016		Change		2019		2018		2019 vs. 2018
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	12,999	$	768	$	12,231	$	88,549	$	57,539	$	31,010
Net cash used in investing activities		(49,049)		(5,951)		(43,098)		(32,166)		(124,859)		92,693
Net cash provided by (used in) financing activities		86,478		(161)		86,639
Net cash used in financing activities								(29,754)		5,976		(35,730)
Net change in cash	$	50,428	$	(5,344)	$	55,772	$	26,629	$	(61,344)	$	87,973

Analysis of Cash Flow Changes for Nine Months Ended September 30, ~~2017~~2019 Compared to Nine Months Ended September 30, ~~2016~~2018

Operating Activities. Net cash provided by operating activities was ~~$13.0~~$88.5 million for the nine months ended September 30, ~~2017,~~2019, compared to net cash provided by operating activities of ~~$0.8~~$57.5 million for the nine months ended September 30, ~~2016.~~2018. The increase of ~~$12.2~~$31.0 million in operating cash flow was primarily attributable to ~~an increase~~changes in ~~net income of $13.1 million due to an increase in the number of revenue days, offset by an increase of $7.2 million in inventories as a result of an increase in our manufacturing activities.~~working capital items.

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Investing Activities. Net cash used in investing activities was ~~$49.0~~$32.2 million for the nine months ended September 30, ~~2017,~~2019, compared to ~~$6.0~~$124.9 million for the nine months ended September 30, ~~2016~~2018. The decrease in investing activities of $92.7 million is primarily due to ~~an increase~~a decrease in the manufacturing rate of new ~~systems.~~proppant systems and completion of construction of the Kingfisher Facility in the third quarter of 2018. For the nine months ended September

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30, ~~2017, $40.5~~2019, $32.5 million of investing activities were capital expenditures related to manufacturing new systems, ~~$2.1~~including work in process, offset by a $0.3 million decrease in vehicles due to sales of light duty vehicles. For the nine months ended September 30, 2018, $111.7 million of investing activities were capital expenditures related to manufacturing new systems, $13.8 million related to the construction of our Kingfisher Facility and $3.1 million related to the purchase of light duty vehicles to support the service of our systems and $4.8 million of investing activities were capital expenditures related to the construction of our Kingfisher Facility. For the nine months ended September 30, 2016, $5.9 million of investing activities were primarily related to capital expenditures related to manufacturing new systems.

Financing Activities. Net cash ~~provided by~~used in financing activities ~~of $86.5~~was $29.8 million for the nine months ended September 30, ~~2017,~~2019, compared to $6.0 million for the nine months ended September 30, 2018. The increase in financing activities of $35.7 million was primarily related to ~~$111.1~~quarterly dividends of $14.3 million, ~~in net proceeds received in the Offering and $4.3~~$13.0 million ~~in proceeds received from the payment of promissory notes from employees, less $5.5 million used~~ to ~~fully~~ repay borrowings under the ~~Amended~~2019 Credit ~~Facility~~Agreement (as defined in “—Debt Agreements”), $1.4 million for payments under insurance premium financing, and ~~$25.8~~$1.1 million ~~distributions~~of payments related to ~~legacy members~~vesting of ~~Solaris LLC as part~~stock-based compensation.

Net cash provided by financing activities of $6.0 million for the ~~Reorganization Transactions undertaken~~nine months ended September 30, 2018 was primarily related to $8.0 million in proceeds from borrowings under the 2018 Credit Agreement (as defined in “—Debt Agreements”), partially offset by $1.1 million of payments related to vesting of stock-based compensation and $1.0 million of debt issuance costs in connection with the ~~IPO.~~2018 Credit Agreement.

Debt Agreements

Senior Secured Credit Facility

On ~~May 17, 2017, we~~April 26, 2019, Solaris LLC entered into ~~a First Amendment (the “First Amendment”) to the~~an Amended and Restated Credit Agreement ~~dated as of December 1, 2016~~ (the ~~“Credit~~“2019 Credit Agreement” ~~and, as amended by the First Amendment, the “Amended Credit Facility”~~), by and among ~~the Company,~~Solaris LLC, as borrower, each of the lenders party thereto and ~~Woodforest~~Wells Fargo Bank, National ~~Bank,~~Association, as administrative ~~agent (the “Administrative Agent”)~~agent. The 2019 Credit Agreement replaced, in its entirety, Solaris LLC’s 2018 Credit Agreement (as defined herein). The ~~First Amendment, among other things, modified~~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 ~~terms~~Loan availability to $75.0 million. The term of the 2019 Credit Agreement ~~to (i) increase~~expires on April 26, 2022.

Our obligations under the Credit Agreement’s revolving credit commitments (the “Revolving Facility”) from $1.0 million to $20.0 million, (ii) decrease the Credit Agreement’s advance term loan commitments (the “Advance Loan ~~Facility”) from $10.0 million to $0 and (iii) amend both the scheduled maturity date~~are generally secured by a pledge of substantially all of the ~~Revolving Facility~~assets of Solaris LLC and the Advance Loan Facility to be May 17, 2021. Additionally, the First Amendment increased the accordion feature of the Revolving Facility from $1.0 million to $10.0 million, which accordion may be electedits subsidiaries, and such obligations are guaranteed by the Company at any time prior to the scheduled maturity date of the Revolving Facility so long as no default or event of default shall have occurred and be continuing and provided that no lender has any obligation to increase its own revolving credit commitment.

Borrowings under the ~~Amended~~2019 Credit ~~Facility~~Agreement bear interest at ~~a one-month London Interbank Offered Rate,~~either LIBOR or ~~LIBOR,~~an alternate base rate plus an applicable margin, and interest ~~shall be~~is payable ~~monthly.~~quarterly. The applicable margin ranges from ~~3.00%~~1.75% to ~~4.00%~~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 ~~Revolving Facility also includes a monthly commitment fee~~2019 Credit Agreement requires that we pay a quarterly commitment fee on undrawn amounts of the ~~Revolving Facility in a range~~Loan, ranging from ~~0.1875%~~0.25% to ~~0.50%~~0.375% depending ~~on our~~upon the total leverage ratio; provided, however that we will not be required to pay such commitment fee for any month when we have outstanding borrowings greater than 50.0% of the commitments under the Revolving Facility. During the continuance of an event of default, overdue amounts under the Amended Credit Facility will bear interest at 5.00% plus the otherwise applicable interest rate. The Amended Credit Facility has a scheduled maturity date of May 17, 2021.ratio.

The ~~Amended~~2019 Credit Facility contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, (iv) notification of certain events and (v) solvency.

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~~The Amended Credit Facility initially~~Agreement requires that we maintain ~~at all times, a ratio~~ratios of ~~net funded~~(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 ~~provided that net funded indebtedness is subject to a cash adjustment with respect to any unrestricted cash~~ and ~~cash equivalents~~(c) the sum of ~~the Borrower~~100% of eligible accounts, inventory and ~~its subsidiaries in an amount equal~~fixed assets to the ~~lesser~~total revolving exposure of ~~$10.0 million~~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 ~~50% of unrestricted cash and cash equivalents of the Company and its subsidiaries.~~ non-recurring gains, losses or expenses.

The ~~Amended~~2019 Credit ~~Facility~~Agreement also requires that we ~~maintain, at all times, a~~prepay any outstanding borrowings under the Loan in the event our total leverage ratio ofis greater than 1.00 to 1.00 and our consolidated ~~EBITDA to fixed charges of~~cash balance exceeds $20.0 million, taking into account certain adjustments. Capital expenditures are not ~~less than 1.25 to 1.00. We were~~restricted unless borrowings under the Loan exceed $5.0 million for any 180 consecutive day period, in ~~compliance with all such ratios as of September 30, 2017. Additionally, our capacity to make~~which case capital expenditures ~~is capped at $80.0~~will be permitted up to $100.0 million ~~for each fiscal year~~ plus ~~for fiscal years beginning on January 1, 2019,~~ any unused availability for capital expenditures from the immediately preceding fiscal ~~year; provided, however, that we are permitted to make any capital expenditures in an amount equal to the proceeds of equity contributions made to us used to fund such capital expenditures.~~year.

As of September 30, ~~2017,~~2019, we had no borrowings under the ~~Revolving Facility~~2019 Credit Agreement outstanding and ability to draw $50.0 million.

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As of September 30, 2019, we were in compliance with ~~$20.0~~all covenants in accordance with the 2019 Credit Agreement.

Contractual Obligations

We had no material changes in our contractual commitments and obligations during the nine months ended September 30, 2019 from the amounts listed under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in the Company’s Annual Report on Form 10-K/A. See Note 7. “Senior Secured Credit Facility” to our condensed consolidated financial statements for additional information.

Income Taxes

Solaris Inc. is a corporation and, as a result, is subject to United States federal, state and local income taxes. For the three months ended September 30, 2019 and 2018, we recognized a combined United States federal and state provision for income taxes of $3.7 million and $4.2 million, respectively. For the nine months ended September 30, 2019 and 2018, we recognized a combined United States federal and state provision for income taxes of $12.0 million and $9.5 million, respectively.

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 United States federal income tax on their respective shares of the Company’s taxable income reported on the members’ United States federal income tax returns.

Our revenues are derived through transactions in ~~revolving commitments available.~~several states, which may be subject to state and local taxes. Accordingly, we have recorded a liability for state and local taxes that management believes is adequate for activities as of September 30, 2019 and December 31, 2018.

We are subject to a franchise tax imposed by the State of Texas. The franchise tax rate is 1%, calculated on taxable margin. Taxable margin is defined as total revenue less deductions for cost of goods sold or compensation and benefits in which the total calculated taxable margin cannot exceed 70% of total revenue. Expenses related to Texas franchise tax were approximately $299,000 and $174,000 for the three months ended September 30, 2019 and 2018, respectively. Expenses related to Texas franchise tax were approximately $758,000 and $508,000 for the nine months ended September 30, 2019 and 2018, respectively.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the 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 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. For the nine months ended September 30, 2019, the Company has recorded an uncertain tax benefit for the treatment of certain costs incurred in connection with the IPO and the November 2017 Offering.

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.

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See Note 9. “Income Taxes” to our condensed consolidated financial statements for additional information.

Payables Related to the Tax Receivable Agreement

~~With respect~~In connection with the IPO, Solaris Inc. entered into the Tax Receivable Agreement with the TRA Holders on May 17, 2017. This agreement generally provides for the payment by Solaris Inc. to ~~obligations we expect~~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 ~~incur~~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’s Second Amended and Restated Limited Liability Company Agreement (the “Solaris LLC Agreement”)) and (ii) imputed interest deemed to be paid by Solaris Inc. as a result of, and additional tax basis arising from, any payments Solaris Inc. makes under the Tax Receivable ~~Agreement (except in cases where~~Agreement. Solaris ~~elects~~Inc. will retain the benefit of the remaining 15% of these cash savings.

See Note 9. “Income Taxes” to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or we have available cash but fail to make payments when due, in which cases Solaris would be required to make a substantial, immediate lump-sum payment), generally Solaris may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest.our condensed consolidated financial statements for additional information.

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 condensed consolidated financial statements and related notes included in this report.

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.

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 ~~currently generate revenue primarily through~~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 expended relative to the total resources expected to be consumed or expended. We typically charge our customers for the rental of our systems and related services, including transportation of our systems and field supervision and support. The system rentals and provision of related services are performed 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. The master service agreements generally establish terms and conditions for the provision of our systems and service on a ~~well site, indemnification, damages, confidentiality, intellectual property protection~~monthly basis under agreements requiring the rental of a minimum number of systems for a period of twelve months. The Company is typically entitled to short fall payments if such minimum contractual obligations are not maintained by our customers. Minimum contractual obligations have been maintained and ~~payment terms and provisions. The services are generally~~thus the Company has not recognized revenues related to shortfalls on such take or pay contractual obligations to date.

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~~priced~~

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 ~~prevailing market conditions~~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 proppant at our transloading facility, which is considered to be our performance obligation. Transloading services operations commenced in January 2018. We provide rail-to-truck transloading and high-efficiency sand silo storage and transloading services at the facility. Contracts with customers are typically on thirty- to sixty-day payment terms. Revenues are typically recognized over time as the ~~services are~~customer simultaneously receives and consumes the benefits provided ~~giving consideration to~~by the ~~specific requirements and activity levels~~entity’s performance of the ~~customer.~~transloading service based on a throughput fee per ton rate for proppant delivered to and transloaded at the facility. We measure progress based on the proppant delivered and transloaded 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 $221 and 522 of shortfall revenue during the three and nine months ended September 30, 2019, respectively.

~~All~~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.

Deferred Revenue

Deferred revenue is recognized when persuasive evidence of an arrangement exists, the service is complete, the amount is determinable and collectability is reasonably assured. Revenue is recognized as services are performed.

~~Accounts Receivable~~

~~Accounts receivable~~ consists of trade receivables recorded at the invoice amount, plus accrued revenue that is earned, but not yet billed less an estimated allowance for doubtful accounts (if any). Accounts receivable are generally due within 60 days or less, ora $25,980 partial termination payment fee received in December 2018 in accordance with ~~terms agreed with customers,~~a contract modification which is accounted for prospectively. The partial termination payment fee represents the distinct unsatisfied portion of a contract to provide transloading services and are stated at amounts due from customers net of any allowance for doubtful accounts. We consider accounts outstanding longer than the payment terms past due. We determine the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer’s current ability to pay its obligation, and the conditionconsidered part of the ~~general economy~~transaction price and ~~the industry as a whole. Accounts receivable are written off when they are deemed uncollectible, and payments subsequently received on such receivables are credited~~will be allocated to the ~~allowance for doubtful accounts. However, it is reasonably possible that~~remaining performance obligations under the ~~estimates of~~contract. Deferred revenues in the ~~allowance for doubtful accounts will change~~condensed consolidated balance sheets were $15,950 and ~~that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance. As~~$25,458 as of September 30, ~~2017, we had no allowance for doubtful accounts.~~

~~Inventories~~

~~Inventories consists~~2019 and December 31, 2018, respectively, which will be recognized as Revenue from transloading services. The Company recognized $3,203 and $9,508 of ~~materials used~~deferred revenue as Revenue from transloading services in the ~~manufacturing~~condensed consolidated statements of operations for the three and nine months ended September 30, 2019, respectively. Refer to Note 13. “Subsequent Events” for termination information on this agreement and recognition of the ~~proppant management systems, which include raw materials~~remaining deferred revenue. No deferred revenue was recorded or recognized as revenue during the three and ~~purchased parts. Inventory purchases are recorded initially at cost and issued at weighted average cost when consumed.~~nine months ended September 30, 2018.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, or fair value for assets acquired, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful service lives of the assets. Systems that are in the process of being manufactured are considered property, plant and equipment. However, the systems in process do not depreciate until they are fully completed. Systems in process are a culmination of material, labor and overhead.

The costs of ordinary repairs and maintenance are charged to expense as incurred, while significant enhancements, including upgrades or overhauls, are capitalized. These enhancements include upgrades to various components of the

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system and to equipment at our manufacturing facility that will either extend the life or improve the utility and efficiency of the systems, plant and equipment. These enhancements include:

Generation two to three control system upgrades that allow for customization and automation of system controls. This improves the operational capabilities of our systems by allowing automated shutdown logic and a wide range of customer driven customizations. These include seamless integrated controls on various configuration of our systems (three, six or twelve silo configuration), as well as proppant and admixture blending capabilities. This upgradeOur patented AutoHopper technology is being added to our proppant systems and ~~depreciated over~~is compatible with standard pressure pumping companies’ equipment. The technology uses sensors and machine learning to automatically control the ~~remaining life~~amount of sand delivered from our mobile proppant management system silos to the blender, eliminating the need for dedicated personnel historically required to run our system.

~~The PropView™ inventory~~Our patent-pending mobile chemical management system ~~enables our customers~~can store and deliver up to ~~track~~six different chemicals with significantly improved inventory ~~levels in, and delivery rates from, each silo~~control, in a ~~system. This upgrade improves our customers’ operational efficiencies~~smaller footprint and ~~reduces operating and supply chain costs by allowing the customer~~with less personnel when compared to ~~better manage proppant inventory levels both onsite and remotely. This upgrade is added to and depreciated over the remaining life of the system.~~traditional chemical handling methods.

~~Interchangeable discharge heads~~Our patent-pending non-pneumatic loading option provides additional proppant transportation flexibility for ~~the conveyor belt that serves the various needs of our customers. This upgrade allows us to better meet the needs of~~ our customers, ~~by fitting~~allowing them to ~~a wide range of blender configurations at~~use belly-dump trucks in addition to the ~~well site.~~industry standard pneumatic trucks to fill and maintain inventory in our proppant management systems. This patent-pending non-pneumatic loading option is ~~depreciated over a 15‑year life.~~compatible with our existing fleet with minimal modification.

~~Plant~~Manufacturing plant improvements include upgrades to overhead cranes and the addition of new column bays and ~~trunions~~trunnions that improve the manufacturing flow, as well as improvements in the paint booths. These improvements increase

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productivity by reducing labor hours, while improving safety. ~~These upgrades are depreciated over their useful lives (range of 2‑10 years).~~

The determination of whether an expenditure should be capitalized or expensed requires management judgment in the application of how the costs benefit future periods, relative to our capitalization policy. Costs that increase the value or materially extend the life of the asset are capitalized and depreciated over the remaining useful life of the asset. When property and equipment are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the ~~condensed~~ consolidated statements of operations.

Impairment of Long-Lived and Other Intangible Assets

Long-lived assets, ~~such as~~which include property, plant and equipment and ~~finite-lived~~identified intangible assets, comprise a significant amount of our total assets. We make judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods, estimated useful lives and impairment.

The carrying values of these assets are ~~evaluated~~reviewed for impairment whenever events or changes in circumstances indicate that ~~their~~the carrying ~~value~~amounts may not be recoverable. ~~Recoverability~~An impairment loss is ~~assessed using undiscounted future net cash flows of assets grouped at~~recorded in the ~~lowest level for~~period in which ~~there are identifiable cash flows independent of the cash flows of other groups of assets. When alternative courses of action to recover~~it is determined that the carrying amount of the asset group are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence, which require us to apply judgment. If the carrying amount of the asset is not recoverable based on ~~its~~ estimated future undiscounted cash ~~flows expected~~flows. We estimate the fair value of these intangible and fixed assets using an income approach. This requires us to ~~result~~make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The financial and credit market volatility directly impacts our fair value measurement through our income forecast. Although we have made our best estimates of these factors based on current conditions, it is reasonably possible that changes could occur in the near term, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts, collapse of spot and futures prices for oil and natural gas, significant deterioration of external financing for our customers, higher risk premiums or higher cost of equity, or any other significant adverse economic news, which could adversely affect our estimates requiring a provision for impairment.

The Company has received notice from its customer to the ~~use~~agreement for sand storage and ~~eventual disposition,~~transloading at the Company’s Kingfisher Facility that the customer intends to terminate the agreement effective December 31, 2019. The Company will continue to assess the carrying values of the assets at the Kingfisher Facility and if circumstances lead the Company to believe they may not be recoverable, the Company may incur an impairment ~~loss is recognized~~charge in an amount by which its carrying amount exceeds its estimated fair value. The inputs used to determine such fair value are primarily based upon internally developed cash flow models. Our cash flow models are based on a number of estimates regardingthe future ~~operations that are subject to change.~~– See Note 13. “Subsequent Events”. There was no impairment for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

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Leases

The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC Topic 842”), which the Company adopted under ASU No. 2016-02 “Leases (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. 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.

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 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.

Goodwill

Goodwill represents the excess of the purchase price of acquisitions, or fair value of contributed assets, over the fair value of the net assets acquired and consists of synergies in combining operations and other intangible assets which do not qualify for separate recognition. We evaluate goodwill for impairment annually, as of October 31, or more often as facts and circumstances warrant. The recoverability of the carrying value is assessed based on expected future profitability and undiscounted future cash flows of the acquisitions and their contribution to our overall operations. These types of analyses contain uncertainties because they require us to make judgments and assumptions regarding future profitability, industry factors, planned strategic initiatives, discount rates and other factors. Events or circumstances which could indicate a potential impairment include (but are not limited to) a significant sustained reduction in worldwide oil and natural gas prices or drilling; a significant sustained reduction in profitability or cash flow of oil and natural gas companies or drilling contractors; a sustained reduction in the market capitalization of the Company; a significant sustained reduction in capital investment by drilling companies and oil and natural gas companies; or a significant sustained increase in worldwide inventories of oil or natural gas. There was no impairment for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

Stock-Based Awards

We follow the fair value recognition provisions in accordance with GAAP. Under the fair value recognition provisions, 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. 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 appropriate risk-free rate of return. Our estimates of these variables are made

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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.

Income Taxes

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 September 30, 2019, and December 31, 2018, we had $56.5 million and $58.1 million of deferred tax assets, respectively. We expect to realize future tax benefits related to the utilization of these assets. If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.

Payables Related to the Tax Receivable Agreement

As described in Note 9. “Income Taxes” to our condensed consolidated financial statements, 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. We have determined it is more-likely-than not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we have recorded a liability under the Tax Receivable Agreement related to the tax savings Solaris Inc. 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). If we determine the utilization of these deferred tax assets is not more-likely-than-not in the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our condensed consolidated statement of operations.

Recent Accounting Pronouncements

See Note 2,2. “Summary of Significant Accounting Policies ~~—Recently~~– Accounting ~~Pronouncements”~~Standards Recently Adopted” to our condensed consolidated financial statements as of ~~September~~June 30, ~~2017,~~2019, for a discussion of recent accounting pronouncements.

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

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Off Balance Sheet Arrangements

We have no material off balance sheet ~~arrangements, except for operating leases.~~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.

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Item 3.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-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.

Commodity Price Risk

The market for our services is indirectly exposed to fluctuations in the prices 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 ~~Amended~~2019 Credit ~~Facility. We do not currently have any~~Agreement. As of September 30, 2019, however, we had no outstanding borrowings under our ~~Amended~~Revolving Credit ~~Facility.~~Agreement and therefore a change in interest rates as of such date would not have resulted in increased or decreased interest expense.

Credit Risk

The majority of our accounts receivable have payment terms of 60 days or less. As of September 30, ~~2017, two~~2019, four customers collectively accounted for ~~25% and 21%~~50% of our total accounts receivable. As of December 31, ~~2016, one customer~~2018, three customers collectively accounted for ~~23%~~40% of our total accounts receivable. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.

Item 4.Controls and Procedures

~~As required by Rule 13a‑15(b) under the Securities~~Disclosure Controls and Procedures

In accordance with Exchange Act ~~of 1934 (the “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)~~13a-15(e) and ~~15d‑15(e)~~15d-15(e) under the Exchange Act) as of ~~the end of the period covered by this Quarterly Report on Form 10‑Q.~~September 30, 2019. 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 or submit 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 upon that evaluation, our principal executive officer~~As a result of the determination of a material weakness in the Company’s internal control over financial reporting as described more fully in the Company’s Form 10-K/A for the fiscal year ended December 31, 2018 filed with the SEC on July 26, 2019 and ~~principal financial officer~~the Company’s Form 10-Q/A for the three months ended March 31, 2019, filed with the SEC on July 26, 2019, management has concluded that ~~our~~the Company’s disclosure controls and procedures were not effective as of September 30, ~~2017.~~2019.

Management based its conclusion on the fact that the material weakness in disclosure controls and procedures and internal control over financial reporting that had existed December 31, 2018, as disclosed in the Company’s Annual Report on Form 10-K/A, for the fiscal year ended December 31, 2018 filed with the SEC on July 26, 2019 and in the Company’s Quarterly Report on Form 10-Q/A, for the period ended March 31, 2019 filed with the SEC on July 26, 2019 had not been remediated as of September 30, 2019, as the Company was in the process of testing of operating effectiveness of the remediation efforts taken by the Company which are discussed below.

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Remediation

The Company’s remediation efforts have included (i) new controls over the reconciliation and rollforward of equity and tax accounts, (ii) added levels of management review procedures and (iii) additional training for the personnel involved in the reconciliation processes and controls. The actions taken by the Company were subject to ongoing senior management review and Audit Committee oversight and were completed during the third quarter of 2019. Management continues to evaluate and work to improve its internal controls over financial reporting. As a result of these efforts, as of the date of the filing of this report, Management believes it has implemented measures sufficient to remediate the material weakness identified above.

However, remedial controls must operate for a sufficient period of time for a definitive conclusion, through testing, that the deficiencies have been fully remediated and, as such, we can give no assurance that the measures we have undertaken have fully remediated the material weakness that we have identified or that additional material weaknesses will not arise in the future. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies, or in appropriate circumstances determine to modify the design of the Company’s internal controls.

Changes in Internal Control over Financial Reporting

~~There were~~Subject to these remediation efforts, that we implemented after June 30, 2019, there have been no significant changes in ~~our~~the Company’s internal control over financial reporting ~~that occurred~~ during the ~~quarter ended September 30, 2017~~period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~From~~Due to the nature of our business, we may become, from time to time, weinvolved in routine litigation or subject to disputes or claims related to our business activities. In the opinion of our management, there are party to ongoing legal proceedings in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, we do not believe the results of these proceedings, individuallyno pending litigation, disputes or ~~in the aggregate,~~claims against us which, if decided adversely, will have a material adverse effect on our ~~business,~~ financial condition, cash flows or results of ~~operations or liquidity.~~operations.

Item 1A. Risk Factors

Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our Class A ~~Common Stock~~common stock are described under ~~Risk Factors, included~~the caption “Risk Factors” in our ~~prospectus dated May 11, 2017 and~~Annual Report on Form 10-K/A for the year ended December 31, 2018, as filed with the SEC ~~pursuant to Rule 424(b) under the Securities Act,~~ on ~~May 15, 2017, as amended (the “Prospectus”).~~July 26, 2019. There have been no material changes to the ~~risks described~~risk factors previously disclosed under the caption “Risk Factors” in ~~the Prospectus, except~~our Annual Report on Form 10-K/A for the ~~risks related to the Kingfisher Facility, as described below.~~year ended December 31, 2018. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.

The Kingfisher Facility currently only has one contracted customer on which we will initially rely for all of the facility’s revenues. We may not be able to replace, extend, or add additional customer contracts or contracted volumes on favorable terms, or at all, which could adversely affect our financial results.

The Kingfisher Facility currently only has one customer contract which will become effective upon the Company’s completed construction of the Kingfisher Facility. The Company will initially rely on one customer for all of the facility’s revenues, and our ability to replace, extend, or add additional customer contracts or increase contracted volumes on favorable terms, or at all, is subject to a number of factors, many of which are beyond our control. Any failure to obtain additional customers at the Kingfisher Facility or the loss of all or a portion of the revenues attributable to our existing customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement of contracts or otherwise, could have a material adverse effect on our business, financial condition, prospects or results of operations. Significant delay or inability to complete construction of the Kingfisher Facility could result in delay of payments from our one contracted customer until such time construction is completed, if at all.

~~Delays, changes or increases in plans or costs with respect to the development of the Kingfisher Facility could delay or prevent anticipated project completion and may result in reduced earnings.~~

Construction and expansion of the Kingfisher Facility is subject to various regulatory, environmental, political, legal, economic and other development risks, including the ability to obtain necessary approvals on a timely basis or at all. Any delay in project construction, including difficulties in engaging qualified contractors necessary to the construction, shortages of equipment, material or skilled labor, increases in the prices of materials, natural disasters and catastrophes, such as hurricanes, explosions, fires, floods, industrial accidents and terrorism, unscheduled delays in the delivery of ordered materials and work stoppages and labor disputes may prevent a planned project from going into service when anticipated, which could cause a delay in the receipt of revenues from the Kingfisher Facility. A significant construction delay, whatever the cause, may result in reduced earnings and an inability to complete construction of the Kingfisher Facility as initially planned, or at all. These events could have a material adverse effect on our financial condition and results of operations.

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

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

~~Neither we nor any affiliated purchaser repurchased any~~The following table presents the total number of shares of our ~~equity securities~~Class A common stock that we purchased during the ~~period covered by this Quarterly Report on Form 10‑Q.~~

three months ended September 30, 2019 and the average price paid per share:


				Total Number of	Maximum Dollar
				Shares Purchased as	Value of Shares
	Total Number of	Average Price		Part of Publicly	that May Yet be
	Shares	Paid Per		Announced	Purchased Under
Period	Purchased	Share		Plan	the Plan
July 1 - July 31	—	$	—	—		N/A
August 1 - August 31	27,641		13.69	—		N/A
September 1 - September 30	—		—	—		N/A
Total	27,641	$	13.69	—		N/A

~~Table~~(1)Represents shares of ~~Contents~~Class A common stock withheld for the payment of withholding taxes upon the vesting of restricted stock.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

4547

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Item 6.Exhibits

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of Solaris Oilfield Infrastructure, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Form ~~8‑K~~8-K (File No. ~~001‑38090)~~001-38090) filed with the Commission on May 23, 2017).

3.2		Amended and Restated Bylaws of Solaris Oilfield Infrastructure, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Form ~~8‑K~~8-K (File No. ~~001‑38090)~~001-38090) filed with the Commission on May 23, 2017).

~~10.1†~~		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).

10.2*		~~Indemnification Agreement (Christopher M. Powell)~~

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

~~† Confidential treatment has been requested as to certain portions thereto, which portions are omitted and have been filed separately with the Securities and Exchange Commission~~

* Filed herewith.

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

4648

Table of Contents

SIGNATURES

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



	SOLARIS OILFIELD INFRASTRUCTURE, INC.

~~November 2, 2017~~October 30, 2019	By:	/s/ ~~Gregory~~William A. ~~Lanham~~Zartler
		~~Gregory~~William A. ~~Lanham~~Zartler
		Chairman and Chief Executive Officer
		(Principal Executive Officer)




~~November 2, 2017~~October 30, 2019	By:	/s/ Kyle S. Ramachandran
		Kyle S. Ramachandran
		President and Chief Financial Officer
		(Principal Financial Officer)

4749


		Page
Cautionary Statement Regarding Forward-Looking Statements		1
PART 1 FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2425
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4345
Item 4.	Controls and Procedures	4345
PART II. OTHER INFORMATION		4447
Item 1.	Legal Proceedings	4447
Item 1A.	Risk Factors	4447
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4447
Item 3.	Defaults upon Senior Securities	4547
Item 4.	Mine Safety Disclosures	4547
Item 5.	Other Information	4547
Item 6.	Exhibits	4648
SIGNATURES		4749


Year Ending December 31,	Amount
2017 (remainder of)	$	8
2018		33
2019		33
2020		33
2021		33
Thereafter		107
Total payments		247
Less: amount representing imputed interest at 3.25%		(28)
Present value of payments		219
Less: current portion		(33)
Capital lease obligation, net of current portion	$	186