Unless the context requires otherwise, references in this Annual Report to the
"Company," "Solaris," "we," "us" and "our" refer to (i) Solaris Oilfield
Infrastructure, LLC ("Solaris LLC") and its consolidated subsidiaries prior to
the completion of our initial public offering and (ii) Solaris Oilfield
Infrastructure, Inc. ("Solaris Inc.") and its consolidated subsidiaries
following the completion of our initial public offering. The following
discussion and analysis of our financial condition and results of operations
should be read in conjunction with the accompanying financial statements and
related notes.  This section of this Form 10-K generally discusses 2019 and 2018
items and year-to-year comparisons between 2019 and 2018. Discussions of 2017
items and year-to-year comparisons between 2018 and 2017 that are not included
in this Form 10-K can be found in "Part II, Item 7. "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2018. The following
discussion contains "forward-looking statements" that reflect our plans,
estimates, beliefs and expected performance. Our actual results may differ
materially from those anticipated as discussed in these forward-looking
statements as a result of a variety of risks and uncertainties, including those
described above in "Cautionary Statement Regarding Forward-Looking Statements"
and "Risk Factors" included elsewhere in this Annual Report, all of which are
difficult to predict. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed may not occur. We assume no obligation to
update any of these forward-looking statements except as otherwise required by
law.

                                    Overview

Solaris LLC was formed in July 2014. Solaris Inc. was incorporated as a Delaware
corporation in February 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.

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                               Executive Summary

We design, manufacture and rent specialized equipment which combined with field
technician support, logistics services and our software solutions, enables us to
provide a service offering that helps oil and natural gas operators and their
suppliers drive efficiencies and reduce costs during the completion phase of
well development. The majority of our revenue is currently derived from rental
and services related to our patented mobile proppant and chemical management
systems that unload, store and deliver proppant used in hydraulic fracturing of
oil and natural gas wells, as well as coordinating the delivery of proppant and
chemicals to the well site. Our systems are deployed in most of the active oil
and natural gas basins in the United States.

In 2018 and 2019, we introduced new equipment and service enhancements, which we
believe will help us maintain and expand our total revenue opportunity in the
United States completions space. We introduced our mobile chemical management
system to the market in late 2018 and we began commercializing the offering in
2019. Design 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 latest version of our Solaris Lens® software,
available on our systems and allows customers to view the entire last mile
proppant supply chain in real time.

                           Recent Trends and Outlook

Demand for our products and services is predominantly influenced by the level of
oil and natural gas well drilling and completion activity, which, in turn, is
determined by the current and anticipated profitability of developing oil and
natural gas reserves.

The Baker Hughes US Land rig count decreased 9% to 920 average rigs in 2019 from
1,013 average rigs in 2018. This compares to a 1% decline to an average of 110
fully utilized mobile proppant systems rented during 2019 compared to 2018. The
lower decline rate in demand for our systems during 2019 relative to the
drilling rig count was due to investments made to grow our service fleet during
2018. During 2019 we reduced investment in fleet growth in response to the
slowing activity.

Going forward, absent significant changes in markets share, we would expect our
activity to follow the general trends of the US land drilling and completion
activity.

Initial 2020 capital budgets announced by oil and gas operators indicate spending on US drilling and completion activity could be down 10-15% in 2020 relative to 2019.



Our service fleet currently consists of 166 mobile proppant management systems
and 14 mobile chemical management systems, which is a new service offering for
the Company. We do not expect to build any additional proppant systems for the
remainder of 2020.

                            How We Generate Revenue

We generate the majority of our revenue through the rental of our systems and related services, including transportation of proppant to the well site, transportation of our systems field supervision and support, as well as coordinating the delivery of proppant and chemicals to the well site. The system 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 charge our customers for the rental of our systems and related services on a monthly basis.



In early 2018, we 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 high-efficiency sand silo storage and transloading services at the
Kingfisher Facility.

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Finally, we generate revenue through our Railtronix® inventory management
software. We generally charge our customers a throughput fee to monitor proppant
that is loaded into a railcar, stored at a transload facility or loaded into a
truck at either a transload facility or mine.

                        Costs of Conducting Our Business

The principal costs associated with operating our business are:

· Cost of system rental (excluding depreciation and amortization);

· Cost of system services (excluding depreciation and amortization);

· Cost of transloading operations and services (excluding depreciation and

amortization);

· Cost of software inventory management services (excluding depreciation and

amortization);

· Depreciation and amortization associated primarily with the costs to build our

systems and the costs to develop rail and storage assets;

· Selling, general and administrative expenses; and

· Other operating expenses.




Our cost of 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.

Our cost of system services (excluding depreciation and amortization) consists
primarily of direct labor costs, and related travel and lodging expenses, and
system transportation costs. A large portion of our cost of 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
three to 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 selling, general and administrative expenses are comprised 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.

We analyze our revenue by comparing actual monthly revenue to our internal projections for a given period and to prior periods to assess our performance. We also assess our revenue in relation to the number of systems we have



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deployed to customers and the amount of proppant and chemicals transloaded at our Kingfisher Facility from period to period.

Fully Utilized System Count



The fully utilized system count is calculated as the combined number of days
that a system generates revenue in a given period divided by the number of days
in that period. We view the fully utilized system count as the best measure to
track utilization and changes in rental activity on a period-over-period basis
as the majority of our systems are rented on a monthly basis.

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.

EBITDA and Adjusted EBITDA



We view EBITDA and Adjusted EBITDA as important indicators of performance. We
define EBITDA as net income, plus (i) depreciation and amortization expense,
(ii) interest expense and (iii) income tax expense, including franchise taxes.
We define Adjusted EBITDA as EBITDA plus (i) stock-based compensation expense
and (ii) certain non-cash items and extraordinary, unusual or non-recurring
gains, losses or expenses.

                   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.

            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 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 Inc. became a holding
company whose sole material asset consists of Solaris LLC Units. Solaris Inc. 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.

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In addition, in connection with the IPO, Solaris Inc. entered into a tax
receivable agreement (the "Tax Receivable Agreement") with the members of
Solaris LLC immediately prior to the IPO (collectively, the "Original
Investors") (each such person and any permitted transferee, a "TRA 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 United States federal, state and local income tax and
franchise tax that Solaris Inc. actually realizes (computed using simplifying
assumptions to address the impact of state and local taxes) or is deemed to
realize in certain circumstances in periods after the IPO as a result of
(i) certain increases in tax basis that occur as a result of Solaris Inc.
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 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. 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;

· 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; and

· we will reduce the payable for payments made under the Tax Receivable

Agreement.




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 six years. Since commencing
operations in April 2014, we have grown our fleet from two systems to 166 mobile
proppant management systems and 14 mobile chemical management systems in our
fleet as of December 31, 2019 and increased the number of major oil and natural
gas basins in which our systems are deployed.

Income Taxes

Solaris Inc. is a corporation and, as a result, is subject to United States
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
Inc., for United States federal and other state and local income tax purposes
and thus is not generally subject to United States federal income tax or other
state or local income taxes. Accordingly, the financial data attributable to
Solaris LLC prior to the IPO contains no provision for United States 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

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018




                                                               Year Ended
                                                             December 31,
                                                           2019          2018        Change
                                                                   (in thousands)

Revenue
System rental                                           $  142,022    $  143,646    $ (1,624)
System services                                             63,871        43,010       20,861
Transloading services                                       34,105         8,083       26,022
Inventory software services                                  1,689         2,457        (768)
Total revenue                                              241,687       197,196       44,491
Operating costs and expenses:
Cost of system rental (excluding $22,389 and $14,920
of depreciation and amortization for the years ended
December 31, 2019 and 2018, respectively, shown
separately)                                                  9,707         7,230        2,477
Cost of system services (excluding $1,548 and $1,274
of depreciation and amortization for the years ended
December 31, 2019 and 2018, respectively, shown
separately)                                                 74,749        

50,633 24,116 Cost of transloading services (excluding $1,643 and $954 of depreciation and amortization for the year ended December 31, 2018, shown separately)

                   2,601         2,242          359
Cost of inventory software services (excluding $772
and $794 of depreciation and amortization for the
years ended December 31, 2019 and 2018,
respectively, shown separately)                                604           797        (193)
Depreciation and amortization                               26,925        18,422        8,503
Selling, general and administrative (excluding $573
and $480 of depreciation and amortization for the
years ended December 31, 2019 and 2018,
respectively, shown separately)                             18,586        16,758        1,828
Other operating expenses                                       585         1,827      (1,242)
Total operating costs and expenses                         133,757        97,909       35,848
Operating income                                           107,930        99,287        8,643
Interest expense, net                                        (634)         (374)        (260)
Total other expense                                          (634)         (374)        (260)
Income before income tax expense                           107,296        98,913        8,383
Provision for income taxes                                (16,936)      (12,961)      (3,975)
Net income                                                  90,360       

85,952 4,408 Less: net (income) loss related to non-controlling interests

                                                 (38,353)      (43,521)        5,168
Net income attributable to Solaris                      $   52,007    $   42,431    $   9,576




Revenue

System Rental Revenue. Our system rental revenue decreased $1.6 million, or 1%, to $142.0 million for the year ended December 31, 2019 compared to $143.6 million for the year ended December 31, 2018.



System Services Revenue. Our system services revenue increased $20.9 million, or
49%, to $63.9 million for the year ended December 31, 2019 compared to $43.0
million for the year ended December 31, 2018. System services revenue increased
primarily due to an increase in services provided to coordinate proppant
delivered into our systems.

Transloading Services Revenue. Our transloading services revenue increased $26.0
million, or 321%, to $34.1 million for the year ended December 31, 2019 compared
to $8.1 million for the year ended December 31, 2018. The increase was primarily
due to the recognition of $27.1 million of deferred revenue, partially offset by
a decrease in the number of tons transloaded at our Kingfisher Facility.
Deferred revenue consisted of a $26.0 partial termination payment

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received in December 2018 in accordance with a contract modification which was
accounted for prospectively and a final termination payment of $1.7 recorded as
accounts receivable and recognized as revenue throughout the fourth quarter of
2019. The Company recognized the remaining $27.1 million of deferred revenue as
revenue from transloading services in the year ended December 31, 2019 due to
the full termination of the contract, resulting in no remaining deferred revenue
as of December 31, 2019. The Company recognized $0.5 million of deferred revenue
as Revenue from transloading services in the year ended December 31, 2018. 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.

Operating Expenses



Total operating costs and expenses for the years ended December 31, 2019 and
2018 were $133.8 million and $97.9 million, respectively, which represented 55%
and 50% 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 in early 2019 and services thereof, coupled with the
related increase in depreciation and amortization expense. The fully utilized
proppant system equivalent count of 110 for the year ended December 31, 2019 was
relatively unchanged as compared to 111 for the year ended December 31, 2018.
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 $2.5 million, or 35%, to $9.7 million for the year ended
December 31, 2019 compared to $7.2 million for the year ended December 31, 2018,
excluding depreciation and amortization expense. Cost of system rental as a
percentage of system rental revenue was 7% and 5% for the years ended December
31, 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. Repairs and maintenance
costs also increased due to maintaining a larger fleet.

Cost of system rental including depreciation and amortization expense increased
$9.9 million, or 45%, to $32.1 million for the year ended December 31, 2019
compared to $22.2 million for the year ended December 31, 2018. This increase
was primarily attributable to the increase in 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 $24.1 million, or 48%, to $74.7 million for the year
ended December 31, 2019 compared to $50.6 million for the year ended December
31, 2018. This increase was primarily due to an increase of $23.1 million in
relation to services provided to coordinate proppant delivered to systems.

For the year ended December 31, 2019, the cost of system services as a percentage of system services revenue decreased to 117% compared to 118% the year ended December 31, 2018.



Cost of system services including depreciation and amortization expense
increased $24.4 million, or 47%, to $76.3 million for the year ended December
31, 2019 compared to $51.9 million for the year ended December 31, 2018. This
increase was primarily attributable to the factors mentioned above.

Cost of Transloading Services (excluding depreciation and amortization). Cost of
transloading services increased $0.4 million,  or 18% to $2.6 million for the
year ended December 31, 2019 compared to $2.2 million for the year ended
December 31, 2018, primarily due to increases in insurance, fuel, utilities and
maintenance related to increased transloading services activity
at our Kingfisher Facility.

Cost of transloading services including depreciation and amortization expense increased $1.0 million,


 or 31%, to $4.2 million for the year ended December 31, 2019 compared to $3.2
million for the year ended December 31, 2018, due to depreciation expense
related to our transloading facility and equipment which commenced upon
completion of the construction of the Kingfisher Facility in the third quarter
of 2018.

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Cost of Inventory Software Services (excluding depreciation and amortization).
Cost of inventory software services, which decreased $0.2 million, or 25%, to
$0.6 million for the year ended December 31, 2019 compared to $0.8 million for
the year ended December 31, 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 13%, to $1.4 million for the year ended
December 31, 2019 compared to $1.6 million for the year ended December 31, 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 $8.5
million, or 46%, to $26.9 million for the year ended December 31, 2019 compared
to $18.4 million for the year ended December 31, 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 $1.8 million, or 11%, to $18.6 million for the year ended December 31, 2019 compared to $16.8 million for the year ended December 31, 2018 due primarily to an increase in stock-based compensation, salaries and bad debt expense.



Other Operating Expenses. Other operating expenses decreased $1.2 million, or
67% to $0.6 million for the year ended December 31, 2019 compared to the $1.8
million for the year ended December 31, 2018. Other operating expenses in the
year ended December 31, 2019 primarily relate to $0.5 million loss on disposal
of assets. Other operating expenses in the year ended December 31, 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 year ended December 31, 2019, we
recognized a combined United States federal and state provision for income taxes
of $16.9 million, an increase of $4.0 million as compared to $13.0 million we
recognized during the year ended December 31, 2018. This increase was
attributable to higher operating income. The effective combined United States
federal and state income tax rates were 15.8% and 13.1% for the years ended
December 31, 2019 and 2018, respectively. For the years ended December 31, 2019
and 2018, our effective tax rate differed from the statutory rate primarily due
to Solaris LLC's passthrough treatment for United States federal income tax
purposes.

Net Income

Net income increased $4.4 million, or 5% to $90.4 million for the year ended December 31, 2019 compared to $86.0 million for the year ended December 31, 2018, due to the changes in revenues and expenses discussed above.

Reconciliation 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 extraordinary, unusual or non-recurring
gains, losses or expenses.

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

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




                                                    Year ended
                                                   December 31,
                                                 2019         2018         Change
                                                         (in thousands)

      Net income                              $   90,360    $  85,952    $    4,408

      Depreciation and amortization               26,925       18,422      

  8,503
      Interest expense, net                          634          374           260
      Income taxes (1)                            16,936       12,961         3,975
      EBITDA                                  $  134,855    $ 117,709    $   17,146

Stock-based compensation expense (2) 4,476 2,920

1,556


      Loss on disposal of assets                     463          153           310
      Severance                                      229            -           229

Transload contract termination (3) (27,138) (522) (26,616)


      Non-recurring cash bonuses (4)                   -        1,679      

(1,679)
      IPO bonuses (5)                                  -          896         (896)
      Adjusted EBITDA                         $  112,885    $ 122,835    $  (9,950)

--------------------------------------------------------------------------------

(1) Federal and state income taxes.

(2) Represents stock-based compensation expense related to restricted stock

awards of $4.5 million and $2.9 million in the years ended December 31, 2019


      and 2018, respectively.


 (3)  Deferred revenue related to full termination of a sand storage and

transloading agreement; no deferred revenue balance remained as of December

31, 2019.

(4) Certain performance-based cash awards paid in connection with the purchase of

Railtronix upon the achievement of certain financial milestones.

(5) Represents stock-based compensation expense related to restricted stock

awards with one-year vesting of $0.9 million in the year ended December 31,

2018 that were granted to certain employees and consultants in connection

with the IPO.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018: EBITDA and Adjusted EBITDA



EBITDA increased $17.1 million to $134.9 million for the year ended December 31,
2019 compared to $117.7 million for the year ended December 31, 2018. Adjusted
EBITDA decreased $9.9 million to $112.9 million for the year ended December 31,
2019 compared to $122.8 million for the year ended December 31, 2018. EBITDA and
Adjusted EBITDA increased 15% and decreased 8%, respectively, for the year ended
December 31, 2019 compared to the year ended December 31, 2018. The increase in
EBITDA and decrease in Adjusted EBITDA were primarily due to the changes in
revenues and expenses discussed above.

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                        Liquidity and Capital Resources

Overview



Our primary sources of liquidity to date have been capital contributions from
our founding investors, cash flows from operations, borrowings under our credit
agreements and proceeds from the IPO and a November 2017 offering. Our primary
uses of capital have been capital expenditures to expand our proppant and
chemical management system fleets, construct the Kingfisher Facility, acquire
our manufacturing facility and certain intellectual property, acquire the assets
of Railtronix, pay dividends and buyback stock. 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 industry.

On October 9, 2018, Solaris Inc. filed a universal shelf registration statement on Form S-3 (the "Universal Shelf") with the
SEC. Under the Universal Shelf, Solaris Inc. may offer and sell up to $500 million of Class A common stock, 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 under the Universal Shelf. Under the Universal
Shelf, Solaris Inc. may periodically offer one or more types of securities in amounts, at 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 time may sell shares of
Class A common stock pursuant to an exemption under Rule 144 of the Securities
Act.

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 and borrowings under our 2019 Credit Agreement (as defined in
 "-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 and available borrowings under our 2019 Credit Agreement
will be sufficient to fund our operations for at least the next 12 months.

As of December 31, 2019, cash and cash equivalents totaled $66.9 million.

Cash Flows

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




                                                               Year Ended
                                                              December 31,              Change
                                                           2019          2018        2019 vs. 2018
                                                                      (in thousands)
Net cash provided by operating activities               $  114,871    $   116,365   $       (1,494)
Net cash used in investing activities                     (34,002)      (160,545)           126,543
Net cash provided by (used in) financing activities       (39,044)          5,816          (44,860)
Net change in cash                                      $   41,825    $  (38,364)   $        80,189

Analysis of Cash Flow Changes for Year Ended December 31, 2019 Compared to Year Ended December 31, 2018



Operating Activities. Net cash provided by operating activities was $114.9
million for the year ended December 31, 2019, compared to net cash provided by
operating activities of $116.4 million for the year ended December 31, 2018. The
decrease of $1.5 million in operating cash flow was primarily attributable to
the changes in working capital items.

Investing Activities.  Net cash used in investing activities was $34.0 million
for the year ended December 31, 2019, compared to $160.5 million for the year
ended December 31, 2018. The decrease in investing activities of $126.5 million
is primarily due to a decrease in the manufacturing rate of new proppant systems
and completion of construction of the Kingfisher Facility in the third quarter
of 2018. For the year ended December 31, 2019, $34.9 million of investing

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activities were capital expenditures related to manufacturing new systems, including work in process offset by a $0.7 million decrease in vehicles due to sales of light duty vehicles. For the year ended December 31, 2018, $143.0 million of investing activities were capital expenditures related to manufacturing new systems, $14.9 million related to the construction of our Kingfisher Facility and $3.7 million related to the purchase of light duty vehicles to support the service of our systems.



Financing Activities. Net cash used in financing activities of $39.0 million for
the year ended December 31, 2019, was primarily related to quarterly dividends
of $19.3 million, $13.0 million to repay borrowings under the 2019 Credit
Agreement (as defined in "-Debt Agreements"), $3.2 million for payments under
the share repurchase program, $2.5 million for payments under insurance premium
financing and $1.1 million of payments related to the vesting stock-based
compensation. Net cash provided by financing activities of $5.8 million for the
year ended December 31, 2018 was primarily related to $13.0 million in proceeds
from borrowings under the 2018 Credit Agreement (as defined in "-Debt
Agreements"), partially offset by $4.7 million related to cash dividend and
distributions paid, $1.3 million of payments related to insurance premium
financing, $1.1 million of payments related to vesting of stock-based
compensation and $1.0 million of debt issuance costs in connection with the 2018
Credit Agreement.



                                Debt Agreements

Senior Secured Credit Facility



On April 26, 2019, Solaris LLC entered into an Amended and Restated Credit
Agreement (the "2019 Credit Agreement") by and among Solaris LLC, as borrower,
each of the lenders party thereto and Wells Fargo Bank, National Association, as
administrative agent. The 2019 Credit Agreement replaced, in its entirety, the
Company's Amended and Restated Credit Agreement, dated as of January 19, 2018,
by and among the Company, as borrower, each of the lender party thereto and
Woodforest National Bank, as administrative agent (the "2018 Credit Agreement").
The 2019 Credit Agreement consists of an initial $50.0 million revolving loan
commitment (the "Loan") with a $25.0 million uncommitted accordion option to
increase the Loan availability to $75.0 million. The term of the 2019 Credit
Agreement expires on April 26, 2022.

Our obligations under the Loan are generally secured by a pledge of
substantially all of the assets of Solaris LLC and its subsidiaries, and such
obligations are guaranteed by Solaris LLC's domestic subsidiaries other than
Immaterial Subsidiaries (as defined in the 2019 Credit Agreement). We have the
option to prepay the loans at any time without penalty.

Borrowings under the 2019 Credit Agreement bear interest at either LIBOR or an
alternate base rate plus an applicable margin, and interest is payable
quarterly. The applicable margin ranges from 1.75% to 2.50% for Eurodollar loans
and 0.75% to 1.50% for alternate base rate loans, in each case depending on our
total leverage ratio. The 2019 Credit Agreement requires that we pay a quarterly
commitment fee on undrawn amounts of the Loan, ranging from 0.25% to 0.375%
depending upon the total leverage ratio.

The 2019 Credit Agreement requires that we maintain ratios of (a) consolidated
EBITDA to interest expense of not less than 2.75 to 1.00, (b) senior
indebtedness to consolidated EBITDA of not more than 2.50 to 1.00 and (c) the
sum of 100% of eligible accounts, inventory and fixed assets to the total
revolving exposure of not less than 1.00 to 1.00 when the total leverage ratio
is greater than 2.00 to 1.00 and total revolving exposure under the Loan exceeds
$3.0 million. For the purpose of these tests, certain items are subtracted from
indebtedness and senior indebtedness. EBITDA, as defined in the 2019 Credit
Agreement, excludes certain noncash items and any extraordinary, unusual or
non-recurring gains, losses or expenses.

The 2019 Credit Agreement also requires that we prepay any outstanding
borrowings under the Loan in the event our total leverage ratio is greater than
1.00 to 1.00 and our consolidated cash balance exceeds $20.0 million, taking
into account certain adjustments. Capital expenditures are not restricted unless
borrowings under the Loan exceed $5.0 million for any 180 consecutive day
period, in which case capital expenditures will be permitted up to $100.0
million plus any unused availability for capital expenditures from the
immediately preceding fiscal year.

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As of December 31, 2019, we had no borrowings under the 2019 Credit Agreement outstanding and ability to draw $50.0 million.

As of December 31, 2019, we were in compliance with all covenants in accordance with the 2019 Credit Agreement.


                            Contractual Obligations

The table below provides estimates of the timing of future payments that we are
contractually obligated to make based on agreements in place at December 31,
2019.


                                                      For the Year Ending December 31,
                                2020       2021       2022       2023       2024       Thereafter      Total
                                                               (in thousands)
Operating lease obligations
(1)                            $ 1,116    $ 1,060    $ 1,091    $ 1,100    $ 1,108    $      8,354    $ 13,829
Finance lease obligations
(2)                                 35         33         33         33         33              11         178
Commitment fees on
Revolving Loan (3)                 125        125         40          -          -               -         290
Purchase commitments (4)         1,417      1,158          -          -          -               -       2,575
Other commitments                  274        255         37          2                                    568
Total                          $ 2,967    $ 2,631    $ 1,201    $ 1,135    $ 1,141    $      8,365      17,440

--------------------------------------------------------------------------------

(1) Operating lease obligations are related to our 30-year land lease with the

State of Oklahoma related to the Company's Kingfisher Facility, as well as

other office, land and equipment leases.

(2) Finance lease obligations are related to our finance lease of a building at

our Early, Texas manufacturing facility 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.

(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 8. "Senior Secured Credit Facility" to our consolidated

financial statements as of December 31, 2019 for interest requirements per

the 2019 Credit Agreement.

(4) Purchase commitments primarily relate to our agreement with our suppliers for

material and parts purchases to be used in the manufacturing of our systems.

The purchase commitments represent open purchase orders to our suppliers.




As of December 31, 2019, our liability under the Tax Receivable Agreement was
$68.0 million,  representing 85% of the calculated net cash savings in United
States federal, state and local income tax or franchise tax that Solaris Inc.
anticipates realizing in future years.

                                  Income Taxes

Solaris Inc. is a corporation and, as a result, is subject to United States
federal, state and local income taxes. For the years ended December 31, 2019,
2018 and 2017, we recognized a combined United States federal and state
provision for income taxes of $16.9 million,  $13.0 million and $33.7 million,
respectively.

On December 22, 2017, the United States government enacted the Tax Act. The change in tax law required us to remeasure existing net deferred tax assets using the now lower United States federal corporate income tax rate in the period of enactment, resulting in an income tax expense of approximately $30.4 million to reflect these changes in the year ended December 31, 2017.



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Solaris LLC is treated as a partnership for United States federal income tax
purposes and therefore does not pay federal income tax on its taxable income.
Instead, the Solaris LLC members are liable for federal income tax on their
respective shares of the Company's taxable income reported on the members'
United States federal income tax returns.

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
December 31, 2019 and 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 $742,000, $684,000
and  $247,000 for the years ended December 31, 2019, 2018 and 2017,
respectively.

We determine deferred tax assets and liabilities on the basis of the differences
between the book value and tax bases of assets and liabilities by using enacted
tax rates in effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period in which the enactment date
occurs.

We recognize deferred tax assets to the extent we believe these assets are
more-likely-than-not to be realized. In making such a determination, we consider
all available positive and negative evidence, including future reversals of
existing taxable temporary differences, projected future taxable income, tax
planning strategies and recent results of operations.

We record uncertain tax positions on the basis of a two-step process in which
(1) we determine whether it is more-likely-than-not the tax positions will be
sustained on the basis of the technical merits of the position and (2) for those
tax positions meeting the more-likely-than-not recognition threshold, we
recognize the largest amount of tax benefit that is more than 50% likely to be
realized upon ultimate settlement with the related tax authority. For the year
ended December 31, 2019, the Company has recorded an uncertain tax benefit for
the treatment of certain costs incurred in connection with the IPO and a
November 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.

                Payables Related to the Tax Receivable Agreement

In connection with the IPO, Solaris Inc. entered into the Tax Receivable
Agreement with the TRA Holders on May 17, 2017. This agreement generally
provides for the payment by Solaris Inc. to each TRA Holder of 85% of the net
cash savings, if any, in United States federal, state and local income tax or
franchise tax that Solaris Inc. actually realizes (computed using simplifying
assumptions to address the impact of state and local taxes) or is deemed to
realize in certain circumstances in periods after the IPO as a result of (i)
certain increases in tax basis that occur as a result of Solaris Inc.'s
acquisition (or deemed acquisition for United States federal income tax
purposes) of all or a portion of such TRA Holder's Solaris LLC Units in
connection with the IPO or pursuant to the exercise of the Redemption Right or
the Call Right (each as defined in the "Solaris LLC Agreement") and (ii) imputed
interest deemed to be paid by Solaris Inc. as a result of, and additional tax
basis arising from, any payments Solaris Inc. makes under the Tax Receivable
Agreement. Solaris Inc. will retain the benefit of the remaining 15% of these
cash savings.

See Note 10. "Income Taxes" to our 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



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requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operations.



We base our estimates on historical experience and on various other assumptions
we believe to be reasonable according to the current facts and circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. We believe the following are the critical accounting policies used in
the preparation of our combined financial statements, as well as the significant
estimates and judgments affecting the application of these policies. This
discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes included in this report.

Revenue Recognition



In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreement, the
following steps must be performed at contract inception: (i) identification of the promised goods or services in the contract; (ii)
determination of whether the promised goods or services are performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy
each performance obligation. For contracts that contain multiple performance
obligations, we allocate the transaction price to each performance obligation
identified in the contract based on relative standalone prices, or estimates of
such prices, and recognize the related revenue as each individual service is
performed, in satisfaction of the corresponding performance obligations.

Revenues from system rental consist primarily of fixed monthly fees charged to customers for the use
of our patented mobile proppant management systems that unload, store and deliver proppant
and chemicals at oil and natural gas well sites which is considered to be our
performance obligation. Contracts with customers are typically on thirty- to sixty-day payment terms. Revenues
are recognized over time as the performance obligations are satisfied under the
terms of the customer contract. We determined that the
performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits provided by the
entity's performance of services, typically as our systems are used by the customer. We measure progress using an input method
based on resources consumed or 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.
Revenues from system services consist primarily of the fees charged to customers for services
including mobilization and transportation of our systems, field supervision and support and services coordinating proppant
delivery to systems, each of which are considered to be separate performance obligations. Contracts with customers are typically
on thirty- to sixty-day payment terms. When the Company provides system services
including field supervision and support,
we determined that the performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits provided by the entity's
performance of the services, typically based on fixed weekly or monthly
contractual rates for field supervision and support and when the Company
provides services coordinating proppant delivery. We measure progress using an
input method based on resources consumed or expended relative to the total
resources expected to be consumed or expended. When the Company provides
mobilization and transportation of our systems on behalf of our customers, we
determined that the performance obligation is satisfied at a point in time when
the system has reached its intended destination.

Revenues from transloading services consist primarily of the fees charged to customers for transloading proppant at our
transloading facility, which is considered to be our performance obligation. Transloading services operations commenced in
January 2018. We primarily
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

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entitled to short fall payments if such minimum quarterly contractual obligations are
not maintained. These shortfalls are based on fixed minimum volumes at a fixed rate and are recognized over time as throughput
volumes transloaded are below minimum throughput volumes required. The Company
recorded $1.3 million of shortfall revenue during the year ended December 31,
2019.

Revenues from inventory software services consist primarily of the fees charged to customers for the use of our
Railtronix inventory management software, which is considered to be our performance obligation. Revenues are recognized over time as the customer simultaneously
receives and consumes the benefits provided by the entity's performance based on a throughput fee to monitor proppant that is
loaded into a railcar, stored at a transload facility or loaded into a truck.

Deferred Revenue



Deferred revenue consisted of a $26.0 million partial termination payment
received in December 2018 in accordance with a contract modification which was
accounted for prospectively and a final termination of $1.7 million recorded as
accounts receivable in November 2019 and recognized as revenue throughout the
fourth quarter of 2019. The termination payments represented the distinct
unsatisfied portion of a contract to provide transloading services and were
considered part of the transaction price and were allocated to the remaining
performance obligations under the contract, which was fully settled as of
December 31, 2019. The Company recognized $27.1 million of deferred revenue as
Revenue from transloading services in the year ended December 31, 2019,
resulting in no remaining deferred revenue as of December 31, 2019. The Company
recognized $0.5 million of deferred revenue as Revenue from transloading
services in the year ended December 31, 2018, resulting in $25.5 million
remaining deferred revenue as of December 31, 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
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:

· The patented Solaris Lens inventory management system enables our customers to

track inventory levels in, and delivery rates from, each silo in a system. This

upgrade improves our customers' operational efficiencies and reduces operating

and supply chain costs by allowing the customer to better manage proppant and

chemical inventory levels both onsite and remotely.

· Our patented Auto Hopper technology is being added to our proppant systems and

is compatible with standard pressure pumping company's equipment. The

technology uses sensors and machine learning to automatically control the

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.

· Our patent-pending mobile chemical management system can store and deliver up

to six different chemicals with significantly improved inventory control, in a

smaller footprint and with less personnel when compared to traditional chemical

handling methods.

· Our patent-pending non-pneumatic loading option provides 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 patent-pending


    non-pneumatic loading option is compatible with our existing fleet with minimal
    modification.


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· Manufacturing plant improvements include upgrades to overhead cranes and the

addition of new column bays and trunnions that improve the manufacturing flow,

as well as improvements in the paint booths. These improvements increase

productivity by reducing labor hours, while improving safety.




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 consolidated statements of
operations.

Allocation of Purchase Price in Business Combinations



As part of our business strategy, we regularly pursue acquisitions and business
development opportunities. The purchase price in an acquisition is allocated to
the assets acquired and liabilities assumed based on their fair values as of the
closing date, which may occur many months after the announcement date. The
excess of the purchase price over the amount allocated to the assets and
liabilities, if any, is recorded as goodwill. We use all available information
to estimate fair values including quoted market prices, the carrying value of
acquired assets, and widely accepted valuation techniques such as discounted
cash flows. Our most significant estimates in our allocation typically relate to
the value assigned to property, plant and equipment, intangible assets and
goodwill. The judgments made in determining the estimated fair value assigned to
each class of assets acquired and liabilities assumed, as well as asset lives,
could materially impact our results of operations.

Impairment of Long-Lived and Other Intangible Assets



Long-lived assets, which include property, plant and equipment and 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 reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the
carrying amount is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these
intangible and fixed assets using an income approach. This requires us to 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.
There was no impairment for the years ended December 31, 2019, 2018 and 2017.

Leases



The Company adopted Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") Topic 842, Leases ("ASC Topic 842") effective
January 1, 2019. The Company applied ASC Topic 842 to all leases existing at or
commencing after January 1, 2019 and elected the package of transition practical
expedients for expired or existing contracts, which does not require
reassessment of: (1) whether any of our contracts are or contain leases, (2)
lease classification and (3) initial direct costs. The Company also elected the
practical expedient to adopt the new lease requirements through a cumulative
effect adjustment in the period of adoption and did not adjust comparative
periods. As a result of the adoption of ASC Topic 842 on January 1, 2019, the
Company recorded operating 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.

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We determine if an arrangement is a lease at inception. The Company made the
election to not apply the recognition requirements in ASC Topic 842 to
short-term leases (i.e., leases of twelve months or less). Instead, the Company
recognizes the lease payments in profit or loss on a straight-line basis over
the lease term. Operating leases are included in operating lease ROU assets,
current portion of operating lease liabilities, and operating lease liabilities,
net of current in the Company's consolidated balance sheets. Finance leases are
included in property and equipment, current portion of finance lease
liabilities, and finance lease liabilities, net of current in the Company's
consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make lease payments
arising from the lease. ROU assets and liabilities are recognized at the
commencement date based on the present value of lease payments over the lease
term. As most of the Company's leases do not provide an implicit rate, we use
our incremental borrowing rate in determining the present value of lease
payments based on the information available at the commencement date. Our
incremental borrowing rate reflects the estimated rate of interest that we would
pay to borrow on a collateralized basis over a similar term an amount equal to
the lease payments in a similar economic environment. We use the implicit rate
when readily determinable. The ROU asset also includes any lease payments made
and excludes lease incentives received. The Company's lease terms may 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 years ended December 31, 2019, 2018 and 2017.

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 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
December 31, 2019  and 2018, we had $51.4 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

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the period the determination was made, which
would have an adverse effect on our results of operations and earnings in future
periods.

On December 22, 2017, the Tax Act was enacted into law. The provisions of the Tax Act that impact us include, but are not
limited to, (1) reducing the United States federal corporate income tax rate from 35% to 21%,
(2) eliminating the corporate alternative minimum tax (AMT); (3) allowing
businesses to immediately expense the cost of new investments
in certain qualified depreciable assets acquired after September 27, 2017 (with
a phase-down of such expensing starting in 2023), and, (4) reducing the maximum
deduction for net operating loss (NOL) carryforwards generated in tax years beginning after December 31, 2017, to 80%

of a taxpayer's taxable income.

Payables Related to the Tax Receivable Agreement

As described in Note 10. "Income Taxes"


 to our 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 consolidated statement of operations.

                        Recent Accounting Pronouncements

See Note 2. "Summary of Significant Accounting Policies - Recently Accounting
Pronouncements" to our consolidated financial statements as of December 31, 2019
and 2018, for a discussion of recent accounting pronouncements.

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

                         Off Balance Sheet Arrangements

We have no material off balance sheet arrangements. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

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