Aris Water Solutions, Inc. (NYSE: ARIS) (“Aris,” “Aris Water” or the “Company”) today announced financial and operating results for the second quarter ended June 30, 2023.
- Total water volumes of approximately 1.5 million barrels per day for the second quarter of 2023, up 21% versus the second quarter of 2022 and up 9% sequentially versus the first quarter of 2023.
- Produced Water volumes of approximately 1,045 thousand barrels per day for the second quarter of 2023, up 24% versus the second quarter of 2022 and up 8% sequentially versus the first quarter of 2023.
- Water Solutions volumes of approximately 452 thousand barrels per day for the second quarter of 2023, up 13% versus the second quarter of 2022 and up 12% sequentially versus the first quarter of 2023.
- Net income of $10.4 million for the second quarter of 2023, up 158% versus the second quarter of 2022 and up 35% sequentially versus the first quarter of 2023. Adjusted Net Income1 of $13.2 million for the second quarter of 2023, up 11% versus the second quarter of 2022 and up 34% sequentially versus the first quarter of 2023.
- Adjusted EBITDA1 of $42.6 million for the second quarter of 2023, up 14% versus the second quarter of 2022 and up 12% sequentially versus the first quarter of 2023.
- Aris is revising its 2023 outlook for Adjusted EBITDA upward from $150 million - $170 million to $160 million - $170 million given its solid execution and stronger than anticipated first half volumes.
- Our contracted customers remain active drilling and completing wells across our acreage dedications. To support additional customer activity planned for late 2023 and 2024, we are raising our guidance for 2023 capital expenditures from $140 million - $155 million to $160 million - $170 million.
“We delivered a strong second quarter, achieving both 21% volume growth and improved profitability as we continue to execute ahead of schedule on our business plan and realize previously identified cost reductions,” said Amanda Brock, Chief Executive Officer of Aris.
“The entire Aris team is performing extremely well in identifying additional opportunities to expand our infrastructure network, optimize our operating costs, and improve our cash management activities. We are appreciative of our team’s continued focus and effort.
The second quarter also benefited from a few one-time events, including the receipt of deficiency payments under our minimum volume commitments that drove higher margins, the delay of certain maintenance expenses into the third quarter due to supply chain constraints, and lower than anticipated general & administrative expenses. As a result, we expect third quarter Adjusted EBITDA1 to be relatively flat sequentially. However, we expect to see our volumes increase and Adjusted EBITDA1 grow over second quarter levels in the fourth quarter.
The quality of our customers, well economics, and undrilled inventory on our contracted acreage continues to provide Aris with compelling support for steady growth. Some of our large customers have recently indicated they are increasing production more than previously forecasted in our contracted acreage, particularly in our core Northern Delaware Basin system. As we continue to expand our infrastructure network to capture these opportunities, our additional 2023 capital investments will, in turn, increase our volumes, revenue, and EBITDA in coming years.
Aris is beginning to actively test promising beneficial re-use treatment technologies in the field and looks forward to the progress of its pilot programs over the next several quarters. We continue working with regulators, our customers, and different industries in identifying opportunities to use treated produced water. Additionally, we earned Hart Energy’s 2023 ESG Award for public midstream companies earlier this quarter, which recognizes the impact we have made on water sustainability in the Permian Basin.
We are also pleased to announce that Dr. Eric Hoek will be joining us as an advisor to focus specifically on the recovery and commercialization of high-value materials in our brine stream. Dr. Hoek, an engineering professor at UCLA and a faculty scientist at the Lawrence Berkeley National Laboratory, is a globally recognized leader in developing and commercializing water technologies and will be a valuable addition to our team.”
OPERATIONS UPDATE
For the second quarter of 2023, the Company handled approximately 1.5 million barrels of total water volumes per day, up approximately 21% from 1.2 million barrels of water per day for the second quarter of 2022 and up approximately 9% sequentially from 1.4 million barrels of water per day for the first quarter of 2023. Skim oil recoveries were 1,042 barrels per day, or approximately 0.1% of produced water volumes, in-line with expectations.
Recycled Produced Water volumes were approximately 296 thousand barrels of water per day for the second quarter of 2023, approximately flat from 297 thousand barrels of water per day for the second quarter of 2022, and up approximately 15% sequentially versus the first quarter of 2023.
Groundwater volumes were approximately 156 thousand barrels of water per day for the second quarter of 2023, up approximately 50% from 104 thousand barrels of water per day for the second quarter of 2022, and up approximately 6% sequentially versus the first quarter of 2023.
FINANCIAL UPDATE
Net income was $10.4 million for the second quarter of 2023 versus net income of $4.0 million in the second quarter of 2022 and net income of $7.7 million in the first quarter of 2023. Adjusted Net Income1 was $13.2 million for the second quarter of 2023 versus $11.9 million for the second quarter of 2022 and $9.8 million in the first quarter of 2023.
Adjusted EBITDA1 was $42.6 million for the second quarter of 2023, up approximately 14% from $37.2 million in the second quarter of 2022, and up approximately 12% from $38.1 million in the first quarter of 2023.
The Company had gross margin per barrel of $0.24 per barrel for the second quarter of 2023 versus $0.26 per barrel in the second quarter of 2022 and $0.24 per barrel for the first quarter of 2023. The Company had Adjusted Operating Margin per Barrel2 of $0.38 per Barrel for the second quarter of 2023, versus $0.41 in the second quarter of 2022 and $0.39 for the first quarter of 2023.
Second quarter 2023 capital expenditures3 totaled approximately $49 million versus $52 million in the second quarter of 2022.
STRONG BALANCE SHEET AND LIQUIDITY
As of June 30, 2023, the Company had approximately $4 million in cash and an available revolving credit facility of approximately $171 million for a total available liquidity of approximately $175 million. As of June 30, 2023, the Company’s leverage ratio was 2.49X, which was slightly below the low end of our target leverage range of 2.50X-3.50X.4 Accounts Receivable balance of approximately $94 million was down approximately 7% from the first quarter while revenue grew 6% quarter-over-quarter, reflecting continued improvements in working capital management.
THIRD QUARTER 2023 DIVIDEND
On August 2, 2023, Aris’s Board of Directors declared a dividend on its Class A common stock for the third quarter of 2023 of $0.09 per share. In conjunction with the dividend payment, a distribution of $0.09 per unit will be paid to unit holders of Solaris Midstream Holdings, LLC. The dividend will be paid on September 28, 2023, to holders of record of the Company’s Class A common stock as of the close of business on September 14, 2023. The distribution to unit holders of Solaris Midstream Holdings, LLC will be subject to the same payment and record dates.
THIRD QUARTER 2023 AND REVISED FULL YEAR 2023 FINANCIAL OUTLOOK
“Our volumes have grown steadily, exceeding our expectations in the first half of the year. In the third quarter, we expect produced water and water solutions volumes to be flat to slightly down sequentially, reflecting the timing of completions across our acreage, as we expect third quarter completions to be weighted toward the second half of the quarter. We anticipate a strong finish to the year as fourth quarter produced water volumes are forecasted to exceed those realized in the second quarter,” said Amanda Brock. “We continue to forecast skim oil recovery at normalized levels of approximately 0.10% of produced water inlet volumes, consistent with the second quarter. We expect our CPI linked inflation clauses and cost reduction initiatives to further benefit margins in the second half of the year, partially offset by deferred well maintenance costs and the non-recurrence of margin benefits from minimum volume commitment deficiencies recognized in the second quarter.”
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For the third quarter of 2023, the Company expects:
- Produced Water Handling volumes between 1,020 and 1,030 thousand barrels of water per day
- Water Solutions volumes between 375 and 390 thousand barrels of water per day
- Adjusted Operating Margin per Barrel2 between $0.38 and $0.41
- Skim oil recoveries of 0.10% of inlet produced water handling volumes at an average WTI price of $74 per barrel
- Adjusted EBITDA1 between $39 and $42 million
- For the full year of 2023, Aris is updating its previously provided guidance to reflect higher than anticipated volume growth through the first half of 2023 as well as additional capital investment to accommodate further growth anticipated in late 2023 and early 2024
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For the full year of 2023, the Company now expects:
- Produced Water Handling volumes between 1,020 and 1,030 thousand barrels of water per day
- Water Solutions volumes between 400 and 410 thousand barrels of water per day
- Adjusted Operating Margin per Barrel2 between $0.39 and $0.40
- Skim oil recoveries of 0.10% of inlet produced water handling volumes at an average WTI price of $74 per barrel
- Adjusted EBITDA1 between $160 and $170 million,revised from prior outlook of $150 to $170 million
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Capital Expenditures between $160 and $170 million3, revised from prior outlook of $140 to $155 million
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Incremental capital expenditures to the prior outlook include:
- Approximately $10 million of growth capital to accommodate increased forecasted volumes from contracted customers
- Approximately $5 million of increased maintenance capital due to additional asset upgrades
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Incremental capital expenditures to the prior outlook include:
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1 Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures. See the supplementary schedules in this press release for a discussion of how we define and calculate Adjusted EBITDA and Adjusted Net Income and a reconciliation thereof to net income, the most directly comparable GAAP measure. |
2 Adjusted Operating Margin per Barrel is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate Adjusted Operating Margin per Barrel and a reconciliation thereof to gross margin, the most directly comparable GAAP measure. |
3 Calculated on capital costs incurred during the period, excluding the impact of working capital. |
4 Defined as net debt as of 6/30/2023 divided by annualized 2Q 2023 Adjusted EBITDA. Net debt is calculated as total debt less cash and cash equivalents. |
CONFERENCE CALL
Aris will host a conference call to discuss its second quarter 2023 results on Thursday, August 3, 2023, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time).
Participants should call (877) 407-5792 and refer to Aris Water Solutions, Inc. when dialing in. Participants are encouraged to log in to the webcast or dial in to the conference call approximately ten minutes prior to the start time. To listen via live webcast, please visit the Investor Relations section of the Company’s website, www.ariswater.com.
An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately fourteen days. The replay can be accessed by dialing (877) 660-6853 within the United States or (201) 612-7415 outside of the United States. The access code is 13739965.
About Aris Water Solutions, Inc.
Aris Water Solutions, Inc. is a leading, growth-oriented environmental infrastructure and solutions company that directly helps its customers reduce their water and carbon footprints. Aris Water delivers full-cycle water handling and recycling solutions that increase the sustainability of energy company operations. Its integrated pipelines and related infrastructure create long-term value by delivering high-capacity, comprehensive produced water management, recycling and supply solutions to operators in the core areas of the Permian Basin.
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of forward-looking statements include, but are not limited to, those regarding the Company’s business strategy, its industry, its future profitability and our projected guidance for 2023, the various risks and uncertainties associated with the extraordinary inflationary environment and impacts resulting from the volatility in global oil markets, expected capital expenditures and the impact of such expenditures on performance, management changes, current and potential future long-term contracts and the Company’s future business and financial performance and our ability to identify strategic acquisitions and realize benefits therefrom. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “outlook,” “budget,” “expect,” “continue,” “will,” “intend,” “plan,” “targets,” “believe,” “forecast,” “future,” “potential,” “may,” “possible,” “should,” “could” and variations of such words or similar expressions. Forward-looking statements are based on the Company’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, the Company’s actual results may differ materially from those contemplated by the forward-looking statements, including our projected guidance for 2023. Factors that could cause the Company’s actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to the risk factors discussed or referenced in its filings made from time to time with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Table 1 Aris Water Solutions, Inc. Condensed Consolidated Statements of Operations (Unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(in thousands, except for share and per share amounts) | June 30, | June 30, | ||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | ||||||||||||||||
Produced Water Handling | $ | 49,716 | $ | 35,525 | $ | 95,816 | $ | 70,625 | ||||||||
Produced Water Handling—Affiliate | 23,181 | 23,207 | 46,321 | 44,288 | ||||||||||||
Water Solutions | 14,928 | 14,708 | 28,810 | 26,352 | ||||||||||||
Water Solutions—Affiliate | 8,163 | 2,828 | 16,147 | 5,972 | ||||||||||||
Other Revenue | 645 | 118 | 1,110 | 118 | ||||||||||||
Total Revenue | 96,633 | 76,386 | 188,204 | 147,355 | ||||||||||||
Cost of Revenue | ||||||||||||||||
Direct Operating Costs | 44,446 | 30,781 | 88,291 | 57,452 | ||||||||||||
Depreciation, Amortization and Accretion | 19,086 | 16,203 | 37,692 | 32,782 | ||||||||||||
Total Cost of Revenue | 63,532 | 46,984 | 125,983 | 90,234 | ||||||||||||
Operating Costs and Expenses | ||||||||||||||||
Abandoned Well Costs | — | 5,415 | — | 5,415 | ||||||||||||
General and Administrative | 12,682 | 11,567 | 24,481 | 22,278 | ||||||||||||
Impairment of Long-Lived Assets | — | — | — | 15,597 | ||||||||||||
Research and Development Expense | 650 | 81 | 1,058 | 100 | ||||||||||||
Other Operating (Income) Expense | (192 | ) | 513 | 25 | 1,577 | |||||||||||
Total Operating Expenses | 13,140 | 17,576 | 25,564 | 44,967 | ||||||||||||
Operating Income | 19,961 | 11,826 | 36,657 | 12,154 | ||||||||||||
Other Expense | ||||||||||||||||
Interest Expense, Net | 7,971 | 7,315 | 15,632 | 15,100 | ||||||||||||
Income (Loss) Before Income Taxes | 11,990 | 4,511 | 21,025 | (2,946 | ) | |||||||||||
Income Tax Expense (Benefit) | 1,559 | 472 | 2,886 | (368 | ) | |||||||||||
Net Income (Loss) | 10,431 | 4,039 | 18,139 | (2,578 | ) | |||||||||||
Net Income (Loss) Attributable to Noncontrolling Interest | 5,733 | 2,645 | 10,063 | (1,750 | ) | |||||||||||
Net Income (Loss) Attributable to Aris Water Solutions, Inc. | $ | 4,698 | $ | 1,394 | $ | 8,076 | $ | (828 | ) | |||||||
Net Income (Loss) Per Share of Class A Common Stock | ||||||||||||||||
Basic | $ | 0.15 | $ | 0.06 | $ | 0.25 | $ | (0.05 | ) | |||||||
Diluted | $ | 0.15 | $ | 0.05 | $ | 0.25 | $ | (0.05 | ) | |||||||
Weighted Average Shares of Class A Common Stock Outstanding | ||||||||||||||||
Basic | 30,036,593 | 21,984,313 | 29,985,869 | 21,918,639 | ||||||||||||
Diluted | 30,036,593 | 22,101,106 | ||||||||||||||
