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Aris Water Solutions, Inc. Reports Fourth Quarter and Full Year 2023 Results and Provides 2024 Outlook

February 28, 2024

February 28, 2024 4:02pm EST Download as PDF

HOUSTON–(BUSINESS WIRE)– Aris Water Solutions, Inc. (NYSE: ARIS) (“Aris,” “Aris Water” or the “Company”) today announced financial and operating results for the fourth quarter and year ended December 31, 2023.

FOURTH QUARTER AND FULL YEAR 2023 HIGHLIGHTS

  • Increased total water volumes 4% quarter-over-quarter and 16% annually
  • Grew recycled produced water volumes 8% for the year of 2023, including record volumes in the fourth quarter
  • Achieved fourth quarter and full year 2023 net income of $13.0 million and $43.4 million, respectively
  • Diluted Net Income per Share of $0.59 for the full year of 2023; Diluted Adjusted Net Income per Share1 of $0.88 for the year, up 14% versus 2022
  • Generated Adjusted EBITDA1 of $49.3 million for the fourth quarter and $175.0 million for the full year, up 17% from 2022
  • Improved Adjusted Operating Margin per Barrel2 by 11% versus the fourth quarter of 2022, reflecting the successful impact of cost saving initiatives
  • $114 million year-over-year increase in Cash Provided by Operating Activities driven by volume growth, operational efficiencies and significant improvements in working capital
  • Full year Capital Expenditures3 of $156.4 million
  • Maintained a strong balance sheet with 2023 year-end leverage of 2.4x4 and $329.0 million of available liquidity

2024 OUTLOOK: FOCUSED ON CASH GENERATION

  • Significant positive free cash flow expected due to greater asset efficiency, improved cost structure and lower capital reinvestment
  • Full year produced water volumes are forecasted to grow approximately 2 – 5%, excluding the impact of a 2023 asset divestiture
  • Full year water solutions volumes are expected to be between 430 to 470 thousand barrels per day, approximately flat with 2023
  • Full-year Adjusted EBITDA1 forecasted between $180 – $200 million, up approximately 9% at the midpoint versus 2023
  • Adjusted Operating Margin per Barrel2 is anticipated to increase 8% – 13% year-over-year to $0.42 – $0.44/bbl
  • We project Capital Expenditures3 of $85 – $105 million, down approximately 40% versus 2023, a range which reflects $12 – $16 million of capital investment needed to maintain our system and potential capital for new business development

“2023 was an exceptional year for Aris. Our team delivered significantly increased profitability, with strong momentum carrying us into 2024. A year ago, we stated that our primary objectives for 2023 were to improve asset efficiency, address our cost structure, and improve margins. Our electrification and other cost reduction efforts allowed us to recognize over $7.5 million in sustainable, annualized savings while volumes also increased throughout the year. We structurally reduced our operating costs while growing substantially, supporting our long-term contracted customers. I am very pleased with our results and the efforts of the Aris team,” said Amanda Brock, Chief Executive Officer of Aris.

“In addition, Aris’s water recycling infrastructure facilitated over 118 million barrels of recycled produced water in 2023, growing 8% year over year. In December, we achieved a major milestone by recycling over 550,000 barrels in a single day. We take pride in having helped our customers dramatically reduce their groundwater withdrawals by more than 270 million barrels in the past 3 years. We have significantly enhanced water sustainability in the areas in which we operate and are delivering long term benefits to all our stakeholders.

“We remain committed to continuous improvement, optimizing our existing assets, and increasing our rates of return on invested capital and are extremely optimistic about what we can achieve in 2024 and beyond.”

OPERATIONS UPDATE

FINANCIAL UPDATE

Full year Cash Flow from Operating Activities increased approximately 162% to $183.9 million as compared to 2022 and was positively impacted by a $43.8 million improvement in Accounts Receivable and Accounts Receivable from Affiliate balances.

Net income was $13.0 million for the fourth quarter of 2023 versus net income of $5.4 million in the fourth quarter of 2022 and net income of $12.2 million in the third quarter of 2023. Adjusted Net Income1 was $15.4 million for the fourth quarter of 2023 versus $9.0 million for the fourth quarter of 2022 and $13.9 million in the third quarter of 2023.

Net income was $43.4 million for the full year of 2023, versus net income of $4.8 million for the full year of 2022. Adjusted Net Income1 was $52.4 million for the full year of 2023 versus $44.1 million for the full year of 2022.

Adjusted EBITDA1 was $49.3 million for the fourth quarter of 2023, up approximately 37% from $36.1 million in the fourth quarter of 2022, and up approximately 10% from $44.9 million in the third quarter of 2023. Adjusted EBITDA1 was $175.0 million for the full year of 2023 versus $149.0 million for the full year of 2022, an increase of approximately 17%.

Adjusted Operating Margin per Barrel2 for the fourth quarter of 2023 was $0.41 per barrel versus $0.37 per barrel in the fourth quarter of 2022. Adjusted Operating Margin per Barrel2 for the full year of 2023 was $0.39 per barrel, flat versus the full year of 2022.

Fourth quarter 2023 Capital Expenditures3 totaled approximately $20 million versus $20 million in the fourth quarter of 2022. Full year 2023 Capital Expenditures3 totaled approximately $156 million versus approximately $167 million for the full year of 2022.

STRONG BALANCE SHEET AND LIQUIDITY

As of December 31, 2023, the Company had approximately $5 million in cash and $324 million available under its revolving credit facility for total available liquidity of $329 million. The Company’s leverage ratio at year-end 2023 was 2.4X4, below the low end of its target leverage range of 2.5X-3.5X.

FIRST QUARTER 2024 DIVIDEND

On February 23, 2024, Aris’s Board of Directors declared a dividend on its Class A common stock for the first quarter of 2024 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 March 21, 2024, to holders of record of the Company’s Class A common stock as of the close of business on March 7, 2024. The distribution to unit holders of Solaris Midstream Holdings, LLC will be subject to the same payment and record dates.

FIRST QUARTER AND FULL YEAR 2024 FINANCIAL OUTLOOK

“Building on our success in 2023, our focus in 2024 is unlocking additional value from our infrastructure by driving increased returns from our existing assets, demonstrating sustainable cash generation capability, and identifying opportunities to leverage our expertise in the treatment of high-volume, complex water streams. We will prioritize safety, operational excellence, cost efficiency, and innovation,” said Amanda Brock.

“We will continue to grow alongside new and existing customers in the Northern Delaware Basin with potential upside in our shorter cycle Water Solutions business. We expect the positive momentum in our operating margins to continue as we benefit from the impact of contractual inflation clauses and additional efficiency initiatives in the field.

“2024 is an inflection year for Aris. The capital investment needed to support our infrastructure is substantially lower this year as the basin matures and operators temper their pace of development. With the Aris system more fully built out, we can better utilize its reach and capabilities, which in turn should increase free cash generation. With moderating volume growth, continued improvements in operating margins, and significantly reduced capital spending, we anticipate 2024 will deliver sustainable free cash flow. Aris is exceptionally well positioned for 2024 following our demonstrated operating improvements in 2023. As the year progresses, we expect cash generation to accelerate which will drive additional returns of capital to our shareholders.”

For the full year of 2024, the Company expects:

  • Produced Water Handling volumes between 1,020 and 1,070 thousand barrels of water per day, up approximately 2 – 5% versus 2023 when adjusted for the approximately 35 thousand barrels per day impact of asset divestitures completed in the third quarter of 2023
  • Water Solutions volumes between 430 and 470 thousand barrels of water per day, approximately flat versus 2023
  • Adjusted Operating Margin per Barrel2 between $0.42 and $0.44
  • Skim oil recoveries of approximately 1,300 barrels per day at an average WTI price of $76 per barrel
  • Adjusted EBITDA1 between $180 and $200 million
  • Capital Expenditures3 between $85 and $105 million

For the first quarter of 2024, the Company expects:

  • Produced Water Handling volumes between 1,075 and 1,105 thousand barrels of water per day
  • Water Solutions volumes between 325 and 345 thousand barrels of water per day
  • Adjusted Operating Margin per Barrel2 between $0.42 and $0.44
  • Skim oil recoveries of approximately 1,600 barrels per day at an average WTI price of $76 per barrel
  • Adjusted EBITDA1 between $43 and $47 million
  • Capital Expenditures3 between $30 and $35 million

CONFERENCE CALL

Aris will host a conference call to discuss its fourth quarter and full year 2023 results on Thursday, February 29, 2024, 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 13743897.

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.

 
1 Adjusted Net Income, Adjusted EBITDA, and Diluted Adjusted Net Income per Share are non-GAAP financial measures. See the supplementary schedules in this press release for a discussion of how we define and calculate Adjusted Net Income, Adjusted EBITDA, and Diluted Adjusted Net Income per Share 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 Capital Expenditures is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate Capital Expenditures and a reconciliation thereof to cash paid for property, plant, and equipment, the most directly comparable GAAP measure.
4 Represents a non-GAAP financial measure. Defined as net debt as of December 31, 2023, divided by trailing twelve months Adjusted EBITDA. Net debt is calculated as total debt less cash and cash equivalents. See the supplementary schedules in this press release for a reconciliation to the most directly comparable GAAP measure.

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, statements, information, opinions or beliefs regarding our business strategy, our industry, our future profitability, business and financial performance, including our guidance for 2024, current and potential future long-term contracts, legal and regulatory developments, our ability to identify strategic acquisitions and realize expected benefits therefrom, the development of technologies for the beneficial reuse of produced water and related strategies, plans, objectives and strategic pursuits and other statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “expect,” “anticipate,” “continue,” “sustain,” “will,” “intend,” “strive,” “plan,” “goal,” “target,” “believe,” “forecast,” “outlook,” “future,” “potential,” “opportunity,” “predict,” “may,” “visibility,” “possible,” “should,” “could” and variations of such words or similar expressions. Forward-looking statements are based on our current expectations and assumptions regarding our 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, our actual results may differ materially from those contemplated or implied by the forward-looking statements including our guidance for 2024. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to, energy prices, the Russia-Ukraine and Israel-Hamas conflicts, macroeconomic conditions (such as inflation) and market uncertainty related thereto, legislative and regulatory developments, customer plans and preferences, technological innovations and developments, and other events discussed or referenced in our filings made from time to time with the Securities and Exchange Commission (“SEC”), including such factors discussed under “Risk Factors” in our most recent Annual Report on Form 10-K, and if applicable, our subsequent SEC filings, which are available on our Investor Relations website at https://ir.ariswater.com/sec-filings or on the SEC’s website at www.sec.gov/edgar. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. All forward-looking statements, expressed or implied, included in this presentation and any oral statements made in connection with this presentation are expressly qualified in their entirety by the foregoing cautionary statements. We undertake 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.

Use of Non-GAAP Financial Information

The Company uses financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), including Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel, Adjusted Net Income, net debt and leverage ratio, and Capital Expenditures. Although these Non-GAAP financial measures are important factors in assessing the Company’s operating results and cash flows, they should not be considered in isolation or as a substitute for net income or gross margin or any other measures prepared under GAAP.

The Company calculates Adjusted EBITDA as net income (loss) plus: interest expense; income taxes; depreciation, amortization and accretion expense; abandoned well costs, asset impairment and abandoned project charges; losses on the sale of assets; transaction costs; research and development expense; change in payables related to the Tax Receivable Agreement liability as a result of state tax rate changes; loss on debt modification; stock-based compensation expense; and other non-recurring or unusual expenses or charges (such as temporary power costs, litigation expenses and severance costs), less any gains on the sale of assets. For the fourth quarter of 2022, we began including research and development expense in our calculation of Adjusted EBITDA due to our new beneficial reuse pilot projects, which are discreet, non-revenue initiatives.

The Company calculates Adjusted Operating Margin as Gross Margin plus depreciation, amortization and accretion and temporary power costs. The Company defines Adjusted Operating Margin per Barrel as Adjusted Operating Margin divided by total volumes handled, sold or transferred.

The Company calculates Adjusted Net Income as Net Income (Loss) plus the after-tax impacts of stock-based compensation and plus or minus the after-tax impacts of certain items affecting comparability, which are typically noncash and/or nonrecurring items. The Company calculated Diluted Adjusted Net Income Per Share as (i) Net Income (Loss) plus the after-tax impacts of stock-based compensation and plus or minus the after-tax impacts of certain items affecting comparability, which are typically noncash and/or nonrecurring items, divided by (ii) the diluted weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC interests, adjusted for the dilutive effect of outstanding equity-based awards.

For the quarter ended December 31, 2023, the Company calculates its leverage ratio as net debt as of December 31, 2023, divided by Adjusted EBITDA for the trailing twelve months. Net debt is calculated as the principal amount of total debt outstanding as of December 31, 2023, less cash and cash equivalents as of December 31, 2023.

The Company calculates Capital Expenditures as cash capital expenditures for property, plant, and equipment additions less changes in accrued capital costs.

The Company believes these presentations are used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within its industry. Similarly, the Company’s management uses this information for comparative purposes as well. Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel, Adjusted Net Income, and Capital Expenditures are not measures of financial performance under GAAP and should not be considered as measures of liquidity or as alternatives to net income (loss), gross margin, or cash paid for property, plant and equipment. Additionally, these presentations as defined by the Company may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) and other measures prepared in accordance with GAAP, such as gross margin, operating income, net income, cash paid for property, plant, and equipment or cash flows from operating activities.

Although we provide forecasts for the non-GAAP measures Adjusted EBITDA, Adjusted Operating Margin per Barrel, and Capital Expenditures, we are not able to forecast their most directly comparable measures (net income, gross margin, and cash paid for property, plant, and equipment) calculated and presented in accordance with GAAP without unreasonable effort. Certain elements of the composition of forward-looking non-GAAP metrics are not predictable, making it impractical for us to forecast. Such elements include but are not limited to non-recurring gains or losses, unusual or non-recurring items, income tax benefit or expense, or one-time transaction costs and cost of revenue, which could have a significant impact on the GAAP measures. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results. As a result, no reconciliation of forecasted non-GAAP measures is provided.

David Tuerff
Senior Vice President, Finance and Investor Relations
(281) 501-3070
IR@ariswater.com

Source: Aris Water Solutions, Inc.

Released February 28, 2024