Aris Water Solutions Reports Fourth Quarter & Full Year 2021 Results

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, 2021.

FOURTH QUARTER & YEAR OF 2021 HIGHLIGHTS

• Record total water volumes of approximately 1.1 million barrels per day for the fourth quarter of 2021, up 14% versus the third quarter of 2021
• Continued growth in recycled produced water with 185,000 barrels per day for the fourth quarter of 2021, up 42% versus the third quarter of 2021
• Full year 2021 consolidated net loss of $7.0 million, down from a consolidated net income of $7 thousand for full year 2020. Net income for the full year of 2021 was $21.5 million excluding a non-cash charge of $28.5 million associated with the abandonment of an asset
• Adjusted EBITDA¹of $120.5 million for the full year of 2021, up 63% versus the full year of 2020
• Property, Plant, and Equipment Expenditures of $74.7 million for the full year of 2021, down approximately 47% from $139.6 million for the full year of 2020

“Aris’s fourth quarter capped an outstanding year for the Company,” stated Amanda Brock, Chief Executive Officer of Aris. “In the fourth quarter, we again moved record water volumes and our recycling activities continued to grow rapidly as our existing and new customers increased their demand for the use of recycled water. Throughout 2021, we executed new long-term acreage dedications for handling and supply and firmly established ourselves as a leading provider of sustainable water recycling solutions. During 2021, we expanded our operating margins and reduced our capital expenditures, efficiently utilizing and growing our existing system. We also expanded our focus on piloting and evaluating beneficial reuse technologies and opportunities to use treated produced water outside of the oil and gas industry. We remain highly optimistic and confident about Aris’s continued growth in 2022.”

“2021 was a transformational year for Aris,” said Bill Zartler, Founder and Executive Chairman of Aris. “We issued the first sustainability linked bond in the produced water industry and successfully completed an initial public offering. We have firmly established ourselves as a proven, reliable, and long-term partner to premier operators in the Permian Basin and are growing rapidly alongside our customers as we help them solve their increasing water challenges. We are proud of how much the Aris team accomplished in 2021 and look forward to a positive outlook for the industry and Aris heading into 2022.”

OPERATIONS UPDATE

For the year of 2021, the company averaged approximately 947,000 barrels of water per day of total volumes handled, up approximately 38% from 686,000 barrels of water per day for the year of 2020. The Company’s volume growth was primarily driven by increased activity levels from its long-term contracted customers and additional adoption of our recycled produced water solutions.

In the fourth quarter of 2021, Aris signed three new long-term acreage dedication agreements in Eddy and Lea Counties, New Mexico adding approximately 34,000 dedicated acres. Over the course of 2021, the Company added over 68,000 newly dedicated acres, bringing total dedicated acres to approximately 583,000 acres.

FINANCIAL UPDATE

During the fourth quarter of 2021, the Company recorded consolidated net income of $6.4 million compared to consolidated net income of $0.3 million for the fourth quarter of 2020. The Company recorded a consolidated net loss of $7.0 million during full year 2021, compared to consolidated net income of $7 thousand for full year 2020. Excluding a non-cash charge of $28.5 million associated with the abandonment of an asset, consolidated net income for the full year of 2021 was $21.5 million.

The Company had Gross Margin per barrel of $0.27/bbl for the fourth quarter of 2021 compared to $0.13/bbl in the fourth quarter of 2020. The Company had Adjusted Operating Margin per barrel of $0.43/bbl for the fourth quarter of 2021, compared to $0.35/bbl in the fourth quarter of 2020. Over the course of 2021, Aris expanded its margins through increased recycling activities, enhanced automation, and spreading fixed costs over a larger volumetric base.

The Company had Adjusted EBITDA¹ of $35.7 million for the fourth quarter of 2021 compared to $18.4 million in the fourth quarter of 2020, an increase of 94%. For the year of 2021, the Company had Adjusted EBITDA ¹ of $120.5 million compared to $74.0 million for the year of 2020, an increase of 63%.

Fourth quarter 2021 property, plant, and equipment expenditures totaled $11.9 million compared to $17.8 million in the fourth quarter of 2020. Aris continues to invest in high-return capital projects that support its long-term contracted customers and leverage its existing infrastructure.

STRONG BALANCE SHEET AND LIQUIDITY

As of December 31, 2021, the Company had approximately $60.0 million in cash and an undrawn and available $200.0 million revolving credit facility. Aris is currently at the low end of its leverage target of 2.5-3.5X ².

FIRST QUARTER 2022 DIVIDEND

On February 25, 2022, Aris announced that its Board of Directors declared a dividend on its Class A common stock for the first quarter of 2022 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 29, 2022, to holders of record of the Company’s Class A common stock as of the close of business on March 17, 2022. The distribution to unit holders of Solaris Midstream Holdings, LLC will be subject to the same payment and record dates.

2022 OUTLOOK

Aris anticipates continued rapid growth in 2022 due to accelerating activity on the Company’s dedicated acreage and increasing adoption of recycling as customers recognize our reliability and sustainability benefits. For the year of 2022, the Company projects Adjusted EBITDA of $150.0-$160.0 million, growing approximately 30% versus 2021, and capital expenditures of $80.0-$90.0 million. The Company projects approximately $50.0-$60.0 million of capital expenditures for the first half of the 2022 to support anticipated production increases in the second half of 2022. For the first quarter of 2022, the Company expects Adjusted EBITDA of $32.0-$34.0 million.

CONFERENCE CALL

Aris will host a conference call and webcast for investors and analysts to discuss its results for the fourth quarter and full year 2021 on Tuesday, March 1, 2022 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time). Participants should call [phone] and should refer to Aris Water Solutions, Inc. when dialing in. An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately 14 days. To access the replay, call [phone] (United States/Canada) or [phone] (International) and enter access code 13726761. A live broadcast of the earnings conference call and the related earnings presentation will also be available via the internet at www.ariswater.com under the “Investors” section of the website. A replay will also be available on the website following the call.

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, the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the volatility in global oil markets and the COVID-19 pandemic, 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. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “expect,” “continue,” “intend,” “plan,” “believe,” “forecast,” “future,” “potential,” “may,” “possible,” “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. 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 SEC. 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.

________________________

¹ Adjusted EBITDA is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate Adjusted EBITDA and a reconciliation thereof to net income, the most comparable GAAP measure.

² Defined as net debt as of 12/31/2021 divided by annualized 4Q 2021 Adjusted EBITDA. Net debt is calculated as total debt less cash and cash equivalents.

Table 1 Aris Water Solutions, Inc. Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except for share and per share amounts)	Three Months Ended December 31,					Year Ended December 31,
	2021		2020			2021			2020
Revenue
Produced Water Handling	$	27,118	$	19,781		$	98,486		$	90,163
Produced Water Handling—Affiliates		24,382		16,212			86,598			51,496
Water Solutions		13,297		4,392			25,121			14,802
Water Solutions—Affiliates		2,182		4,539			19,046			15,011
Total Revenue		66,979		44,924			229,251			171,472
Cost of Revenue
Direct Operating Costs		24,211		23,791			90,914			95,431
Depreciation, Amortization and Accretion		15,217		12,498			60,767			44,027
Total Cost of Revenue		39,428		36,289			151,681			139,458
Operating Costs and Expenses
Abandoned Well Costs		1,103		—			28,505			—
General and Administrative		12,026		5,242			27,266			18,663
Other Operating Expenses (Income), Net		67		793			2,657			5,647
Total Operating Expenses		13,196		6,035			58,428			24,310
Operating Income		14,355		2,600			19,142			7,704
Other Expense
Interest Expense, Net		7,618		2,310			25,473			7,674
Other		—		—			380			—
Total Other Expense		7,618		2,310			25,853			7,674
(Loss) Income Before Taxes		6,737		290			(6,711	)		30
Income Tax Expense		379		8			298			23
Net (Loss) Income	$	6,358	$	282		$	(7,009	)	$	7
Equity Accretion and Dividend—Redeemable Preferred		—		(2,407	)		21			(4,335	)
Net (Loss) Income—Stockholders'/Members' Equity	$	6,358	$	(2,125	)	$	(6,988	)	$	(4,328	)
Net Income (Loss), Equity Accretion and Dividend Prior to IPO		3,037					(10,309	)
Net Income Attributable to Noncontrolling Interest		2,209					2,209
Net Income Attributable to Class A Common Stock	$	1,112				$	1,112
Earnings Per Share of Class A Common Stock Basic and Diluted^(1)	$	0.05				$	0.05
Weighted Average Shares of Class A Common Stock Basic and Diluted^(1)		20,888,675					20,888,675

^(1) Represents earnings per share of Class A Common Stock and weighted-average shares of Class A common stock outstanding for the period from October 26, 2021 through December 31, 2021, the period following the reorganization transactions and IPO.

Table 2 Aris Water Solutions, Inc. Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except for share and per share/unit amounts)	December 31,
	2021			2020
Assets
Cash and Cash Equivalents	$	60,055		$	24,932
Accounts Receivable, Net		41,973			21,561
Accounts Receivable from Affiliate		20,191			11,538
Other Receivables		4,126			3,722
Prepaids and Deposits		6,043			4,315
Total Current Assets		132,388			66,068
Fixed Assets
Property, Plant and Equipment		700,756			661,446
Accumulated Depreciation		(67,749	)		(43,258	)
Total Property, Plant and Equipment, Net		633,007			618,188
Intangible Assets, Net		304,930			337,535
Goodwill		34,585			34,585
Net Deferred Income Tax Assets		19,933			—
Other Assets		1,850			1,429
Total Assets	$	1,126,693		$	1,057,805
Liabilities, Mezzanine, Stockholders' and Members' Equity
Accounts Payable	$	7,082		$	16,067
Payables to Affiliate		1,499			1,884
Accrued and Other Current Liabilities		40,464			27,838
Total Current Liabilities		49,045			45,789
Long-Term Debt, Net of Debt Issuance Costs		392,051			297,000
Asset Retirement Obligations		6,158			5,291
Tax Receivable Agreement Liability		75,564			—
Deferred Revenue and Other Long-Term Liabilities		1,336			1,432
Total Liabilities		524,154			349,512
Commitments and Contingencies
Mezzanine Equity:
Redeemable Preferred Units, $10,000 par value, none issued or outstanding as of December 31, 2021 and 7,307 outstanding as of December 31, 2020		—			74,378
Stockholders' and Members' Equity:
Members' Equity		—			633,915
Class A Common Stock $0.01 par value, 600,000,000 authorized, 21,858,022 issued and 21,847,831 outstanding as of December 31, 2021. None issued or outstanding at December 31, 2020		218			—
Class B Common Stock $0.01 par value, 180,000,000 authorized, 31,716,104 issued and outstanding as of December 31, 2021. None issued or outstanding at December 31, 2020		317			—
Treasury Stock (at Cost), 10,191 shares as of December 31, 2021 and none at 2020		(135	)
Additional Paid-in-Capital		212,926			—
Accumulated Deficit		(457	)		—
Total Stockholders'/Members' Equity Attributable to Aris Water Solutions, Inc.		212,869			—
Noncontrolling Interests		389,670			—
Total Stockholders'/Members' Equity		602,539			633,915
Total Liabilities, Mezzanine and Stockholders'/Members' Equity	$	1,126,693		$	1,057,805

Table 3 Aris Water Solutions, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
		Three Months Ended December 31,					Year Ended December 31,
(in thousands)
		2021		2020			2021			2020
Cash Flow from Operating Activities
Net (Loss) Income	$	6,358		$	282		$	(7,009	)	$	7
Adjustments to reconcile Net Income (Loss) to Net Cash provided by Operating Activities
Depreciation, Amortization and Accretion		15,217			12,498			60,767			44,027
Deferred Income Tax Benefit		379			—			379			—
Stock Based Compensation		1,586			—			1,586			—
Abandoned Well Costs		1,103			—			28,505			—
Loss (Gain) on Disposal of Asset, Net		50			51			275			133
Abandoned Projects		12			624			2,047			2,125
Amortization of Deferred Financing Costs		553			213			1,873			783
Loss on Debt Modification		—			—			380			—
Bad Debt Expense		—			363			216			446
Changes in operating assets and liabilities:
Accounts Receivable		(10,225	)		1,233			(21,456	)		10,620
Accounts Receivable from Affiliate		1,393			2,720			(8,653	)		5,195
Other Receivables		133			(3,715	)		364			(3,659	)
Prepaids and Deposits		(4,694	)		(1,580	)		(2,178	)		(58	)
Accounts Payable		(4,987	)		(1,600	)		(8,271	)		193
Payables to Affiliate		330			(390	)		(385	)		—
Adjustment in Deferred Revenue		(93	)		325			(139	)		1,300
Accrued Liabilities and Other		(5,489	)		6,197			10,511			6,659
Net Cash Provided by Operating Activities		1,626			17,221			58,812			67,771
Cash Flow from Investing Activities
Property, Plant and Equipment Expenditures		(11,936	)		(17,754	)		(74,664	)		(139,589	)
Net Cash Used in Investing Activities		(11,936	)		(17,754	)		(74,664	)		(139,589	)
Cash Flow from Financing Activities
Proceeds from issuance of Class A Common Stock sold in Initial Public Offering, net of underwriting discounts and commissions		249,355			—			249,355			—
Payment of Issuance Costs of Class A Common Stock		(2,058	)		—			(2,913	)		—
Distributions to Unit Holders		(213,186	)		—			(213,186	)		—
Repurchase of Shares		(135	)		—			(135	)		—
Proceeds from Senior Sustainability-Linked Notes		—			—			400,000			—
Payments of Financing Costs Related to Issuance of Senior Sustainability-Linked Notes		—			—			(9,352	)		—
Repayment of Credit Facility		—			—			(297,000	)		—
Proceeds from Credit Facility		—			4,000			—			77,000
Redemption of Redeemable Preferred Units		—			—			(74,357	)		—
Payments of Financing Costs		—			(45	)		(1,442	)		(536	)
Members' Contributions		—			13,203			5			13,203
Net Cash Provided by Financing Activities		33,976			17,158			50,975			89,667
Net Increase in Cash and Cash Equivalents		23,666			16,625			35,123			17,849
Cash and Cash Equivalents, Beginning of Period		36,389			8,307			24,932			7,083
Cash and Cash Equivalents, End of Period	$	60,055		$	24,932		$	60,055		$	24,932

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, free cash flow, Adjusted Operating Margin, Adjusted Operating Margin per Barrel and Adjusted Net Income. 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. Additionally, the Company uses a current leverage ratio to evaluate it’s financial position.

The Company calculates Adjusted EBITDA as net income (loss) plus: interest expense; income taxes; depreciation, amortization and accretion expense; asset impairment and abandoned project charges; losses on the sale of assets; loss on debt modification; and non-recurring or unusual expenses or charges (including temporary power costs), less any gains on sale of assets.

The Company calculates free cash flow as cash flow from operating activities adjusted to exclude cash spent on property, plant and equipment.

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.

The Company calculates Adjusted Net Income as net income plus the after tax impacts of stock-based compensation and certain items affecting comparability (typically noncash and/or nonrecurring items).

For year-end 2021, the Company calculates its current leverage ratio as net debt as of December 31, 2001, divided by annualized 4Q 2021 Adjusted EBITDA. Net debt is calculated as the principal amount of total debt as of December 31, 2021 less cash and cash equivalents as of December 31, 2021.

The Company believes this presentation is used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within its industry. Additionally, the Company uses this information for comparative purposes within its industry. Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel and Adjusted Net Income are not measures of financial performance under GAAP and should not be considered as measures of liquidity or as alternatives to net income (loss) or gross margin. Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel and Adjusted Net Income 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 or cash flows from operating activities.

Although we provide forecasts for the non-GAAP measure Adjusted EBITDA, we are not able to forecast the most directly comparable measure net income calculated and presented in accordance with GAAP without unreasonable effort. Certain elements of the composition of the GAAP net income 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, which could have a significant impact on the GAAP measure. As a result, no reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net income is provided.

Table 4 Aris Water Solutions, Inc. Operating Metrics (Unaudited)
	Three Months Ended December 31,
					Year Ended December 31,
		2021		2020	2021		2020
Thousands barrels water per day
Produced Water Handling Volumes		750		583		707		570
Water Solutions Volumes:
Recycled Produced Water Volumes Sold		185		75		123		44
Groundwater Volumes Sold		107		69		73		61
Groundwater Volumes Transferred		50		12		44		11
Total Water Solutions Volumes		342		156		240		116
Total Volumes		1,092		739		947		686
Per Barrel Operating Metrics
Produced Water Handling Revenue/Barrel	$	0.75	$	0.67	$	0.72	$	0.68
Water Solutions Revenue/Barrel	$	0.49	$	0.63	$	0.50	$	0.70
Revenue/Barrel of Total Volumes	$	0.67	$	0.66	$	0.66	$	0.68
Direct Operating Costs/Barrel	$	0.24	$	0.35	$	0.26	$	0.38
Adjusted Operating Margin/Barrel	$	0.43	$	0.35	$	0.41	$	0.36

Table 5 Aris Water Solutions, Inc. Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited)
	Three Months Ended										Year Ended
(in thousands, except for per BBL amounts)		September 30,			December 31,			December 31,			December 31,
			2021			2021			2020				2021			2020
Net Income (Loss)		$	(20,743	)	$	6,358		$	282			$	(7,009	)	$	7
Interest Expense, Net			7,880			7,618			2,310				25,473			7,674
Income Tax Expense			(83	)		379			8				298			23
Depreciation, Amortization and Accretion			15,378			15,217			12,498				60,767			44,027
Abandoned Well Costs			27,402			1,103			—				28,505			—
Abandoned Projects			679			12			624				2,047			2,125
Temporary Power Costs			—			—			2,310				4,253			14,979
Loss on Disposal of Asset, Net			8			50			51				275			133
Other Non-Operating Expense			—			—			—				380			—
Settled Litigation			—			—			171				—			1,482
IPO Transaction Bonus			—			3,367			—				3,367			—
Transaction Costs			253			5			118				335			3,389
Stock-Based Compensation			—			1,586			—				1,586			—
Severance and Other			—			—			—				221			190
Adjusted EBITDA		$	30,774		$	35,695		$	18,372			$	120,498		$	74,029
Total Revenue			59,499			66,979			44,924				229,251			171,472
Cost of Revenue			(38,875	)		(39,428	)		(36,289	)			(151,681	)		(139,458	)
Gross Margin			20,624			27,551			8,635				77,570			32,014
Depreciation, Amortization and Accretion			15,378			15,217			12,498				60,767			44,027
Temporary Power Costs			—			—			2,310				4,253			14,979
Adjusted Operating Margin			36,002			42,768			23,443				142,590			91,020
Total Volumes (Thousands of BBLs)			88,357			100,528			67,870				345,576			251,308
Adjusted Operating Margin/BBL		$	0.41		$	0.43		$	0.35			$	0.41		$	0.36

Table 6 Aris Water Solutions, Inc. Reconciliation of Net Income to Non-GAAP Adjusted Net Income (Unaudited)
(in thousands)	Three Months Ended December 31, 2021
Net Income	$	6,358
Adjusting Items:
IPO Bonus ^(1)		3,367
Stock-based Compensation		1,586
Tax Effect of Adjusting Items ^(2)		(396)
Adjusted Net Income	$	10,915

^(1) One time cash bonus paid to employees upon completion of initial public offering

^(2) Estimated tax effect of adjusted items allocated to Aris' based on statutory rates

Table 7 Aris Water Solutions, Inc. Computation of Current Leverage Ratio (Unaudited)
	As of December 31, 2021
Principal Amount of Debt at December 31, 2021	$	400,000
Less: Cash and Cash Equivalents at December 31, 2021		(60,055	)
Net Debt	$	339,945
Adjusted EBITDA for the Three Months Ended December 31, 2021	$	35,695
x 4 Quarters	x 4
Annualized Adjusted EBITDA	$	142,780
Net Debt	$	339,945
÷ Annualized Adjusted EBITDA	$	142,780
Current Leverage Ratio as of December 31, 2021		2.4