Aris Water Solutions, Inc. Reports Third Quarter 2021 Financial and Operating Results

HOUSTON--(BUSINESS WIRE)--Aris Water Solutions, Inc. (NYSE: ARIS) (“Aris”, “Aris Water” or the “Company”), today announced financial and operating results for the third quarter ended September 30, 2021.

THIRD QUARTER 2021 HIGHLIGHTS

• Record total water volumes and recycled water volumes of 961,000 barrels of water per day and 130,000 barrels of water per day respectively
• Executed four new acreage dedications, increasing dedicated acres by 20,000 acres with a weighted-average contract length of ten years
• Exceeded Aris’s 2022 Sustainability Performance Target
• Consolidated revenue of $59.5 million
• Net loss of $20.7 million which includes a non-cash charge of $27.4 million associated with the abandonment of an asset
• Consolidated Adjusted EBITDA¹ of $30.8 million
• Cash flow from Operating Activities of $26.5 million
• Free cash flow of $6.1 million²

“The third quarter of 2021 featured continued strong performance for Aris Water as we set records in total volumes handled and produced water volumes recycled. We improved our percentage of sourced water recycled to 61%, exceeding our 2022 Sustainability Performance Target and demonstrating our commitment to water stewardship by reducing groundwater extraction. Our strong, long-term partnerships with our blue-chip customers provide both stability and significant upside as activity levels continue to improve,” stated Amanda Brock, Chief Executive Officer of Aris Water.

“This is an exciting time for the Company and our industry. We are seeing steady growth from our customers across both the Delaware and Midland Basins, supporting a positive outlook moving forward. We have a unique offering that provides our customers with a proven, reliable water infrastructure partner and helps them reduce the use of groundwater,” stated Bill Zartler, Founder and Executive Chairman of Aris Water.

____________________

^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 closely comparable GAAP measure.

^2 Free cash flow is a is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate free cash flow and a reconciliation thereof to net cash from operating activities, the most closely comparable GAAP measure.

OPERATIONS AND FINANCIAL UPDATE

During the third quarter of 2021, the Company recorded a consolidated net loss of $20.7 million. The consolidated net loss includes a non-cash charge of $27.4 million associated with the abandonment of an asset. Excluding the non-cash charge, consolidated net income was $6.7 million in the third quarter of 2021 compared to consolidated net income of $1.1 million for the third quarter of 2020.

During the third quarter of 2021, the Company averaged 961,000 barrels of water per day of total volumes handled, sold and transferred, an increase of 42% compared to the third quarter of 2020. Our volume growth was driven by the increased activity levels of our long-term contracted customers. The Company had Adjusted EBITDA¹ of $30.8 million for the third quarter of 2021 compared to $19.7 million in the third quarter of 2020, an increase of 56%.

During the third quarter of 2021, the Company executed four new long-term acreage dedications covering approximately 20,000 dedicated acres, with a weighted average life of approximately 10 years. Two of these contracts include long term full-cycle handling and recycling solutions.

Third quarter 2021 cash capital expenditures totaled $20.4 million compared to $29.3 million in the third quarter of 2020, a decrease of 30%. We continue to invest in high-return capital projects that support our long-term contracted customers and leverage our existing infrastructure. Free cash flow was $6.1 million for the third quarter of 2021. As of September 30, 2021, the Company had approximately $36.4 million in cash and an undrawn and available $200.0 million revolving credit facility. Additionally, the Company received net proceeds of approximately $32.8 million in October from its recent initial public offering.

The following table summarizes the Company’s volumes on its operated assets:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Produced Water Handling Volumes (MBbl/d)	708	574	692	566
Total Water Solutions Volumes (MBbl/d)	253	101	205	103
Total Volumes (MBbl/d)	961	675	897	669

CONFERENCE CALL

Aris will host a conference call and webcast for investors and analysts to discuss its results for the third quarter of 2021 on Wednesday, November 10, 2021 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time). Participants should call [phone] (United States/Canada) or [phone] (International) and should refer to Aris Water Solutions, Inc. when dialing in. A telephonic replay will be available from 11/10/2021 to 11/24/2021. To access the replay, call [phone] (United States/Canada) or [phone] (International) and enter confirmation code 13724848. A live broadcast of the earnings conference call will also be available via the internet at www.ariswater.com under the “Investors” section of the site. 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 our business strategy, our industry, our 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 our 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 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 by the forward-looking statements. 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 the risk factors discussed or referenced in our 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 our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. 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.

Solaris Midstream Holdings, LLC and Subsidiaries Condensed Consolidated Statements of Operations (unaudited)
	Three Months Ended						Nine Months Ended
(in thousands)	September 30,						September 30,
	2021			2020			2021			2020
Revenue
Produced Water Handling	$	24,639		$	23,323		$	71,368		$	70,382
Produced Water Handling—Affiliates		23,135			13,312			62,216			35,284
Water Solutions		7,666			1,149			11,824			10,410
Water Solutions—Affiliates		4,059			4,672			16,864			10,472
Total Revenue		59,499			42,456			162,272			126,548
Cost of Revenue
Direct Operating Costs		23,497			22,207			66,703			71,640
Depreciation, Amortization and Accretion		15,378			11,751			45,550			31,529
Total Cost of Revenue		38,875			33,958			112,253			103,169
Operating Costs and Expenses
Abandoned Well Costs		27,402			—			27,402			—
General and Administrative		5,228			4,773			15,240			13,421
Other Operating Expenses		940			555			2,590			4,854
Total Operating Expenses		33,570			5,328			45,232			18,275
Operating (Loss) Income		(12,946	)		3,170			4,787			5,104
Other Expense
Interest Expense, Net		7,880			2,099			17,855			5,364
Loss on Debt Modification		—			—			380			—
Total Other Expense		7,880			2,099			18,235			5,364
(Loss) Income Before Taxes		(20,826	)		1,071			(13,448	)		(260	)
Income Tax Expense (Benefit)		(83	)		9			(81	)		15
Net (Loss) Income	$	(20,743	)	$	1,062		$	(13,367	)	$	(275	)
Equity Accretion and Dividend Related to Redeemable Preferred Units		—			(1,511	)		21			(1,928	)
Net Loss Attributable to Members' Equity	$	(20,743	)	$	(449	)	$	(13,346	)	$	(2,203	)

 

Solaris Midstream Holdings, LLC and Subsidiaries Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except units)	September 30,			December 31,
	2021			2020
Assets
Cash and Cash Equivalents	$	36,389		$	24,932
Accounts Receivable, Net		32,576			21,561
Accounts Receivable from Affiliate		21,584			11,538
Other Receivables		3,649			3,722
Prepaids, Deposits and Other Current Assets		1,349			4,315
Total Current Assets		95,547			66,068
Fixed Assets
Property, Plant and Equipment		692,231			661,446
Accumulated Depreciation		(60,757	)		(43,258	)
Total Property, Plant and Equipment, Net		631,474			618,188
Intangible Assets, Net		313,081			337,535
Goodwill		34,585			34,585
Other Assets		2,848			1,429
Total Assets	$	1,077,535		$	1,057,805
Liabilities, Mezzanine and Members' Equity
Accounts Payable	$	10,067		$	16,067
Payables to Affiliate		1,169			1,884
Accrued and Other Current Liabilities		46,774			27,838
Total Current Liabilities		58,010			45,789
Deferred Revenue and Other Long-Term Liabilities		1,336			1,432
Long-Term Debt, Net of Debt Issuance Costs		391,583			297,000
Asset Retirement Obligation		6,032			5,291
Total Liabilities		456,961			349,512
Commitments and Contingencies
Mezzanine Equity:
Redeemable Preferred Units, $10,000 par value, none issued or outstanding as of September 30, 2021 and 7,307 outstanding as of December 31, 2020		—			74,378
Members' Equity:
Class A units, $10 par value, 27,797,658 and 27,797,207 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		308,638			318,394
Class B units, $10 par value, 3,556,051 issued and outstanding as of September 30, 2021 and December 31, 2020		35,773			37,023
Class C units, $0 par value, 878,850 and 806,350 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—			—
Class D units, $10 par value, 6,651,100 issued and outstanding as of September 30, 2021 and December 31, 2020		276,163			278,498
Total Members' Equity		620,574			633,915
Total Liabilities, Mezzanine and Members' Equity	$	1,077,535		$	1,057,805

Solaris Midstream Holdings, LLC and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)	Nine Months Ended September 30,
	2021			2020
Cash Flow from Operating Activities
Net Loss	$	(13,367	)	$	(275	)
Adjustments to reconcile Net Loss to Net Cash provided by Operating Activities
Depreciation, Amortization and Accretion		45,550			31,529
Abandoned Well Costs		27,402			—
Loss on Disposal of Asset, Net		225			82
Abandoned Projects		2,035			1,501
Amortization of Deferred Financing Costs		1,320			570
Loss on Debt Modification		380			—
Bad Debt Expense		216			83
Changes in operating assets and liabilities:
Accounts Receivable		(11,231	)		9,387
Accounts Receivable from Affiliate		(10,046	)		2,475
Other Receivables		231			56
Prepaids, Deposits and Other Current Assets		2,516			1,522
Accounts Payable		(3,284	)		1,793
Payables to Affiliate		(715	)		390
Adjustment in Deferred Revenue		(46	)		975
Accrued Liabilities and Other		16,000			462
Net Cash Provided by Operating Activities		57,186			50,550
Cash Flow from Investing Activities
Property, Plant and Equipment Expenditures		(62,728	)		(121,835	)
Net Cash Used in Investing Activities		(62,728	)		(121,835	)
Cash Flow from Financing Activities
Proceeds from Senior-Sustainability Linked Notes		400,000			—
Payments for Initial Public Offering Costs		(855	)		—
Payments of Financing Costs Related to Issuance of Senior- Sustainability Linked Notes		(9,352	)		—
Repayment of Credit Facility		(297,000	)		—
Proceeds from Credit Facility		—			73,000
Redemption of Redeemable Preferred Units		(74,357	)		—
Payments of Financing Costs related to Credit Facility		(1,442	)		(491	)
Members' Contributions		5			—
Net Cash Provided by Financing Activities		16,999			72,509
Net Increase in Cash and Cash Equivalents		11,457			1,224
Cash and Cash Equivalents, Beginning of Period		24,932			7,083
Cash and Cash Equivalents, End of Period	$	36,389		$	8,307

Use of Non-GAAP Financial Information

We use 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 and Adjusted Operating Margin per Barrel. Although these Non-GAAP financial measures are important factors in assessing our 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.

Reconciliation of GAAP “Net income” to Non-GAAP “Adjusted EBITDA” – We calculate 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.

Reconciliation of GAAP “Cash Flow from Operating Activities” to Non-GAAP “Free Cash Flow” – We calculate free cash flow as cash flow from operating activities adjusted to exclude cash spent on property, plant and equipment.

Reconciliation of GAAP “Gross Margin” to Non-GAAP “Adjusted Operating Margin” and “Adjusted Operating Margin per Barrel” – We calculate Adjusted Operating Margin as Gross Margin plus depreciation, amortization and accretion and temporary power costs. We define Adjusted Operating Margin per Barrel as Adjusted Operating Margin divided by total volumes.

We believe this presentation is used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within our industry. Additionally, we use this information for comparative purposes within our industry. Adjusted EBITDA, Adjusted Operating Margin and Adjusted Operating Margin per Barrel 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, free cash flow, Adjusted Operating Margin and Adjusted Operating Margin per Barrel as defined by us 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 or cash flows from operating activities.

Solaris Midstream Holdings, LLC and Subsidiaries Operating Metrics and Non-GAAP Reconciliation (unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Thousands barrel water per day
Produced Water Handling Volumes		708			574			692			566
Water Solutions Volumes:
Recycled Produced Water Volumes Sold		130			44			102			34
Groundwater Volumes Sold		82			45			61			58
Groundwater Volumes Transferred		41			12			42			11
Total Water Solutions Volumes		253			101			205			103
Total Volumes		961			675			897			669
Per Barrel Operating Metrics
Produced Water Handling Revenue/Barrel	$	0.73		$	0.69		$	0.71		$	0.68
Water Solutions Revenue/Barrel	$	0.50		$	0.63		$	0.51		$	0.74
Revenue/Barrel of Total Volumes	$	0.67		$	0.68		$	0.66		$	0.69
Direct Operating Expense/Barrel	$	0.27		$	0.36		$	0.27		$	0.39
Adjusted Operating Margin/Barrel ^(1)	$	0.41		$	0.38		$	0.41		$	0.37
Cash Flow from Operating Activities	$	26,496		$	9,639		$	57,186		$	50,550
Less: Cash Paid for Property, Plant and Equipment		(20,375	)		(29,254	)		(62,728	)		(121,835	)
Free Cash Flow	$	6,121		$	(19,615	)	$	(5,542	)	$	(71,285	)

Net Income (Loss)	$	(20,743	)	$	1,062		$	(13,367	)	$	(275	)
Interest Expense, Net		7,880			2,099			17,855			5,364
Income Tax (Benefit) Expense		(83	)		9			(81	)		15
Depreciation, Amortization and Accretion		15,378			11,751			45,550			31,529
Abandoned Well Costs		27,402			—			27,402			—
Abandoned Projects		679			368			2,035			1,501
Temporary Power Costs		—			3,548			4,253			12,669
Loss on Disposal of Asset, Net		8			15			225			82
Loss on Debt Modification		—			—			380			—
Settled Litigation		—			714			—			1,311
Transaction Costs		253			172			330			3,271
Severance and Other		—			—			221			190
Adjusted EBITDA	$	30,774		$	19,738		$	84,803		$	55,657
Total Revenue	$	59,499		$	42,456		$	162,272		$	126,548
Cost of Revenue		(38,875	)		(33,958	)		(112,253	)		(103,169	)
Gross Margin		20,624			8,498			50,019			23,379
Depreciation, Amortization and Accretion		15,378			11,751			45,550			31,529
Temporary Power Costs		—			3,548			4,253			12,669
Adjusted Operating Margin	$	36,002		$	23,797		$	99,822		$	67,577
Total Volumes (Thousands of BBLs)		88,357			62,103			245,048			183,438
Adjusted Operating Margin/BBL	$	0.41		$	0.38		$	0.41		$	0.37