Aris Water Solutions, Inc. (NYSE:ARIS) Q1 2022 Results Conference Call May 10, 2022 9:00 AM ET Company Participants David Tuerff - SVP, Finance and IR Amanda Brock - President and CEO Bill Zartler - Founder and Executive Chairman Brenda Schroer - CFO Conference Call Participants John Mackay - Goldman Sachs Praneeth Satish - Wells Fargo Don Crist - Johnson Rice Operator Greetings, and welcome to the Aris Water Solutions First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this ...

PART I. FINANCIAL INFORMATION [Cautionary Note Regarding Forward Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This section cautions that forward-looking statements are subject to risks and uncertainties, advising readers not to solely rely on them as future predictions - The forward-looking statements are subject to risks and uncertainties, including but not limited to[15](index=15&type=chunk) - The impact of the conflict between Russia and Ukraine on the global economy and energy industry[15](index=15&type=chunk) - Impacts of cost inflation on operating margins[15](index=15&type=chunk) - Reliance on a limited number of customers and a particular region for substantially all revenues[15](index=15&type=chunk) - Risks related to acquisitions, organic growth, and renewing expiring contracts[15](index=15&type=chunk) [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for Q1 2022, showing a 54% revenue increase but a net loss of $6.6 million due to asset impairment [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.143 billion** as of March 31, 2022, while total liabilities rose to **$549.7 million**, and equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $153,526 | $132,388 | | **Total Assets** | **$1,143,121** | **$1,126,693** | | **Total Current Liabilities** | $67,195 | $49,045 | | **Total Liabilities** | **$549,736** | **$524,154** | | **Total Stockholders' Equity** | **$593,385** | **$602,539** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue for Q1 2022 increased 54% to **$71.0 million**, but a **$6.6 million** net loss was incurred due to a **$15.6 million** impairment charge Condensed Consolidated Statement of Operations (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Total Revenue** | **$70,969** | **$46,189** | | Direct Operating Costs | $26,671 | $20,754 | | Impairment of Long-Lived Assets | $15,597 | $— | | Operating Income | $328 | $5,466 | | **Net (Loss) Income** | **($6,617)** | **$2,815** | | Net Loss Per Share (Class A) | ($0.11) | N/A | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to **$26.4 million** in Q1 2022, leading to a **$7.7 million** net cash increase for the quarter Condensed Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | **$26,390** | **$16,574** | | Net Cash Used in Investing Activities | ($9,810) | ($20,326) | | Net Cash (Used In) Provided by Financing Activities | ($8,856) | $5 | | **Net Increase (Decrease) in Cash** | **$7,724** | **($3,747)** | [Condensed Consolidated Statements of Stockholders'/Members' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%2FMembers'%20Equity) Total stockholders' equity decreased to **$593.4 million** by Q1 2022, primarily due to a **$6.6 million** net loss and **$5.0 million** in dividends Changes in Stockholders' Equity (Q1 2022, in thousands) | Description | Amount (in thousands) | | :--- | :--- | | Balance at January 1, 2022 | $602,539 | | Stock-based Compensation | $2,337 | | Dividends and Distributions | ($5,009) | | Net Loss | ($6,617) | | **Balance at March 31, 2022** | **$593,385** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including new lease standards, and disclose a **$15.6 million** asset impairment, **$77.1 million** TRA liability, and **$400 million** long-term debt - The company adopted new lease accounting standards (ASC Topic 842) on Jan 1, 2022, recognizing right-of-use assets of **$7.9 million** and lease liabilities of **$7.3 million**[48](index=48&type=chunk) - Certain Midland Basin assets were classified as held for sale, resulting in a pre-tax impairment charge of **$15.6 million**[62](index=62&type=chunk) - The Tax Receivable Agreement (TRA) liability totaled **$77.1 million** at March 31, 2022[64](index=64&type=chunk) - Total long-term debt consists of **$400 million** in 7.625% Senior Sustainability-Linked Notes, with no borrowings under the **$200 million** revolving credit facility[67](index=67&type=chunk)[71](index=71&type=chunk) - The company declared a Q1 2022 dividend of **$0.09 per share** on Class A common stock, paid on March 29, 2022[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 performance, noting a 54% revenue increase to **$71.0 million** and a revised **$140-$150 million** capital expenditure forecast [First Quarter 2022 Results](index=28&type=section&id=First%20Quarter%202022%20Results) Q1 2022 highlights include a 45% increase in total water volumes to **1,167 kbwpd**, **$71.0 million** revenue, and a **$6.6 million** net loss Q1 2022 vs. Q1 2021 Highlights | Metric | Q1 2022 | Change vs. Q1 2021 | | :--- | :--- | :--- | | Total water volumes | 1,167 kbwpd | +45% | | Recycled water volumes | 273 kbwpd | +290% | | Total revenue | $71.0 million | +54% | | Net loss | ($6.6 million) | vs. $2.8M income | | Adjusted EBITDA | $35.9 million | +54% | - Expanded its alliance with Texas Pacific Land Corporation (TPL) in the Northern Delaware Basin for produced water services and recycling[111](index=111&type=chunk)[112](index=112&type=chunk) - Announced a new long-term full-cycle water management agreement with Chevron in the Permian Basin[113](index=113&type=chunk) [General Trends and Outlook](index=30&type=section&id=General%20Trends%20and%20Outlook) Higher WTI crude oil prices are boosting customer activity, but rising inflation may impact margins, while seismicity risks are being managed - Higher WTI crude oil prices are expected to continue driving increased customer investment and activity in the Permian Basin[115](index=115&type=chunk) - Rising wage and price inflation could negatively impact operating margins, as contractual fee adjustments may be capped and not fully offset cost increases[117](index=117&type=chunk)[118](index=118&type=chunk) - The company is managing induced seismicity risks in New Mexico and Texas by complying with regulatory protocols and has been able to continue customer service without significant disruption[119](index=119&type=chunk)[120](index=120&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q1 2022 total revenue increased 54% to **$71.0 million** due to higher volumes, but operating income fell to **$0.3 million** due to a **$15.6 million** impairment and higher G&A Operating Metrics (Thousand barrels water per day) | Metric (Thousand barrels water per day) | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Produced Water Handling Volumes | 803 | 648 | +24% | | Total Water Solutions Volumes | 364 | 158 | +130% | | **Total Volumes** | **1,167** | **806** | **+45%** | - Produced Water Handling revenues increased by **$13.4 million** (62%) due to higher volumes, increased skim oil sales from higher crude prices, and contractual price adjustments[127](index=127&type=chunk) - Water Solutions revenue increased by **$8.4 million**, driven by a **206 kbwpd** increase in volumes from higher recycling activities[127](index=127&type=chunk) - General and administrative (G&A) expenses increased by **$6.0 million** (129%) due to higher compensation, headcount, and costs associated with being a public company[130](index=130&type=chunk) [Non-GAAP Financial Measures](index=36&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA increased to **$35.9 million** in Q1 2022, and Adjusted Operating Margin rose to **$44.3 million**, reflecting improved per-barrel profitability Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net (Loss) Income | ($6,617) | $2,815 | | Interest Expense, Net | $7,785 | $2,651 | | Income Tax Benefit | ($840) | $— | | Depreciation, Amortization and Accretion | $16,579 | $14,957 | | Impairment of Long-Lived Assets | $15,597 | $— | | Stock-Based Compensation | $2,337 | $— | | Other Adjustments | $1,064 | $2,967 | | **Adjusted EBITDA** | **$35,905** | **$23,390** | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2022, the company had **$67.8 million** cash and **$200.0 million** credit facility availability, with 2022 capital expenditures revised to **$140.0-$150.0 million** - As of March 31, 2022, the company had a cash balance of **$67.8 million**, **$400.0 million** in long-term debt, and **$200.0 million** of availability under its Credit Facility[140](index=140&type=chunk) - The capital expenditure estimate for 2022 has been revised to between **$140.0 million** and **$150.0 million** to support growth from new and existing customer agreements[146](index=146&type=chunk) - A dividend of **$0.09 per share** was paid for Q1 2022, and another was declared for Q2 2022[142](index=142&type=chunk)[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces commodity price risk impacting revenue and interest rate risk on its credit facility, but does not use derivatives for trading - The company is exposed to commodity price risk as fluctuations in crude oil and natural gas prices impact customer activity levels[149](index=149&type=chunk) - A portion of revenue is directly tied to WTI crude oil prices through a major customer contract, where the per-barrel fee increases when WTI exceeds a certain base price[149](index=149&type=chunk) - Interest rate risk exists on the variable-rate Credit Facility, but there were no borrowings outstanding as of March 31, 2022[149](index=149&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[152](index=152&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[152](index=152&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company believes no pending legal matters will have a material adverse effect on its financial condition or results of operations - In management's opinion, there are no pending legal matters that would have a material adverse effect on the company's financial condition, cash flows, or results of operations[153](index=153&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes or updates to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K have been reported - There have been no material changes to the risk factors disclosed in the 2021 Annual Report on Form 10-K[154](index=154&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - The company reports "None" for this item[154](index=154&type=chunk) [Item 3. Defaults upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon senior securities - The company reports "None" for this item[154](index=154&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is reported as "Not Applicable"[154](index=154&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - The company reports "None" for this item[154](index=154&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q - A list of exhibits, including corporate governance documents, agreements, certifications, and XBRL data files, are filed with or incorporated by reference into the report[155](index=155&type=chunk)[158](index=158&type=chunk)

Aris Water Solutions, Inc. (NYSE:ARIS) Q4 2021 Earnings Conference Call March 1, 2022 9:00 AM ET Company Participants David Tuerff - SVP, Finance & Investor Relations Bill Zartler - Founder and Executive Chairman Amanda Brock - President and CEO Brenda Schroer - CFO Conference Call Participants John McKay - Goldman Sachs Dan Walk - J.P. Morgan Kyle May - Capital One Operator Greetings. Welcome to the Aris Water Solutions Fourth Quarter 2021 Conference Call. At this time, all participants are in a listen onl ...

[Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements about future results and strategy, subject to inherent risks and uncertainties - This quarterly report contains forward-looking statements regarding future results, business strategy, and plans. These statements are based on current expectations and are subject to risks and uncertainties[4](index=4&type=chunk) - Key risks that could cause actual results to differ materially include the impact of COVID-19, customer financial health, capital spending by oil and gas companies, regulatory changes, and reliance on a limited number of customers and a specific region (Permian Basin)[4](index=4&type=chunk)[6](index=6&type=chunk) PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited financial statements for Aris Water Solutions, Inc. and Solaris Midstream Holdings, LLC, highlighting revenue growth and a net loss due to an asset abandonment charge [Aris Water Solutions, Inc. Financial Statements](index=8&type=section&id=Aris%20Water%20Solutions%2C%20Inc.%20Financial%20Statements) This section presents the balance sheet for Aris Water Solutions, Inc., a holding company with minimal pre-IPO activity, which became the parent of Solaris Midstream Holdings, LLC post-IPO - Aris Water Solutions, Inc. was incorporated on May 26, 2021, to act as the issuer in the Initial Public Offering (IPO)[13](index=13&type=chunk) - The IPO was completed on October 26, 2021, raising net proceeds of approximately **$246.1 million**, which were contributed to its subsidiary, Solaris Midstream Holdings, LLC[14](index=14&type=chunk)[21](index=21&type=chunk) - As the managing member of Solaris LLC, Aris will consolidate Solaris's financial results starting in the fourth quarter of 2021[15](index=15&type=chunk) [Solaris Midstream Holdings, LLC and Subsidiaries Financial Statements](index=12&type=section&id=Solaris%20Midstream%20Holdings%2C%20LLC%20and%20Subsidiaries%20Financial%20Statements) This section provides condensed consolidated financial statements for Solaris Midstream Holdings, LLC, showing increased revenue, significant financing activities, and a net loss due to an abandoned well charge Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $59,499 | $42,456 | $162,272 | $126,548 | | **Operating (Loss) Income** | $(12,946) | $3,170 | $4,787 | $5,104 | | **Net (Loss) Income** | $(20,743) | $1,062 | $(13,367) | $(275) | Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $95,547 | $66,068 | | **Total Assets** | $1,077,535 | $1,057,805 | | **Long-Term Debt, Net** | $391,583 | $297,000 | | **Total Liabilities** | $456,961 | $349,512 | | **Total Members' Equity** | $620,574 | $633,915 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | $57,186 | $50,550 | | **Net Cash Used in Investing Activities** | $(62,728) | $(121,835) | | **Net Cash Provided by Financing Activities** | $16,999 | $72,509 | [Notes to Condensed Consolidated Financial Statements](index=16&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, significant customer concentration, a **$27.4 million** abandoned well charge, and a major debt restructuring, alongside other financial disclosures - In Q3 2021, the company recognized a **$27.4 million** charge for abandoning a saltwater disposal asset in Eddy County, New Mexico, which was reflected in 'Abandoned Well Costs'[83](index=83&type=chunk)[149](index=149&type=chunk) - In April 2021, the company issued **$400 million** of 7.625% Senior Sustainability-Linked Notes due 2026. Proceeds were used to repay **$297 million** under its credit facility and redeem **$74.4 million** of preferred units[92](index=92&type=chunk) Significant Customer Revenue Concentration | Customer | Q3 2021 | Nine Months 2021 | | :--- | :--- | :--- | | **ConocoPhillips** | 46% | 49% | | **Oxy USA** | <10% | 10% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2021 performance, highlighting record water volumes, strong revenue growth, a net loss due to a one-time charge, improved operating margins, and details of the recent IPO and capital plans Q3 2021 Key Metrics | Metric | Q3 2021 | Change vs Q3 2020 | | :--- | :--- | :--- | | **Total Water Volumes** | 960,000 bbl/day | +42% | | **Consolidated Revenue** | $59.5 million | +40% | | **Consolidated Net Loss** | $(20.7) million | N/A (vs $1.1M income) | | **Consolidated Adj. EBITDA** | $30.8 million | +56% | - The Q3 2021 net loss of **$20.7 million** includes a non-cash charge of **$27.4 million** associated with the abandonment of a saltwater disposal well[123](index=123&type=chunk)[149](index=149&type=chunk) - Direct operating costs per barrel improved to **$0.27** in Q3 2021 from **$0.36** in Q3 2020, primarily due to the elimination of temporary power generation expenses and increased recycled water volumes, which have lower operating costs[146](index=146&type=chunk) - For 2021, the company expects capital expenditures to range from **$78 million** to **$83 million**, funded primarily through cash flow from operations and borrowing capacity[163](index=163&type=chunk)[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks include indirect exposure to commodity price fluctuations affecting customer activity and interest rate risk from its Credit Facility, currently mitigated by no outstanding borrowings - The company is indirectly exposed to fluctuations in crude oil and natural gas prices, which impact the activity levels of its E&P customers[185](index=185&type=chunk) - Interest rate risk is present due to the variable-rate Credit Facility, but the company had no borrowings under this facility as of the report date[186](index=186&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of September 30, 2021, having remediated a previously identified material weakness related to intangible asset amortization - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of September 30, 2021[188](index=188&type=chunk) - A previously disclosed material weakness related to the misapplication of accounting principles for intangible asset amortization was remediated as of September 30, 2021[190](index=190&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no pending legal proceedings expected to have a material adverse effect on its financial condition or operations - Management states there are no pending litigation, disputes, or claims that would have a material adverse effect on the company's financial condition[191](index=191&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the company's Prospectus for a comprehensive discussion of potential risks that could materially affect the business - The report refers to the 'Risk Factors' section in the company's Prospectus for a detailed description of potential risks[192](index=192&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the use of proceeds from the October 2021 IPO, with **$246.1 million** net proceeds primarily distributed to existing owners and a portion retained for corporate purposes - The IPO, which closed on October 26, 2021, generated net proceeds of **$246.1 million**[192](index=192&type=chunk) - Approximately **$213.3 million** of the IPO proceeds were distributed to existing owners, while the company retained **$32.8 million** for general corporate purposes[192](index=192&type=chunk) [Other Items and Exhibits](index=68&type=section&id=Other%20Items%20and%20Exhibits) This section confirms no defaults, mine safety disclosures, or other material information, and lists all exhibits filed with the Form 10-Q, including corporate governance and IPO-related documents - The company reported 'None' for Item 3 (Defaults upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[192](index=192&type=chunk)[193](index=193&type=chunk) - Item 6 lists all exhibits filed with the report, including the Amended and Restated Certificate of Incorporation, Tax Receivable Agreement, and the 2021 Equity Incentive Plan[195](index=195&type=chunk)[196](index=196&type=chunk)[199](index=199&type=chunk) [Signatures](index=75&type=section&id=Signatures) This section confirms the report was duly signed on November 10, 2021, by the President & CEO, CFO, and Chief Accounting Officer - The report was duly signed on November 10, 2021, by the President & CEO (Amanda M. Brock), CFO (Brenda R. Schroer), and Chief Accounting Officer (Dustin A. Hatley)[202](index=202&type=chunk)