[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)