Aris Water Solutions(ARIS) - 2021 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements 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] - 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][6] PART I FINANCIAL INFORMATION Item 1. Financial Statements 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 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] - 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][21] - As the managing member of Solaris LLC, Aris will consolidate Solaris's financial results starting in the fourth quarter of 2021[15] Solaris Midstream Holdings, LLC and Subsidiaries Financial Statements 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 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][149] - 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] 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 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][149] - 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] - 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][164] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] - 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] Item 4. Controls and Procedures 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] - A previously disclosed material weakness related to the misapplication of accounting principles for intangible asset amortization was remediated as of September 30, 2021[190] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Other Items and Exhibits 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][193] - 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][196][199] 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]