Aris Water Solutions(ARIS) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Cautionary Note Regarding Forward Looking Statements 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] - The impact of the conflict between Russia and Ukraine on the global economy and energy industry[15] - Impacts of cost inflation on operating margins[15] - Reliance on a limited number of customers and a particular region for substantially all revenues[15] - Risks related to acquisitions, organic growth, and renewing expiring contracts[15] Item 1. Financial Statements (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 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 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 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 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 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] - Certain Midland Basin assets were classified as held for sale, resulting in a pre-tax impairment charge of $15.6 million[62] - The Tax Receivable Agreement (TRA) liability totaled $77.1 million at March 31, 2022[64] - 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][71] - The company declared a Q1 2022 dividend of $0.09 per share on Class A common stock, paid on March 29, 2022[90] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][112] - Announced a new long-term full-cycle water management agreement with Chevron in the Permian Basin[113] General Trends and Outlook 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] - Rising wage and price inflation could negatively impact operating margins, as contractual fee adjustments may be capped and not fully offset cost increases[117][118] - 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][120] Results of Operations 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] - Water Solutions revenue increased by $8.4 million, driven by a 206 kbwpd increase in volumes from higher recycling activities[127] - 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] Non-GAAP Financial Measures 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 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] - 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] - A dividend of $0.09 per share was paid for Q1 2022, and another was declared for Q2 2022[142][143] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] - 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] - Interest rate risk exists on the variable-rate Credit Facility, but there were no borrowings outstanding as of March 31, 2022[149] Item 4. Controls and Procedures 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] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - The company reports "None" for this item[154] Item 3. Defaults upon Senior Securities The company reported no defaults upon senior securities - The company reports "None" for this item[154] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is reported as "Not Applicable"[154] Item 5. Other Information The company reported no other information for this item - The company reports "None" for this item[154] Item 6. Exhibits 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][158]