Aris Water Solutions(US:ARIS)2024-02-28 16:00Part I Business and Properties Aris Water Solutions provides full-cycle water handling and recycling for Permian Basin energy operators, emphasizing ESG and supported by extensive infrastructure - The company operates as a leading environmental infrastructure and solutions firm, focusing on full-cycle water handling and recycling for energy companies in the Permian Basin2223 - Aris's business operates as a single segment with two main revenue streams: Produced Water Handling and Water Solutions3536 Key Operating Metrics (in kbwpd) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Produced Water Handling Volumes | 1,042 | 873 | 707 | | Water Solutions Volumes | 450 | 411 | 240 | | Total Water Volumes | 1,492 | 1,284 | 947 | Asset Overview as of December 31, 2023 | Asset Type | Installed | Permitted, Not Installed | | :--- | :--- | :--- | | Pipelines (Miles) | 745 | 220 | | Water Handling Facilities (Number) | 66 | 35 | | Water Handling Capacity (kbwpd) | 1,750 | 1,180 | | Water Recycling Facilities (Number) | 23 | 21 | | Water Recycling Capacity (kbwpd) | 1,500 | 1,300 | - For FY2023, affiliates of ConocoPhillips, Chevron, and Mewbourne Oil represented approximately 62% of total revenue49 Risk Factors The company faces significant risks from oil and gas industry volatility, customer concentration, regulatory changes, and financial obligations - Business operations are heavily dependent on volatile oil and gas capital spending in the Permian Basin, influenced by commodity prices120 - For FY2023, the three largest customers accounted for approximately 62% of revenues, with ConocoPhillips alone representing about 33%144145 - Regulatory initiatives on seismic activity from TRC and NMOCD could restrict produced water handling, impacting operations and financials188189190 - As a holding company, Aris Inc. relies on distributions from Solaris LLC to cover taxes, expenses, and Tax Receivable Agreement payments209 - The Tax Receivable Agreement requires Aris Inc. to pay 85% of net cash tax savings to TRA Holders, with substantial and potentially accelerated payments upon change of control236237240 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments263 Cybersecurity The company maintains a NIST-aligned cybersecurity program with Board oversight, management committee, and no material incidents reported - The Board of Directors, via its Audit Committee, oversees enterprise risk management, including cybersecurity and data privacy266 - A management-level Cybersecurity Committee, led by the VP of Information Technology, implements and monitors cybersecurity practices267 - The company has not experienced any material cybersecurity incidents and is unaware of material cybersecurity threats impacting its business or financials270 Legal Proceedings The company is not involved in any pending legal proceedings with a material adverse effect on its financials - Management confirms no pending legal proceedings are expected to have a material adverse effect on the company271 Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable271 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Aris Class A common stock trades on NYSE, with quarterly dividends subject to Board discretion and debt covenant restrictions - The company's Class A common stock is listed on the NYSE under the ticker symbol ARIS272 - For each quarter of 2023, the Board declared a dividend of $0.09 per share on Class A common stock, with a similar dividend for Q1 2024275343 - Dividend payments are restricted by Credit Agreement and Notes indenture covenants based on leverage and fixed charge coverage ratios277278280 Management's Discussion and Analysis of Financial Condition and Results of Operations Aris reported significant FY2023 growth with total water volumes up 16% and revenue up 22%, driven by higher volumes and strong liquidity Financial and Operating Highlights (FY 2023 vs. FY 2022) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Water Volumes (kbwpd) | 1,492 | 1,284 | 16% | | Total Revenue | $392.1M | $321.0M | 22% | | Net Income | $43.4M | $4.8M | 805% | | Adjusted EBITDA (Non-GAAP) | $175.0M | $149.0M | 17% | - Total revenue increased primarily due to a 19% rise in Produced Water Handling volumes and a 9% rise in Water Solutions volumes, alongside higher recycled water prices319325326 - Direct operating costs increased 28% to $178.0 million in 2023, driven by higher volumes, labor, maintenance, electricity, and workover expenses316324 - As of December 31, 2023, the company held $5.1 million in cash, $426.0 million in total long-term debt, and $323.9 million available under its Credit Facility342 - Capital expenditures for 2024 are forecasted between $85.0 million and $105.0 million, based on contracted customer development outlooks351 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price fluctuations, impacting customer activity and direct contract rates, and interest rate changes on its variable-rate Credit Facility - Revenue is indirectly exposed to crude oil and natural gas price volatility impacting customer activity, with direct exposure from a WTI-tied contract and skim oil sales391392 - The company faces interest rate risk on its variable-rate Credit Facility; a hypothetical 1% increase would raise annual interest expense by approximately $0.3 million on the $26.0 million outstanding balance392 Financial Statements and Supplementary Data FY2023 consolidated financial statements show total assets of $1.34 billion, total revenues of $392.1 million, and net income of $43.4 million, with strong operating cash flow Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $108,550 | $138,993 | | Total Assets | $1,340,481 | $1,303,366 | | Total Current Liabilities | $96,698 | $91,414 | | Total Liabilities | $652,588 | $646,279 | | Total Stockholders' Equity | $687,893 | $657,087 | Consolidated Statement of Operations Data (in thousands) | Account | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total Revenue | $392,118 | $321,001 | | Gross Margin (Revenue - Cost of Revenue) | $137,513 | $113,997 | | Operating Income | $83,866 | $34,506 | | Net Income | $43,412 | $4,797 | | Net Income Attributable to Aris Inc. | $18,888 | $1,700 | Consolidated Statement of Cash Flows Data (in thousands) | Account | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $183,873 | $70,213 | | Net Cash Used in Investing Activities | ($149,582) | ($136,925) | | Net Cash (Used in) Provided by Financing Activities | ($30,350) | $7,779 | | Net Increase (Decrease) in Cash | $3,941 | ($58,933) | Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - The principal executive and financial officers concluded disclosure controls and procedures were effective as of December 31, 2023579 - Management assessed and concluded internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework580 - No material changes to internal control over financial reporting occurred during the last fiscal quarter582 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders585 Executive Compensation Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders586 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders586 Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders586 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders587 Part IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, with most schedules omitted as not applicable - This section lists financial statements and exhibits filed with the Form 10-K; all required schedules were omitted as not applicable588 Form 10-K Summary No Form 10-K summary is provided - None589