Aris Water Solutions(ARIS) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2022, the company achieved over 20% growth in both volume and adjusted EBITDA compared to 2021 [7] - Adjusted EBITDA for Q4 2022 was $36.1 million, up 1% year-over-year but down 9% sequentially from Q3 2022 [17] - The company invested approximately $147 million in capital during the year, aligning with expectations [17] Business Line Data and Key Metrics Changes - Full year volumes increased by 36% and adjusted EBITDA rose by 24% year-over-year [10] - Recycled produced water volumes grew nearly 2.5 times compared to 2021, with a significant increase in active facilities [11] - Operating costs for downhole disposal stabilized in Q4, but lower skim oil revenue impacted operating margins [10] Market Data and Key Metrics Changes - The company anticipates produced water volumes to grow by 15% to 20% overall in 2023, despite a slight decline in early 2023 [12] - The forecast for produced water rates is expected to increase by approximately $0.02 to $0.04 per barrel on average in 2023 [18] - The company expects lower completion activity from customers in 2023, impacting overall volumes [19] Company Strategy and Development Direction - The company aims to be a natural consolidator in the fragmented oil field water infrastructure industry and is focused on strategic fit and financial discipline in M&A [9] - There is a strong emphasis on operational efficiencies and capital discipline, with a focus on realizing further operational efficiencies [9][16] - The company is exploring beneficial reuse of produced water and has initiated collaborative efforts with major industry players [14][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from inflation, severe weather, and changes in customer activity impacting Q4 performance [10] - The outlook for 2023 includes expectations for improved operating margins in the second half of the year due to cost optimization efforts and CPI-linked revenue increases [22] - Management remains optimistic about growth opportunities and plans to become free cash flow positive by early 2024 [33] Other Important Information - The company exceeded its sustainability performance target for 2022, with recycled produced water exceeding 70% of total water volume sold [15] - The company has no debt maturities until 2025 and ended the year with a debt to adjusted EBITDA ratio of 3.0 [21] - A dividend of $0.09 per share was announced, to be paid on March 29, 2023 [21] Q&A Session Summary Question: Can you discuss milestones for margin improvements and comfort with guidance? - Management indicated that improvements in operating margins are expected in the second half of the year, with specific focus on addressing rental equipment and electrical costs [27][28] Question: What is the outlook for completion activity and its impact on volumes? - Management noted that completion activity is expected to be lower, influenced by one large customer reducing their forecast, but acknowledged that this is a short cycle business [30] Question: Can you elaborate on the selective growth strategy and free cash flow outlook? - Management confirmed a more discerning approach to growth projects, emphasizing the importance of achieving certain return thresholds and indicated that early 2024 could be an inflection point for free cash flow [32][33] Question: What is the profitability difference between interruptible volumes and guidance assumptions? - Management stated that interruptible volumes are about $0.10 per barrel more profitable and highlighted the potential for growth in this area [55] Question: Can you provide an update on the integration of Delaware Energy Services? - Management expressed confidence in completing the integration by the second quarter, primarily dependent on supply chain issues [54] Question: How is the company approaching M&A opportunities? - Management indicated a disciplined approach to M&A, focusing on strategic fit and valuation alignment in the current market [34][36]