Aris Water Solutions (ARIS) 8 May 242024 Q1 Earnings call transcript

Greetings, and welcome to Aris Water Solution 1Q 2024 Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. David Tuerff, Senior Vice President, Finance and Investor Relations. Thank you, Mr. Tuerff.

begin. may You

Executive welcome XXXX and by Aris Solutions Founder Water President CFO, and Good Tompsett. Stephan Conference to Call. Quarter and our Brock, Earnings CEO, today Bill I First Zartler; and our morning, Amanda the Chairman, am our joined

number differ we of and like which current contemplated our you a future beliefs, and and expectations, to results Before and unknown could not that uncertainties to performance and forward-looking guarantees are events and call regarding known other this begin, forward-looking presentation, cause related risks statements I'd are subject statements. of the we remind in will make and such by actual materially that factors results to from plans

undue to Please place Exchange cautionary Securities forward-looking You Commission. from and filings other the not reliance the included factors to are refer in our time and statements made to statements. risk with on time cautioned

in our directly Founder measures like the point we and presentation would believe I which Executive be included performance. to our accordance GAAP. financial in Bill the contain today's conference are measures, U.S. or accompanying call These investor today's most of appendix prepared for useful our and earnings to the turn isolation should comparable over call Reconciliations a are evaluating measures and GAAP with as to of financial considered in not measures will substitute release presentation. I'll our also discussion non-GAAP supplemental out in Zartler. that now Chairman,

water and strong record to last great to our XXXX, is a our start grow volumes momentum David. high. operating expanding year Aris new margins you, Thank from while a in off our produced to execution continuing

our team, testament since in hard volumes under a expansion contracts adjusted infrastructure a we produced years our is the think paired critical margin and active volumetric water as customers to Consistent and barrel growth revenue our high and well-capitalized first for security growth, great from continued long-term expansion, reaching reiterate production the by now with performance and it's production been what consecutive our contracts of long-term infrastructure. It's growth. We X.X customers. These growth leading capital visibility earnings those our consistent important provide the volumes comes about profitability quarter of Aris. margin continued tenth currently new efficiency. revenue with of of in Over volume we work public, are XX% accelerating flowing with per operating are to I to went quarter. differentiates an record and which enhanced combining evidenced Our

has with by capital As shareholders. where great return of year. With we allocation increased accelerating now are reducing to our versus modifying to asset footprint can start off our cash outlook our in that, our XXXX. a are capital it to year-over-year XX% and turn additional Combined reached we've a encouraged spending to and Amanda. the profile, by scale, the over I'll rest excess earnings we're our framework point generate We're approximately for capital

Bill. you, Thank

continuing our and million year, momentum water adjusted Volumetrically, for We said, EBITDA year-over-year. produced grew to we positive up and achieved our year-over-year. $XX X% sequentially this the nearly a X% fantastic consistent Bill off quarter, and As XX% start sequentially XX% of we're growth. volume up

cost And of our sold seasonally activity, with day, the last water XXX,XXX deliver as of of acres contracted Water record While covering but over the of Solutions not down adjusted quarter costs our as line In and per long-term barrels now the is stated for quarter, but our long-dated core with contracts solid benefits contracts, high ramp achieved improved Basin, stable, from our and a $X.XX the throughout only ahead volumetric we barrel. in fourth processes growing customers' and expectations. substantially to per business, the improvements operators, reliable first we of chemical from sales long-term anticipated, operating which expect revenues. In Water year. we margin the complete our Solutions such Permian our escalators point also we This quarterly the growth will waste from quarter, growth additional by inflation efficiencies in volumes handling. infrastructure reduced fluctuate top premier supported as also XXX,XXX electrification efforts reflects

in our also to exceed team long-term restore of deep but benefit we recovered dedication aside, the late profitability pull-forward the on. economic Absent and from hard congratulate benefited work, from required our only committed which in developing of acreage creativity Steve I oil quarter, from the in will timing well our we as volumes inventory our to pressures inflationary delays not a are these And for the impacts, contracted margins timing Delaware and XXXX. saw highly have also We skim to successfully scheduled proceeds, the as continue Basin. elaborate that customers Northern maintenance our targets. Quarterly want to in

Our spending in us consistent cash confidence has the flow. in record growth profitability, capital increased significant first of in growth outperformance efficient quarter given the volumes, free and our

are quarterly As XX% dividend we increasing to $X.XXX a our per result, share.

Our the priorities remain capital return same.

balance and will sheet flexibility. We prioritize strength

the excess with in cash We capital will growth organic invest line time. return flow shareholders high-return in growth business' free over and to

replenishment, business, we and The industry evaluate we could leaders we point, the and is standards third are the pilot ConocoPhillips, the two aquifer consortium these for next projects other and of treatment testing to are development industrial in and Chevron with the scheduled and which the of and desalination of agricultural means also current desalination developing reuse look end The the tested beneficial of completed technologies. the extraction. uses. Water by are mineral future a the cost-effective of currently advancing this meet the and trial to processes third, scaling most have phase successfully quarter. At to early ExxonMobil Infrastructure leading by As Energy of technologies be

be permit for produced second use nonconsumptive land of for our discharge DOE-funded agriculture. project, related As Railroad our use treated to in for produced surface efforts will working will water Commission progress the water we a quarter, which Texas we the with

for over testing our better a our content produced assets. after of produced water Additionally, developed minerals we've understanding a across year, our water

our have on focused high-value possibly economically that minerals be can efforts recovered. We

partnerships the concentrated We and evaluating and brine, our commercialization of and now minerals technologies for potential brine. water mining are recovery from produced

Infrastructure developing While management industry. cycle on our the the in full significant focused options are for we taking sustainable opportunities Gathering, core Water water in energy we lead Recycling for are business, future and

over the outlook the our that, it with for to And Steve and I'll for details discuss quarter on rest financial of year. results turn our to the

CPI EBITDA the first of our quarter first sequentially for the $XX.X was adjusted of quarter. as XXXX X% sequential as recorded line The XXXX, both We to XX% from top exceeding savings expectations earlier million, quarter from of the as up increase and quarter Amanda. well again, and initiatives and for you, of flowbacks larger Thank well from up the due the and fourth efforts. our such benefit new cost skim oil associated escalators connections electrification

million track to approximately last million, front-end first XXXX consistent for $XXX ahead guidance. As slightly mentioned projects $XX and with remain CapEx we on our million expectations invested quarter, we our budgeted is of quarter, prior our completion to full year $XX of of early due capital weighted. the in program We

the million produced billion per from volumes quarter and ahead to water be earlier, to per we're between barrels Looking barrels to recoveries X.XX we quarter, day. X.XX oil of skim down forward expect pull the due sequentially first of approximately volumes day, second X,XXX referenced forecasting the of

first to average quarter Water volumes Solutions second approximately we as quarter up throughout day, per XXX,XXX over ramps expect the business, the the sequentially activity For barrels XXX,XXX to year. XX%

to mentioned, oil of anticipated margin volumes from maintenance as of expense we the had barrel driven costs. Adjusting well $XX improvements, with Amanda associated skim these continue first $X.XX maintain differences, approximately adjusted to believe impact $X forward million EBITDA, we As as million million. quarter, delayed of and the $XX by an for per $X.XX and second deferred timing This for primarily acceleration will we adjusted includes contracted be pull well the the between between maintenance operating quarter. EBITDA delivering and margins

For end range up adjusted are $XXX million be the $XXX now the we we first to to full expect reflect outperformance. the bottom breaking as to range EBITDA of quarter in the of the year, million

healthy target and leverage balance financial ended which our quarter We to ratio, long-term flexibility. the liquidity, million significant provides available sheet. EBITDA debt-to-adjusted below our a of X.XXx with Turning $XXX end of low with us the

per of record Finally, we recovery the confidence the to outlook, contracted reflects June of in we are paid growing X. in XX shareholder cash course as raising over XX% flow beyond. quarterly shareholders payout be to XXXX and of margin sustainable free This to dividend June increase and our volume our expect $X.XXX our share

shareholder a evaluate with financial capital periodically to framework our opportunities continue it up. allows to in over returns allocation the line in time, that, which to over sustainable anticipate manner, wrap will and strength. With investment Amanda forward, Looking part while in growth I'll of maintaining development we high-return additional business increasing for as turn overall dividend business

continued to and closing, for thank confidence In ability again dedicated our I deliver Steve. to congratulate Thanks, the their year to and team start customers want water solutions. to our a management critical talent our on the and

our margin effort further the highs results. efficiently and has running new capital to pushed on business more Our recovery in focused evident optimized spending. We're margins alongside is

as complex performance by recognize of full the cycle in water the our we in shareholder water are the ability We nature increase to preserving from of and business, take critical management are happy returns, solid streams. And their reliable extracting we both water questions. value and technology, seeing wastewater further XXXX quarter. treatment this with increased areas core resources leading capabilities to to beyond, confident groundwater scarce in flow our operate operations. We demand operators which additional and dividend cash we in water our the as increase free Alongside in our that, for remain are future and reflected infrastructure

Sachs. first The of John from Goldman Instructions] with comes question line the [Operator Mackay

start we'll mind. the if side, on Maybe you margin don't

through us, this issues. looked those $X Maybe kind moving about quarter? million you have guys the like? made And some here? strength a margin Just what OpEx underlying if backing you're for working should break that just incremental progress can You how out think of of from and we gains of lot of then down

do happy Thanks, to Yes, John. that.

at a the margins As quarter discussed as of $X.XX. point we've about, high saw of and this sort we we've before talked

pull also a we indicated saw We have forward $X of about that million.

normalize for we this terms still that is $X.XX, to don't guided in $X increased you at when what of we and an that, all-time think Steve, why But QX. backs which also and how we in flow forward. we've break quarter account pull was ahead with about down high saw you that million what So go

timing earlier pull see we there both some was volumes $X typically. we excess which of come skim there as forward, well QX, as million The larger was well that with in then was in John. forward we volumes our what associated some volume Yes, and expected originally oil saw in QX, of

We January also some come year. in each CPI see escalators

So we in of had uptick contracts, some some we so revenue see there. our some

that Going side per be that forward, as barrel on about was it's onetime margin to, in the item. QX alluded $X.XX Amanda the would

maintenance QX. had into We items some push

We QX. related into go Yes, and it's to million wealth to true. expense maintenance had R&M of $X about that's going

And timing just a issue. of that was more

as pleased made. progress we're That with we've So look $X.XX. we guide high. forward, We very is that a the

we sort see we the our of find we 'XX overall, this able forward they is be in that and our take so to of we to And strides operations, continue how to which opportunities, think quarter. won't big operations at still in but were look efficiencies sustainable, some additional running are we

talk growth that if pieces capital investing business, we might about detail. going and thought frame Maybe the about little of announcement. Stephan, you up kind Congrats the but allocation growing the maybe to think I dividend could the dividend. could balance you between if pace kind a any you other in you makes talked have? increase? I about forward? about the bit you sense. the just turning just going of of that All forward, the of size appreciate on how kind Maybe just know do the How

go on ahead talk and one? this question. why don't Steve, sort Great deliberations about the you of

we've start the couple shareholder quarters. of growing shareholder And been go ahead John, capital, and for the the Yes. given thinking returns reduced now time it to given about and the seemed over outperformance increasing returns. forecast last QX, best like in

flow over we Looking grow returns in and could through that forward, and shareholder increases come or alongside periodically, do it something we EBITDA we've expect share could to cash that come look repurchases, dividend annual growth which to considered. free is assess time through

and sustainable to the balance sheet So that's pace be a measured it's doesn't going in anyway. impede

to going inorganic. dividend we're organic how and future, on the look question the your grow we the business, to at John, And it's considering how in

opportunities. have organic great We

core great great opportunities pursue customers. Permian area. We of our continue to infrastructure, Basin. It's the We've in got

I think inorganic would like side, Bill, you on to... the

the is of I dividend, mean a still at it flow. cash look portion relatively low our

So it reinvest. there. ratio -- we're from room coverage The traditional a It's great keep plenty shape. and MLP commitment we to we'll that of keep balance to we continue the grow to perspective, or to a in cash made dividend sheet's use got

having to not any work do we're repair there. So

see And here -- with the plan, these with the capital. so along core in continue current way. And we've how growth included which will we'll maintenance some include to as does we evaluate along grow capital reserved we that the

Citi. from Next question comes the Dounis Spiro of line with

some up to want pick comments. just on of last those I

a your as but growth capital here, have first. sheet below You there. and all of your investing dry came leverage you sort about described, target talked balance you're to priorities, of lot seems powder, second allocation capital But

about I to to on what's competitive color. One, little what looks just you to the opportunity just about hoping it get curious some But as us that what was was market market think share like commercial, going looks like for then bit the respect so there, of surface. set more beneath tough And and think grabbing see the with kind And a maybe to with today of right to respect M&A, now. dynamics? more how curious,

it it's you helps on us with Spiro, to talk can the it I the mean this our that is the if more about circumstances, talked we under M&A, something don't of would we assets. footprint strategically accretive expand right and like certainly, right we've now. why But do do about consistently sort landscape

contracts. confident based bit we're a in we're customers still in at some on this gap highly it's where -- our assets, seller there's and valued. in other some comfortable In a and some very Yes. cases our looking where small, in large of cases. a And we're our valued Ultimately, expectations between difference cases, businesses, business. it's They're relative and

as around -- different around has water assets. evolved So this businesses the in has they a been contracting way grown -- there's and very industry and building have have developed, approaches

think doesn't our for careful to economic evaluating there's there. in synergies could valuing the like make very we're us, not great so going And do size do some anything we're additional We and that bolt-on acquisitions. We that ultimately give do sense but shareholders.

strength, look at today better And worth. and relative stock buy so cash think our other if sheet is than a you position are balance people our what their businesses

So we'll see.

great getting the continue commercial as have on our their from business with And side expand we customers, repeat to footprint. Spiro, them relationships they

see that the So Delaware we is, Permian. the growth Northern in, And growth the in continued course, respects, basin of the engine many basin. we're do of the in

market share, very deliberate. in So of future we terms are

high seeing projects. are We return

We team, have continue commercial expect I to an exceptional share. BD market us grow and our to

Great.

just maybe initiatives. Amanda, question, to reuse Second some on want of touch these

print. sort both sounds of projects you extraction also then with these stages be curious, a It cases. look just this some One, and us maybe you You hydrogen more to can give early mentioned leaning to mineral of able like should we and for? latest look be this in sense what over milestones pilot. here all time seem But out in the

Spiro. Certainly,

seeing as we and going confident to that coming with in want are what We've we we to As we we start initiatives to last tried we and seen feel extraction additional set take expansion beneficial mineral to fruition. to and does back actually to be to thing count time. The into deliberate happen to companies, are we've what are is can like emphasize other the going very reuse expectations. be milestones, do that say

the now. have now a much year across our side, to is we of we in yes, our examining understanding water over spent our referred mineral extraction On mineral We've in have that the idea in and better content a what water. And assets.

from see reuse see different and what not as will providers can So to other definitely commercialize, look treatment -- see just revenue expected. opportunities we at our materials continue reinforce evaluating processes reference 'XX/'XX extraction, moving to point, -- extraction, to in promising, leaders forward any mineral innovative how but this potentially development is milestones. to we'll project being the in or are the in do and to partners not bring materials we and revenue be quarterly we come beneficial The ability you and might be back hydrogen deliberate. We on with are in expect with to applications. mineral technology We that we our as viewed the this at water to of technology

we've who be hydrogen and at potentially projects So to had partner water hydrogen smaller produced looking treated production. use water to to treatment to their processes us, come in majors are develop

standby deliberate. we be to So continue will and

Wade Next from Suki, question the comes with One. line Capital of

the flow of term all of a visibility revenue, at just most How a or taking the kind answered stuff longer step that back, wondering how into that of that durability, you of basis? the longer-term the profile on this it, cash sustainability geography, customers, think think you as about underpin I maybe the do put about think I'm them the kind contracting business you of have kind do business, given today. been point, but

feel Wade. really good it, about We

our that's anybody flowing contracts with I into with of of we've contracts XX% feel is the think under work hard, get future these we about contracts, we infrastructure, long-dated the what the type and revenue that most repeat If production it. we think that and customers great our expanding. And got premier And looks customers respectfully going contracts we've feel fact then will that pair under pair to with the the like. these sit, you good you and the those you good that where it from visibility about We're think basins great customers, profile got with continue 'XX to currently long-dated in importantly, but extremely basin, beyond. these under I with contracts, fact coming about the

about year, could if just make the within the Is of obviously, dividends? et free here And reasonable after before, Fantastic. the thinking cadence the least of performance the to or right reading flow, on excellent questions analyzing I I'm of at inch kind I'm sure dividends, second want at quarter quarter. cetera. cash, I think capital couple a just that things in allocation, per few the about If dovetail think ballpark. of half Free before I to a first could looking similar kind about? cash

Well, more when on we course, you looking look quarter-to-quarter, at the of cash basis. are free flow a long-term this at of

always you're and noise So from have timing projects. going capital to capital some of working

sort cycles about as we growth. So of return look flow cash think and shareholder we through

not will from it's of be So We'll on flow an to timing quarterly free there annual standpoint. considerations be basis. necessarily going cash increases. dividend And more look just a

Chase the comes Tonet Next Jeremy Co. question from of line with & JPMorgan

This Noah Jeremy. Katz is on for

touch your First, into line sight needs your performance. I to customer of and on wanted

I said you customers. from notice X-month a think you've previously receive

any if guidance? to volumes in could XQ guys seeing providing confidence of touch upside you what you you're So XXXX on gives second and in the half your

talking constantly. under very while we X-month provision, own run a know a have We Thanks, our visibility into forecast. months X we our And very notice. relationship. commercial team We Noah. customers to talk get contractual day. embedded. are we to Yes, they a dated. is every do where are. than contracts It's sticky that to is longer The them We have do our But more

see the ramp total of year. And So we by we volumes do great do the visibility. a end into trending have

increase. I the confidence. at So steady. it's signaled end see dividend we it volumes we year. us And by does But do that think ramping the of But give the pretty

I mark again a as And you great. in know from guys leverage X.XXx X.Xx quarter to previously. this That's reduced follow-up, the

allocation quarter, the to reduced your stack With leverage can raise up how the speak priorities? capital and this dividend repurchases with you

ahead. Go

return you repurchases because the timing Yes. shareholders cash flexibility free with in capital to repurchases can provide themselves. flow match

of impedes One relative low of float, course, day have, to we day. the trading considerations which

in some of we're right a mentioned amount large in a trading market, now. negative take shares the valuation go there's you standpoint, of stock where impacts it if upside given could right value out there. But Bill tremendous the from now as have So earlier,

long-term it's So look returns. shareholder a that going growth we'll be alongside dividend for at to tool

Praneeth Next comes question with of Satish Wells the from line Fargo.

that on you mouth. think it I done, to you're Maybe I going like prior sounds to is in the I the way to deals buybacks. do to look question just put words M&A extent on buybacks, follow you'll up about but to and maybe want don't get it your consider guess can't

where true? And then as that the there is are question, a gap like comments sounds and one, where previous from on follow-up, assets on So a between is a market selling based it valued M&A your for. you're

it those like to into comments, bid-ask maybe wait read for to narrow the bit I we little time a on if So sounds spreads here of need acquisition.

feels the putting of do M&A doing open year? that maybe together, you like half which kind So not this second in of does year, that if this the may buybacks door it may or to

in mean, do couple we're of quarters, And for patient We're our think quarters. anything the no a balance we improve it sheet the if couple continue I a on that of for sense. of make sheet any means capital. to I rush with improve balance to continue to that table. is we the And very all doesn't

we if be core growth, we part steady strategy. a believe which evaluate dividend the will So of long-term

now years do, and increase alluded first IPO, As evaluate Stephan where we to -- started with to, don't our as indicated we've the we'll probably we to several ago, of we first have what and today. flow off next over we a of the the continued years, dividend X in many ton the a low

think well we -- excess to covenants market balance our build deals done. well, where lower said, think below at getting I don't least beginning getting to on buybacks. That I is or with you will cash anything sheet consideration were the said, So averages. really don't that is as a down. have leverage

consolidate relative some very their larger of value into a the them fashion or think continued come Basin. there's thing assets level in of rather We've the our form or of it's in There X:X a inventory a called is growth. knows of where who to accurate Basin a it over think X:X realization Delaware what permanent at midstream of one quarter see over some is we than rapidly we I a players of there. And economics the the eventually, So the by the and efficiently. play description that And length business year and grow growth that, today continued a the customers, opportunity X. But oil it's and believe next, to does on large whether we basin counterparts, I our Permian or sort and announcements course time. these water interest continues in sense of will or to the make that seen that do and there operate our -- because tremendous act which is it quite ratio

what's know QX. I into QX. would you like produced water implies imagine look I that And you it. the that's I sequential helpful. it that? would between in Can from mentioned water decline it when produced Got that, mean seems help QX volumes QX. and forward then into guidance pulled explain But that No, I a at QX, QX some volumes driving you for continue here

to that So I'm just decline trying there. understand

is of highest of sort Praneeth, that that water. of your the pull and well volume is pads forward Some flowback XX with flowbacks

time you So -- on. that sharper actually as is goes decline as

to customers Obviously, is why what sort backs. seeing lower what do have we're of of a we're or which an either So of flow a do can our everything impact, this that terms is are just in and going reverse we always production does that. in as we to But we're guiding lot doing steady-state function of QX.

frac And of Delaware move we Midland Texas, acreage customers area, either and our the outside in see or in back crews our Basin, some forth. larger they the and of have that do

about why think ramp, I from movement this which second forth seeing so have acreage across good effectively of talk on a the quarter, back into. you pretty timing based and frac a is a that of is little visibility the ramp third And crews a that we the we're and

So quarter-on-quarter little of on steady. a that, this noise it's growth continues to a bit there's -- be just but

Next Sean question the Energy Mitchell of Daniel line with from comes Partners.

the but I'm just looks on back how kind skim recoveries up impactful is congrats that from what your coming Quickly, you of not And it smart down like have in this, drove for quarter? standpoint, in like oil very that? quarter. Amanda, outperformance terms a of were QX? significantly. that on And the profitability

that hear were Sean, that of So flowbacks was and made of a to in some skim good QX quarter. surprise NGS, skim oil. the in operator part a early you, oil production some area, some There was from there outside oil changes in skim The particular declined. then and

are always how So much customers doing. should our what we get is just a function of

lumpiness some it's activity back. over So and of whether but depending on we it's year, area, have recycled we sort the whether do do flow guide

it. Got

us that's us inflation any long-term provide escalator? very maybe the impressive. contracts. Okay. around your color And give around then inflation remind escalators Obviously, on and you your you can color Can any

explain they during how come year? the times that, you and ahead do why in different at to don't go Happy David,

annually Sure. signature depending usually on reset the contract. the They of date

occur larger the in referenced the middle Steve of the we at have Some then ones of as a of earlier. year, year, our the and couple beginning

like for we closing now session. Ladies reached to floor I comments. Amanda end question-and-answer would to turn the of Brock the and have gentlemen, over

Thank you.

ability team want again amazing work supported emphasize hard. our that this have to dedicated first and who've I We're us As that, with not quarter great last customers in to we you and a would very saw without to quarter. confidence and And and had continuing an have year perform. heard, be possible

look to and morning. So thank quarter, participating thank forward next you you updating all. for We this you

Thank you. concludes today's teleconference. This

your You lines at time. you your Thank may participation. disconnect this for