Aris Water Solutions (ARIS) 5 Nov 242024 Q3 Earnings call transcript

Good morning, and welcome to the Aris Water Solutions Third Quarter 2024 Earnings Conference Call. I am joined today by our President and CEO, Amanda Brock, our Founder and Executive Chairman, Bill Zartler; and our CFO, Stephan Tompsett.

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

You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings made from time to time with the Securities and Exchange Commission. I would also like to point out that our investor presentation and today's conference call will contain discussion of non-GAAP financial measures, which we believe are useful in evaluating our performance. not financial in with measures should a or U.S. measures for substitute prepared supplemental be isolation considered as These in accordance GAAP. in Chairman, now turn Reconciliations measures call over the directly most Founder the of our and our included Executive appendix presentation. I'll to and Zartler. earnings accompanying comparable today's to release Bill the are GAAP

demand produced you, for activity, We saw quarter. David. excellent an third completions water. Aris Thank recycled increased growth our continued water in with driving and its further strong XXXX volumes steady

improvements ongoing as of program. Our following were strong forecasted, capital our delivered completion operational consistently down margins, third our the expenditures weighted and, first half quarter capital significantly

As of investment, to enhance greater a and flexibility volume generating our margins shareholder reinvest returns. allows strong efficient we the in business us result both capital and growth of excess consistent growth, are cash, which

opportunities additional potential market we're inorganic continue anticipated, of come As number evaluate targets. to to a seeing and

can area that for. far, asset that value not quality is right capabilities. Amanda. while year continued contract in by suppliers end it and the great Thus all found we overall we assets focus encouraged on strategic of thus look remain to and remain performance the combination accretion strong enhance the to systems' and and We're disciplined to this and I'll and And customers, opportunity want our and quarter an beyond. With where evaluating in optimistic turn we our adjacent we primary potential of the continue thank our yet opportunities. We over results team will for progress Our financial evaluating our far that, for XXXX. core drive offers have our fit, operating incremental

improve premier we capital initially to customers, we XXXX operational contracted generation grow you, to our alongside had through X Bill. excellence efficiency. investors, margins and improve primary cash driving greater commitments: to by Thank for When forecasted

far. We delivered had to produced complete, X% year-over-year. quarter, With growing our say volumes an I'm water largely we third proud X% the exceptional thus have year and sequentially

we in in a growing quarter third recycled in last XX% increase water saw year. also the our significant and last indicated of sequentially activity the As versus XX% outlook, quarter third quarter, volumes with completion

see last Permian consistent core of operating over cost from long-term acreage dedicated our We dedicated structural revenue completed barrel, in supported up in of and operating quarter continue XX% the on year. margins last of activity our versus our the per third quarter the Basin to customers. CPI-linked year escalation clauses the contracts improvements $X.XX large third

skim from sustained and margins, operational year-over-year. the in over small mix, year, and quarter, up recoveries business our margin in flowback last past million resulting EBITDA improvement and up resulted strength variations drive of electrification and oil $XX.X quarterly can adjusted in efficiencies. Accelerating quarter, X% volumetric enhanced margins timing While we've over primarily third maintained the in growth XX%

sustainable to from significant our increased is addition over improvements forward. to now and time our for oil cost process reductions, operational portion recovering oil continue believe In skim oil improved We've increased and skim a the skim of recoveries. going margins recoveries benefit

periods there believe also and pads, some will recoveries variability While trend continue flowback be of intermittent we've in overall, is of to large oil positive, the related particularly we skim recoveries, to seen quarter-to-quarter. elevated

the capital range million the $XXX capital we commitment activity our are with adjusted the from EBITDA levels for efficiency, range maintaining $XXX flow cash our continued producing ahead while and for increased from XXXX to million. Consistent are year guidance from earnings our we've growth. Looking outperformed we resulting to our slightly our rest customers, to of increasing the anticipate thus, our year, and

see commodity levels going activity well into despite Looking price the volatility, to XXXX. increasing market, steady we at moderately

oil Northern the of driven our on lowest decades customers is Delaware Basin, of breakevens Mexico anticipate for remaining Permian sustained operations asset in some on to and The growth acreage received and strong New investment continue the we Lower initial dedicated the and specifically and the around lead of long-term features XX within production United States, our year, by on the footprint. which inventory. Our in based large the contracted forecasts

produced provide forecast overall outlook at fourth our the rate growth next year thus Delaware full for will and alongside we Basin. reporting. for But anticipate year the received with far, consistent our customer pace consistent a oil with We production XXXX given quarter forecast volumes this growing water

additional to to XXXX. In projects in growth, evaluating will volume Our will we margin growth existing incremental Currently, capital of organic will XXXX, result investment capital able of to a actively customers as and that customers our investment returns. investments grow well on capital our depend the year to at similar as reinvest we and increase be continued increased we're anticipate next growth opportunities. growth progress while rate allocating cash efficient our opportunities flow, also alongside contracted shareholder in capital level

cost the further this we reduction efforts opportunities to we implemented are margins. Beyond year, reviewing improve successfully

we costs, contracts forward, labor are in expenses already further clauses rental from and Looking pursuing escalation and efficiencies productivity. have revenue embedded in our CPI tailwinds water handling

landowner surface landowners us these now costs reduce For example, we largest and are royalties or flexibility. and variable accretively third-party are greater looking with acreage at expense, to provide acquire opportunities our either to operating operational partner

reuse. beneficial to Turning

produced over and Basin increasing water. costs salinity with focused demonstrated costs treatment the we treated gas and and of consumption progress our Aris costs and and capital commercialization. Chevron third technologies potential ability for will as to By industry. time collaborate far of outside testing the X regulators have the project use and water partners, the produced We water. Coterra oil partners its Delaware In the of these successfully ConocoPhillips, and treatment year-end, to the promising ExxonMobil, confirming energy high projects lower will we of desalination accelerate of produced finished operating to of for the have be The scale continue technologies to XXXX, thus pilot on

working on first are our and opportunities strategic also on extraction partner. mineral for selection extraction site are iodine with a facility We evaluating

specialize In and with in testing magnesium, we're companies and addition are water. extraction in and ammonia who actively mineral produced our sampling to lithium iodine, discussions several

have to results with efforts the to quarter. to I'll it our financial our that, to expect in discuss turn our the further mineral and Steve details XXXX. And fourth We quarter over for for updates extraction outlook on

but Amanda. We XXXX, quarter to the $X.XX you, last and per from adjusted XXXX recoveries. water third Thank primarily of stronger from quarter volumes to million, the quarter of of third sequentially quarter higher barrel just achieved water We operating XX% customer barrel, EBITDA last from up $X.XX of second down due due as under from year, well recorded adjusted the oil X% per skim for produced margin up as up and mix. recycled XX% $XX.X

initiatives. oil efficiency to can cause reduction recovery and business cost we've improved skim the and fluctuations demonstrated year quarter-to-quarter, due improvement operating While durable mix margin past over

Turning to for CapEx, our months program first to weighted were $XX million. substantially X the with million, for capital bringing first completed, CapEx expenditures quarter the half $X third

year. million, We the to XXXX guidance, us our year be $XXX $XX million the full for expected on are for full track to million for maintaining and $XX million capital $XX with puts fourth between which expenditures quarter

per recoveries to X.XX of million barrels fourth to day, approximately day. ahead be and oil million X.XX day expect per forecasting of water between per X,XXX quarter and Looking produced barrels volumes, skin barrels volumes we we're

levels XXX,XXX Amanda recoveries, average XX% quarter our reflects our what relative we fourth in an quarter we we've Water increase saw to increased expect barrels activity day, strong quarter. In the recoveries in the skim As third continuing and we to oil volumes in dedicated our the quarter. acreage per fourth to on mentioned, guided outlook sustainably business, third approximately Solutions XXX,XXX the

down our guidance This to recoveries. With from significant $XXX adjusted a assumes net with approximately X.Xx, benefits to sheet, $XXX to fourth ended adjusted to anticipate our XXXX we available X.X% million year X.Xx margin ratio, financial $XXX outlook the to of of strip, us For liquidity, our to leverage increasing million, above prices with quarter full $XX and fourth the $XX could prices per $XXX XX% and from the offset X.X which quarter, which million million. increased realized we which flexibility. of skim well X% balance EBITDA below is million of to oil barrel, we year-to-date current debt debt oil target some million of EBITDA the is provides regard which quarter of and $XX received

we dividend December December declared record fourth on of be Finally, quarter our $X.XXX share paid of per XX X. shareholders to on to

for cash Given that, Board liquidity, XXXX, we dividend leverage, with low it our our fourth to expectations wrap quarter. With revisiting anticipate up. payout our Amanda over to the I'll and after flow turn level ample growing

for team thank work Thanks, customers, hard Steve. we execution. want and In to and our closing, their support, consistent again suppliers

rest outlook exceptional We exceeded our to of have business delivering encouraged business to the result, the reinvest our place and in to and and of growth customers, the in both a cash safe XXXX. to work, service year and our thus we're return the prudently are a our on by focused XXXX, As providing to shareholders. generating growing proud expectations far for remain

an foundation that, innovative, long-term the our will take questions. operate we sustainability We which solutions. With to strong to are areas continue with and the have we incredibly in industry water in about supporting water enhancing built which future, grow. happy from we excited We're infrastructure

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

the of into 'XX. on start supportive to wanted early I Pretty commentary. kind look just

to note finer a it. are we mid-single-digit kind something there volume on And the what takes and -- looking put like translating are on that produced maybe Are to wanted puts side? growth water Just at on of EBITDA? the

Thanks, John.

our reaching alongside at Chevron million do said their barrels We earnings. to come that fourth are a intend we've you to out we customers. And and to referred X always sort come growth. But our X% of they as looking and about We've 'XX, have going when believe We with about year. we indicated, to range see grow next of growth. mid-single-digit not X% that, you've obviously, we're customers guiding we what up seen quarter

You've come out growth. seen -- and Cono X% come about talk rather out Conoco

of our So at this their refer time. customers to and you commentary we sort really

is competitive Just Is for it acreage service to disposal there a clear. complement are like that, up you That's buying surface market right now? frame large just out position some just right what And there. could comment right. the dynamics -- your looks us around just thinking remind a All about anything And the if you could acreage now? maybe what you're royalties, there?

So arrangements reached ourselves position. and people importance a to maintain and [ with on to to years from need drill think avoid permit there. the And beginning of of partner also ability became is build they their land property There we where preferred ], I landowners. partner, helped which the ago are to and needed land opportunities those understand ahead TPLT couple of the obviously had We a with permits. and a then royalty our we perspective, we did continue the out royalties capital them, to have permit. There to to are not own disposal a

options. I we see So both think as

have also ahead. looked We

have permits that We long a runway in as we can we locations build grow our system. of diverse

buying position. at we're our to think cost But we we of land, in and So as looking forward. other are part our opportunity certainly, efficiency savings a good royalties looking reduce

comes of The next line the from Partners. Campbell Jeffrey Research question from Seaport

quarter. is once costly provide water if Texas? assume method regulatory it progressing opposed the I water a In be that And ground? and us of with strong for injecting update. disposal on Congratulations Aris disposal to this is a to surface into as less particular, could you systems would produced reasonable how approved, wonder in

clear and in was to reuse I water. future at can opportunities to water you beneficial to will beneficial referring any at look are alternative continue the look be at I both, be Texas. the not with forward. we help your hope Permian in continue other an will of customers. industry disposal an are alternatives the answers When on you that looking to to quite going you reuse thank as going that so sheer our as are question. the is handling question. to beneficial see always Basin, reuse the to And There of develop we will I method as handling this that generated that volume disposal, into and

try to surface discussion I in Texas wasn't of me something like again. the water like, maybe let been Well, wondering if into to continuing large I'm clear say, able would progress. into lakes enough. underground, water I but Pecos River or allowing being incorrect. cheaper dispose to sorry, put that's River the There's disposal be that. And be systems, some of was Pecos having produced some volumes than it or imagine And I of that's may

where So go. I trying to that was was

applying and Certainly, the an the alternative. surface for are clarification. the discharge with Pecos the working That for you Thank opportunities there appropriate regulators River. permits into is for

others. as see looking actively think to And I over that progress are next at continue you year. the that, will are We

of Delaware I think high add way produced direct point that. the a Basin in finer to maybe too is inject water The salinity to to it. especially the

it it up some be to quality process end with will be clean it if that brine level waters. surface of through it up required the concentrated that can leave to of that's run and into the So discharged a will way always water and we even believe in you

No, was that Okay. very helpful.

to you wanted cost. the ask question that relative and different asking XXXX? could capacity X. substantial Another going wondering question I if with to beneficial a the JIP's and what for I it's and because expand visualizing you're the capital Slide responsibilities And XXXX paying Aris arrangement lease? financial iodine, be on if will it's royalty scale to on they're what and just is I'm wondered I'm be up

Thank you.

continue partners extremely it is our look we and that's looking which we usage identifying a work perspective, and from at then as So a technology, adding up. promising one XXXX to and scaling consortium, and energy have an to we OpEx CapEx, at now partners idea that and that specific with JIP are

it in As relates material. 'XX, our will it be to capital commitment not

of reimbursed. continue to to that personnel our with partners many is share as relates will it We allocation our costs costs of

the where about relates on for and partners talked basis the spend iodine extraction of not that -- to we've capital any spending before infrastructure the project, So about CapEx related it our royalty the mineral. as the to a and doing

comes question line from One. next Wade from Capital the The of Suki

provide and inorganic all both on you Clearly, the remain appreciate on I commercial pretty all always color busy opportunities. front. organic you the

maybe you code, adding color the ZIP but mentioned of You presumably, again, be the would in in give great. any customers kind same basin, could that's

be Thank very the you, on to front. active Wade. Yes, we continue commercial

our have they We who customers to well team they work talked mode we've as as with as manufacturing acreage great acreage. the them with commercial them on alongside on expand grow their actively to new as they into continue about working move individuals, before as potential on customers begin existing their

and we signing some been and some in have working so. anticipate with to We continue customers contracts will the do future,

customers So yes, expanding and to market continue out customers to pretty that are we our see new operations. there robust their a Wade, with grow great

inorganic. the share kind at on Fantastic. And then seller you us spread? expectations, there, bid-ask Anything buyer, of has update? just of we been expectations to switching sticky that can Have with sort since it out last seen narrow all? Or pretty

question. That's why that? very a hopeful always that we've great been We're you don't take disciplined. Bill,

yet say It's haven't the they've on certainly to gotten spreads. any bid-ask whether hard met so... narrower They

they're can they're but look, with quality. Wade, it's to continue talked contract we projects assets We we're looking about, where accretive, as for where strategic, where do we've more asset and and the great

that hope and look our will meets to find that continue we asset criteria. we an able be So to

with of comfortable the assets, that them. aggressively, and ones how our current comfortable state we're them pursuing we are with that contracts add and we maintaining built we're very the And the have, how I'd we

anything have to perspective. And our both have we that a the and so as we asset fits on I own think and that set financial said quality yet contract perspective standard an well in as as remarks, find

Fargo. line of The next the from Praneeth Wells Satish question from comes

at the that XXXX based you customer provided, that you're the produced point? they just assume Does talking provided some growth is you in your base the customers the or that just on water and this you outlook to in growth referenced Or that new for existing discussions to? that addition of mid-single-digit of that does plans

for XXXX and customers, for this Amanda year expectations on in first this guidance at [indiscernible]. And for at as the existing the year thanks full our said, contracts customers of don't have part question. detail. what of is point, we're have this visibility we forecast point. most fact, not providing into Praneeth, do we And in existing But for the

it. growth you're about Are sounds think with in It to have maybe on like organic in how this payout Got you just step in year. more And going then the line next discussions to the of helpful. the just change later -- of think terms you dividend. step terms a we about Board touching the That's framework are or you significant growth of level should EBITDA and the pursue of current considering kind with Or growth? it, up given how might low leverage? dividend year

out in a a consistent that question. what past. our shareholder allocation capital we approach sustainable And returns we've That's do time. the And we is remain to laid consistent manner want in over great do in increase to

do the I with expect there be going I that's in on remarks, indicate some of additional business. out line in change that the prepared the will did step some don't QX. growth. we of a expect we growth dividend to us As color put expect

long-term So at we're looking sustainable growth.

the JPMorgan. The from next question from line Tonet comes of Jeremy

Katz Noah for is This on Jeremy.

your to allocation XXXX. First, capital into I wanted priorities touch heading on

that you the to currently, and M&A you're X.Xx or going of forward? target raise rank guys has Now dividend X.Xx opportunities how lowered would stack Xx repurchases potential at leverage Aris below accretive speaking the

Thank the question. you for

As consistent like attractive on that accretive I said, capital those we haven't criteria, opportunities look but found framework we we've out. remain touched laid where We'd allocation And this at our M&A. as meet they of we've to the in time.

also to I should program, expect repurchase for is projects have be as That We float time. evaluate. to that that we've [indiscernible] to given pass additional what we're but on we that you this at there new indicated consistent delivered. us growth looking And some think out we are customers, considered continue decided have, the but share a something limited that we we'll

other guys potential extraction then these? like see Should Sounds you and good. projects? any pipeline to the for coming desalination up can mineral the as we follow-up, the expect And projects a you speak quick

What that Noah. consistently business, we are have very for on have focused in comfort fact. that emphasized is core that everybody our important Thanks, we and is to

future at reuse. We look beneficial will that to finish are for out year. we the continuing We the project think next

We is -- planning on I other been that are than discussing. additional But we've very the at projects in scale coming will not it to think up. time promising. And are we begin on this projects

industrial are water. looking at We

of We and thousand expertise have treatment and a and the developed tremendous in patents complex water. capability

sure So in our But and industrial making the is our core most we perform. sector. opportunities of are business exploring we again, that attention

the from is question next from The of Citi. Bryant line Charles

it from New new Mexico around some this potential sounds the come me. time, curious to know could play? like not in that you do were much maybe play. up least the But setback come impact and something one it, pop news like how around for there if There time at rule can headlines Just does about to into that think I into now. from

did out there adjusted schedules making in of they at the raise of appropriately customers Mexico were that that permitted legislating setbacks. drill gone and and and that rig have sure were positioned. impacts New be and to idea lot going A actually looked our have some if

an that interesting how be So we legislation moves to it our see see next and on will do not impact business, forward session. this

next comes Energy from Partners. from line the The of Daniel Sean Mitchell question

to your color seems recoveries. in to about talked nice like guidance going pretty guys you've done like included and skim that's going You increase forward? It provide you kind more opening in improving Amanda, around the can process? looks of it that improve a comments what oil

to nothing Certainly, but the in doing what is team is else done have skim we field, recovery. that dedicated oil a allocate

operational increase going So in have the really through of have been coming some skim made the But a we that field, is addition, water. allocation I that people. in it's in focus. the has into of it And really function seen think we changes out

So I combination. it's a think

to her conference questions, would further I comments. hand for Amanda? the no are there now As closing Amanda Brock over

you. Thank

improved So I want and customers, We've that to execute our well. our thank team improved our which suppliers again to very cash extremely continues We're margins, generation. importantly, growing.

setting We up well for feel through in us year-end good is sheet balance beyond. 'XX Our is and shape. great

talking forward So to you we look thank you all, and to shortly.

conference your now for Water participation. Aris Solutions Thank of has The concluded. you

lines. your disconnect may You now