Earnings call transcript Q3 2022

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Operator

Greetings and welcome to the Aris Water Solutions Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Tuerff, Senior Vice President, Finance and Investor Relations. Thank you, sir.

You may begin.

David Tuerff

to call. Water welcome XXXX third and conference earnings morning the Solutions Aris quarter Good joined by Zartler; am Founder Stephan I today and Brock; CEO, Tompsett. Executive our Amanda Chairman, Bill and CFO, our our President and

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

and undue on on in to are included Securities Please report other our not most You Commission. recent factors filed Form XX-K forward-looking and report cautionary reliance annual cautioned Exchange XX-Q and quarterly statements refer place the statements. with on Form risk to the

presentation point we I conference believe would which be performance. to in contain like are measures call These also our useful out should evaluating in comparable GAAP. of financial not considered measures measures will our prepared today’s U.S. companying today’s for discussion in substitute the in Reconciliations earnings are non-GAAP measures financial to the supplemental or most investor with accordance isolation appendix of included in as directly our GAAP in a release presentation. that

Zartler. the turn Bill now call I’ll Chairman, Founder over our Executive to and

Bill Zartler

for thanks David you, this everyone and us Thank morning. joining

IPO. we October the Before marked X-year anniversary to like of our begin, I’d that mention

our technology balance in accomplished. I’m trusted on to Aris being base and the this has great Looking its reliable, been sheet partner team water and asset execute year, shape. as past volumes of continues our proud high-quality recognized on keeping in back plans, growing extremely team what

had of previous the quarter we XX% increase volumes XX% in and strong by to quarter XXXX. over third over a quarter, quarter the driven a third a the Now increase

expanding the country customer invest our base overlays driven its the the to by demonstrated infrastructure, continues has which of be to in focus our some where on expansive the as industry as in growth Our headwinds to primarily commitment well optimizing offsetting adding acreage asset recent technology further continuing our base value growth. we cost are our enhance further improvements. and by the inflationary growth, Alongside to structure, steady opportunities efficiently premier of

As we in recent production quarter, fourth from monitoring of our but for the balancing inflation operators anticipate targets, Water shareholder We head slowdowns. the to water into leading returns. end of our are the year-end activity, budgetary in pressure are the and Solutions increases seeing business volumes produced year, benefits completions potential

to of this our forward the beyond. So contracts, differentiated rest in look are business, and of value conclusion demonstrated infrastructure, for success relations XXXX year by reliability. the the representative We of resilience continued and our our results customer quarter, long-term strong close of in underscored the and

will I it that, to over Amanda. turn With

Amanda Brock

quarter. the second you, quarter Thank strong third up XX% year, sequentially We the of day, a X.X volumes barrels last and water over versus XX% per total over quarter. to increased our Bill. third million up water Aris had were which which year. volume up significant volumes, X% Water of produced quarter the were this second quarter in Solutions XX% We the both over over saw sequentially growth volumes, sequentially up and second handling

a third was of quarter Our the barrel adjusted per in quarter. barrel down operating margin last per barrel $X.XX XXXX, $X.XX from

both significantly, to continues to important grow sequentially year-over-year, margin is EBITDA it and dynamics. adjusted While discuss

of grown our over we past First, the rapidly quarters. business have recycling water couple

temporary these and related brought new facilities commissioned, already rental cost XX primarily personnel. which new mobilization third-party permanent during equipment the addition increased facilities we to to the on We quarter. in of third In X experienced commissioning contract facilities,

fully now costs start-up onetime do reoccur. to expect facilities not online, we these With

prior quarters. versus higher proportion a sold we Second, ground this quarter of volumes water

treated, provided Some quarter which much as further our our water our use the from own had this locations as water of ability of source to system, we limited produced was core we to previously.

the have down-hole on Sales basis margins daily double produced benefit the quarter, we of we of from did half the cost in we year. amount the a water. our groundwater first not the lower than For of sold groundwater do have savings approximately generally since own operating of reusing

higher demanding permanent as And Longer for system reuse more to additional facilities, provide term, completions. recycled operators water versus we water groundwater. with expand our a are recycled proportion we of expect produced

with In still addition, to are meet sustainability for sustainability-linked believe bond. on track we our associated that our target XXXX we performance

are the year, of labor costs more labor we XX% and and quarter, environment, such relates last commodity-linked increased as gallon. consumables inflationary particularly extraordinary and rates indicated the diesel diesel per as we Since about it as fuel. Contract and managing up have through chemical up this field Finally, are to XX%. between is costs than per beginning XX% hour overall XX% fuel chemicals

team efficiencies. of begun the all aggressively we continued impact costs the where increase slow, activities cost identify has our on While analyze inflation safely reduce to and has to to our we can believe

fronts quarters. have the taken costs, and manage have see see are We to positive to impact expect more we several to margins in we on and beginning steps progress made our to subsequent of the benefits

adjusted we half our annual revenue inflationary to we Again, see impacts, of as in improve. We reset first implement to CPI-linked the and year. our continues benefit increase and grow dates will continue also efficiencies in as margins the to our escalation clauses offset expect contracts both opportunities sequentially EBITDA do year-over-year our next to hit of they to our

agriculture, jointly air Chevron beneficial Together, and pilot strategic identify, for for develop will and our non-consumptive we announce reuse. direct proprietary technologies with to of differentiated and low-emission applications potential opportunities in pleased also to ConocoPhillips atmospheric advancing are production and COX. focus on We hydrogen agreement capture

while and Aris Chevron expertises leveraging also technical the this will initiative lead ConocoPhillips. of

of Working our specialists scarcity relationships groundwater other for and while water this agreement advance water new but the use to long-term to of the leadership and water use This the sectors. offers that our industry, in concerns today not a treated source alternative and team strategic believe recognizing grow, around compelling and capability scale strengthens a continue gas oil As demonstrating and water sustainability, we the with to ConocoPhillips of only water also into brings future. of Chevron and alongside tremendous field. ConocoPhillips both our capabilities Chevron us and well as produced treatment

Water Basin. assets We and be treatment scaled safe requirements other water announced proven Water proprietary produced all and and of technologies surface Standards. and for we’re our reuse. that acquisition also with and for the beneficial discharge Permian technology strategic EPA use agreement that in the our the to The Standard from ensure of technical surface forefront Lisa industry helping Chief acquisition for recently Scientist, of related develop opportunities regulatory with our of replicated discharge build-out believe the include at continued the technologies new exceed capabilities can technologies enhance as ConocoPhillips, appointment the assets Henthorne treated of Chevron team we that The acquired the of

look to opportunities our core primarily future we at continue in remain treatment, water business. focused we As on growing

you in has him. here, formally Steve know we roles. joined the of and CFO, a in Finally, all introduce years who the big for over already made to to to are quarter. has new impact banking eager Tompsett, he’s energy Stephan He our everyone get experience both XX us industry third the in been in I want and few industry to weeks

want end. pivotal Schroer, speed getting IPO. to to will our We an capacity in transition be role who us the also Brenda successful year through us thank played support advisory Brenda through with a to

to over it quarter. turn will the results Steve I that, financial the for With to discuss

Stephan Tompsett

XXXX, of quarter Thank by from across increase XX% the you, in of the up system. million, Amanda. from We recorded second adjusted the volumes third the our quarter XXXX $XX.X X% quarter of EBITDA third for sequentially and driven up

our end provided quarter, Looking the expect of be forward and adjusted between of million, is million EBITDA fourth full we guidance. to $XX the range within which to $XX year the currently previously lower

one As Amanda which for as customers’ of a year. our customers’ forecast, as our negatively volumes recent impacts highlighted, first fire from next was at quarters. has impacted some will the completions the into next our which quarter impact acreage our inflation latest the pushing dedicated for timing large indicate fourth of couple also well of by There facilities, been quarter outlook on

to begun now from in process have forecast for incorporating own our customers, of our into receive outlook. XXXX those We the activity

acreage We targets production XX% production customers expect our believe operate our our the year. customers contracted will in which increases we to of and initial growth Recent XXXX. oil continue our XX% in indicate into next continue areas to to steady make year-over-year and investments for reports from in industry large some

XXXX fourth production to alongside grow to to quarter when update expect an We results. this outlook and providing look our we provide our forward ‘XX increasing

We invested for quarter $XX $XX our allocation, our intact, million balance and in sheet liquidity strong. approximately capital capital to the and framework Turning remained million remains third and year-to-date. expenditures approximately

million, and previously expenditures fourth quarter expect We $XX to outlook year consistent million to with between capital our million. provided $XXX total $XXX million of full $XX

recently also $X.XX consecutive November of announced fifth We share payable a dividend our XX. on

X.Xx currently We no X.Xx EBITDA $XXX as maturities with and compared our at credit to debt available net to with revolving debt range remained under X.Xx target Liquidity ended the strong to quarter leverage until our million of have facility. XXXX.

until portion Chevron, We fourth the early to those year. bridge short-term our as capital including for are utilizing go service of the we fund our needs a build-out capital credit next facility in quarter, program projects in working

of the Aris context rapid several are and has initiatives system operational experienced, controls. growth stepping accelerating optimization efficiencies and Now in back further and to the we drive

systems Compliance XXXX are assurance. assessing currently example, For we and auditor SOX including full requirements meet in to implementing

visibility We drive used are data and which real-time can cost and productivity also expenses, to improvements. be capital working into working operating improve flow then to

these value and us line beyond XXXX top further believe our to in maximize infrastructure. our benefit Given efforts the significantly will we of growth,

Finally, primary procedural in we a S-X as IPO, secondary be connection a Form and our X-year anniversary will shelf filing registration of matter. statement with the

any no at this plans have we However, time. to primary issue securities

it Amanda up. over that, wrap to I will to With turn

Amanda Brock

quarter Overall, performance. Steve. a Thanks, are strong team’s have proud of we and had our

have politics pressures. headwinds cycles, consistent growth inflationary and market macroeconomic We delivered certain and through

excited diligent costs. continue expect to efficiencies team It we Bill, also Like tandem the say have is first-year we our grow to continued We our for growth the to continue about our on anniversary to future. make to revenue dynamic are operating enhancing our most want deliver the importantly, yet IPO. industry, in been to I proud and mention quarter-over-quarter successful operating and our remain on of and has progress with a continues to year

questions. we will take With that,

Operator

Johnson [Operator from your question. with with Don first line Please proceed of comes the Our Instructions] Crist question Rice.

Don Crist

Good morning all morning? everybody. How this are you

Amanda Brock

Great Don.

Don Crist

If impacts Amanda, of when I impact an remember talk fuel this and I chemicals again? about about you first year. have it of us remind quarters the were for have Can of been they quarter. a and wanted less the contract talking around correctly, now of couple inflationary to to that openers seems the are you

Amanda Brock

Yes.

you those early the a So, of talking resets will in first CPI other in half QX. number for year, are throughout the QX, contracts about over. roll and inflation see majority of March the contract, example, of the of Chevron, we sort the our

Don Crist

you money this a spending Okay. lot Chevron obviously, for And are with of build-out. half year back of – this

model next of we or smooth kind color are next it there up us like is XXXX, ramp pretty should year, infrastructure that water As up, of volumes change or that? of kind it step around we Can to give a see for is being are any steady going you kind held be and year? right a now

Amanda Brock

spending we million, the that be to Yes. indicated about those to benefit transaction indicated we lag that until would we the When was of were a going also $XX there $XX we of nine volumes. to did months six Chevron months we approximately see and million

coming needed. the volumes all year next Chevron from the So, more the you into will complete of infrastructure as system and we see hookups

Don Crist

change kind quarter going second it is to or something ramp-up, step like in But like a should a that? be or smooth of be the there

Amanda Brock

a it’s pretty ramp-up. No, smooth

Bill Zartler

Yes. completion quarters just There right back held is first It’s three being to next nothing schedules the now. water year. half, takeaway through their due – next

Don Crist

a for through that bit done. me. for that transactions making push you the are just right a monetization on just little what’s bit we a monetization And If going potential and are hiring And one of Scientist Obviously, reuse have big us all you things and a what’s years the look the Chief water out just is end there and the that one X tell into the X the now? potential. final Can years, recycling or expand Okay. goal on you here?

Amanda Brock

that that we moving water industry, fact, it so, not of in do water, find outside We tremendous amount you a for industry, in industry. in use and the think And to to we purposes reuse believe use Don. water. I are ways the about as only need mean to this use but sustainability for

find robust, have use really we technology focused, while industries. technology other outside that and use are universities. are fact will industry to Conoco see core as to examining focusing that alliance have uses of and on to gas believe also we we technology treat also for can And ‘XX and we in our technologies cost-effective the how been oil four pretty outside projects water can year looking with else this. that with of identifying test and basically We enable Chevron undertaken can clear to we a verticals. the will of can produced be technologies in allows lead find that and we This we what business, us four

more about, opportunities, full capture to in things end this we as that ag, like water. hydrogen, potentially other this having work But carbon can we fact we that. the spoke It of looking sequestration, be lot sharing are with more yes, universities when with a at becomes to leading. apparent will those we monetization, monetization So, doing ‘XX that categories direct others we are what to find to that of air visibility do and non-consumptive Conoco, in this Chevron, see going we be

Don Crist

will back. Thank I the I appreciate it turn color. all you.

Operator

question next Please comes of the Samantha proceed your with question. line with Evercore Our ISI. from Hoh

Samantha Hoh

guys. my for question. taking Hey Thanks

place, beneficial I Conoco, reuse recent for was on in this an I is wanted voice. are will you my sharing I is to this will guys collaborating be So, how going the are wondering you topic you just lost in out technology technology of technology build? days. the if and And this this or I type you of mean my voice that apologize initiative. have with agreement that agreement, say Chevron to I what able imagine But model do of the you once and in to terms exclusive that that is roll

Amanda Brock

Good sounds got. everyone that you morning the like Samantha. crowd it I sorry, am got have has

on So, developing this will know-how your IP question, process. throughout we be

works hopefully, we And we so something which if be fact, to effectively. able that and are to develop will we able know in works do

it We will for out also be but roll not own third-parties. only for able to our activities,

other know-how again, with there participate in In we exclusive the we to terms this are take majors other being companies But to them us. who use any but of are yes, just beyond looking will of are with three working we potentially our efforts lead own and the proprietary will JIP ability for exclusively, IP this and have the operations.

Samantha Hoh

Okay. it are on seems great. how seeing water a about water the had per had solutions, water just Handling of could just went more with of speak Just really growth maybe I by sort Water bit jump solutions a revenue surprised and And bit guess really if past talk in that. the question am the little like just the do the I a up kind that more other about side. little much side. Could on you That’s like solutions it barrel I sequential this to you wondering growth in lot variations between Producer that? segment the like quarter. you

Stephan Tompsett

Yes. groundwater Samantha, pricing-related is this It’s more that. and to just morning, a function really good Steve. of

else. So, mix than it’s mostly rather function of anything a just

Samantha Hoh

Okay.

fourth to the coming – down progressing? is see mix the see that the be maybe is I mix we figure through. price mix water quarter, for right see How pricing side Just go So, revenue to in that quarter. on out mean there less fourth that’s maybe for the be trying going so I average solutions will groundwater – the should where will we you fourth assuming quarter? that do guess

Stephan Tompsett

expect back would We normalize down. comes it to as percentage groundwater

Samantha Hoh

I later, great help Maybe modeling Thanks quarter. will get offsite Okay. more on the guys, Steve.

Stephan Tompsett

Thank you.

Bill Zartler

Thanks. Hope you better. feel

Operator

Our of Please next Akyol proceed your line with from comes the question Selman question. Stifel. with

Selman Akyol

Good morning. you. Thank

solutions, following and just water. guess the am on about water thinking up I So, recycled I

XX% talked about and six for Your XX% up new sequentially, water overall solutions facilities. volumes you were adding

in So, should about volumes? growth maybe talk the coming could expect we recycled that you

Amanda Brock

add our year, tends we particularly to before, we we margins. the be recycled as to continue will in it facilities of did new startup lot terms in of facilities, water. impact our have growth And We see six talked those on about the a bit this Yes. and a little But said costs lumpy.

again be of But then So, and if size one the pushed to another, in in actually next QX may our from to that to as now things but moderate you expect with think year. grow activities. see just it to these we about and see we QX lumpiness of continue sort fracs will fracs pads, continue quarter multi-well into growth simultaneous reuse quarter-to-quarter in we

Bill Zartler

I capital, expect nature and particular full the life. which of the trying And it’s on that that as of assets get are XXX% is built be the a pipe takeaway even reuse on The and that the the we think we don’t a down permanent lifetime their produced are time. of over water going to assets be facility see to to to utilization very, quickly up means them the are very if recycling versus for we XXX% all payoffs time opposed

it very, savings and side. on as location be as it’s ultimate the very It’s it’s around. – not which about and they move water about So, is will high, that return produced consistent will but capital,

Selman Akyol

Understood. you. Thank

expand you or opening slowdowns. of And told curious being in about am that coming? You yet, monitoring you any also, year-end of if it’s that comments, kind any you on Are could seeing are talked I your just for that.

Bill Zartler

I going this down on for is, If There it’s and say, the Year’s holiday our think just continue New is to going visibility both pricing be a we holidays. fracs would – at it’s whether We think have too a I the we who of or going And bit base. tosses slow holiday. on had and Thanksgiving not, point tell. of dynamics function extended we I then whether got see to into have Christmas, to get into customers’ coin early

not see cautiously it, what to or a waiting we at think we this happens So, rather is XX% are it XX% there would and then we chance see a anticipate If point. slowdown. anticipate

Selman Akyol

any quarter? the And volumes year, curious is from to update how quarter, there Maybe going I felt contribute I going real Got your you Are contribution any going? expecting is then last acquisition into that’s it just how XQ? this know it. impact just it be goes? also, did on am but any volume as to next

Amanda Brock

integration going impact offline that we the well. impact of wells extremely transaction, now of of we sort we improve we in is as wells. The in And sort them and capacity the upgrade were we seeing indicated, as take very XXXX, we really these when closed these limited as some

in year a but remains it volumes. this limited So, great of terms deal, impact

Bill Zartler

And – currently. connect system Yes. we they our being them are as pipe to well into are constructing now right

And goes going that into allows next used be so as to much more on, activity them year. that

Selman Akyol

very much. Thanks Alright.

Operator

next Mackay John [Operator of with with proceed Goldman your line Please Sachs. Instructions] question Our the from comes question.

John Mackay

some Are that some what quarter guys might those pieces shift of wondering, maybe you be Hi margins. are everyone. fourth to look talked are, know Thanks mean off beyond? through those couple I inflationary for versus I versus the time. just have we quantify kind looking to the transitory back here. just costs I rolling impact. Good pieces I morning. and a as to of of into of start-up at we the if moving able us mean wanted impact for was I particularly we mix go moving

Amanda Brock

of very focus And costs, that facilities being let’s to quarter. reuse. up XX% was volumes brought meet a take reuse second at that or to were to underestimated look costs those six in from custom for third We up, we look refer what If remember, real. rolling volumes volumes our on what which you being XX% source as we on we off, And the as those sort start-up going And we are just we of scramble demand. in a had at if QX. terms great

related and had those such had third-party to that ready. So, realign we we hire couldn’t And hailed damage it. as enough, fast to had rentals, one-time we sort to costs contractors, of start-up issues a get certain also pond

with to So, of sort impact. etcetera, power, and of just say came all between those $X.XX to together $X.XX

one-time are So, very to those working costs we go that we given are move large all and expect in part away rentals for ensure to forward. that of we rapidly up sort and

sure We was also make to we have we that able provide the our mix some make water for and sure to customers. were to purchases work

our with at in labor, if we produced sort have look water haven’t not forward terms Texas. also are of of have of going inflation facilities also those in that sort sort of because there Those increased done these And power and side. lot that ensure on some chemical XX a we change what’s to of we chemicals, on is is brought facilities. so Texas. we reducing focus We this like then automation efficiencies to So, happened and stay, And about a to systematic have very linked sort automation. done, where what items we on are go inflation, of hedged going dosing. are Labor, if away in but focused labor sort when are of we only here be commodity this we we really we talk of is

our seeing XX% we are costs costs of sort XX% operating on further in we of on So, will wells see and well benefit see side. bring shallow to and the which we our mix power will QX, down benefit even the the of expect in Texas, that between and power of in

So, some this one-time. of is

need we has to be so in be question. at to your Some and identify operations. this our hope of I more just of a this I some doing John, of all said at efficient has away lot, chip least clearly inflation to answered what continued just

John Mackay

follow-up, I volumes helpful. we quarter, water very was That mean are you just looking really where at the great. sales the strong, If third as of have kind over on if the are was anniversary, have for trended, That the Thank that. Congrats you a way. we two just at those how kind last year. by X-year look guys how the of trended we Maybe at look the completion serving side that we same to sides, on maybe customers start some on each of the trend grown the side pickup water are both completion produced just side. from maybe lot should a has this guys you and – activity going two would lines maybe than how and produced a more other broadly, see Can these through are versus those more forward? volume we ‘XX

Amanda Brock

Yes.

On existing the away the largely you with with completion will more impacted we are of volumes don’t come – completions produced water be we obviously or side side, as we sort dedications working where as see see online. our some produced And through work customers, moving on those side. although completions, the have you take these water

going is said, into steady water QX sort do little lumpiness QX. and visibility, see more more QX, of Bill As the completion a predictable, side side. produced more more on the We

Bill Zartler

your produced specific that your been to will – to that to – so back get our I of think the we going on getting will water question, side. has most But we water customers,

Amanda Brock

Correct.

John Mackay

great. today. Appreciate That’s time the Alright.

Bill Zartler

Thanks John.

Operator

of We turn the I now comments. to floor have closing like back for session. over Mrs. you the reached question-and-answer to would Brock, the end

Amanda Brock

this want to At and you. quarter our we and back on calling want QX to for in look to you for we they employees thank did our forward talking the We of you. coming customers, listening. before. all Thank just all time, and just of the And thank in this Thank again. all call work to everybody

Operator

Ladies this and conclude teleconference. does gentlemen, today’s

participation at You a lines may and day. disconnect time. your Thank you have for wonderful this your

Aris Water Solutions (ARIS) 10 Nov 222022 Q3 Earnings call transcript