Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Aris Water Solutions First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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. you. Thank

begin. may You

David Tuerff

Executive welcome conference Aris today call. CEO, Founder President and CFO, and quarter Thompsett. Stephen by Solutions XXXX and and our Brock, earnings I Amanda Bill to morning, Zartler; Water our the first our Chairman, Good am 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 place forward-looking You not reliance are to statements. on cautioned

These the in GAAP are financial measures accordance the and our and included like accompanying U.S. in today's the and our measures presentation. performance. other reconciliations that substitute in supplemental as point our measures, time to comparable included in time factors useful are non-GAAP of also made Securities our which considered with will prepared should presentation not the for A GAAP. earnings today's refer release financial with most isolation or directly evaluating we to would statements be to risk a filings believe I in conference cautionary from measures call to and contain out discussion investor appendix Commission. the Exchange Please of

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

William Zartler

to have some we and online this XXXX. year. seen strong for XXXX early be market From forecasting start indicated of with is David, morning. to production in thanks, perspective, activity a far Aris additional our our consistent customers a everyone, so volumetric as you, expectations this look XXXX. us levels back the of that they are steady half and Thank publicly we growth forward, And have of joining in off

believe reflective fluctuate, through long-term of customers' primary have material planned the our is this we impact to and commitments price as to the prices commodity We made not Basin large to cycles. commodity who the any Permian invest to our strength or of have levels volumes. activity continue While continue operators seen contracted our water

handling The for of to to the flexibility industry's need high-capacity recycled water high with water rates deliver expand. continues produced

growth are located in of including the We water of inception, Permian are acreage growth which produced volume since our primary best consistent in our XXXX. fortunate that supported has volumes operation in areas Basin, the the of XX% our some

to in opportunities. as new alongside continue we priorities support shareholder by returns and core we and will current customers to remain investing their evaluate grow capital While our growth, infrastructure efficiency

XXXX, Coming cost efficiencies out the initiatives. have focused driving on half we reduction challenging of processes, and business operational second internal improving of

beginning still to are is our there and into While are we be performance see more made, with pleased tangible the to the impacts to progress quarter. line second going bottom

our and We of XXXX and are processes for outside execution I'm proprietary the have proud oil applications rest that year. of the the of team's thus prospects far treatment also gas potential our our encouraged industry. in

it With over to that, turn I'll Amanda.

Amanda Brock

Thank Bill. you,

pleased are results our first the and quarter. We positive progress improved in with operating

electrification proceeding incremental as reducing cost rentals meaningful of improvements, and year. operational including infrastructure delivered of second on the skim call, expected processes savings already margins are are efficiencies earnings The working improving quarter to half particularly field the internal and has and capital. we planned first driving our recovery initiatives focus continued business substantial oil in Our in deliver and referenced in

XXX,XXX the by volumes X%. fourth X% growth water saw In compared averaging higher For and day. as volumetric business, barrels the volumes of quarter, X% we customer produced as we XXXX, than grew per our by water in to EBITDA came total forecasted, quarter our of adjusted

incremental also of capture, changes we were the XXXX. which higher We recoveries result the in quarter captured and drove which oil skim as were believe not fourth that quarter, made, of operational the oil saw result, volumes of the skim recovered we benefit significantly in a

yields we Going to believe forward, as can consistently however, increase we skim least at by oil XXXX. XX% compared

the Our grew forward and benefited due barrels to portion in first of of growth operator was the business a we as day. schedules. sourcing first demand second in This quarter per some sold water in to XX% sold sold sequentially scheduled water pull as recycling be by was the completion XXX,XXX quarter contracted changes in quarter by

by effects areas continues XXXX. be in inflation other unprecedented to the like Basin, of Permian impacted The

tempered the inflation not decrease. of materially prices seen While yet has have rate in we XXXX,

reduction a result, to cost initiatives As opportunities course and over of the year. to our reduce on extremely identifying additional be costs the focused we remaining continue

to Our booster pumps permanent to power project tracking convert from diesel is well.

in completed year. scheduled have half the be the end to second We scheduled the XX another to locations completed of by nine quarter the second be and of

connect quarter, power working we permanent with last provider annual our $X.X to facilities mentioned they to the million we in and regulated reuse newer provided power should deliver line are complete. to try approximately conversions to our These Mexico us New As timelines closely once savings maintain of power.

complete, year. locations the location our May for with sites the more well this approximately pumps is deliveries expect company-owned annual expected $X.X Similarly, one to be of off and project equipment cost second to three We replace assets locations with to still numerous savings four project equipment half the in rental the be in for rental remaining million. scheduled at progressing

system to with their development our growth an plans. customers expand work accommodate organic From perspective, to we to continue our and capacity closely contracted

are to on continue numerous and focus opportunities. evaluating incremental growth also We

on relates executing capital as ensure However, new to as be efficiency we growth. contracts will focus to we selective underwriting and transactions new it accretive

our We ConocoPhillips Chevron, the beneficial are ExxonMobil. we've on reuse project pleased pilot made with and progress with

of treated the in sustainability oil industry Basin. and the produced reuse support pivotal beneficial is develop water pilot the this gas previously and proprietary identify, outside support we indicated, Permian to of As processes water purpose cost-effective to treatment of and evaluate

detailed are avenues potential expected in phase of a or to Following membrane selected and our field hydrogen chemical, pilot first agricultural, with partner and completed power who and half a process, evaluation identifying trained various the to for testing the minerals treated actively studies, team full XXXX. in pilot fertilizer the and we be technologies can collaborate pilot and thermal has desalination evaluating Contemporaneously water sectors with companies [indiscernible]. also with utilize produced in potentially the

Water water We announce in a at Berlin Year industry. been in are Awards pleased XXXX Global Water and review, project reuse Aris of in a water to Global This as to the Aris' result May. accomplishments the efforts energy conservation the one that detailed of after finalists reuse selected only of four has recognizes our water also in date Intelligence the as

in In team's conclusion, pleased performance finished execution very and I'm against we with the first we the with quarter, second positive quarter the laid plan and quarter carrying momentum into the the out.

to the our And results I'll quarter. Steve for to discuss turn with that, over financial it

Stephan Tompsett

as and Amanda. of We from million X% quarter of sequential Water $X from quarter largely $XX.X first well due produced to growth water recorded you, sequentially above of the our fourth first the EBITDA for adjusted both revenue XXXX. approximately Solutions volume skim quarter The as Thank and increase of was the oil XXXX million, up expectations.

reduced G&A in realized our year. relative or plan delayed to was expense some We spending until later also the lower as of $XXX,XXX

million approximately incurred we for our expenditures, capital in quarter, and expectations For the guidance. with $XX line

the to Looking our growth we with produced ahead one per volumes consistent expect day, year. quarter, to continued million for outlook the second water average barrels approximately reflecting

of forecasting also oil are realized price X.XX% produced skim at We volumes water of recoveries per $XX inlet barrel. an average of

Solutions XX% water XXX,XXX barrels For of the inlet to produced we to volumes. Water the per volumes approximately expect for business, of day of recycle expect and quarter XXX,XXX water

cost increase forecasted to higher is approximately side, relative quarter, call. of well we highlighted last to the our earnings is the On first on $X.X maintenance be annual million which part the expense

also to headcount. due improvements G&A be We approximately ongoing quarter, accounting and to higher the $XXX,XXX increased than largely expect first expense

of we million, EBITDA are we $XX $XX in compared at quarter. together, of $XX would to the for $XX the guidance to one-time million the second first adjusted X% quarter which increase a excluding benefits million forecasting first as midpoint, to imply Taken quarter saw million

to million, first half the and with $XXX plan million, capital of to year. $XX our capital weighted consistent also the which, total million as $XXX we expenditures towards between is $XX We of noted million full-year forecast quarter, last

Turning ended available ratio to $XXX We EBITDA the credit to our balance sheet. quarter a adjusted approximately with of under facility. our and debt million X.Xx

progress working improving XX% XX% We while and have balance meaningful reducing receivable focus capital million or on by our made sequentially. growing revenue $XX XXXX, from accounts in year-end our have increased

XXth. paid June announced our share, seventh which per as consecutive recently shareholders dividend of we of of to June record XXth be Finally, $X.XX will

of to importance the of recognized shareholders. and we cash forward, looking return Now free capital flow

additional our business to for opportunities expansion. see continue We grow and volumes

on still we supplement While organic provide based our framework it too to return opportunities. our providing on to point flow achieving in update shareholder our is XXXX, early free inflection high-return current for and a formal XXXX outlook, are an cash a to growth focused outlook

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

Amanda Brock

Thanks, Steve.

proud team's We the in Aris of quarter. are performance first the

where invest have the at for efficiency we we reducing selectively first optimistic capital our focused But to going opportunities capital year. do, still and are the operating of growth improvement, and pursuing work We remain are returns. costs, the quarter's we feel can enhancing notwithstanding rest on attractive to additional we

to going where work to shorter our continue businesses. and possible, towards also improving revenue margins pricing We increased cycle are our in operating

our changes guidance, our gives us meeting in to premature the financial our further While to make confidence targets. it's year full-year start to successful

With that, take questions. we'll

Operator

Thank you.

question-and-answer session. Spiro Citi. Dounis We first [Operator question comes will Our Instructions] a conduct Please now with proceed. from

Spiro Dounis

Good Thanks, morning, team. operator.

Amanda Brock

Good morning.

Spiro Dounis

Good morning.

new so costs trying you Amanda, laid to mentioned far. reduce had some beyond to what you've initiatives find out So

as provide next maybe doing could if think be you're of wondering Just maybe these year? you tranche there? of And you're you as – what this can examples large what cost this some evaluating savings

Amanda Brock

Spiro. for But more We – we answer, savings sorry, question. of your being the of of tranche next the launching sort tranche see into next cost see good incremental. morning, right Thanks the

and reducing with larger the margins. impact the cost indicated, much initiative rentals to us with gives electrification savings we've associated a that As process and

chemicals. still are looking We at

still at are personnel costs. We our looking

We continue in to construction be those lower facilities how use are of we going of will incremental cost, and all to are bring of that still we just looking but to and at our the time over savings. incremental some the materials change

Spiro Dounis

Got great. That's it.

around CapEx. Second just one,

as I think I curious, half just it of like initiatives level. CapEx for And evaluating the about in here? just pretty to of XXXX, And growth more a guess for that we second we the good get of as sense rate implies you're a sizable still so growth trying obviously what's the step a is good I'm it the down sort XXXX. think sounds look year, I'm normalized remainder run

Amanda Brock

is that This clear yield CapEx, revenue CapEx on is XXXX. year, is been quarter-to-quarter before we've in throughout the very Well, early. lumpy. it result which in it year, front-end said loaded, we Obviously, is high too comes very in will that

We at XXXX. are looking

Our CapEx hope continues is that, come are that and down, evaluating we additional growth opportunities. to obviously

year last this with loaded. growing year, are was it our We loaded is back-end front-end it customers. But

Steve, would add anything you that? like to to

Stephan Tompsett

I that alongside to you're going we're No, right, industry. grow think Amanda, the

completion year. program from capital outlook. into the the So the But levels half while on to the of second the is did going see it we're going we our deceleration current playing activity we're say year out see land the see customers, too where year. based next early of way play It sustained to is out we this going to

Spiro Dounis

I Got it. for sense. guys. had That's time. all your today That makes Thanks

Amanda Brock

Thank you.

Stephan Tompsett

Thank you.

Operator

Evercore. [Operator proceed. comes Instructions] question with Samantha Please next Hoh from Our

Samantha Hoh

Hey my really a on taking nice guys. congrats Thanks and question for quarter.

is I applications especially technologies process using an Permian you're then in or this finalist for you’re that in know, on time your a but just if or realize there's maybe to that was to wanted won that, reuse bit most spend of little would in wondering Europe, here in of – developing You the Europe? you maybe in that like be apply Berlin. opportunity work opportunity there an a water, don't terms I awards water of since to I that the produced in

Amanda Brock

Good Global water want this that And award a may very to it tonight for world, treatment they the beneficial exposure to is Europe. we who technologies Water not the believe the cost-effective we We for awards were pretty premier Thanks chosen, produced where the question. us of reuse. The in gives much the particularly was for whether have awards morning, energy or of this Samantha. apply produced their were ceremony has they are have the people in that can surprised between choose that we water lot and We that them actually four. in industry. see an

at, but we that we believe time. we do, we But apply that not do in yes, this that international, are we terms looking of, have is technologies anything can at

We But lot a list. applicants park a out are great on that of when expect we here. I say but a massive very just a complement. got mean hundreds be don't wildlife win, do focused in it's Australia, domestically. we we're work of We've of project shouldn't you're against in – to I Singapore happy and up to to

Samantha Hoh

It's have more to Yes. solution to how low at being intensity. like question No, growing able just a water congratulations. really keep nice applied with a people my has here. of you're see global guess sort to I of do other such

scale appeal side? at level like the outlook here to in about people intensive of and more you're like think strong terms growth like sort is about those here? are having like training are how all I through Is fundamentals we you macro up offline U.S. shortage, not on going based of will as like spoke your on you do what managing how whole needs very in headcount Or how basis. what need weighted a you're labor inflationary like and the there which that just just just your for hands for on the think

Amanda Brock

question. good Samantha,

have you we Steve head some his see QX count. will comments, will that As said in in additional

at lean. the We looking this are We run all very time.

facilities of across past geographic are also and – lots not with our efforts large have efforts reduce to are and necessarily automation We those that co-located. in driving with talked about quarters area labor a

we to allocation of at So look the continue labor.

we We focused are we but training, the but with operate on that, to going understand cost efficiently. do very associated are

to will process. see increase a So managed it volumes, as continue we labor, facilities we the add you but will number us add of very as be

William Zartler

remember, business. Yes. this infrastructure lot of a big automation. We've on And a spent capital is

of adding rather grow it's in we – of – those So the that spreading layer than of lot capital that places see in greater benefits headcount that some will we're and putting a we costs fixed as volumes.

Samantha Hoh

Thank guys. Excellent. me. for That’s it

Amanda Brock

you. Thank

Operator

you. Thank

next proceed. Wade question Suki Our from Capital comes Please One. with

Wade Suki

Good morning, us capital. wanted to be you might working bit you for and question. color see little my thank to able if a all taking give I more everyone on

You in had free little cash cash, context, nice there. maybe expected? and we Thank And the earlier context the you. did release of free half a receivable really a mean decline outlook more I quarter-to-quarter. points, really second could than see Accounts in guidance inflection

Amanda Brock

Wade. very Thanks, Steve asked And you happy is question. that

going Steve. I'm So defer to

Stephan Tompsett

Thanks. Good morning, Wade.

automation of operations working have to and and expense drive I think the on as investments you just heard have so on systems, greater ripe Bill talk made our office that that What we automation and this on a year some resources see back about and is for side. the of we the we've that's efficiency accounting you evaluating capital. added some focus the side

this saw what So pleased with we're we very quarter.

replace which over our the drive next to to looking to to then over months, And are expect is ERP of We automation. further accounting going XX year. incremental six see the the improvements we course package

expect we further don't a improvements but to saw step QX I to to itself, we similar will repeat what quarter-over-quarter. So in see incremental expect change

Wade Suki

Wonderful. little And Thank a switching you. bit. just gears

Thank all you. spent you maybe You I'm all out on now. seeing us That's the talking here last I've time about M&A wondering you're quarter an what some got. give right if update market. could

Amanda Brock

also got that to think particular something we geographically accretive. where like, us as see to make and the bring we did disciplined. we a sheet we going we going to Wade It's of there. opportunities to strategically previously opportunity. be put synergies going – always see we to sense be We're lot at balance to it's out a If obviously, we we're risk. not But indicated,

because we very that So disciplined. criteria see fits track all but seen strong let this Bill something he add said, take being those as has this. on I'll have been that opinions we hard look, And our pretty if will you've record, a to

William Zartler

as is and a I well sellers that the minds our as like our meeting – hopefully, And to we think some the continue businesses bit sheet. they a We performed hasn't worth. where think accretive The strong relative fit find synergies to with makes Well, the And little private really same and organically year, it we to grow valuations. struggling we a there's a and to of and do and be with happy balance it criteria, obviously, continue our stock are are fit next really I what their of protect find to we we Amanda which that opportunistically If advantage us will opportunities we're sense, can not, course make going need business the take accretive. key the mean, strategic growth forward, at to the we hit over going time. believe needs see sense and of. for to are we

Wade Suki

and Thank great again, Wonderful. quarter guys.

Amanda Brock

Thank you.

Operator

comes from Selman proceed. Please The next question Akyol Stifel. with

Selman Akyol

last Good Energy morning. on one Delaware I have Thank guess you. the Thank more Services? up then I well. question. as after following And there on of any integration update Is that that you.

Amanda Brock

morning, quarter, the on are we as with workovers repairing and indicated of those We're track Good Delaware Selman. And upgrade. initiatives some assets, track. all last those of on

rate achieve to able expect second incremental our of XXXX. the we So targeted run EBITDA to half in be

Selman Akyol

just at What several is well does I'm as me. Thanks. your is? there now? seeing also, you the little activity about in then environment talk pricing pricing about wondering looking it for the a growth, talked times what assets accretive that around And out could new it. Got bit as and contracts. you're you right the maybe And

Amanda Brock

growth particularly environment. obviously are accretive we And in this very steady important, yes, And activity. very, Certainly. seeing is

seeing sort we've And of with primary we a customers Mewbourne, looking from notwithstanding our what we price steady accelerated comments, opening They Chevron, relooking rigs growth are at consistent and our Oxy, is growth. the view. obviously long-term are and fluctuations. being Mewbourne out growth had primary been Bill our XXXX. more As Conoco, has everybody just in of we lot forecast laid said forecast, seeing is some at for of customers, a his with out there. that got What

we our So growth from are assets. around customers seeing our consistent in and

also new to assets. be activity are areas that very for proving seeing operators are We adjacent promising in to our

XXXX So see growth you in just beyond. this to think will I continue and

Selman Akyol

you. Thank

Operator

comments. to Thank there turn questions back no over are to would the queue. you. closing further time, I At call this for in management like

Amanda Brock

Thank you.

So thank us of talking back strong the We've quarter. look had quarter. coming you forward and We very at a much to for joining again today. second end

our We of also customers working thank our continue sort stakeholders, of our very hard have to who want today. all most that we to shareholders to and make the improvements and been about including talked dedicated importantly, employees

So thank second you the much to at talk and very quarter. you end of

Operator

teleconference. concludes today's This

You you for this lines may and time, disconnect thank your your participation. at

Aris Water Solutions (ARIS) 9 May 232023 Q1 Earnings call transcript