10-Q 1 aris-20230930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-40955

Graphic

Aris Water Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware

87-1022110

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9651 Katy Freeway, Suite 400

Houston, Texas

77024

(Address of principal executive offices)

(Zip Code)

(832) 304-7003

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

ARIS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of October 31, 2023, the registrant had 30,148,929 shares of Class A common stock, $0.01 par value per share, and 27,543,565 shares of Class B common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Cautionary Note Regarding Forward Looking Statements

3

Item 1.

Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations

6

Condensed Consolidated Statements of Cash Flows

7

Condensed Consolidated Statements of Stockholders’ Equity

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38

Item 4.

Controls and Procedures

38

PART II. OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

40

Item 6.

Exhibits

40

Signatures

41

2

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including, without limitation, statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “outlook,” “expect,” “continue,” “will,” “intend,” “plan,” “targets,” “believe,” “forecast,” “future,” “potential,” “should,” “may,” “possible,” “could” and variations of such words or similar expressions.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”) and found elsewhere in this Quarterly Report, including, but not limited to, the following:

the impact of the ongoing Russia-Ukraine and Israel-Hamas conflicts on the global economy, including their impacts on financial markets and the energy industry;
the impacts of cost inflation on our operating margins and capital costs;
the impact of current and future laws, rulings and federal and state governmental regulations, including those related to hydraulic fracturing, accessing water, handling of produced water, carbon pricing, taxation of emissions, seismic activity, drilling and right-of-way access on governmental lands, and various other matters;
our reliance on a limited number of customers and a particular region for substantially all of our revenues;
the level of capital spending and development by oil and gas companies, including potential reductions in capital expenditures by oil and gas producers in response to commodity price volatility and/or reduced demand;
our ability to renew or replace expiring contracts on acceptable terms;
our customers’ ability to complete and produce new wells;
risks related to acquisitions and organic growth projects, including our ability to realize their expected benefits;
capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a slowdown or delay in the demand for our services;
our ability to retain key management and employees and to hire and retain skilled labor;
our health, safety and environmental performance;

3

the impact of competition on our operations;
the degree to which our customers may elect to operate their water-management services in-house rather than outsource these services to companies like us;
delays or restrictions in obtaining, utilizing or maintaining permits and/or rights-of-way by us or our customers;
constraints in supply or availability of equipment used in our business;
changes in global political or economic conditions, both generally, and in the specific markets we serve, such as an economic slowdown or recession, concern over a potential recession, or increased uncertainty regarding the economic outlook;
physical, electronic and cybersecurity breaches; and
the other risks described in our 2022 Annual Report filed with the United States Securities and Exchange Commission (“SEC”).

Many of the factors that will determine our future results are beyond the ability of management to control or predict. Should one or more of the risks or uncertainties described in this Quarterly Report or in our 2022 Annual Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.

4

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

Aris Water Solutions, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except for share and per share amounts)

    

September 30, 

December 31,

    

2023

2022

Assets

    

    

Cash

$

24,184

$

1,122

Accounts Receivable, Net

57,820

81,683

Accounts Receivable from Affiliate

23,296

46,029

Other Receivables

18,077

4,354

Prepaids and Deposits

2,241

5,805

Total Current Assets

125,618

138,993

Fixed Assets

Property, Plant and Equipment

1,021,516

907,784

Accumulated Depreciation

(112,151)

(88,681)

Total Property, Plant and Equipment, Net

909,365

819,103

Intangible Assets, Net

241,550

269,845

Goodwill

34,585

34,585

Deferred Income Tax Assets, Net

25,783

30,424

Right-of-Use Assets

16,760

9,135

Other Assets

853

1,281

Total Assets

$

1,354,514

$

1,303,366

Liabilities and Stockholders' Equity

Accounts Payable

$

30,974

$

22,982

Payables to Affiliate

1,177

3,021

Accrued and Other Current Liabilities

81,189

65,411

Total Current Liabilities

113,340

91,414

Long-Term Debt, Net of Debt Issuance Costs

429,324

428,921

Asset Retirement Obligation

18,136

17,543

Tax Receivable Agreement Liability

98,164

97,980

Other Long-Term Liabilities

16,756

10,421

Total Liabilities

675,720

646,279

Commitments and Contingencies (see Note 10)

Stockholders' Equity

Preferred Stock $0.01 par value, 50,000,000 authorized. None issued or outstanding as of September 30, 2023 and December 31, 2022

Class A Common Stock $0.01 par value, 600,000,000 authorized, 30,334,399 issued and 30,023,826 outstanding as of September 30, 2023; 30,115,979 issued and 29,919,217 outstanding as of December 31, 2022

303

300

Class B Common Stock $0.01 par value, 180,000,000 authorized, 27,543,565 issued and outstanding as of September 30, 2023; 27,575,519 issued and outstanding as of December 31, 2022

275

276

Treasury Stock (at Cost), 310,573 shares as of September 30, 2023; 196,762 shares as of December 31, 2022

(4,259)

(2,891)

Additional Paid-in-Capital

325,655

319,545

Accumulated Deficit

(2,683)

(7,722)

Total Stockholders' Equity Attributable to Aris Water Solutions, Inc.

319,291

309,508

Noncontrolling Interest

359,503

347,579

Total Stockholders' Equity

678,794

657,087

Total Liabilities and Stockholders' Equity

$

1,354,514

$

1,303,366

The accompanying notes are an integral part of these condensed consolidated financial statements

5

Aris Water Solutions, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

Three Months Ended

Nine Months Ended

(in thousands, except for share and per share amounts)

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Revenue

Produced Water Handling

$

47,574

$

39,674

$

143,390

$

110,299

Produced Water Handling — Affiliate

28,036

24,796

74,357

69,084

Water Solutions

20,370

20,392

49,180

46,744

Water Solutions — Affiliate

3,048

5,668

19,195

11,640

Other Revenue

761

246

1,871

364

Total Revenue

99,789

90,776

287,993

238,131

Cost of Revenue

Direct Operating Costs

44,687

43,885

132,978

101,337

Depreciation, Amortization and Accretion

19,445

16,942

57,137

49,724

Total Cost of Revenue

64,132

60,827

190,115

151,061

Operating Costs and Expenses

Abandoned Well Costs

1,214

9,222

1,214

14,637

General and Administrative

13,526

11,052

38,007

33,330

Impairment of Long-Lived Assets

15,597

Research and Development Expense

809

430

1,867

530

Other Operating (Income) Expense

(2,121)

239

(2,096)

1,816

Total Operating Expenses

13,428

20,943

38,992

65,910

Operating Income

22,229

9,006

58,886

21,160

Other Expense

Interest Expense, Net

7,955

6,763

23,587

21,863

Income (Loss) Before Income Taxes

14,274

2,243

35,299

(703)

Income Tax Expense (Benefit)

2,032

287

4,918

(81)

Net Income (Loss)

12,242

1,956

30,381

(622)

Net Income (Loss) Attributable to Noncontrolling Interest

6,829

1,257

16,892

(493)

Net Income (Loss) Attributable to Aris Water Solutions, Inc.

$

5,413

$

699

$

13,489

$

(129)

Net Income (Loss) Per Share of Class A Common Stock

Basic

$

0.17

$

0.02

$

0.42

$

(0.03)

Diluted

$

0.17

$

0.02

$

0.42

$

(0.03)

Weighted Average Shares of Class A Common Stock Outstanding

Basic

30,050,560

24,499,953

30,007,433

22,779,077

Diluted

30,050,560

24,546,632

30,007,433

22,779,077

The accompanying notes are an integral part of these condensed consolidated financial statements

6

Aris Water Solutions, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

Nine Months Ended September 30, 

    

2023

    

2022

Cash Flow from Operating Activities

Net Income (Loss)

$

30,381

$

(622)

Adjustments to reconcile Net Income (Loss) to Net Cash provided by Operating Activities:

Deferred Income Tax Expense (Benefit)

4,773

(96)

Depreciation, Amortization and Accretion

57,137

49,724

Stock-Based Compensation

8,945

9,134

Impairment of Long-Lived Assets

15,597

Abandoned Well Costs

1,214

14,637

(Gain) Loss on Disposal of Assets, Net

(2,574)

481

Amortization of Debt Issuance Costs, Net

1,580

1,563

Other

(345)

377

Changes in Operating Assets and Liabilities:

Accounts Receivable

22,594

(33,683)

Accounts Receivable from Affiliate

22,771

(5,581)

Other Receivables

(13,359)

(2,139)

Prepaids and Deposits

3,564

4,215

Accounts Payable

(155)

3,233

Payables to Affiliate

(1,844)

913

Accrued Liabilities and Other

17,843

19,432

Net Cash Provided by Operating Activities

152,525

77,185

Cash Flow from Investing Activities

Property, Plant and Equipment Expenditures

(131,874)

(96,991)

Cash Paid for Asset Acquisitions

(3,353)

Proceeds from Sale of Property, Plant and Equipment

20,119

7,441

Net Cash Used in Investing Activities

(111,755)

(92,903)

Cash Flow from Financing Activities

Dividends and Distributions Paid

(16,083)

(19,157)

Repurchase of Shares

(625)

Repayment of Credit Facility

(51,000)

Proceeds from Credit Facility

50,000

Net Cash Used in Financing Activities

(17,708)

(19,157)

Net Increase (Decrease) in Cash

23,062

(34,875)

Cash, Beginning of Period

1,122

60,055

Cash, End of Period

$

24,184

$

25,180

Supplementary Cash Flow Data

    

Cash Paid for Interest

$

18,230

$

15,250

The accompanying notes are an integral part of these condensed consolidated financial statements

7

Aris Water Solutions, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

Three and Nine Months Ended September 30, 2023

(in thousands, except for share and per share amounts)

Class A

Class B

Additional

Non-

Total

Common Stock

    

Common Stock

Paid-in

Treasury Stock

Accumulated

controlling

Stockholders'

Amount

    

Shares

Amount

Shares

Capital

Amount

Shares

Deficit

Interest

Equity

Balance at January 1, 2023

$

300

30,115,979

$

276

27,575,519

$

319,545

$

(2,891)

196,762

$

(7,722)

$

347,579

$

657,087

Redemption of Class B Shares for Class A Shares

-

20,953

-

(20,953)

267

-

-

-

(267)

-

Stock-based Compensation Expense

2

175,717

-

-

2,383

-

-

-

83

2,468

Increase in TRA Liability Related to Share Redemption

-

-

-

-

(110)

-

-

-

-

(110)

Deferred Tax Assets Acquired

-

-

-

-

82

-

-

-

-

82

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,826)

(2,588)

(5,414)

Purchase of Treasury Stock

-

-

-

-

-

(599)

42,293

-

-

(599)

Net Income

-

-

-

-

-

-

-

3,378

4,330

7,708

Balance at March 31, 2023

$

302

30,312,649

$

276

27,554,566

$

322,167

$

(3,490)

239,055

$

(7,170)

$

349,137

$

661,222

Redemption of Class B Shares for Class A Shares

-

524

-

(524)

7

-

-

-

(7)

-

Stock-based Compensation Expense

-

-

-

-

1,626

-

-

-

1,491

3,117

Increase in TRA Liability Related to Share Redemption

-

-

-

-

(3)

-

-

-

-

(3)

Deferred Tax Assets Acquired

-

-

-

-

2

-

-

-

-

2

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,819)

(2,584)

(5,403)

Net Income

-

-

-

-

-

-

-

4,698

5,733

10,431

Balance at June 30, 2023

$

302

30,313,173

$

276

27,554,042

$

323,799

$

(3,490)

239,055

$

(5,291)

$

353,770

$

669,366

Redemption of Class B Shares for Class A Shares

1

10,477

(1)

(10,477)

136

-

-

-

(136)

-

Stock-based Compensation Expense

-

10,749

-

-

1,816

-

-

-

1,544

3,360

Increase in TRA Liability Related to Share Redemption

-

-

-

-

(71)

-

-

-

-

(71)

Deferred Tax Assets Acquired

-

-

-

-

48

-

-

-

-

48

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,805)

(2,577)

(5,382)

Purchase of Treasury Stock

-

-

-

-

(73)

(769)

71,518

-

73

(769)

Net Income

-

-

-

-

-

-

-

5,413

6,829

12,242

Balance at September 30, 2023

$

303

30,334,399

$

275

27,543,565

$

325,655

$

(4,259)

310,573

$

(2,683)

$

359,503

$

678,794

Three and Nine Months Ended September 30, 2022

(in thousands, except for share and per share amounts)

Class A

Class B

Additional

Non-

Total

Common Stock

    

Common Stock

Paid-in

Treasury Stock

Accumulated

controlling

Stockholders'

Amount

    

Shares

Amount

Shares

Capital

Amount

Shares

Deficit

Interest

Equity

Balance at January 1, 2022

$

218

21,858,022

$

317

    

31,716,104

    

$

212,926

    

$

(135)

10,191

    

$

(457)

    

$

389,670

    

$

602,539

Redemption of Class B Shares for Class A Shares

1

148,087

(1)

(148,087)

1,786

-

-

-

(1,786)

-

Stock-based Compensation Expense

-

515

-

-

958

-

-

-

1,379

2,337

Increase in TRA Liability Related to Share Redemption

-

-

-

-

(1,531)

-

-

-

-

(1,531)

Deferred Tax Assets Acquired

-

-

-

-

1,666

-

-

-

-

1,666

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,062)

(2,947)

(5,009)

Net Loss

-

-

-

-

-

-

-

(2,222)

(4,395)

(6,617)

Balance at March 31, 2022

$

219

22,006,624

$

316

31,568,017

$

215,805

$

(135)

10,191

$

(4,741)

$

381,921

$

593,385

Redemption of Class B Shares for Class A Shares

1

107,914

(1)

(107,914)

1,315

-

-

-

(1,315)

-

Stock-based Compensation Expense

-

-

-

-

1,318

-

-

-

1,884

3,202

Increase in TRA Liability Related to Share Redemption

-

-

-

-

(1,021)

-

-

-

-

(1,021)

Deferred Tax Assets Acquired

-

-

-

-

422

-

-

-

-

422

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,068)

(2,966)

(5,034)

Net Income

-

-

-

-

-

-

-

1,394

2,645

4,039

Balance at June 30, 2022

$

220

22,114,538

$

315

31,460,103

$

217,839

$

(135)

10,191

$

(5,415)

$

382,169

$

594,993

Class A Shares issued for Acquisition

34

3,365,907

-

-

54,588

-

-

-

16,601

71,223

Redemption of Class B Shares for Class A Shares

7

648,781

(7)

(648,781)

8,275

-

-

-

(8,275)

-

Stock-based Compensation Expense

-