10-Q 1 aris-20240930x10q.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, 2024

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 November 1, 2024, the registrant had 30,682,834 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

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

41

Signatures

43

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, 2023 (our “2023 Annual Report”) and found elsewhere in this Quarterly Report, including, but not limited to, the following:

the impact of the ongoing Russia-Ukraine and Middle Eastern conflicts on the global economy, including the impact on financial markets and the energy industry;
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 reliance on a limited number of customers and a particular region for substantially all of our revenues;
the impact of competition on our operations, including our ability to renew or replace expiring contracts on acceptable terms;
the degree to which our exploration and production customers may elect to operate their water-management services in-house rather than outsource these services to companies like us;
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;
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

3

pricing, taxation of emissions, seismic activity, drilling and right-of-way access on governmental lands and various other matters;
delays or restrictions in obtaining, utilizing or maintaining permits and/or rights-of-way by us or our customers;
advances in technologies or practices that reduce the amount of water used or produced in the oil and gas production process, thereby reducing demand for our services;
changes in global political or economic conditions, both generally, and in the specific markets we serve, such as economic slowdown or recession, or uncertainty regarding the timing, pace and extent of an economic recovery;
adverse results from litigation and the use of financial resources to defend ourselves;
physical, electronic and cybersecurity breaches; and
the other risks described in our 2023 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 2023 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,

    

2024

2023

Assets

    

    

Cash

$

32,760

$

5,063

Accounts Receivable, Net

69,854

59,393

Accounts Receivable from Affiliate

31,192

22,963

Other Receivables

15,292

12,767

Prepaids and Deposits

4,459

8,364

Total Current Assets

153,557

108,550

Fixed Assets

Property, Plant and Equipment

1,125,295

1,041,703

Accumulated Depreciation

(150,867)

(121,989)

Total Property, Plant and Equipment, Net

974,428

919,714

Intangible Assets, Net

204,487

232,277

Goodwill

34,585

34,585

Deferred Income Tax Assets, Net

15,966

22,634

Operating Lease Right-of-Use Assets, Net

15,650

16,726

Other Assets

5,986

5,995

Total Assets

$

1,404,659

$

1,340,481

Liabilities and Stockholders' Equity

Accounts Payable

$

13,510

$

25,925

Payables to Affiliate

938

894

Insurance Premium Financing Liability

5,463

Accrued and Other Current Liabilities

74,830

64,416

Total Current Liabilities

89,278

96,698

Long-Term Debt, Net of Debt Issuance Costs

452,194

421,792

Asset Retirement Obligations

21,499

19,030

Tax Receivable Agreement Liability

98,274

98,274

Other Long-Term Liabilities

16,650

16,794

Total Liabilities

677,895

652,588

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, 2024 and December 31, 2023

Class A Common Stock $0.01 par value, 600,000,000 authorized, 31,139,032 issued and 30,582,305 outstanding as of September 30, 2024; 30,669,932 issued and 30,251,613 outstanding as of December 31, 2023

311

306

Class B Common Stock $0.01 par value, 180,000,000 authorized, 27,543,565 issued and outstanding as of September 30, 2024 and December 31, 2023

275

275

Treasury Stock (at Cost), 556,727 shares as of September 30, 2024; 418,319 shares as of December 31, 2023

(6,822)

(5,133)

Additional Paid-in-Capital

337,609

328,543

Retained Earnings (Accumulated Deficit)

11,332

(87)

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

342,705

323,904

Noncontrolling Interest

384,059

363,989

Total Stockholders' Equity

726,764

687,893

Total Liabilities and Stockholders' Equity

$

1,404,659

$

1,340,481

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, 

    

2024

    

2023

    

2024

    

2023

Revenue

Produced Water Handling

$

59,006

$

47,574

$

172,927

$

143,390

Produced Water Handling — Affiliate

29,418

28,036

84,859

74,357

Water Solutions

16,600

20,370

42,097

49,180

Water Solutions — Affiliate

4,225

3,048

12,920

19,195

Other Revenue

3,063

761

4,032

1,871

Total Revenue

112,312

99,789

316,835

287,993

Cost of Revenue

Direct Operating Costs

46,553

44,687

126,393

132,978

Depreciation, Amortization and Accretion

19,974

19,445

59,102

57,137

Total Cost of Revenue

66,527

64,132

185,495

190,115

Operating Costs and Expenses

Abandoned Well Costs

8

1,214

318

1,214

General and Administrative

17,415

13,526

47,953

38,007

Research and Development Expense

408

809

2,601

1,867

Other Operating (Income) Expense, Net

(358)

(2,121)

379

(2,096)

Total Operating Expenses

17,473

13,428

51,251

38,992

Operating Income

28,312

22,229

80,089

58,886

Other Expense

Interest Expense, Net

9,382

7,955

26,633

23,587

Other

1

Total Other Expense

9,382

7,955

26,634

23,587

Income Before Income Taxes

18,930

14,274

53,455

35,299

Income Tax Expense

2,499

2,032

7,082

4,918

Net Income

16,431

12,242

46,373

30,381

Net Income Attributable to Noncontrolling Interest

8,943

6,829

25,297

16,892

Net Income Attributable to Aris Water Solutions, Inc.

$

7,488

$

5,413

$

21,076

$

13,489

Net Income Per Share of Class A Common Stock

Basic

$

0.23

$

0.17

$

0.64

$

0.42

Diluted

$

0.22

$

0.17

$

0.64

$

0.42

Weighted Average Shares of Class A Common Stock Outstanding

Basic

30,631,995

30,050,560

30,511,701

30,007,433

Diluted

30,919,575

30,050,560

30,621,195

30,007,433

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, 

    

2024

    

2023

Cash Flow from Operating Activities

Net Income

$

46,373

$

30,381

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:

Deferred Income Tax Expense

5,730

4,773

Depreciation, Amortization and Accretion

59,102

57,137

Stock-Based Compensation

13,489

8,945

Abandoned Well Costs

318

1,214

Loss (Gain) on Disposal of Assets, Net

84

(2,574)

Abandoned Projects

823

128

Amortization of Debt Issuance Costs, Net

2,193

1,580

Other

422

(473)

Changes in Operating Assets and Liabilities:

Accounts Receivable

(11,039)

22,594

Accounts Receivable from Affiliate

(8,229)

22,771

Other Receivables

(3,168)

(13,359)

Prepaids and Deposits

4,056

3,564

Accounts Payable

(8,418)

(155)

Payables to Affiliate

44

(1,844)

Accrued Liabilities and Other

9,445

17,843

Net Cash Provided by Operating Activities

111,225

152,525

Cash Flow from Investing Activities

Property, Plant and Equipment Expenditures

(87,201)

(131,874)

Proceeds from the Sale of Property, Plant and Equipment

160

20,119

Net Cash Used in Investing Activities

(87,041)

(111,755)

Cash Flow from Financing Activities

Dividends and Distributions Paid

(18,192)

(16,083)

Repurchase of Shares

(1,418)

(625)

Repayment of Credit Facility

(40,000)

(51,000)

Proceeds from Credit Facility

69,000

50,000

Payment of Insurance Premium Financing

(5,634)

Payment of Finance Leases

(243)

Net Cash Provided by (Used in) Financing Activities

3,513

(17,708)

Net Increase in Cash

27,697

23,062

Cash, Beginning of Period

5,063

1,122

Cash, End of Period

$

32,760

$

24,184

Supplementary Cash Flow Data

    

Cash Paid for Interest

$

17,561

$

18,230

Cash Paid for Income Taxes

$

618

$

80

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, 2024

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

Class A

Class B

Additional

Retained Earnings

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, 2024

$

306

30,669,932

$

275

27,543,565

$

328,543

$

(5,133)

418,319

$

(87)

$

363,989

$

687,893

Stock-Based Compensation Expense

4

428,044

-

-

4,503

-

-

-

(986)

3,521

Deferred Tax Assets Acquired

-

-

-

-

224

-

-

-

-

224

Dividends and Distributions ($0.09 per share or unit)

-

-

-

-

-

-

-

(2,884)

(2,601)

(5,485)

Purchase of Treasury Stock

-

-

-

-

(18)

(1,581)

131,921

-

18

(1,581)

Net Income

-

-

-

-

-

-

-

7,623

9,207

16,830

Balance at March 31, 2024

$

310

31,097,976

$

275

27,543,565

$

333,252

$

(6,714)

550,240

$

4,652

$

369,627

$

701,402

Stock-based Compensation Expense

-

6,250

-

-

2,509

-

-

-

2,184

4,693

Deferred Tax Liabilities Acquired

-

-

-

-

(578)

-

-

-

-

(578)

Dividends and Distributions ($0.105 per share or unit)

-

-

-

-

-

-

-

(3,382)

(3,051)

(6,433)

Purchase of Treasury Stock

-

-

-

-

-

(16)

1,048

-

-

(16)

Net Income

-

-

-

-

-

-

-

5,965

7,147

13,112

Balance at June 30, 2024

$

310

31,104,226

$

275

27,543,565

$

335,183

$

(6,730)

551,288

$

7,235

$

375,907

$

712,180

Stock-based Compensation Expense

1

34,806

-

-

3,010

-

-

-

2,264

5,275

Deferred Tax Liabilities Acquired

-

-

-

-

(584)

-

-

-

-

(584)

Dividends and Distributions ($0.105 per share or unit)

-

-

-

-

-

-

-

(3,391)

(3,055)

(6,446)

Purchase of Treasury Stock

-

-

-

-

-

(92)

5,439

-

-

(92)

Net Income

-

-

-

-

-

-

-

7,488

8,943

16,431

Balance at September 30, 2024

$

311

31,139,032

$

275

27,543,565

$

337,609

$

(6,822)

556,727

$

11,332

$

384,059

$

726,764

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