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Aris Water Solutions, Inc. Reports Third Quarter 2021 Financial and Operating Results

Aris Water Solutions, Inc. (NYSE: ARIS) (“Aris”, “Aris Water” or the “Company”), today announced financial and operating results for the third quarter ended September 30, 2021.

THIRD QUARTER 2021 HIGHLIGHTS

  • Record total water volumes and recycled water volumes of 961,000 barrels of water per day and 130,000 barrels of water per day respectively
  • Executed four new acreage dedications, increasing dedicated acres by 20,000 acres with a weighted-average contract length of ten years
  • Exceeded Aris’s 2022 Sustainability Performance Target
  • Consolidated revenue of $59.5 million
  • Net loss of $20.7 million which includes a non-cash charge of $27.4 million associated with the abandonment of an asset
  • Consolidated Adjusted EBITDA1 of $30.8 million
  • Cash flow from Operating Activities of $26.5 million
  • Free cash flow of $6.1 million2

“The third quarter of 2021 featured continued strong performance for Aris Water as we set records in total volumes handled and produced water volumes recycled. We improved our percentage of sourced water recycled to 61%, exceeding our 2022 Sustainability Performance Target and demonstrating our commitment to water stewardship by reducing groundwater extraction. Our strong, long-term partnerships with our blue-chip customers provide both stability and significant upside as activity levels continue to improve,” stated Amanda Brock, Chief Executive Officer of Aris Water.

“This is an exciting time for the Company and our industry. We are seeing steady growth from our customers across both the Delaware and Midland Basins, supporting a positive outlook moving forward. We have a unique offering that provides our customers with a proven, reliable water infrastructure partner and helps them reduce the use of groundwater,” stated Bill Zartler, Founder and Executive Chairman of Aris Water.

____________________

1 Adjusted EBITDA is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate Adjusted EBITDA and a reconciliation thereof to net income, the most closely comparable GAAP measure.

2 Free cash flow is a is a non-GAAP financial measure. See the supplementary schedules in this press release for a discussion of how we define and calculate free cash flow and a reconciliation thereof to net cash from operating activities, the most closely comparable GAAP measure.

OPERATIONS AND FINANCIAL UPDATE

During the third quarter of 2021, the Company recorded a consolidated net loss of $20.7 million. The consolidated net loss includes a non-cash charge of $27.4 million associated with the abandonment of an asset. Excluding the non-cash charge, consolidated net income was $6.7 million in the third quarter of 2021 compared to consolidated net income of $1.1 million for the third quarter of 2020.

During the third quarter of 2021, the Company averaged 961,000 barrels of water per day of total volumes handled, sold and transferred, an increase of 42% compared to the third quarter of 2020. Our volume growth was driven by the increased activity levels of our long-term contracted customers. The Company had Adjusted EBITDA1 of $30.8 million for the third quarter of 2021 compared to $19.7 million in the third quarter of 2020, an increase of 56%.

During the third quarter of 2021, the Company executed four new long-term acreage dedications covering approximately 20,000 dedicated acres, with a weighted average life of approximately 10 years. Two of these contracts include long term full-cycle handling and recycling solutions.

Third quarter 2021 cash capital expenditures totaled $20.4 million compared to $29.3 million in the third quarter of 2020, a decrease of 30%. We continue to invest in high-return capital projects that support our long-term contracted customers and leverage our existing infrastructure. Free cash flow was $6.1 million for the third quarter of 2021. As of September 30, 2021, the Company had approximately $36.4 million in cash and an undrawn and available $200.0 million revolving credit facility. Additionally, the Company received net proceeds of approximately $32.8 million in October from its recent initial public offering.

The following table summarizes the Company’s volumes on its operated assets:

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2021

 

2020

 

2021

 

2020

Produced Water Handling Volumes (MBbl/d)

708

 

574

 

692

 

566

Total Water Solutions Volumes (MBbl/d)

253

 

101

 

205

 

103

Total Volumes (MBbl/d)

961

 

675

 

897

 

669

CONFERENCE CALL

Aris will host a conference call and webcast for investors and analysts to discuss its results for the third quarter of 2021 on Wednesday, November 10, 2021 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time). Participants should call (888) 437-3179 (United States/Canada) or (862) 298-0702 (International) and should refer to Aris Water Solutions, Inc. when dialing in. A telephonic replay will be available from 11/10/2021 to 11/24/2021. To access the replay, call (877) 660-6853 (United States/Canada) or (201) 612-7415 (International) and enter confirmation code 13724848. A live broadcast of the earnings conference call will also be available via the internet at www.ariswater.com under the “Investors” section of the site. A replay will also be available on the website following the call.

About Aris Water Solutions, Inc.

Aris Water Solutions, Inc. is a leading, growth-oriented environmental infrastructure and solutions company that directly helps its customers reduce their water and carbon footprints. Aris Water delivers full-cycle water handling and recycling solutions that increase the sustainability of energy company operations. Its integrated pipelines and related infrastructure create long-term value by delivering high-capacity, comprehensive produced water management, recycling and supply solutions to operators in the core areas of the Permian Basin.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of forward-looking statements include, but are not limited to, those regarding our business strategy, our industry, our future profitability, the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the volatility in global oil markets and the COVID-19 pandemic, expected capital expenditures and the impact of such expenditures on performance, management changes, current and potential future long-term contracts and our future business and financial performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “expect,” “continue,” “intend,” “plan,” “believe,” “forecast,” “future,” “potential,” “may,” “possible,” “could” and variations of such words or similar expressions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, but are not limited to the risk factors discussed or referenced in our filings made from time to time with the SEC. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Solaris Midstream Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

 

Three Months Ended

 

Nine Months Ended

(in thousands)

September 30,

 

September 30,

2021

 

2020

 

2021

 

2020

Revenue
Produced Water Handling $

24,639

 

$

23,323

 

$

71,368

 

$

70,382

 

Produced Water Handling—Affiliates

23,135

 

13,312

 

62,216

 

35,284

 

Water Solutions

7,666

 

1,149

 

11,824

 

10,410

 

Water Solutions—Affiliates

4,059

 

4,672

 

16,864

 

10,472

 

Total Revenue

59,499

 

42,456

 

162,272

 

126,548

 

Cost of Revenue
Direct Operating Costs

23,497

 

22,207

 

66,703

 

71,640

 

Depreciation, Amortization and Accretion

15,378

 

11,751

 

45,550

 

31,529

 

Total Cost of Revenue

38,875

 

33,958

 

112,253

 

103,169

 

Operating Costs and Expenses
Abandoned Well Costs

27,402

 

 

27,402

 

 

General and Administrative

5,228

 

4,773

 

15,240

 

13,421

 

Other Operating Expenses

940

 

555

 

2,590

 

4,854

 

Total Operating Expenses

33,570

 

5,328

 

45,232

 

18,275

 

Operating (Loss) Income

(12,946

)

3,170

 

4,787

 

5,104

 

Other Expense
Interest Expense, Net

7,880

 

2,099

 

17,855

 

5,364

 

Loss on Debt Modification

 

 

380

 

 

Total Other Expense

7,880

 

2,099

 

18,235

 

5,364

 

(Loss) Income Before Taxes

(20,826

)

1,071

 

(13,448

)

(260

)

Income Tax Expense (Benefit)

(83

)

9

 

(81

)

15

 

Net (Loss) Income $

(20,743

)

$

1,062

 

$

(13,367

)

$

(275

)

Equity Accretion and Dividend Related to Redeemable Preferred Units

 

(1,511

)

21

 

(1,928

)

Net Loss Attributable to Members' Equity $

(20,743

)

$

(449

)

$

(13,346

)

$

(2,203

)

 

Solaris Midstream Holdings, LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

 
 
(in thousands, except units) September 30, December 31,

2021

2020

Assets
Cash and Cash Equivalents $

36,389

 

$

24,932

 

Accounts Receivable, Net

32,576

 

21,561

 

Accounts Receivable from Affiliate

21,584

 

11,538

 

Other Receivables

3,649

 

3,722

 

Prepaids, Deposits and Other Current Assets

1,349

 

4,315

 

Total Current Assets

95,547

 

66,068

 

Fixed Assets
Property, Plant and Equipment

692,231

 

661,446

 

Accumulated Depreciation

(60,757

)

(43,258

)

Total Property, Plant and Equipment, Net

631,474

 

618,188

 

Intangible Assets, Net

313,081

 

337,535

 

Goodwill

34,585

 

34,585

 

Other Assets

2,848

 

1,429

 

Total Assets $

1,077,535

 

$

1,057,805

 

 
Liabilities, Mezzanine and Members' Equity
Accounts Payable $

10,067

 

$

16,067

 

Payables to Affiliate

1,169

 

1,884

 

Accrued and Other Current Liabilities

46,774

 

27,838

 

Total Current Liabilities

58,010

 

45,789

 

Deferred Revenue and Other Long-Term Liabilities

1,336

 

1,432

 

Long-Term Debt, Net of Debt Issuance Costs

391,583

 

297,000

 

Asset Retirement Obligation

6,032

 

5,291

 

Total Liabilities

456,961

 

349,512

 

Commitments and Contingencies
Mezzanine Equity:
Redeemable Preferred Units, $10,000 par value, none issued or outstanding as of September 30, 2021 and 7,307 outstanding as of December 31, 2020

 

74,378

 

Members' Equity:
Class A units, $10 par value, 27,797,658 and 27,797,207 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

308,638

 

318,394

 

Class B units, $10 par value, 3,556,051 issued and outstanding as of September 30, 2021 and December 31, 2020

35,773

 

37,023

 

Class C units, $0 par value, 878,850 and 806,350 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

Class D units, $10 par value, 6,651,100 issued and outstanding as of September 30, 2021 and December 31, 2020

276,163

 

278,498

 

Total Members' Equity

620,574

 

633,915

 

Total Liabilities, Mezzanine and Members' Equity $

1,077,535

 

$

1,057,805

 

Solaris Midstream Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

 
(in thousands) Nine Months Ended September 30,

2021

2020

Cash Flow from Operating Activities
Net Loss $

(13,367

)

$

(275

)

Adjustments to reconcile Net Loss to Net Cash provided by Operating Activities
Depreciation, Amortization and Accretion

45,550

 

31,529

 

Abandoned Well Costs

27,402

 

 

Loss on Disposal of Asset, Net

225

 

82

 

Abandoned Projects

2,035

 

1,501

 

Amortization of Deferred Financing Costs

1,320

 

570

 

Loss on Debt Modification

380

 

 

Bad Debt Expense

216

 

83

 

Changes in operating assets and liabilities:
Accounts Receivable

(11,231

)

9,387

 

Accounts Receivable from Affiliate

(10,046

)

2,475

 

Other Receivables

231

 

56

 

Prepaids, Deposits and Other Current Assets

2,516

 

1,522

 

Accounts Payable

(3,284

)

1,793

 

Payables to Affiliate

(715

)

390

 

Adjustment in Deferred Revenue

(46

)

975

 

Accrued Liabilities and Other

16,000

 

462

 

Net Cash Provided by Operating Activities

57,186

 

50,550

 

 
Cash Flow from Investing Activities
Property, Plant and Equipment Expenditures

(62,728

)

(121,835

)

Net Cash Used in Investing Activities

(62,728

)

(121,835

)

 
Cash Flow from Financing Activities
Proceeds from Senior-Sustainability Linked Notes

400,000

 

 

Payments for Initial Public Offering Costs

(855

)

 

Payments of Financing Costs Related to Issuance of Senior- Sustainability Linked Notes

(9,352

)

 

Repayment of Credit Facility

(297,000

)

 

Proceeds from Credit Facility

 

73,000

 

Redemption of Redeemable Preferred Units

(74,357

)

 

Payments of Financing Costs related to Credit Facility

(1,442

)

(491

)

Members' Contributions

5

 

 

Net Cash Provided by Financing Activities

16,999

 

72,509

 

 
Net Increase in Cash and Cash Equivalents

11,457

 

1,224

 

Cash and Cash Equivalents, Beginning of Period

24,932

 

7,083

 

Cash and Cash Equivalents, End of Period $

36,389

 

$

8,307

 

Use of Non-GAAP Financial Information

We use financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), including Adjusted EBITDA, free cash flow, Adjusted Operating Margin and Adjusted Operating Margin per Barrel. Although these Non-GAAP financial measures are important factors in assessing our operating results and cash flows, they should not be considered in isolation or as a substitute for net income or gross margin or any other measures prepared under GAAP.

Reconciliation of GAAP “Net income” to Non-GAAP “Adjusted EBITDA” – We calculate Adjusted EBITDA as net income (loss) plus: interest expense; income taxes; depreciation, amortization and accretion expense; asset impairment and abandoned project charges; losses on the sale of assets; loss on debt modification; and non-recurring or unusual expenses or charges (including temporary power costs), less any gains on sale of assets.

Reconciliation of GAAP “Cash Flow from Operating Activities” to Non-GAAP “Free Cash Flow” – We calculate free cash flow as cash flow from operating activities adjusted to exclude cash spent on property, plant and equipment.

Reconciliation of GAAP “Gross Margin” to Non-GAAP “Adjusted Operating Margin” and “Adjusted Operating Margin per Barrel” – We calculate Adjusted Operating Margin as Gross Margin plus depreciation, amortization and accretion and temporary power costs. We define Adjusted Operating Margin per Barrel as Adjusted Operating Margin divided by total volumes.

We believe this presentation is used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within our industry. Additionally, we use this information for comparative purposes within our industry. Adjusted EBITDA, Adjusted Operating Margin and Adjusted Operating Margin per Barrel are not measures of financial performance under GAAP and should not be considered as measures of liquidity or as alternatives to net income (loss) or gross margin. Adjusted EBITDA, free cash flow, Adjusted Operating Margin and Adjusted Operating Margin per Barrel as defined by us may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) and other measures prepared in accordance with GAAP, such as gross margin, operating income or cash flows from operating activities.

Solaris Midstream Holdings, LLC and Subsidiaries

Operating Metrics and Non-GAAP Reconciliation

(unaudited)

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

2021

 

2020

 

2021

 

2020

Thousands barrel water per day
Produced Water Handling Volumes

708

 

574

 

692

 

566

 

Water Solutions Volumes:
Recycled Produced Water Volumes Sold

130

 

44

 

102

 

34

 

Groundwater Volumes Sold

82

 

45

 

61

 

58

 

Groundwater Volumes Transferred

41

 

12

 

42

 

11

 

Total Water Solutions Volumes

253

 

101

 

205

 

103

 

Total Volumes

961

 

675

 

897

 

669

 

 
Per Barrel Operating Metrics
Produced Water Handling Revenue/Barrel $

0.73

 

$

0.69

 

$

0.71

 

$

0.68

 

Water Solutions Revenue/Barrel $

0.50

 

$

0.63

 

$

0.51

 

$

0.74

 

Revenue/Barrel of Total Volumes $

0.67

 

$

0.68

 

$

0.66

 

$

0.69

 

Direct Operating Expense/Barrel $

0.27

 

$

0.36

 

$

0.27

 

$

0.39

 

Adjusted Operating Margin/Barrel (1) $

0.41

 

$

0.38

 

$

0.41

 

$

0.37

 

 
Cash Flow from Operating Activities $

26,496

 

$

9,639

 

$

57,186

 

$

50,550

 

Less: Cash Paid for Property, Plant and Equipment

(20,375

)

(29,254

)

(62,728

)

(121,835

)

Free Cash Flow $

6,121

 

$

(19,615

)

$

(5,542

)

$

(71,285

)

Net Income (Loss) $

(20,743

)

$

1,062

 

$

(13,367

)

$

(275

)

Interest Expense, Net

7,880

 

2,099

 

17,855

 

5,364

 

Income Tax (Benefit) Expense

(83

)

9

 

(81

)

15

 

Depreciation, Amortization and Accretion

15,378

 

11,751

 

45,550

 

31,529

 

Abandoned Well Costs

27,402

 

 

27,402

 

 

Abandoned Projects

679

 

368

 

2,035

 

1,501

 

Temporary Power Costs

 

3,548

 

4,253

 

12,669

 

Loss on Disposal of Asset, Net

8

 

15

 

225

 

82

 

Loss on Debt Modification

 

 

380

 

 

Settled Litigation

 

714

 

 

1,311

 

Transaction Costs

253

 

172

 

330

 

3,271

 

Severance and Other

 

 

221

 

190

 

Adjusted EBITDA $

30,774

 

$

19,738

 

$

84,803

 

$

55,657

 

 
Total Revenue $

59,499

 

$

42,456

 

$

162,272

 

$

126,548

 

Cost of Revenue

(38,875

)

(33,958

)

(112,253

)

(103,169

)

Gross Margin

20,624

 

8,498

 

50,019

 

23,379

 

Depreciation, Amortization and Accretion

15,378

 

11,751

 

45,550

 

31,529

 

Temporary Power Costs

 

3,548

 

4,253

 

12,669

 

Adjusted Operating Margin $

36,002

 

$

23,797

 

$

99,822

 

$

67,577

 

Total Volumes (Thousands of BBLs)

88,357

 

62,103

 

245,048

 

183,438

 

Adjusted Operating Margin/BBL $

0.41

 

$

0.38

 

$

0.41

 

$

0.37

 

 

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