Aris Water Solutions, Inc. Reports Third Quarter 2023 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, 2023.

• Total water volumes of approximately 1.5 million barrels per day for the third quarter of 2023, up 7% versus the third quarter of 2022 and up 1% sequentially versus the second quarter of 2023.
• Produced Water volumes of approximately 1.06 million barrels per day for the third quarter of 2023, up 17% versus the third quarter of 2022 and up 1% sequentially versus the second quarter of 2023.
• Water Solutions volumes of approximately 460 thousand barrels per day for the third quarter of 2023, down 10% versus the third quarter of 2022 and up 2% sequentially versus the second quarter of 2023.
• Net income of $12.2 million for the third quarter of 2023, up 526% versus the third quarter of 2022 and up 17% sequentially versus the second quarter of 2023. Adjusted Net Income¹ of $13.9 million for the third quarter of 2023, up 5% versus the third quarter of 2022 and up 6% sequentially versus the second quarter of 2023.
• Adjusted EBITDA¹ of $44.9 million for the third quarter of 2023, up 14% versus the third quarter of 2022 and up 5% sequentially versus the second quarter of 2023.
• Continued expansion of Adjusted Operating Margin per Barrel², both sequentially and year-over-year.
• Raising full year 2023 Adjusted EBITDA¹ guidance to $166 - $170 million, the top end of previous guidance range.
• Full year capital expenditures³ expected to total between $160 million and $170 million, consistent with previous guidance.
• Divested non-core assets in Martin County, Texas for $20.1 million cash consideration.

"We had an excellent third quarter as we continued to execute on our operating plan, expanded the reach of our infrastructure, and improved profitability. We achieved year-over-year and sequential volume growth while increasing margins as we recognized the benefits of our operating cost reduction efforts. We expect the positive momentum to continue in the fourth quarter and 2024, as we continue to drive a culture of excellence across the organization," said Amanda Brock, Chief Executive Officer of Aris.

"Water handling is critical to the success of our customers' long-term production growth plans in the Permian Basin. We remain focused on delivering comprehensive water management solutions to our customers while simultaneously advancing technologies for the beneficial reuse of water outside of the oil and gas industry, which holds the promise of further improving the sustainability of our customers' operations. Our produced water treatment pilot project with ConocoPhillips, Chevron, and ExxonMobil is now fully underway and testing several exciting technologies.

We are also engaging in preliminary conversations with several third parties to explore commercialization of the minerals found in our produced water. While we are still in the early stages, we are encouraged by the data we have seen so far."

OPERATIONS UPDATE

FINANCIAL UPDATE

Net income was $12.2 million for the third quarter of 2023 versus net income of $2.0 million in the third quarter of 2022 and net income of $10.4 million in the second quarter of 2023. Adjusted Net Income¹ was $13.9 million for the third quarter of 2023 versus $13.2 million for the third quarter of 2022 and $13.2 million in the second quarter of 2023.

Adjusted EBITDA¹ was $44.9 million for the third quarter of 2023, up approximately 14% from $39.3 million in the third quarter of 2022, and up approximately 5% from $42.6 million in the second quarter of 2023.

The Company had gross margin per barrel of $0.26 for the third quarter of 2023 versus $0.23 in the third quarter of 2022 and $0.24 for the second quarter of 2023. The Company had Adjusted Operating Margin per Barrel² of $0.40 for the third quarter of 2023, versus $0.36 in the third quarter of 2022 and $0.38 for the second quarter of 2023.

Third quarter 2023 capital expenditures³ totaled approximately $40 million versus $70 million in the third quarter of 2022, in line with full year 2023 capital expenditure expectations of $160 to $170 million.

STRONG BALANCE SHEET AND LIQUIDITY

As of September 30, 2023, the Company had approximately $24 million in cash and approximately $166 million available under its revolving credit facility for total available liquidity of approximately $190 million. As of September 30, 2023, the Company's leverage ratio was 2.53X, at the low end of its target leverage range of 2.50X-3.50X⁴. Accounts Receivable balance of approximately $81 million was down approximately 14% from the second quarter while revenue grew 3% quarter-over-quarter, reflecting continued improvements in working capital management.

On October 12, 2023, the Company entered into an amended and restated credit agreement which provides for a $350 million senior secured revolving credit facility with maturity extended through October 2027. The facility, which was sized proportionate to the Company's growth since the prior facility was put in place, has covenants and interest rates consistent with the prior credit agreement.

FOURTH QUARTER 2023 DIVIDEND

On October 31, 2023, Aris's Board of Directors declared a dividend on its Class A common stock for the fourth quarter of 2023 of $0.09 per share. In conjunction with the dividend payment, a distribution of $0.09 per unit will be paid to unit holders of Solaris Midstream Holdings, LLC. The dividend will be paid on December 21, 2023, to holders of record of the Company's Class A common stock as of the close of business on December 7, 2023. The distribution to unit holders of Solaris Midstream Holdings, LLC will be subject to the same payment and record dates.

FOURTH QUARTER 2023 FINANCIAL OUTLOOK

"We are very pleased with the progress the team has made year-to-date and we are on track to achieve the high-end of the Adjusted EBITDA guidance we provided at the beginning of the year and affirmed last quarter," said Amanda Brock.

"As we look to the fourth quarter, we anticipate produced water volumes to be up approximately 2–3%, adjusting for the impact of the Martin County asset sale, and water solutions volumes to be down moderately sequentially versus the third quarter due to the pull-forward of activity we saw in the third quarter as well as potential seasonal year-end slowdowns.

In terms of profitability, while we are pleased with the progress we've made through the third quarter of this year, we will continue to pursue additional cost-savings opportunities that can further enhance margins."

• For the fourth quarter of 2023, the Company expects:
  • Produced Water Handling volumes between 1,045 and 1,055 thousand barrels of water per day which reflects the approximately 50 thousand barrels per day impact of the Martin County asset divestiture
  • Water Solutions volumes between 405 and 420 thousand barrels of water per day
  • Adjusted Operating Margin per Barrel² between $0.39 and $0.41
  • Skim oil recoveries of 0.10% of inlet produced water handling volumes at an average WTI price of $87 per barrel
  • Adjusted EBITDA¹ between $41 and $45 million, raising full year 2023 Adjusted EBITDA guidance to $166 - $170 million, the high-end of previous full year 2023 guidance
  • Capital expenditures between $24 and $34 million³, partially offset by $20.1 million cash proceeds from the sale of non-core assets

CONFERENCE CALL

Aris will host a conference call to discuss its third quarter 2023 results on Thursday, November 2, 2023, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time).

Participants should call (888) 428-7458 and refer to Aris Water Solutions, Inc. when dialing in. Participants are encouraged to log in to the webcast or dial in to the conference call approximately ten minutes prior to the start time. To listen via live webcast, please visit the Investor Relations section of the Company's website, www.ariswater.com.

An audio replay of the conference call will be available shortly after the conclusion of the call and will remain available for approximately fourteen days. The replay can be accessed by dialing (877) 660-6853 within the United States or (201) 612-7415 outside of the United States. The access code is 13741339.

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, statements, information, opinions or beliefs regarding our business strategy, our industry, our future profitability, business and financial performance, including our guidance for 2023, current and potential future long-term contracts, legal and regulatory developments, our ability to identify strategic acquisitions and realize expected benefits therefrom, the development of technologies for the beneficial reuse of produced water and related strategies, plans, objectives and strategic pursuits and other statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "guidance," "preliminary," "project," "estimate," "expect," "anticipate," "continue," "sustain," "will," "intend," "strive," "plan," "goal," "target," "believe," "forecast," "outlook," "future," "potential," "opportunity," "predict," "may," "visibility," "possible," "should," "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 or implied by the forward-looking statements including our guidance for 2023. 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, energy prices, the Russia-Ukraine and Israel-Hamas conflicts, macroeconomic conditions (such as inflation) and market uncertainty related thereto, legislative and regulatory developments, customer plans and preferences, technological innovations and developments, and other events discussed or referenced in our filings made from time to time with the Securities and Exchange Commission ("SEC"), including such factors discussed under "Risk Factors" in our most recent Annual Report on Form 10-K, and if applicable, our subsequent SEC filings, which are available on our Investor Relations website at https://ir.ariswater.com/sec-filings or on the SEC's website at www.sec.gov/edgar. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. All forward-looking statements, expressed or implied, included in this presentation and any oral statements made in connection with this presentation are expressly qualified in their entirety by the foregoing cautionary statements. 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.

Use of Non-GAAP Financial Information

The Company uses financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), including Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel, Adjusted Net Income and net debt and leverage ratio. Although these Non-GAAP financial measures are important factors in assessing the Company's 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.

The Company calculates Adjusted EBITDA as net income (loss) plus: interest expense; income taxes; depreciation, amortization and accretion expense; abandoned well costs, asset impairment and abandoned project charges; losses on the sale of assets; transaction costs; research and development expense; loss on debt modification; stock-based compensation expense; and other non-recurring or unusual expenses or charges (such as temporary power costs, litigation expenses and severance costs), less any gains on sale of assets. For the fourth quarter of 2022, we began including research and development expense in our calculation of Adjusted EBITDA due to our new beneficial reuse pilot projects, which are discreet, non-revenue initiatives.

The Company calculates Adjusted Operating Margin as Gross Margin plus depreciation, amortization and accretion. The Company defines Adjusted Operating Margin per Barrel as Adjusted Operating Margin divided by total volumes.

The Company calculates Adjusted Net Income as Net Income (Loss) plus the after-tax impacts of stock-based compensation and plus or minus the after-tax impacts of certain items affecting comparability, which are typically noncash and/or nonrecurring items. The Company calculated Diluted Adjusted Net Income Per Share as (i) Net Income (Loss) plus the after-tax impacts of stock-based compensation and plus or minus the after-tax impacts of certain items affecting comparability, which are typically noncash and/or nonrecurring items, divided by (ii) the diluted weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC interests, adjusted for the dilutive effect of outstanding equity-based awards.

For the quarter ended September 30, 2023, the Company calculates its leverage ratio as net debt as of September 30, 2023, divided by Adjusted EBITDA for the trailing twelve months. Net debt is calculated as the principal amount of total debt outstanding as of September 30, 2023, less cash and cash equivalents as of September 30, 2023.

The Company believes these presentations are used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within its industry. Similarly, the Company's management uses this information for comparative purposes as well. Adjusted EBITDA, Adjusted Operating Margin, Adjusted Operating Margin per Barrel, and Adjusted Net Income 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. Additionally, these presentations as defined by the Company 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, net income or cash flows from operating activities.

Although we provide forecasts for the non-GAAP measures Adjusted EBITDA and Adjusted Operating Margin per Barrel, we are not able to forecast their most directly comparable measures (net income and gross margin) calculated and presented in accordance with GAAP without unreasonable effort. Certain elements of the composition of forward-looking non-GAAP metrics are not predictable, making it impractical for us to forecast. Such elements include but are not limited to non-recurring gains or losses, unusual or non-recurring items, income tax benefit or expense, or one-time transaction costs and cost of revenue, which could have a significant impact on the GAAP measures. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results. As a result, no reconciliation of forecasted non-GAAP measures is provided.

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