Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aris Water Solutions Inc (ARIS, Financial) achieved adjusted EBITDA of $50 million in Q2 2024, up 17% year-over-year.
- The company saw a 5% year-over-year increase in produced water volumes.
- Aris Water Solutions Inc (ARIS) maintained adjusted operating margins of $0.46 per barrel for the second straight quarter.
- The company has significant balance sheet capacity and flexibility, with net debt of $438 million and a 2.2 times debt-to-adjusted-EBITDA ratio.
- Aris Water Solutions Inc (ARIS) signed a letter of intent with an established iodine production and marketing company to construct the first iodine extraction facility in the Permian Basin.
Negative Points
- Sequentially softer quarter volumetrically due to natural declines from significant produced water flowback volumes.
- Groundwater sales are expected to decline over time as the company focuses on delivering increased sustainable, profitable, recycled produced water volumes.
- CapEx for the first half of 2024 was front-end weighted, with $75 million invested, which may limit flexibility for the remainder of the year.
- The company faces challenges in the M&A landscape, with high valuations making some acquisitions unattractive.
- There is uncertainty around the commercial viability of extracting other minerals from produced water, despite the progress with iodine.
Q & A Highlights
Q: Hi. Good morning. Thanks all for the time. I wanted to start on the Permian and maybe just your view on kind of growth into the back half and as we get into 2025, we've heard a couple of different narratives this earnings season on Delaware pace versus Midland pace, improving producer efficiencies, et cetera. I would just be curious on your view and then maybe how that compares to what you're looking at the beginning of the year. Thanks.
A: Thanks, John. The Permian continues to produce, particularly in the Northern Delaware, as we predicted and forecast earlier this year. If you look at who our customers are and how they articulate to discrete, what they're going to do. We have just seen steady performance, and we continue to see steady performance through year end. David, would you like to take that further?
David Tuerff - Aris Water Solutions Inc - Senior Vice President, Finance & Investor Relations: Yes, sure. I think, John, we're seeing relatively flat rig count consistent with expectations coming into the year with improved operator efficiencies, driving production growth sort of over and above that. And that tracks with what we're seeing volumetrically on our side of the business, right, with production growth on the produced water side in the mid-single-digit range, consistent with what we expected and consistent with what our producers are doing in the basin. And the sourcing volume is relatively flat corresponding to the rig count. So I would say, looking on out into 2025, we see that theme largely continuing. And we see sort of mid-single-digit production growth consistent with what our customers have said about the next year.
Amanda Brock - Aris Water Solutions Inc - President, Chief Executive Officer, Director: We are seeing, John, some narrative among customers about whether or not they increase the rig count in the Delaware. You do see some softening of rig count in the Midland Basin versus the Delaware, but that has not yet been determined. We watch that carefully like everybody else.
Q: I appreciate that. Thanks. And maybe shifting gears a little bit to as been a broader focus recently on disposal capacity, overall availability of port space. Can you just talk a little bit about what your strategy is here? And what that means for your cost structure? Thanks.
A: Certainly, as we've previously discussed, particularly when we did the alliance with TPL, we've always been focused on being proactive on making sure that we have access to sufficient port space where we can drill, granted permits when our customer supplies decade. So at this point, we have about 90 permits in space, across a large geographic diversified region. We have relationships with land owners like Texas Pacific and that was a very important alliance that we announced a couple of years ago, where we have the ability to go ahead and permit on TPL land and then drill as needed. So we continue to identify areas of growth, where our customers are moving and staying ahead of that by aggressively and carefully actually finding port space, applying for permits and being ahead of any concerns.
Q: Hi. This is Chad on for Spiro. So starting off, leverage is below target levels that you see have seen dry powder. Can you refresh us on the uses of capital here and provide an update on the M&A landscape given some recent deal activity?
A: Good. I'll have Steve start with our capital program, and then we'll address the M&A landscape.
Stephan Tompsett - Aris Water Solutions Inc - Chief Financial Officer: Yeah. Good morning. In terms of capital allocation, there's really no change in the framework that we approach to that. Our balance sheet is in great shape. And we're going to continue to focus on that. We never want to put ourselves in a position where leverage is a concern. Beyond that, we are focused on deploying capital into attractive organic growth projects and inorganic opportunities where they present themselves. And as you saw last quarter, with our dividend raise, we expect to increase shareholder returns sustainably, consistently over the long-term. So we remain focused in that framework and look to deliver on that consistently quarter-over-quarter.
Amanda Brock - Aris Water Solutions Inc - President, Chief Executive Officer, Director: As it relates to the M&A landscape, what we have seen is some recent interest in the sector. You've seen two recent transactions and Waste Connections buying the Lane midstream business. And then I think yesterday, the announcement of Delek buying H2O Midstream in the Midland Basin. In the case of the latter, that had been a transaction in process a number of years, H2O within a sales process for over two years. It has come to market. We have looked at those assets. For many reasons, we had determined that from a value perspective, we did not feel comfortable with the valuations, the sponsor was expecting. So again, Delek has reasons for doing that transaction, but we do remain very interested in the M&A market. And we do see opportunities with companies and that may be private equity backed and there may be some fatigue where at the right price would be interested in moving forward. Bill Zartler is on the phone. So Bill, if you want to add to that, given the landscape we're working on right now.
William Zartler - Aris Water Solutions Inc - Founder, Executive Chairman: I think you covered it. I mean our focus is making sure that we're -- we have our business, and we know what it's trading for. We've got the buildup of how we've structured our contracts and our partners throughout the business, and we're going to be carefully looking for the right opportunities. And I think they will be out there over the course of the next year or so. If they're not, we'll continue to build our business, and we see no shortage of fairly attractive organic projects to do within our core at the same time.
Q: Thanks. That's really helpful. And then the second question. You've reached another milestone on mineral extraction. Can you talk about next steps from here and ultimately what you hope the strategy achieves?
A: Certainly, and thank you for that question. We previously indicated that beneficial reuse, obviously, is a long-term play as we try and find other uses for our produced water other than just disposal. When we spent over a year looking at what was in our water, we told everybody that we've identified certain high-value minerals that we thought were attractive. And in the last quarter, we said we would come back with milestones and we were talking to potential channel partners who could evaluate whether or not what was in our water could be extracted in a commercial way. So we are now announcing that we've entered into an LOI as it relates to one mineral, which is (technical difficulty) I'm never going to get that right. And as it relates to that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
