• Produced Water Volumes: Increased 2% sequentially and 6% year over year.
• Recycled Water Volumes: Grew 25% sequentially and 16% year over year.
• Operating Margin: $0.45 per barrel, up 13% from the third quarter of last year.
• Adjusted EBITDA: $54.3 million, up 21% year over year and 9% sequentially.
• Capital Expenditures (CapEx): $8 million for the third quarter; $83 million for the first nine months.
• Full Year CapEx Guidance: $98 million to $105 million.
• Net Debt: $422 million with a 2.0 times debt to adjusted EBITDA ratio.
• Available Liquidity: $325 million.
• Dividend: $0.105 per share for the fourth quarter.

• Warning! GuruFocus has detected 7 Warning Signs with ARIS.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Aris Water Solutions Inc (NYSE:ARIS) reported a strong third quarter with a 21% year-over-year increase in adjusted EBITDA, reaching $54.3 million.
• The company achieved a 13% increase in operating margins compared to the previous year, supported by CPI-linked revenue escalation clauses and operational efficiencies.
• Produced water volumes grew by 2% sequentially and 6% year-over-year, while recycled water volumes increased by 25% sequentially and 16% year-over-year.
• Aris Water Solutions Inc (NYSE:ARIS) is generating excess cash, allowing for reinvestment in business growth and enhanced shareholder returns.
• The company is actively pursuing beneficial reuse projects and mineral extraction opportunities, including iodine, magnesium, ammonia, and lithium, with promising pilot project results.

Negative Points

• Despite strong performance, Aris Water Solutions Inc (NYSE:ARIS) has not yet found inorganic opportunities that meet their strategic fit and financial accretion criteria.
• There is variability in skim oil recoveries, which could lead to fluctuations in quarterly margins.
• The company faces potential regulatory challenges in Texas regarding the disposal of produced water into surface systems, which may require additional processing.
• Aris Water Solutions Inc (NYSE:ARIS) has not provided specific guidance for 2025, creating some uncertainty about future growth projections.
• The bid-ask spread for potential acquisitions remains wide, indicating challenges in finding suitable M&A opportunities.

Q & A Highlights

Q: Can you provide an early look into 2025 regarding volume growth on the produced water side and its impact on EBITDA? A: Amanda Brock, President and CEO, stated that while they are not providing specific guidance for 2025 yet, they anticipate a mid-single-digit growth range of 4% to 7% in produced water volumes. This expectation is based on the growth plans of their existing customers, such as Chevron and ConocoPhillips, who have indicated significant growth targets.

Q: Could you elaborate on the disposal royalties and the potential for acquiring surface acreage? A: Amanda Brock explained that Aris Water Solutions has a strategic arrangement with TPLT, allowing them to be the preferred disposal partner and permit on TPLT property. They are exploring opportunities to acquire land to reduce royalties and improve cost efficiency, while also maintaining a long runway of permits for future growth.

Q: What is the regulatory update on the disposal of produced water in Texas, and how does it compare to underground injection? A: Amanda Brock mentioned that beneficial reuse is being considered as an alternative to disposal, with opportunities for surface discharge into the Pecos River being explored. William Zartler added that the high salinity of produced water requires processing before it can be discharged, which will always leave some level of concentrated brine.

Q: Can you discuss Aris and JIP's financial responsibilities for the 2025 scale-up in beneficial reuse? A: Amanda Brock stated that the capital commitment for 2025 will not be material, as costs are shared with partners and personnel allocation is reimbursed. For the iodine project, Aris will not spend capital, as it is structured on a royalty basis with partners covering infrastructure costs.

Q: How does Aris prioritize capital allocation, considering the current leverage and potential for dividend increases? A: Stephan Tompsett, CFO, emphasized a consistent approach to capital allocation, focusing on sustainable shareholder returns. While they are considering dividend growth, it will align with business growth rather than a significant step change. M&A opportunities are evaluated, but share repurchase is not prioritized due to limited float.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.