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Aris Water Solutions, Inc. (ARIS)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 delivered strong volume growth and margin resilience: produced water +2% q/q and +6% y/y, recycled water +25% q/q and +16% y/y; Adjusted EBITDA rose to $54.3M (+9% q/q, +21% y/y) with adjusted operating margin of $0.45/bbl (+13% y/y) .
  • Guidance raised again: FY24 Adjusted EBITDA increased to $208–$212M (from $195–$205M in Q2 and $185–$200M in Q1), reflecting sustained activity on dedicated acreage and margin progress; Q4 Adjusted EBITDA guided to $51–$55M .
  • Capital efficiency inflection: Q3 CapEx was $8.2M; full-year CapEx outlook updated to $98–$105M; net debt ended Q3 at ~$422M with leverage ~2.0x and liquidity of $292M (revolver) .
  • Shareholder returns: dividend maintained at $0.105 for Q4 (and Company indicated it will revisit payout post Q4); potential 2025 dividend growth in line with organic EBITDA growth over time .
  • Strategic catalysts: progress toward beneficial reuse (third desalination pilot by year-end) and iodine extraction facility site selection; inorganic pipeline active but discipline maintained; potential additional customers/contracts ahead .

What Went Well and What Went Wrong

What Went Well

  • Volumes and margins: accelerating volumetric growth and sustained margins drove Adjusted EBITDA to $54.3M; adjusted operating margin reached $0.45/bbl, up 13% y/y .
  • Recycled water outperformance: recycled produced water volumes +25% q/q and +16% y/y, benefiting activity levels and Water Solutions mix; management noted durable margin improvements from electrification and efficiencies .
  • Guidance and cash generation: FY24 Adjusted EBITDA outlook raised to $208–$212M; CapEx front-end weighted with Q3 down significantly; strong liquidity and leverage well below target .
    Quote: “Accelerating volumetric growth and sustained margin strength resulted in adjusted EBITDA of $54.3 million… up 21% year-over-year.”

What Went Wrong

  • Water Solutions revenue declined y/y: Water Solutions revenue fell to $16.6M in Q3 2024 from $20.4M in Q3 2023, reflecting lower groundwater volumes as mix shifts toward recycled water .
  • Sequential margin tick-down: adjusted operating margin per barrel decreased just under $0.01 from Q2 due primarily to customer/business mix and skim recovery variability .
  • Higher G&A y/y: G&A increased to $17.4M from $13.5M y/y; R&D spend of $0.4M in Q3 continuing investment in reuse/mineral initiatives .
    Analyst concern: variability in skim oil recoveries and Q4 oil price assumptions (~$70/bbl) could offset margin benefits from increased skim, tempering near-term earnings leverage .

Financial Results

Income Statement and Profitability (GAAP and Non-GAAP)

MetricQ1 2024Q2 2024Q3 2024
Total Revenue ($USD Millions)$103.406 $101.117 $112.312
Net Income ($USD Millions)$16.830 $13.112 $16.431
Net Income Attrib. to ARIS ($USD Millions)$7.623 $5.965 $7.488
Diluted EPS ($USD)$0.23 $0.18 $0.22
Adjusted EBITDA ($USD Millions)$53.108 $49.995 $54.307
Gross Margin per Barrel ($USD)$0.32 $0.31 $0.32
Adjusted Operating Margin per Barrel ($USD)$0.46 $0.46 $0.45

Year-over-Year Comparison (Q3)

MetricQ3 2023Q3 2024
Total Revenue ($USD Millions)$99.789 $112.312
Diluted EPS ($USD)$0.17 $0.22
Gross Margin per Barrel ($USD)$0.26 $0.32
Adjusted Operating Margin per Barrel ($USD)$0.40 $0.45
Adjusted EBITDA ($USD Millions)$44.936 $54.307

Segment Revenue Breakdown

Revenue Category ($USD Millions)Q1 2024Q2 2024Q3 2024
Produced Water Handling$59.106 $54.815 $59.006
Produced Water Handling — Affiliate$26.827 $28.614 $29.418
Water Solutions$11.702 $13.795 $16.600
Water Solutions — Affiliate$5.242 $3.453 $4.225
Other Revenue$0.529 $0.440 $3.063
Total Revenue$103.406 $101.117 $112.312

KPIs and Balance Sheet

KPIQ1 2024Q2 2024Q3 2024
Produced Water Handling Volumes (kbpd)1,159 1,093 1,118
Water Solutions Volumes (kbpd)364 362 459
Recycled Produced Water Volumes (kbpd)337 314 393
Groundwater Volumes (kbpd)27 48 66
Total Volumes (kbpd)1,523 1,455 1,577
Skim Oil Recoveries (bopd)1,729 1,490 1,769
Net Debt ($USD Millions)$409.0 $438.3 $422.2
Leverage Ratio (Debt/TTM Adj. EBITDA)2.15x 2.22x 2.04x
Available Liquidity ($USD Millions)$345 total (incl. $324 revolver) $299 revolver $292 revolver
CapEx ($USD Millions)$37.7 $37.3 $8.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2024$185–$200 (Q1) $195–$205 (Q2) → $208–$212 (Q3) Raised twice
CapEx ($USD Millions)FY 2024$85–$105 (Q1/Q2) $98–$105 (Q3) Raised low end
Produced Water Volumes (kbpd)Q4 2024N/A1,080–1,110 New
Water Solutions Volumes (kbpd)Q4 2024N/A450–490 New
Adjusted Operating Margin per Barrel ($USD)Q4 2024N/A$0.43–$0.45 New
Skim Oil Recoveries (bopd)Q4 2024N/A~1,550 New
Adjusted EBITDA ($USD Millions)Q4 2024N/A$51–$55 New
CapEx ($USD Millions)Q4 2024N/A$15–$22 New
Dividend per Share ($USD)Q3 2024$0.105 (declared) Q4 2024: $0.105 (declared) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Beneficial reuse & desalinationTwo pilots completed (Q2); third pilot by year-end (Q2); DOE grant & Texas RRC permit process referenced (Q1) Third of three desalination technologies finishing; focus on scaling and cost confirmation in 2025 Advancing to scale-up
Mineral extraction (iodine, others)LOI signed for first iodine extraction facility; evaluating magnesium, ammonia, lithium (Q2) Site selection for iodine facility underway; multiple mineral partners sampling/testing Execution steps progressing
Margin sustainabilityElectrification, chemicals, automation lifted margins; guided ~$0.43/bbl long-term (Q1/Q2) $0.45/bbl in Q3; variability from skim/business mix; CPI escalators tailwind Sustained with minor variability
Skim oil recoveriesLumpy; Q1 pull-forward; Q2 moderated (Q1/Q2) Increased recoveries; Q4 outlook ~1,550 bopd; ~20% higher than prior guide Positive contribution with variability
Capital allocation & dividendDividend raised to $0.105 in Q1; long-term sustainable increases; buybacks challenged by low float (Q1/Q2) Considering payout review post Q4; dividend growth expected in line with business, not a step change Consistent, disciplined
Inorganic/M&AActive pipeline; valuation bid-ask gaps persist; disciplined posture (Q1/Q2) Bid-ask spreads have not met; seeking accretive, strategic fits Disciplined, patient
RegulatoryWorking with regulators; Texas RRC permit; DOE grant (Q1) Surface discharge into Pecos River under consideration; NM setback legislation seen as low impact Regulatory pathways progressing
Customer activity/PermianNorthern Delaware mid-single-digit growth; frac crew timing affects quarters (Q1/Q2) Expect mid-single-digit produced water growth in 2025 aligned with customers (no formal guide yet) Steady growth outlook

Management Commentary

  • “Accelerating volumetric growth and sustained margin strength resulted in adjusted EBITDA of $54.3 million… up 9% over last quarter, and up 21% year-over-year.” — Amanda Brock .
  • “We anticipate produced water volume growth in line with our 2024… consistent with oil production forecasts for the Delaware Basin.” — Q3 release .
  • “Our fourth quarter outlook reflects an approximately 20% increase in [skim oil] recoveries relative to what we guided in the third quarter.” — CFO Stephan Tompsett .
  • “We are now looking at opportunities to either accretively acquire surface acreage or partner with landowners to reduce [royalties]… and provide us greater operational flexibility.” — Amanda Brock .
  • “We continue to look… for projects where it’s accretive… we have yet to find anything that fits [our criteria].” — William Zartler .

Q&A Highlights

  • 2025 growth cadence: Management expects mid-single-digit produced water growth (roughly 4–7%), tied to customer programs; formal 2025 guidance to come with Q4 .
  • Cost structure and royalties: Options include owning surface acreage and partnering with landowners; TPL preferred partner status highlighted as strategic .
  • Regulatory landscape: Exploring permits for surface discharge (e.g., Pecos River); NM setback proposals not expected to impact business materially .
  • Capital returns: Dividend growth likely to track organic EBITDA growth; buybacks remain a consideration but limited by float; no step-change planned .
  • Commercial pipeline: Active discussions with potential new customers and contracts in core ZIP code; anticipate signing additional agreements .

Estimates Context

  • Wall Street consensus (S&P Global) data were unavailable at time of writing due to S&P Global daily request limits; as a result, we cannot provide definitive vs-consensus comparisons for Q3 revenue or EPS. We recommend updating this section once SPGI access is restored to assess any beat/miss relative to sell-side expectations.
    Note: S&P Global consensus values were not retrievable; comparisons to estimates are therefore omitted.

Key Takeaways for Investors

  • Operating momentum intact: Strong y/y volume growth and margin resilience drove Q3 EBITDA outperformance; FY24 guide raised again to $208–$212M, reinforcing confidence into year-end .
  • Margin durability with upside optionality: Structural improvements (electrification, cost reductions) underpin margins; skim oil recoveries add variable upside, with Q4 guided higher .
  • Capital efficiency tailwind: Front-loaded CapEx sets up FCF generation in 2H; full-year CapEx narrowed to $98–$105M, supporting potential dividend increases and selective growth .
  • Balanced capital allocation: Expect consistent, sustainable return growth rather than step changes; buybacks constrained by float—dividend and organic growth prioritized .
  • Strategic optionality: Beneficial reuse and minerals (iodine first) are progressing toward commercialization; inorganic pipeline active but valuation discipline maintained .
  • 2025 setup: Customer forecasts point to mid-single-digit produced water growth; management expects growth alongside existing customers at similar capital levels to 2024 .
  • Watch items into Q4/Q1: Oil price sensitivity (Q4 assumption ~$70/bbl) could offset skim-related margin benefits; regulatory milestones on surface discharge and pilot scale-up could set 2025 narrative .

Additional references:

  • Q3 press release and 8-K furnishing the release (Item 2.02) -.
  • Q3 call transcript (remarks and Q&A) -.
  • Prior quarter materials: Q2 press release and call - -; Q1 8-K press release and call - -.
  • Q3 schedule press release (for reference) [ListDocuments id 4].