UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2023, the registrant had
TABLE OF CONTENTS
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Notes to Unaudited Condensed Consolidated Financial Statements | 9 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||
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2
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10‑Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including, without limitation, statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “guidance,” “preliminary,” “project,” “estimate,” “outlook,” “expect,” “continue,” “will,” “intend,” “plan,” “targets,” “believe,” “forecast,” “future,” “potential,” “should,” “may,” “possible,” “could” and variations of such words or similar expressions.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”) and found elsewhere in this Quarterly Report, including, but not limited to, the following:
● | the impact of the current conflict between Russia and Ukraine on the global economy, including its impacts on financial markets and the energy industry; |
● | the impacts of cost inflation on our operating margins and capital costs; |
● | the impact of current and future laws, rulings and federal and state governmental regulations, including those related to hydraulic fracturing, accessing water, handling of produced water, carbon pricing, taxation of emissions, seismic activity, drilling and right-of-way access on governmental lands, and various other matters; |
● | our reliance on a limited number of customers and a particular region for substantially all of our revenues; |
● | the level of capital spending and development by oil and gas companies, including potential reductions in capital expenditures by oil and gas producers in response to commodity price volatility and/or reduced demand; |
● | our ability to renew or replace expiring contracts on acceptable terms; |
● | our customers’ ability to complete and produce new wells; |
● | risks related to acquisitions and organic growth projects, including our ability to realize their expected benefits; |
● | capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a slowdown or delay in the demand for our services; |
● | our ability to retain key management and employees and to hire and retain skilled labor; |
● | our health, safety and environmental performance; |
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● | the impact of competition on our operations; |
● | the degree to which our customers may elect to operate their water-management services in-house rather than outsource these services to companies like us; |
● | delays or restrictions in obtaining, utilizing or maintaining permits and/or rights-of-way by us or our customers; |
● | constraints in supply or availability of equipment used in our business; |
● | changes in global political or economic conditions, both generally, and in the specific markets we serve, such as an economic slowdown or recession, concern over a potential recession, or increased uncertainty regarding the economic outlook; |
● | physical, electronic and cybersecurity breaches; and |
● | the other risks described in our 2022 Annual Report filed with the United States Securities and Exchange Commission (“SEC”). |
Many of the factors that will determine our future results are beyond the ability of management to control or predict. Should one or more of the risks or uncertainties described in this Quarterly Report or in our 2022 Annual Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Aris Water Solutions, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except for share and per share amounts) |
| March 31, | December 31, | |||
| 2023 | 2022 | ||||
Assets |
|
| ||||
Cash | $ | | $ | | ||
Accounts Receivable, Net | | | ||||
Accounts Receivable from Affiliate | | | ||||
Other Receivables | | | ||||
Prepaids and Deposits | | | ||||
Total Current Assets | | | ||||
Fixed Assets | ||||||
Property, Plant and Equipment | | | ||||
Accumulated Depreciation | ( | ( | ||||
Total Property, Plant and Equipment, Net | | | ||||
Intangible Assets, Net | | | ||||
Goodwill | | | ||||
Deferred Income Tax Assets, Net | | | ||||
Right-of-Use Assets | | | ||||
Other Assets | | | ||||
Total Assets | $ | | $ | | ||
Liabilities and Stockholders' Equity | ||||||
Accounts Payable | $ | | $ | | ||
Payables to Affiliate | | | ||||
Accrued and Other Current Liabilities | | | ||||
Total Current Liabilities | | | ||||
Long-Term Debt, Net of Debt Issuance Costs | | | ||||
Asset Retirement Obligation | | | ||||
Tax Receivable Agreement Liability | | | ||||
Other Long-Term Liabilities | | | ||||
Total Liabilities | | | ||||
Commitments and Contingencies (see Note 10) | ||||||
Stockholders' Equity | ||||||
Preferred Stock $ | ||||||
Class A Common Stock $ | | | ||||
Class B Common Stock $ | | | ||||
Treasury Stock (at Cost), | ( | ( | ||||
Additional Paid-in-Capital | | | ||||
Accumulated Deficit | ( | ( | ||||
Total Stockholders' Equity Attributable to Aris Water Solutions, Inc. | | | ||||
Noncontrolling Interest | | | ||||
Total Stockholders' Equity | | | ||||
Total Liabilities and Stockholders' Equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements
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Aris Water Solutions, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | |||||
(in thousands, except for share and per share amounts) | March 31, | ||||
2023 |
| 2022 | |||
Revenue | |||||
Produced Water Handling | $ | | $ | | |
Produced Water Handling — Affiliate | | | |||
Water Solutions | | | |||
Water Solutions — Affiliate | | | |||
Other Revenue | | — | |||
Total Revenue | | | |||
Cost of Revenue | |||||
Direct Operating Costs | | | |||
Depreciation, Amortization and Accretion | | | |||
Total Cost of Revenue | | | |||
Operating Costs and Expenses | |||||
General and Administrative | | | |||
Impairment of Long-Lived Assets | — | | |||
Research and Development Expense | | | |||
Other Operating Expense | | | |||
Total Operating Expenses | | | |||
Operating Income | | | |||
Other Expense | |||||
Interest Expense, Net | | | |||
Income (Loss) Before Income Taxes | | ( | |||
Income Tax Expense (Benefit) | | ( | |||
Net Income (Loss) | | ( | |||
Net Income (Loss) Attributable to Noncontrolling Interest | | ( | |||
Net Income (Loss) Attributable to Aris Water Solutions, Inc. | $ | | $ | ( | |
Net Income (Loss) Per Share of Class A Common Stock | |||||
Basic | $ | | $ | ( | |
Diluted | $ | | $ | ( | |
Weighted Average Shares of Class A Common Stock Outstanding | |||||
Basic | | | |||
Diluted | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
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Aris Water Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands) | Three Months Ended March 31, | |||||
| 2023 |
| 2022 | |||
Cash Flow from Operating Activities | ||||||
Net Income (Loss) | $ | | $ | ( | ||
Adjustments to reconcile Net Income (Loss) to Net Cash provided by Operating Activities: | ||||||
Deferred Income Tax Expense (Benefit) | | ( | ||||
Depreciation, Amortization and Accretion | | | ||||
Stock-Based Compensation | | | ||||
Impairment of Long-Lived Assets | — | | ||||
(Gain) Loss on Disposal of Asset, Net | ( | | ||||
Amortization of Debt Issuance Costs, Net | | | ||||
Other | | | ||||
Changes in Operating Assets and Liabilities: | ||||||
Accounts Receivable | | ( | ||||
Accounts Receivable from Affiliate | | | ||||
Other Receivables | ( | | ||||
Prepaids and Deposits | | | ||||
Accounts Payable | | | ||||
Payables to Affiliate | ( | | ||||
Accrued Liabilities and Other | | | ||||
Net Cash Provided by Operating Activities | | | ||||
Cash Flow from Investing Activities | ||||||
Property, Plant and Equipment Expenditures | ( | ( | ||||
Net Cash Used in Investing Activities | ( | ( | ||||
Cash Flow from Financing Activities | ||||||
Dividends and Distributions Paid | ( | ( | ||||
Repurchase of Shares | ( | — | ||||
Repayment of Credit Facility | ( | — | ||||
Proceeds from Credit Facility | | — | ||||
Net Cash Provided by (Used In) Financing Activities | | ( | ||||
Net Increase in Cash | | | ||||
Cash, Beginning of Period | | | ||||
Cash, End of Period | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements
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Aris Water Solutions, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||
(in thousands, except for share and per share amounts) | Class A | Class B | Additional | Non- | Total | ||||||||||||||||||||||
Common Stock |
| Common Stock | Paid-in | Treasury Stock | Accumulated | controlling | Stockholders' | ||||||||||||||||||||
Amount |
| Shares | Amount | Shares | Capital | Amount | Shares | Deficit | Interest | Equity | |||||||||||||||||
Balance at January 1, 2023 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | | ||||||||||
Redemption of Class B Shares for Class A Shares | - | | - | ( | | - | - | - | ( | - | |||||||||||||||||
Stock-based Compensation Expense | | | - | - | | - | - | - | | | |||||||||||||||||
Increase in TRA Liability Related to Share Redemption | - | - | - | - | ( | - | - | - | - | ( | |||||||||||||||||
Deferred Tax Assets Acquired | - | - | - | - | | - | - | - | - | | |||||||||||||||||
Dividends and Distributions ($ | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||
Purchase of Treasury Stock | - | - | - | - | - | ( | | - | - | ( | |||||||||||||||||
Net Income | - | - | - | - | - | - | - | | | | |||||||||||||||||
Balance at March 31, 2023 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | | ||||||||||
Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||
Class A | Class B | Additional | Non- | Total | |||||||||||||||||||||||
Common Stock |
| Common Stock | Paid-in | Treasury Stock | Accumulated | controlling | Stockholders' | ||||||||||||||||||||
Amount |
| Shares | Amount | Shares | Capital | Amount | Shares | Deficit | Interest | Equity | |||||||||||||||||
Balance at January 1, 2022 | $ | | | $ | |
| |
| $ | |
| $ | ( | |
| $ | ( |
| $ | |
| $ | | ||||
Redemption of Class B Shares for Class A Shares | | | ( | ( | | - | - | - | ( | - | |||||||||||||||||
Stock-based Compensation Expense | - | | - | - | | - | - | - | | | |||||||||||||||||
Increase in TRA Liability Related to Share Redemption | - | - | - | - | ( | - | - | - | - | ( | |||||||||||||||||
Deferred Tax Assets Acquired | - | - | - | - | | - | - | - | - | | |||||||||||||||||
Dividends and Distributions ($ | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||
Net Loss | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||
Balance at March 31, 2022 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements
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Aris Water Solutions, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(unaudited)
1.Organization and Background of Business
Aris Water Solutions, Inc. (“Aris Inc.”, the “Company”, “we”, “our”, or “us”) is an independent, environmentally-focused company headquartered in Houston, Texas, that, through its controlling interest in Solaris Midstream Holdings, LLC, a Delaware limited liability company (“Solaris LLC”), provides sustainability-enhancing services to oil and natural gas operators. We strive to build long-term value through the development, construction and operation of integrated produced water handling and recycling infrastructure that provides high-capacity, comprehensive produced water management, recycling and supply solutions for operators in the Permian Basin.
We are the parent holding company of Solaris LLC. As the sole managing member of Solaris LLC, we operate and control the business and affairs of Solaris LLC, and through Solaris LLC and its subsidiaries, conduct our business. We consolidate the financial results of Solaris LLC and report noncontrolling interest related to the portion of Solaris LLC units not owned by us.
These unaudited condensed consolidated financial statements reflect the financial statements of the consolidated Company including Aris Inc., Solaris LLC and Solaris LLC’s subsidiaries.
2.Basis of Presentation and Significant Accounting Policies
Basis of Presentation
All dollar amounts, except per share amounts, in the condensed consolidated financial statements and tables in the notes are stated in thousands of dollars unless otherwise indicated.
Interim Financial Statements
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These financial statements have not been audited by our independent registered public accounting firm.
These condensed consolidated financial statements include the adjustments and accruals, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Consolidation
We have determined that the members with equity at risk in Solaris LLC lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Solaris LLC’s economic performance; therefore, Solaris LLC is considered a variable interest entity (“VIE”). As the managing member of Solaris LLC, we operate and control the business and affairs of Solaris LLC as well as have the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate Solaris LLC.
9
Noncontrolling Interest
As of March 31, 2023, we own approximately
Use of Estimates
Management has made certain estimates and assumptions that affect reported amounts in these condensed consolidated financial statements and disclosures of contingencies. These estimates include, among others, determining the fair values of assets acquired, liabilities assumed, and/or contingent consideration paid in acquisitions or nonmonetary exchanges or disposed of through sale, determining the fair value and related impairment of assets held for sale, determining the fair value of performance-based restricted stock units (“PSUs”), useful lives of property, plant and equipment and amortizable intangible assets, goodwill impairment testing, the fair value of asset retirement obligations (“ARO”), accruals for environmental matters, the income tax provision, valuation allowances for deferred tax assets, and the liability associated with our Tax Receivable Agreement (the “TRA liability”). Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including current economic and industry conditions. Actual results could differ from management’s estimates as additional information or actual results become available in the future, and those differences could be material.
Reclassification of Prior Year Presentation
Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Significant Accounting Policies
See Note 2. Significant Accounting Policies to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for the discussion of our significant accounting policies. There were no significant updates or revisions to our accounting policies during the three months ended March 31, 2023.
Goodwill
All of our goodwill is assigned to a single reporting unit. We perform our annual goodwill impairment test during the fourth quarter of our fiscal year, and more frequently if impairment indicators exist. We conducted our annual goodwill impairment test during the fourth quarter of the year ended December 31, 2022 on a qualitative basis and determined that no adjustment to the carrying value of goodwill was necessary because the fair value of our reporting unit exceeded its carrying value.
During the quarter ended March 31, 2023, we conducted a quantitative interim test of goodwill due to a decline in the price of our Class A common stock during the period. As a result of our interim test, no goodwill impairment was identified. The fair value of our reporting unit exceeded the carrying value by more than 10%.
Some of the inherent estimates and assumptions used in determining the fair value of our reporting unit are outside the control of management, including interest rates, cost of capital, tax rates, market multiples and credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting unit, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in a material impairment of our goodwill.
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Fair Value Information
The fair value of our
(in thousands) | March 31, 2023 | December 31, 2022 | ||||||||||
Carrying | Fair | Carrying | Fair | |||||||||
| Amount |
| Value |
| Amount |
| Value | |||||
Senior Sustainability-Linked Notes | $ | | $ | | $ | | $ | | ||||
Credit Facility | $ | | $ | | $ | | $ | |
The carrying values of our other financial instruments, consisting of cash, accounts receivable, and accounts payable, approximate their fair values due to the short maturity of such instruments.
Intangible Assets
Intangible assets are net of accumulated amortization of $
Related Parties
We and ConocoPhillips, one of our principal owners, are parties to a long-term water gathering and handling agreement, pursuant to which ConocoPhillips dedicates all the produced water generated from its current and future acreage in a defined area of mutual interest in New Mexico and Texas. As of March 31, 2023 and December 31, 2022, we had accounts receivable from ConocoPhillips of $
(in thousands) | Three Months Ended | ||||
March 31, | |||||
2023 |
| 2022 | |||
Revenues from ConocoPhillips | $ | | $ | | |
Operating Expenses Reimbursed to ConocoPhillips | | |
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Operating expenses reimbursed to ConocoPhillips are related to ConocoPhillips’ costs incurred on our behalf and other ongoing operating expenses.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) interest rate or another reference rate expected to be discontinued because of reference rate reform. This guidance was to be effective prospectively upon issuance through December 31, 2022 and applied from the beginning of an interim period that included the issuance date of this ASU. However, in December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” which deferred the sunset date from December 31, 2022 to December 31, 2024. All other provisions of ASU 2020-04 were unchanged. We are continuing to evaluate the effect that this guidance will have on our financial position, results of operations and cash flows.
3.Additional Financial Statement Information
Balance Sheet
Other balance sheet information is as follows:
(in thousands) |
| March 31, | December 31, | |||
| 2023 | 2022 | ||||
Other Receivables | ||||||
Insurance and Third Party Receivables for Remediation Expenses | $ | | $ | | ||
Reimbursable Projects and Other | | | ||||
Total Other Receivables | $ | | $ | | ||
Prepaids and Deposits | ||||||
Prepaid Insurance and Other | $ | | $ | | ||
Deposits | | | ||||
Total Prepaids and Deposits | $ | | $ | | ||
Accrued and Other Current Liabilities | ||||||
Accrued Operating Expense | $ | | $ | | ||
Accrued Capital Costs | | | ||||
Accrued Interest | | | ||||
Accrued Compensation | | | ||||
| | |||||
Asset Retirement Obligation | | | ||||
Other | | | ||||
Total Accrued and Other Current Liabilities | $ | | $ | | ||
Other Long-Term Liabilities | ||||||
Noncurrent Lease Liabilities | $ | | $ | | ||
Contingent Consideration Liability | | | ||||
Total Other Long-Term Liabilities | $ | | $ | |
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Statement of Operations
Other statement of operations information is as follows:
(in thousands) | Three Months Ended | ||||
March 31, | |||||
2023 |
| 2022 | |||
Depreciation, Amortization and Accretion Expense | |||||
Depreciation - Property, Plant and Equipment | $ | | $ | | |
Amortization - Intangible Assets | | | |||
Accretion of Asset Retirement Obligations | | | |||
Total Depreciation, Amortization and Accretion Expense | $ | | $ | | |
Other Operating Expense | |||||
(Gain) Loss on Asset Disposal, Net | $ | ( | $ | | |
Transaction Costs | | | |||
Other | | | |||
Total Other Operating Expense | $ | | $ | | |
Interest Expense | |||||
Interest on Debt Instruments | $ | | $ | | |
Amortization of Debt Issuance Costs | | | |||
Total Interest Expense | | | |||
Less: Amounts Capitalized | ( | ( | |||
Interest Expense, Net | $ | | $ | |
4.Property, Plant and Equipment
Property, plant and equipment (“PP&E”) is stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful service life of the asset.
PP&E consists of the following:
(in thousands) |
| March 31, | December 31, | |||
| 2023 | 2022 | ||||
Wells, Facilities, Water Ponds, and Related Equipment | $ | | $ | | ||
Pipelines | | | ||||
Land | | | ||||
Vehicles, Equipment, Computers and Office Furniture | | | ||||
Assets Subject to Depreciation | | | ||||
Projects and Construction in Progress | | | ||||
Total Property, Plant and Equipment | | | ||||
Accumulated Depreciation | ( | ( | ||||
Total Property, Plant and Equipment, Net | $ | | $ | |
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Accrued PP&E additions totaled $
Asset Exchanges
During the three months ended March 31, 2022, we completed multiple nonmonetary transactions. The transactions included exchanges of wells, facilities, permits and other assets. The total net book value of the divested assets and liabilities was $
Asset Impairment
During the first quarter of 2022, management committed to a plan to sell certain of our assets located in the Midland Basin and determined that these assets met all the criteria for classification as assets held for sale. These assets were re-measured at their fair values less costs to sell, which resulted in the recognition of pre-tax impairment expense of $
5.Tax Receivable Agreement Liability
Our tax receivable agreement (“TRA”) with the legacy owners of Solaris LLC units (each such person, a “TRA Holder,” and together, the “TRA Holders”) generally provides for the payment by us to each TRA Holder of
The TRA liability totaled $
As of March 31, 2023, we estimated that if all the remaining Solaris LLC units were redeemed for shares of our Class A common stock, the TRA liability would be approximately $
14
6.Long-Term Debt
Our long-term debt consists of the following:
(in thousands) |
| March 31, | December 31, | |||
| 2023 | 2022 | ||||
$ | | $ | | |||
Credit Facility (1) | | | ||||
Total Long-Term Debt | | | ||||
Less: Unamortized Debt Issuance Costs | ( | ( | ||||
Total Long-Term Debt, Net of Debt Issuance Costs | $ | | $ | |
(1) | Credit Facility borrowings bore weighted average interest rates of |
Senior Sustainability-Linked Notes
Our
During the first quarter of 2023, we notified the trustee for the Notes that, for the year ending December 31, 2022, we had satisfied the Sustainability Performance Target (as defined in the indenture governing the Notes) in accordance with the requirements and procedures. As a result, the interest rate on the Notes will remain
Credit Facility
Our amended and restated credit agreement provides for, among other things, (i) commitments of $
The Credit Facility provides for, at our option:
i. | Base rate borrowings that bear interest at the highest of (a) the prime rate, (b) the federal funds effective rate plus |
ii. | Eurodollar borrowings that bear interest at the lesser of (i) LIBOR plus a margin that ranges from |
15
In addition, the Credit Facility provides for commitment fee rates that range from
As of March 31, 2023, we had $
The Credit Facility is secured by all the real and material personal property owned by Solaris LLC or any of its subsidiaries, other than certain excluded assets. At March 31, 2023, we were in compliance with all covenants contained in the Credit Facility.
7.Leases
In the normal course of business, we enter into operating lease agreements to support our operations. Our leased assets include right-of-way easements for our wells and facilities, office space and other assets. We currently have no finance leases.
Balance Sheet Information
The following table provides supplemental consolidated balance sheet information related to leases:
(in thousands) | Classification | March 31, 2023 |
| December 31, 2022 | |||
Assets | |||||||
Right-of-Use Assets | Consolidated Balance Sheet | $ | | $ | | ||
Liabilities | |||||||
Current Lease Liabilities | $ | | $ | | |||
Noncurrent Lease Liabilities | | |
Statement of Operations Information
The following table provides the components of lease cost, excluding lease cost related to short-term leases:
Three Months Ended March 31, | |||||||
(in thousands) | 2023 |
| 2022 | ||||
Direct Operating Costs | $ | | $ | | |||
General and Administrative | | | |||||
Total Lease Cost | $ | | $ | |
Short-Term Leases
Our short-term lease cost, which consisted primarily of field equipment rentals, totaled $
Cash Flow Information
The following table summarizes supplemental cash flow information related to leases:
Three Months Ended March 31, | ||||||
(in thousands) | 2023 |
| 2022 | |||
Cash Paid for Amounts Included in Lease Liabilities | $ | | $ | | ||
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities, Net | | ( |
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Lease Terms and Discount Rates
The following table provides lease terms and discount rates related to leases:
| |||||||
March 31, 2023 | December 31, 2022 | ||||||
Weighted Average Remaining Lease Term (Years) | |||||||
Weighted Average Discount Rate |
Annual Lease Maturities
The following table provides maturities of lease liabilities at March 31, 2023:
(in thousands) |
| ||||||
Remainder of 2023 | $ | | |||||
2024 | | ||||||
2025 | | ||||||
2026 | | ||||||
2027 | | ||||||
Thereafter | | ||||||
Total Lease Payments | | ||||||
Less: Interest | ( | ||||||
$ | |
Leases That Have Not Yet Commenced
We have entered into additional operating leases for office space and anticipate that the leases will commence during the remainder of 2023. Undiscounted future lease payments totaling $
8.Income Taxes
Our predecessor, Solaris LLC, is a Delaware limited liability company treated as a partnership for federal income tax purposes and, therefore, has not been subject to U.S. federal income tax at an entity level. As a result, the consolidated net income (loss) in our historical financial statements does not reflect the tax expense (benefit) we would have incurred if we were subject to U.S. federal income tax at an entity level during periods prior to the IPO. Solaris LLC continues to be treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income is allocated to members, including Aris Inc., and except for Texas franchise tax, any taxable income of Solaris LLC is reported in the respective tax returns of its members.
Income Tax Expense (Benefit)
We recorded income tax expense (benefit) of $
Effective Tax Rate
We record our income tax expense (benefit) using an estimated annual effective tax rate (“ETR”) and recognize specific events discretely as they occur. The ETR for the three months ended March 31, 2023 and 2022 was
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Deferred Tax Assets
We regularly evaluate the realizable tax benefits of deferred tax assets and record a valuation allowance, if required, based on an estimate of the amount of deferred tax assets that we believe does not meet the more-likely-than-not criteria of being realized.
Tax Examinations
Solaris LLC files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal or state income tax examinations underway for these jurisdictions. Its federal and state returns remain open to examination for tax years 2018 through 2022.
9.Stockholders’ Equity
Redemptions
During the three months ended March 31, 2023 and 2022,
Dividends and Distributions
On March 3, 2023, we announced that our Board of Directors had declared a dividend on our Class A common stock for the first quarter of 2023 of $
On May 8, 2023, we announced that our Board of Directors had declared a quarterly dividend of $
10.Commitments and Contingencies
In the normal course of business, we are subject to various claims, legal actions, contract negotiations and disputes. We provide for losses, if any, in the period in which they become probable and can be reasonably estimated. In management’s opinion, there are currently no such matters outstanding that would have a material effect on the accompanying financial statements.
Delivery Commitment
In 2023, we entered into an agreement with an unaffiliated water disposal company to dispose of a minimum volume of produced water over a term of
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Purchase Obligations
In the normal course of business, we enter into short-term purchase obligations for products and services, primarily related to purchases of pipe, pumps and other components. As of March 31, 2023, we have purchase obligations and commitments of approximately $
Environmental
We are also subject to various federal, state and local laws and regulations relating to the protection of the environment. For the three months ended March 31, 2023 and 2022, we recognized $
11.Earnings Per Share
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share attributable to our Class A common stock is computed by dividing net income (loss) attributable to Aris Water Solutions, Inc. by the weighted average number of shares of Class A common stock outstanding for the same period, including shares of restricted stock and restricted stock units (“RSUs”), which receive nonforfeitable dividends. Shares issued during the period are weighted for the portion of the period in which the shares were outstanding.
The following table sets forth the computation of basic and diluted net income (loss) per share attributable to our Class A common stock:
(in thousands, except for share and per share amounts) | Three Months Ended March 31, | |||||
2023 | 2022 | |||||
Net Income (Loss) Attributable to Stockholders' Equity | $ | | $ | ( | ||
Less: Net Income (Loss) Attributable to Noncontrolling Interest | | ( | ||||
Net Income (Loss) Attributable to Aris Water Solutions, Inc. | | ( | ||||
Participating Basic Earnings (1) | ( | ( | ||||
Basic Net Income (Loss) Attributable to Aris Water Solutions, Inc. | $ | | $ | ( | ||
Reallocation of Participating Net Income (Loss) | - | - | ||||
Diluted Net Income (Loss) Attributable to Aris Water Solutions, Inc. | $ | | $ | ( | ||
Basic Weighted Average Shares Outstanding | | | ||||
Dilutive Performance-Based Stock Units | - | - | ||||
Dilutive Weighted Average Shares Outstanding | | | ||||
Basic Net Income (Loss) Per Share of Class A Common Stock | $ | | $ | ( | ||
Diluted Net Income (Loss) Per Share of Class A Common Stock | $ | | $ | ( |
(1) | Unvested shares of restricted stock and RSUs represent participating securities because they participate in nonforfeitable dividends or distributions with the common equity holders of the Company. Participating earnings represent the distributed and undistributed earnings of the Company attributable to participating securities. Unvested RSUs do not participate in undistributed net losses as they are not contractually obligated to do so. |
Shares of Class B common stock are considered potentially dilutive shares of Class A common stock because they may be redeemed for shares of Class A common stock on a
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12.Stock-Based Compensation
Our 2021 Equity Incentive Plan (the “2021 Plan”) allows for the grant of, among other types of awards, stock options; restricted stock; RSUs; and PSUs.
Restricted Stock and Restricted Stock Units
RSU activity during the period was as follows:
| RSUs |
| Weighted-Average Grant Date Fair Value | ||
Outstanding at December 31, 2022 | | $ | | ||
Granted | | | |||
Forfeited | ( | | |||
Vested |