Aris Water Solutions, Inc. Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

Basis of Presentation and Significant Accounting Policies (Policies)

Basis of Presentation and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2025

Basis of Presentation and Significant Accounting Policies

All dollar amounts, except per share/unit amounts, in the condensed consolidated financial statements and tables in the notes are stated in thousands of dollars unless otherwise indicated.

Revision of Previously Issued Financial Statements

Revision of Previously Issued Financial Statements

During April 2025, we identified an error related to the initial calculation of our liability (the "TRA Liability") associated with the Tax Receivable Agreement, dated October 26, 2021, by and among the Company and the other parties thereto (the "Tax Receivable Agreement"), which originated when the TRA Liability was established at the closing of our initial public offering in October 2021. We have determined that the TRA Liability was overstated in our previously issued financial statements beginning with the quarter ended December 31, 2021 through the quarter ended December 31, 2024. The error also impacted the related Deferred Income Tax Assets, Net and Additional Paid-in-Capital balances within the financial statements for the corresponding periods.

We assessed the materiality of the error, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin No. 99 and Staff Accounting Bulletin No. 108, and concluded the error was not material to any of our previously issued quarterly or annual financial statements. However, we determined that it was appropriate to revise the applicable items in our previously issued financial statements. In order to correctly present the TRA Liability and other amounts impacted by the error noted above, the applicable line items included in our previously issued financial statements have been revised and are presented as “As Revised” in the tables below.


(in thousands)		Balance at January 1, 2024
Opening Additional Paid-in-Capital and Total Stockholders' Equity		As Previously Reported		Revision		As Revised
Additional Paid-in-Capital	$	328,543	$	37,223	$	365,766
Total Stockholders' Equity		687,893		37,223		725,116


(in thousands)		Balance at March 31, 2024
Ending Additional Paid-in-Capital and Total Stockholders' Equity		As Previously Reported		Revision		As Revised
Additional Paid-in-Capital	$	333,252	$	37,223	$	370,475
Total Stockholders' Equity		701,402		37,223		738,625


(in thousands)		Balance at January 1, 2025
Opening Additional Paid-in-Capital and Total Stockholders' Equity		As Previously Reported		Revision		As Revised
Additional Paid-in-Capital	$	343,342	$	37,223	$	380,565
Total Stockholders' Equity		735,284		37,223		772,507


(in thousands)		Balance at December 31, 2024
Revised Balance Sheet Amounts		As Previously Reported		Revision		As Revised
Deferred Income Tax Assets, Net	$	13,449	$	(11,714)	$	1,735
Total Assets		1,420,114		(11,714)		1,408,400
Tax Receivable Agreement Liability		98,781		(48,937)		49,844
Total Liabilities		684,830		(48,937)		635,893
Additional Paid-in-Capital		343,342		37,223		380,565
Total Stockholders' Equity Attributable to Aris Water Solutions, Inc.		348,618		37,223		385,841
Total Stockholders' Equity		735,284		37,223		772,507
Total Liabilities and Stockholders' Equity		1,420,114		(11,714)		1,408,400

The error had no impact on the results of operations in our previously reported consolidated statements of operations, including net income or net income per share, or to cash flows in our previously reported consolidated statements of cash flows.

Interim Financial Statements

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, 2024.

Consolidation

We have determined that the members with equity at risk in Aris LLC lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Aris LLC’s economic performance; therefore, Aris LLC is considered a variable interest entity. As the managing member of Aris LLC, we operate and control all of the business and affairs of Aris LLC, as well as have the obligation to absorb losses and the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate Aris LLC.

Noncontrolling Interest

As of March 31, 2025, we own approximately 55% of Aris LLC. Our condensed consolidated financial statements include a noncontrolling interest representing the percentage of Aris LLC units not held by us.

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 long-lived assets, 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, accruals for environmental matters, the income tax provision, valuation allowances for deferred tax assets and our Tax Receivable Agreement (“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.

Business Combinations

Business Combinations

We account for business combinations under Accounting Standard Codification 805 – Business Combinations, which, among other things, requires the allocation of the company’s purchase price to the various assets and liabilities of the acquired business at their respective fair values at the date of acquisition. Any excess of the acquisition price over the fair values of the identifiable assets and liabilities is recorded as goodwill, provided that the criteria for defining a business are met.

We perform valuations of assets acquired and liabilities assumed and allocate the purchase price to the respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. Transaction costs associated with business combinations are expensed as incurred and are in included in “Other Operating Expense, Net” in the condensed consolidated statements of operations.

Reclassification of Prior Year Presentation

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

Significant Accounting Policies

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, 2024 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, 2025.

Fair Value Information

Fair Value Information

The fair value of our 7.250% Senior Notes due 2030 (the “2030 Notes”) and 7.625% Senior Sustainability-Linked Notes due 2026 (the “2026 Notes”), which are both fixed-rate debt, is estimated based on the published market prices for the same or similar issues. Management has designated this measurement as a Level 2 fair value measurement. The fair value of our Credit Facility (as defined below) approximates carrying value as the debt bears interest at a variable rate which is reflective of current rates otherwise available to us. Management has designated this measurement as Level 3. Fair value information regarding our debt is as follows:


(in thousands)	March 31, 2025				December 31, 2024
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
2030 Notes	$	500,000	$	505,415	$	—	$	—
2026 Notes	$	—	$	—	$	400,000	$	400,516
Credit Facility	$	—	$	—	$	44,000	$	44,000

See Note 7. Debt for additional information regarding our debt as of March 31, 2025.

The carrying values of our other financial instruments, consisting of cash, accounts receivable, financing receivable, accounts payable and our insurance premium financing liability, approximate their fair values due to the short maturity of such instruments.

Intangible Assets

Intangible assets are net of accumulated amortization of $180.3 million and $171.5 million at March 31, 2025 and December 31, 2024, respectively.

Related Parties

We and ConocoPhillips, a significant stockholder, and/or its affiliates are parties to long-term water gathering and handling and water supply agreements. Under the water gathering and handling agreements, ConocoPhillips and/or its affiliates have dedicated to us all of the produced water generated from acreage in certain defined areas in the Permian Basin. Under the water supply agreement, which was amended and restated in 2024, we have the first right to supply recycled water and groundwater to ConocoPhillips and its affiliates for their operations in New Mexico within the dedicated acreage.

As of March 31, 2025 and December 31, 2024, we had receivables of $32.1 million and $12.0 million, respectively, from ConocoPhillips that were recorded in “Accounts Receivable from Affiliate” on the condensed consolidated balance sheet. As of March 31, 2025 and December 31, 2024, we had payables of $3.6 million and $0.7 million, respectively, to ConocoPhillips that were recorded in “Payables to Affiliate” on the condensed consolidated balance sheet. Revenues related to ConocoPhillips were $41.6 million and $32.1 million, respectively, for the three months ended March 31, 2025 and 2024.

Collaborative Arrangements

We have a beneficial reuse strategic agreement (the “Joint Industry Project” or “JIP”) with Chevron U.S.A. Inc., ConocoPhillips, Exxon Mobil Corporation and Coterra Energy Inc. (collectively with us, the “alliance members”) to develop and pilot technologies and processes to treat produced water for potential beneficial reuse opportunities. We account for reimbursements of research and development costs under the JIP as contra-expenses in the period such expenses are incurred. This reflects the joint risk sharing nature of these activities within the collaborative arrangement. We classify advance billings or receivables recorded as “Accrued and Other Current Liabilities” or “Other Receivables,” respectively, on our condensed consolidated balance sheet. See Note 3. Additional Financial Statement Information.

Total research and development expense related to the JIP, which is split equally among alliance members, was $2.2 million and $2.6 million, respectively, for the three months ended March 31, 2025 and 2024.

Financing Receivable

Financing Receivable

We have an agreement with a third party to construct and operate a water separation facility on their behalf. The amount due for the construction costs is treated as a financing receivable and is reported on our condensed consolidated balance sheet at its amortized cost. As of March 31, 2025, the remaining discounted balance due from the third party was $2.5 million and is included in “Other Receivables” on the condensed consolidated balance sheet. Income related to services performed to operate the facility is recorded in “Other Revenues.”

Recent Accounting Pronouncements

In November 2024, the FASB issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The amendments in this ASU require public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory, employee compensation and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. Additionally, the amendments also require more granular disclosure regarding total selling expenses and an entity's definition of those expenses. This ASU was updated in January 2025, under ASU 2025-01, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date” to clarify that this ASU is effective for annual periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027 and may be applied prospectively or retrospectively. We are currently assessing the impact of this standard on our condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU primarily relate to the rate reconciliation and income taxes paid disclosures and improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024 and may be applied prospectively or retrospectively. We do not expect a material impact on our condensed consolidated financial statements and related disclosures upon adoption.