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 August 5, 2024, 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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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, 2023 (our “2023 Annual Report”) and found elsewhere in this Quarterly Report, including, but not limited to, the following:
● | the impact of the ongoing Russia-Ukraine and Middle Eastern conflicts on the global economy, including the impact on financial markets and the energy industry; |
● | 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 reliance on a limited number of customers and a particular region for substantially all of our revenues; |
● | the impact of competition on our operations, including our ability to renew or replace expiring contracts on acceptable terms; |
● | the degree to which our exploration and production customers may elect to operate their water-management services in-house rather than outsource these services to companies like us; |
● | 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; |
● | 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 |
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pricing, taxation of emissions, seismic activity, drilling and right-of-way access on governmental lands and various other matters; |
● | delays or restrictions in obtaining, utilizing or maintaining permits and/or rights-of-way by us or our customers; |
● | advances in technologies or practices that reduce the amount of water used or produced in the oil and gas production process, thereby reducing demand for our services; |
● | changes in global political or economic conditions, both generally, and in the specific markets we serve, such as economic slowdown or recession, or uncertainty regarding the timing, pace and extent of an economic recovery; |
● | adverse results from litigation and the use of financial resources to defend ourselves; |
● | physical, electronic and cybersecurity breaches; and |
● | the other risks described in our 2023 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 2023 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) |
| June 30, | December 31, | |||
| 2024 | 2023 | ||||
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 | | | ||||
Insurance Premium Financing Liability | | | ||||
Accrued and Other Current Liabilities | | | ||||
Total Current Liabilities | | | ||||
Long-Term Debt, Net of Debt Issuance Costs | | | ||||
Asset Retirement Obligations | | | ||||
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 | | | ||||
Retained Earnings (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
5
Aris Water Solutions, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||
(in thousands, except for share and per share amounts) | June 30, | June 30, | ||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
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 | | | | | ||||||||
Research and Development Expense | | | | | ||||||||
Other Operating Expense (Income), Net | | ( | | | ||||||||
Total Operating Expenses | | | | | ||||||||
Operating Income | | | | | ||||||||
Other Expense | ||||||||||||
Interest Expense, Net | | | | | ||||||||
Other | — | — | | — | ||||||||
Total Other Expense | | | | | ||||||||
Income Before Income Taxes | | | | | ||||||||
Income Tax Expense | | | | | ||||||||
Net Income | | | | | ||||||||
Net Income Attributable to Noncontrolling Interest | | | | | ||||||||
Net Income Attributable to Aris Water Solutions, Inc. | $ | | $ | | $ | | $ | | ||||
Net Income 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) | Six Months Ended June 30, | |||||
| 2024 |
| 2023 | |||
Cash Flow from Operating Activities | ||||||
Net Income | $ | | $ | | ||
Adjustments to reconcile Net Income to Net Cash provided by Operating Activities: | ||||||
Deferred Income Tax Expense | | | ||||
Depreciation, Amortization and Accretion | | | ||||
Stock-Based Compensation | | | ||||
Abandoned Well Costs | | — | ||||
Loss on Disposal of Assets, Net | | | ||||
Abandoned Projects | | | ||||
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 | ( | ( | ||||
Deposit on Assets Held for Sale | — | | ||||
Proceeds from the Sale of Property, Plant and Equipment | | — | ||||
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 | | | ||||
Payment of Insurance Premium Financing | ( | — | ||||
Net Cash Provided by (Used in) Financing Activities | | ( | ||||
Net Increase in Cash | | | ||||
Cash, Beginning of Period | | | ||||
Cash, End of Period | $ | | $ | | ||
Supplementary Cash Flow Data |
| |||||
Cash Paid for Interest | $ | | $ | | ||
Cash Paid for Income Taxes | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements
7
Aris Water Solutions, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
Three and Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||
(in thousands, except for share and per share amounts) | Class A | Class B | Additional | Retained Earnings | 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, 2024 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | | ||||||||||
Stock-Based Compensation Expense | | | - | - | | - | - | - | ( | | |||||||||||||||||
Deferred Tax Assets Acquired | - | - | - | - | | - | - | - | - | | |||||||||||||||||
Dividends and Distributions ($ | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||
Purchase of Treasury Stock | - | - | - | - | ( | ( | | - | | ( | |||||||||||||||||
Net Income | - | - | - | - | - | - | - | | | | |||||||||||||||||
Balance at March 31, 2024 | $ | | | $ | | | $ | | $ | ( | | $ | | $ | | $ | | ||||||||||
Stock-based Compensation Expense | - | | - | - | | - | - | - | | | |||||||||||||||||
Deferred Tax Liabilities Acquired | - | - | - | - | ( | - | - | - | - | ( | |||||||||||||||||
Dividends and Distributions ($ | - | - | - | - | - | - | - | ( | ( | ( | |||||||||||||||||
Purchase of Treasury Stock | - | - | - | - | - | ( | | - | - | ( | |||||||||||||||||
Net Income | - | - | - | - | - | - | - | | | | |||||||||||||||||
Balance at June 30, 2024 | $ | | | $ | | | $ | | $ | ( | | $ | | $ | | $ | | ||||||||||
Three and Six Months Ended June 30, 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 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | | ||||||||||
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 Income | - | - | - | - | - | - | - | | | | |||||||||||||||||
Balance at June 30, 2023 | $ | | | $ | | | $ | | $ | ( | | $ | ( | $ | | $ | |
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 a 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/unit 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 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, 2023.
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. As the managing member of Solaris LLC, we operate and control all of 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.
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Noncontrolling Interest
As of June 30, 2024, 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 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.
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
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, 2023 for the discussion of our significant accounting policies. There were no significant updates or revisions to our accounting policies during the six months ended June 30, 2024.
Fair Value Information
The fair value of our
(in thousands) | June 30, 2024 | December 31, 2023 | ||||||||||
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, accounts payable and our insurance premium financing liability, approximate their fair values due to the short maturity of such instruments.
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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 June 30, 2024 and December 31, 2023, we had receivables of $
Collaborative Arrangements
We have a beneficial reuse strategic agreement (the “Joint Industry Project” or “JIP”) with Chevron U.S.A. Inc., ConocoPhillips and Exxon Mobil Corporation (collectively with us, the “alliance members”) to develop and pilot technologies and processes to treat produced water for potential beneficial reuse opportunities. We previously referred to this agreement as the Beneficial Reuse Strategic Agreement. 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.
For the three and six months ended June 30, 2024, we incurred $
Recent Accounting Pronouncements
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. Other than the required disclosures, we do not expect a material impact on our condensed consolidated financial statements and related disclosures upon adoption.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU require disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. This ASU is effective for annual periods beginning after December 15, 2024 and should be applied prospectively. Other than the required disclosures,
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we do not expect a material impact on our condensed consolidated financial statements and related disclosures upon adoption.
3.Additional Financial Statement Information
Balance Sheet
Other balance sheet information is as follows:
(in thousands) |
| June 30, | December 31, | |||
| 2024 | 2023 | ||||
Other Receivables | ||||||
Insurance and Third Party Receivables for Remediation Expenses | $ | | $ | | ||
Reimbursable Research and Development Receivable | — | | ||||
Property Insurance Receivable | | | ||||
Reimbursable Projects | | | ||||
Total Other Receivables | $ | | $ | | ||
Prepaids and Deposits | ||||||
Prepaid Insurance | $ | | $ | | ||
Other Prepaids and Deposits | | | ||||
Total Prepaids and Deposits | $ | | $ | | ||
Accrued and Other Current Liabilities | ||||||
Accrued Operating Expense | $ | | $ | | ||
Accrued Capital Costs | | | ||||
Accrued Interest | | | ||||
Accrued Compensation | | | ||||
Sales Tax Payable | | | ||||
| | |||||
Contingent Consideration Liability | | | ||||
Other | | | ||||
Total Accrued and Other Current Liabilities | $ | | $ | | ||
Other Long-Term 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 | Six Months Ended | ||||||||||
June 30, | June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
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 (Income), Net | ||||||||||||
Loss on Disposal of Assets, Net | $ | | $ | | $ | | $ | | ||||
Abandoned Projects | | | | | ||||||||
Abandoned Well Costs | ( | — | | — | ||||||||
Transaction Costs | | | | | ||||||||
Other | ( | ( | ( | ( | ||||||||
Other Operating Expense (Income), Net | $ | | $ | ( | $ | | $ | | ||||
Interest Expense | ||||||||||||
Interest on Debt Instruments | $ | | $ | | $ | | $ | | ||||
Amortization of Debt Issuance Costs | | | | | ||||||||
Total Interest Expense | | | | | ||||||||
Less: Capitalized Interest | ( | ( | ( | ( | ||||||||
Total 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) |
| June 30, | December 31, | |||
| 2024 | 2023 | ||||
Wells, Facilities, Water Ponds and Related Equipment | $ | | $ | | ||
Pipelines | | | ||||
Vehicles, Equipment, Computers and Office Furniture | | | ||||
Assets Subject to Depreciation | | | ||||
Land | | | ||||
Projects and Construction in Progress | | | ||||
Total Property, Plant and Equipment | | | ||||
Accumulated Depreciation | ( | ( | ||||
Total Property, Plant and Equipment, Net | $ | | $ | |
Accrued PP&E additions totaled $
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Abandoned Projects
During the first quarter of 2024, we recorded $
Assets Held for Sale
During the second quarter of 2023, management entered into a letter of intent with a third party to sell certain of our assets. These assets met the criteria for classification as assets held for sale as of June 30, 2023, and we received a $
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
As of June 30, 2024 and December 31, 2023, the TRA liability totaled $
If we experience a change of control (as defined under the TRA, which includes certain mergers, asset sales and other forms of business combinations and change of control events) or the TRA terminates early (at our election or as a result of our breach), we could be required to make an immediate lump-sum payment (or “early termination payment”) under the terms of the TRA, which can be significantly impacted by the closing price of our Class A shares on the applicable redemption date. We currently do not anticipate experiencing a change of control or an early termination of the TRA.
6.Debt
Our debt consists of the following:
(in thousands) |
| June 30, | December 31, | |||
| 2024 | 2023 | ||||
$ | | $ | | |||
Credit Facility | | | ||||
Total Long-Term Debt | | | ||||
Less: Unamortized Debt Issuance Costs | ( | ( | ||||
Total Long-Term Debt, Net of Debt Issuance Costs | $ | | $ | | ||
Insurance Premium Financing Liability | $ | | $ | | ||
Total Debt | $ | | $ | |
(1) | Credit Facility borrowings bore weighted average interest rates of |
14
Senior Sustainability-Linked Notes
Our
Credit Facility
Our amended and restated credit agreement (as it may be amended and/or restated from time to time, the “Credit Agreement”) provides for, among other things, (i) commitments of $
The Credit Facility provides for:
i. | Base rate borrowings that bear interest at the highest of (a) the prime rate, (b) the federal funds effective rate plus |
ii. | SOFR borrowings that bear interest at Term SOFR plus SOFR Adjustment of |
In addition, the Credit Facility provides for commitment fee rates that range from
As of June 30, 2024, 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. As of June 30, 2024, we were in compliance with all covenants contained in the Credit Facility.
Insurance Premium Financing
In the fourth quarter of 2023, we entered into a short-term agreement with a third-party to finance certain insurance premiums for an aggregate amount of $
15
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) | June 30, |
| December 31, | ||||
Classification | 2024 | 2023 | |||||
Assets | |||||||
Right-of-Use Assets | Right-of-Use Assets | $ | | $ | | ||
Liabilities | |||||||
Current Lease Liabilities | $ | | $ | | |||
Noncurrent Lease Liabilities | | |
Statement of Operations Information
The following table provides the components of lease cost, excluding lease costs related to short-term leases:
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||
2024 |
| 2023 | 2024 |
| 2023 | ||||||
Direct Operating Costs | $ | | $ | | $ | | $ | | |||
General and Administrative | | | | | |||||||
Total Lease Cost | $ | | $ | | $ | | $ | |
Short-Term Leases
Our short-term lease costs, which consisted primarily of field equipment rentals, totaled $
Cash Flow Information
The following table summarizes supplemental cash flow information related to leases:
(in thousands) | Six Months Ended June 30, | ||||
2024 |
| 2023 | |||
Cash Paid for Amounts Included in Lease Liabilities | $ | | $ | | |
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities, Net | | |
Lease Terms and Discount Rates
The following table provides lease terms and discount rates related to leases:
June 30, 2024 | December 31, 2023 | |||||
Weighted Average Remaining Lease Term (Years) | 7.2 | |||||
Weighted Average Discount Rate | 6.34% |
16
Annual Lease Maturities
The following table provides maturities of lease liabilities at June 30, 2024:
(in thousands) | ||||
Remainder of 2024 | $ | | ||
2025 | | |||
2026 | | |||
2027 | | |||
2028 | | |||
Thereafter | | |||
Total Lease Payments | | |||
Less: Interest | ( | |||
$ | |
Subleases
During the fourth quarter of 2023, we entered into
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
We recorded income tax expense of $
Effective Tax Rate
We record our income tax expense using an estimated annual effective tax rate (“ETR”) and recognize specific events discretely as they occur. The ETR for the six months ended June 30, 2024 and 2023 was
17
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. The balance of our “Deferred Income Tax Assets, Net” on the condensed consolidated balance sheet decreased $
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 2019 through 2023.
9.Stockholders’ Equity
Redemptions
During the six months ended June 30, 2024 and 2023,
Dividends and Distributions
Our Board of Directors declared a dividend of $
Our Board of Directors declared a dividend on our Class A common stock for the third quarter of 2024 of $
Treasury Stock
During the six months ended June 30, 2024 and 2023,
In connection with an asset acquisition in 2022, certain shares of our Class A common stock issued to the seller were held in escrow and could be released to the Company under certain conditions, including for the reimbursement of certain post-acquisition workover costs pursuant to the terms of the asset purchase agreement. During the first quarter of 2024,
18
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 consolidated financial statements.
Delivery Commitment
We have an agreement with an unaffiliated water disposal company to dispose of a minimum volume of produced water. As of June 30, 2024, the remaining term of this commitment was
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 June 30, 2024, we had 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 and six months ended June 30, 2024, we recognized $
11.Earnings Per Share
Net Income Per Share
Basic and diluted net income per share attributable to our Class A common stock is computed by dividing net income 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.
19
The following table sets forth the computation of basic and diluted net income per share attributable to our Class A common stock for the periods indicated:
(in thousands, except for share and per share amounts) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||
2024 | 2023 | 2024 | 2023 | ||||||||
Net Income Attributable to Stockholders' Equity | $ | | $ | | $ | | $ | | |||
Less: Net Income Attributable to Noncontrolling Interest | | | | | |||||||
Net Income Attributable to Aris Water Solutions, Inc. | | | | | |||||||
Participating Basic Earnings (1) | ( | ( | ( | ( | |||||||
Basic Net Income Attributable to Aris Water Solutions, Inc. | $ | | $ | | $ | | $ | | |||
Reallocation of Participating Net Income | - | - | - | - | |||||||
Diluted Net Income Attributable to Aris Water Solutions, Inc. | $ | | $ | | $ | | $ | | |||
Basic Weighted Average Shares Outstanding | | | | | |||||||
Dilutive Performance-Based Stock Units | | - | | - | |||||||
Dilutive Weighted Average Shares Outstanding | | | | | |||||||
Basic Net Income Per Share of Class A Common Stock | $ | | $ | | $ | | $ | | |||
Diluted Net Income 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
A total of
12.Stock-Based Compensation
Our 2021 Equity Incentive Plan allows for the grant of, among other types of awards, stock options; restricted stock; RSUs; and PSUs.
20
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, 2023 | | $ | | ||
Granted | | | |||
Forfeited | ( | | |||
Vested | ( | | |||
Outstanding at June 30, 2024 | | $ | |
The RSUs generally vest in the following installments: (i) roximately $
Performance-Based Restricted Stock Units
PSU activity during the period was as follows:
| PSUs |
| Weighted-Average Grant Date Fair Value | ||
Outstanding at December 31, 2023 | | $ | | ||
Granted | | | |||
Forfeited | ( | | |||
Outstanding at June 30, 2024 | | $ | |
The PSUs granted in 2024 were granted to management under the 2021 Plan and have the following performance criteria:
● | Relative PSUs: |
● | Absolute PSUs: |
The vesting and payout of the PSUs occur when the related service condition is completed, which is approximately
The grant date fair value was determined using the Monte Carlo simulation method and is expensed ratably over the service period. Expected volatilities used in the fair value simulation were estimated using historical periods consistent with the remaining performance periods. The risk-free rate was based on the U.S. Treasury rate for a term commensurate with the expected life of the grant.
21
We used the following assumptions to estimate the fair value of PSUs granted during the six months ended June 30, 2024:
Assumptions | ||||
Risk-free Interest Rate | ||||
Volatility Range |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our historical performance, financial condition and prospects in conjunction with our unaudited condensed consolidated financial statements, and notes thereto, as of and for the three and six months ended June 30, 2024, included elsewhere in this report, as well as our 2023 Annual Report, which includes disclosures regarding our significant accounting policies and critical accounting estimates as part of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” During the period covered by this report, there were no material changes to the significant accounting policies and critical accounting estimates disclosed in the 2023 Annual Report.
The information provided below supplements, but does not form part of, our historical financial statements. This discussion includes forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements because of various risk factors, including those that may not be in the control of management. See Cautionary Note Regarding Forward-Looking Statements.
Business Overview
We are a leading, growth-oriented environmental infrastructure and solutions company that directly helps our customers reduce their water and carbon footprints. We deliver full-cycle water handling and recycling solutions that increase the sustainability of energy company operations. Our integrated pipelines and related infrastructure create long-term value by delivering high-capacity, comprehensive produced water management, recycling and supply solutions to operators in the core areas of the Permian Basin.
Second Quarter 2024 Results
Significant financial and operating highlights for the three months ended June 30, 2024 include:
● | Total produced water handling volumes sold of 1,093 thousand barrels of water per day (“kbwpd”), an increase of 5% as compared with the second quarter of 2023 |
● | Total water solutions volumes sold of 362 kbwpd, a decrease of 20% as compared with the second quarter of 2023 |
● | Direct operating costs per barrel of $0.30, a decrease of 9% as compared with the second quarter of 2023 |
● | Gross margin per barrel of $0.31, an increase of 29% as compared with the second quarter of 2023 |
● | Adjusted Operating Margin per Barrel (non-GAAP financial measure) of $0.46, an increase of 21% as compared with the second quarter of 2023 |
● | Total revenue of $101.1 million, an increase of 5% as compared with the second quarter of 2023 |
● | Net income of $13.1 million, an increase of 26% as compared with the second quarter of 2023 |
22
● | Adjusted EBITDA (non-GAAP financial measure) of $50.0 million, an increase of 17% as compared with the second quarter of 2023 |
● | Dividend paid on our Class A common stock for the second quarter of 2024 of $0.105 per share, along with a distribution of $0.105 per unit paid to unit holders of Solaris LLC, an increase of 17% as compared with the dividend paid during the second quarter of 2023 |
For additional information regarding our non-GAAP financial measures, see Non-GAAP Financial Measures below.
Beneficial Reuse Projects
We have a beneficial reuse strategic agreement (the “Joint Industry Project” or “JIP”) with Chevron U.S.A. Inc., ConocoPhillips and Exxon Mobil Corporation (collectively with us, the “alliance members”) to develop and pilot technologies and processes to treat produced water for potential beneficial reuse opportunities. We previously referred to this agreement as the Beneficial Reuse Strategic Agreement. Our goal under the JIP is to develop cost effective and scalable methods of treating produced water to create a potential water source for industrial, commercial and non-consumptive agricultural purposes. We are leading the engineering, construction and execution of the testing protocols and pilot projects, while leveraging the combined technical expertise of Chevron U.S.A., ConocoPhillips and ExxonMobil. The treated water may be reused in a variety of ongoing research projects, including non-consumptive agriculture, low emission hydrogen production and the direct air capture of atmospheric carbon dioxide. Aris Inc. and the other alliance members are working with appropriate regulators, with a goal to complete Phase 1 testing and performance evaluation of pilot technologies by the end of 2024.
In April 2024, we signed an agreement with the National Alliance for Water Innovation to further investigate treatment of produced water using one of the pilot technologies, working with alliance members and Texas A&M University, New Mexico State University, OLI Systems, Inc. and SLAC National Accelerator Laboratory.
Research Grant by the Department of Energy
In December 2023, we were selected by the Department of Energy (“DOE”) to receive a research grant related to the treatment and desalination of produced water as an irrigation source for non-consumptive agriculture. The grant, which is currently in the negotiation phase, will allow us to expand our beneficial reuse for agriculture studies, following up on a greenhouse study conducted with Texas A&M AgriLife that used desalinated produced water to grow cotton and grasses. A wide range of partners from academia, agriculture and the oil and gas industry are expected to contribute to the DOE study, which Aris Inc. will continue to lead. The study is designed to demonstrate and optimize field-scale produced water treatment and desalination which is customized for irrigation of non-consumptive crops such as cotton and biofuels.
In addition, the study is expected to evaluate the extraction of valuable minerals and constituents contained in the produced water, such as ammonia, with the objective of investigating direct-use products for the agriculture industry. Importantly, the study is expected to support further evaluation of carbon sequestration benefits that are related to specific agricultural applications using treated produced water.
Mineral Extraction Agreement
In the second quarter of 2024, we signed a letter of intent with a development partner to construct an iodine extraction facility at one of our Permian Basin produced water management facilities. We anticipate that this first iodine extraction facility in the Permian Basin will be operational by year-end 2025.
23
General Trends and Outlook
Market Dynamics
The ongoing Russia-Ukraine conflict has had, and the ongoing Middle Eastern conflict may also have, significant global economic implications and impacts on financial markets and the energy industry. The extent of these impacts will depend on the severity and duration of these conflicts and whether the conflicts spread to other countries or regions.
In addition, commodity prices continue to be volatile as they are impacted by multiple factors such as supply disruptions, current recessionary concerns and responses of the Organization of Petroleum Exporting Countries and other oil exporting nations to market conditions. During the three and six months ended June 30, 2024, the average West Texas Intermediate (“WTI”) crude oil spot price was $81.81 and $79.69, respectively, as compared with average WTI spot prices of $73.54 and $74.73 during the three and six months ended June 30, 2023, respectively.
We believe there are several industry trends that continue to provide meaningful support for future growth. Our key customers’ capital allocation to the Permian Basin and New Mexico in particular remains consistent and significant, including on acreage where the water sourcing and production is dedicated to us. Permian Basin oil and associated water production growth continues to outpace production growth in other parts of the United States.
Many industry trends such as simultaneous multi-well operations and reuse applications of produced water, particularly in the areas of the Permian Basin where we operate, are improving efficiencies and returns and provide us with significant opportunities for both our Produced Water Handling and Water Solutions businesses.
Cost Inflation
Since 2021, the U.S. has experienced increased wage and price inflation, as evidenced by increases in the Consumer Price Index (“CPI”). Although the current rate of consumer inflation has eased, core inflation remains elevated above the Federal Reserve’s 2% target rate. The degree of inflation, and length of time it continues, will be impacted by any further steps the U.S. Federal Reserve Bank takes to combat inflationary pressures, such as by continuing to adjust interest rates.
Our long-term, fee-based produced water handling contracts are generally subject to annual CPI-based adjustments. However, many of our contractual CPI-based adjustments are capped at a maximum annual increase and, therefore, our costs may increase more rapidly than the fees that we charge to customers pursuant to our contracts with them. If inflation in the CPI is higher than our contractually allowed fee increases, we could experience negative impacts to our operating margins.
Seismicity
We operate wells located in Seismic Response Areas in New Mexico and Texas, one of which is partially curtailed. Due to the integrated nature of our pipeline network and our system-wide redundancy, we have been able to adapt to regulator responses to seismic activity, while continuing to provide service to our customers without material disruption in our operations. In addition, although we cannot anticipate with any certainty future regulatory actions and the effect such actions could have on our business, our compliance with state regulator seismic response actions to date has not resulted in any material volumetric, revenue or cash flow decreases.
24
Results of Operations
Results of operations were as follows for the three-month periods ended June 30, 2024 and 2023:
(in thousands) | Three Months Ended June 30, |
| |||||||||||
| 2024 |
| 2023 |
| 2024 vs. 2023 | ||||||||
Revenue |
|
|
|
|
|
|
|
| |||||
Produced Water Handling | $ | 54,815 | $ | 49,716 | $ | 5,099 | 10 | % | |||||
Produced Water Handling—Affiliates |
| 28,614 | 23,181 | 5,433 | 23 | % | |||||||
Water Solutions |
| 13,795 | 14,928 | (1,133) | (8) | % | |||||||
Water Solutions—Affiliates |
| 3,453 | 8,163 | (4,710) | (58) | % | |||||||
Other Revenue | 440 | 645 | (205) | (32) | % | ||||||||
Total Revenue |
| 101,117 | 96,633 | 4,484 | 5 | % | |||||||
Cost of Revenue |
| ||||||||||||
Direct Operating Costs |
| 40,194 | 44,446 | (4,252) | (10) | % | |||||||
Depreciation, Amortization and Accretion |
| 19,707 | 19,086 | 621 | 3 | % | |||||||
Total Cost of Revenue |
| 59,901 | 63,532 | (3,631) | (6) | % | |||||||
Operating Costs and Expenses |
| ||||||||||||
General and Administrative |
| 16,037 | 12,682 | 3,355 | 26 | % | |||||||
Research and Development Expense | 1,128 | 650 | 478 | 74 | % | ||||||||
Other Operating Expense (Income), Net |
| 132 | (192) | 324 | (169) | % | |||||||
Total Operating Expenses |
| 17,297 | 13,140 | 4,157 | 32 | % | |||||||
Operating Income |
| 23,919 | 19,961 | 3,958 | 20 | % | |||||||
Interest Expense, Net |
| 8,813 | 7,971 | 842 | 11 | % | |||||||
Income Before Income Taxes |
| 15,106 | 11,990 | 3,116 | 26 | % | |||||||
Income Tax Expense |
| 1,994 | 1,559 | 435 | 28 | % | |||||||
Net Income | $ | 13,112 | $ | 10,431 | $ | 2,681 | 26 | % | |||||
N/M Not Meaningful |
25
Results of operations were as follows for the six-month periods ended June 30, 2024 and 2023:
(in thousands) | Six Months Ended June 30, |
| |||||||||||
| 2024 |
| 2023 |
| 2024 vs. 2023 | ||||||||
Revenue |
|
|
|
|
|
|
|
| |||||
Produced Water Handling | $ | 113,921 | $ | 95,816 | $ | 18,105 | 19 | % | |||||
Produced Water Handling—Affiliate |
| 55,441 | 46,321 | 9,120 | 20 | % | |||||||
Water Solutions |
| 25,497 | 28,810 | (3,313) | (11) | % | |||||||
Water Solutions—Affiliate |
| 8,695 | 16,147 | (7,452) | (46) | % | |||||||
Other Revenue | 969 | 1,110 | (141) | (13) | % | ||||||||
Total Revenue |
| 204,523 | 188,204 | 16,319 | 9 | % | |||||||
Cost of Revenue |
| ||||||||||||
Direct Operating Costs |
| 79,840 | 88,291 | (8,451) | (10) | % | |||||||
Depreciation, Amortization and Accretion |
| 39,128 | 37,692 | 1,436 | 4 | % | |||||||
Total Cost of Revenue |
| 118,968 | 125,983 | (7,015) | (6) | % | |||||||
Operating Costs and Expenses |
| ||||||||||||
General and Administrative |
| 30,538 | 24,481 | 6,057 | 25 | % | |||||||
Research and Development Expense | 2,193 | 1,058 | 1,135 | 107 | % | ||||||||
Other Operating Expense, Net |
| 1,047 | 25 | 1,022 | 4,088 | % | |||||||
Total Operating Expenses |
| 33,778 | 25,564 | 8,214 | 32 | % | |||||||
Operating Income |
| 51,777 | 36,657 | 15,120 | 41 | % | |||||||
Other Expense |
| ||||||||||||
Interest Expense, Net |
| 17,251 | 15,632 | 1,619 | 10 | % | |||||||
Other | 1 | — | 1 | N/M | % | ||||||||
Income Before Income Taxes |
| 34,525 | 21,025 | 13,500 | 64 | % | |||||||
Income Tax Expense |
| 4,583 | 2,886 | 1,697 | 59 | % | |||||||
Net Income | $ | 29,942 | $ | 18,139 | $ | 11,803 | 65 | % | |||||
N/M Not Meaningful |
Operating Metrics
The amount of revenue we generate primarily depends on the volumes of water which we handle for, sell to or transfer for our customers.
26
Our volumes were as follows for the three-month periods ended June 30, 2024 and 2023:
Three Months Ended | ||||||||||||
June 30, | ||||||||||||
| 2024 |
| 2023 | 2024 vs. 2023 | ||||||||
(thousands of barrels of water per day) | ||||||||||||
Produced Water Handling Volumes | 1,093 | 1,045 | 48 | 5 | % | |||||||
Water Solutions Volumes | ||||||||||||
Recycled Produced Water Volumes Sold | 314 | 296 | 18 | 6 | % | |||||||
Groundwater Volumes Sold | 48 | 156 | (108) | (69) | % | |||||||
Total Water Solutions Volumes | 362 | 452 | (90) | (20) | % | |||||||
Total Volumes | 1,455 | 1,497 | (42) | (3) | % | |||||||
Per Barrel Operating Metrics (1) | ||||||||||||
Produced Water Handling Revenue/Barrel | $ | 0.84 | $ | 0.77 | $ | 0.07 | 9 | % | ||||
Water Solutions Revenue/Barrel | $ | 0.52 | $ | 0.56 | $ | (0.04) | (7) | % | ||||
Revenue/Barrel of Total Volumes (2) | $ | 0.76 | $ | 0.70 | $ | 0.06 | 9 | % | ||||
Direct Operating Costs/Barrel | $ | 0.30 | $ | 0.33 | $ | (0.03) | (9) | % | ||||
Gross Margin/Barrel | $ | 0.31 | $ | 0.24 | $ | 0.07 | 29 | % | ||||
Adjusted Operating Margin/Barrel (3) | $ | 0.46 | $ | 0.38 | $ | 0.08 | 21 | % |
(1) | Per barrel operating metrics are calculated independently. Therefore, the sum of individual amounts may not equal the total presented. |
(2) | Does not include Other Revenue. |
(3) | See Non-GAAP Financial Measures below. |
Our volumes were as follows for the six-month periods ended June 30, 2024 and 2023:
Six Months Ended | ||||||||||||
June 30, | ||||||||||||
| 2024 |
| 2023 | 2024 vs. 2023 | ||||||||
(thousands of barrels of water per day) | ||||||||||||
Produced Water Handling Volumes | 1,126 | 1,008 | 118 | 12 | % | |||||||
Water Solutions Volumes | ||||||||||||
Recycled Produced Water Volumes Sold | 325 | 277 | 48 | 17 | % | |||||||
Groundwater Volumes Sold | 38 | 151 | (113) | (75) | % | |||||||
Total Water Solutions Volumes | 363 | 428 | (65) | (15) | % | |||||||
Total Volumes | 1,489 | 1,436 | 53 | 4 | % | |||||||
Per Barrel Operating Metrics (1) | ||||||||||||
Produced Water Handling Revenue/Barrel | $ | 0.83 | $ | 0.78 | $ | 0.05 | 6 | % | ||||
Water Solutions Revenue/Barrel | $ | 0.52 | $ | 0.58 | $ | (0.06) | (10) | % | ||||
Revenue/Barrel of Total Volumes (2) | $ | 0.75 | $ | 0.72 | $ | 0.03 | 4 | % | ||||
Direct Operating Costs/Barrel | $ | 0.29 | $ | 0.34 | $ | (0.05) | (15) | % | ||||
Gross Margin/Barrel | $ | 0.32 | $ | 0.24 | $ | 0.08 | 33 | % | ||||
Adjusted Operating Margin/Barrel (3) | $ | 0.46 | $ | 0.38 | $ | 0.08 | 21 | % |
(1) | Per barrel operating metrics are calculated independently. Therefore, the sum of individual amounts may not equal the total presented. |
(2) | Does not include Other Revenue. |
(3) | See Non-GAAP Financial Measures below. |
27
Our skim oil volumes recovered were as follows for the three-month periods ended June 30, 2024 and 2023:
Three Months Ended | ||||||||||||
June 30, | ||||||||||||
| 2024 |
| 2023 | 2024 vs. 2023 | ||||||||
Skim Oil Volumes (bpd) | 1,490 | 1,042 | 448 | 43 | % | |||||||
Skim Oil Volumes/Produced Water Handling Volumes | 0.14% | 0.10% | 0.04% | 40 | % | |||||||
Skim Oil Sales Revenue/Barrel of Skim Oil (1) | $ | 72.58 | $ | 65.44 | $ | 7.14 | 11 | % |
(1) | Skim oil price received from the purchaser is net of certain customary deductions. |
Our skim oil volumes recovered were as follows for the six-month periods ended June 30, 2024 and 2023:
Six Months Ended | ||||||||||||
June 30, | ||||||||||||
| 2024 |
| 2023 | 2024 vs. 2023 | ||||||||
Skim Oil Volumes (bpd) | 1,610 | 1,194 | 416 | 35 | % | |||||||
Skim Oil Volumes/Produced Water Handling Volumes | 0.14% | 0.12% | 0.02% | 17 | % | |||||||
Skim Oil Sales Revenue/Barrel of Skim Oil (1) | $ | 70.50 | $ | 67.18 | $ | 3.32 | 5 | % |
(1) | Skim oil price received from the purchaser is net of certain customary deductions. |
Revenues
An analysis of revenues is as follows:
Produced Water Handling Revenues
Total produced water handling revenues and produced water handling revenues per barrel were as follows for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||
(in thousands, except per unit amounts) | June 30, | June 30, | ||||||||||
2024 |
| 2023 | 2024 | 2023 | ||||||||
Produced Water Handling Fees | $ | 73,586 | $ | 66,690 | $ | 148,709 | $ | 127,614 | ||||
Skim Oil Sales Revenue | 9,843 | 6,207 | 20,653 | 14,523 | ||||||||
Total Produced Water Handling Revenue | $ | 83,429 | $ | 72,897 | $ | 169,362 | $ | 142,137 | ||||
Produced Water Handling Fees/Bbl | $ | 0.74 | $ | 0.70 | $ | 0.73 | $ | 0.70 | ||||
Skim Oil Sales Revenue/Bbl | 0.10 | 0.07 | 0.10 | 0.08 | ||||||||
Total Produced Water Handling Revenue/Bbl | $ | 0.84 | $ | 0.77 | $ | 0.83 | $ | 0.78 |
Produced water handling revenues increased for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023 primarily due to:
● | an increase of $6.9 million related to a 48 kbwpd volume increase driven by activity associated with our long-term acreage dedication agreements and higher prices, and |
● | an increase of $3.6 million in skim oil sales revenue due to increased volumes on the system and higher skim oil recoveries per barrel of produced water received. |
Produced water handling revenues increased for the six months ended June 30, 2024 as compared with the six months ended June 30, 2023 primarily due to:
● | an increase of $21.1 million related to a 118 kbwpd volume increase driven by activity associated with our long-term acreage dedication agreements and higher prices, and |
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● | an increase of $6.1 million in skim oil sales revenue due to increased volumes on the system and higher skim oil recoveries per barrel of produced water received. |
Water Solutions Revenue
Water solutions revenues had a net decrease for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023 primarily due to a $6.9 million decrease related to a 108 kbwpd groundwater volume decrease as a result of a shift towards providing more recycled produced water as a proportion of total water solutions volumes, partially offset by a $1.7 million increase related to higher prices for recycled volumes sold.
Water solutions revenues had a net decrease for the six months ended June 30, 2024 as compared with the six months ended June 30, 2023 primarily due to a $15.5 million decrease related to a 113 kbwpd groundwater volume decrease as a result of a shift towards providing more recycled produced water as a proportion of total water solutions volumes, partially offset by a $4.4 million increase related to a 48 kbwpd volume increase in recycled volumes sold and a $2.1 million increase related to higher prices for recycled volumes sold.
Expenses
An analysis of expenses is as follows:
Direct Operating Costs
Direct operating costs decreased $4.3 million for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023 primarily due to a $5.0 million decrease in groundwater purchases related to lower groundwater volumes sold for water solutions. The decrease in direct operating costs during the three months ended June 30, 2024 also included lower electricity and fuel costs due to continued electrification of facilities, partially offset by higher workover expenses. On a per barrel basis, direct operating costs decreased $0.03 quarter over quarter, primarily due to a decrease in groundwater purchases and lower electricity and fuel costs at produced water handling and recycling facilities, partially offset by higher workover expenses.
Direct operating costs decreased $8.5 million for the six months ended June 30, 2024 as compared with the six months ended June 30, 2023 primarily due to a $9.9 million decrease in groundwater purchases related to lower groundwater volumes sold for water solutions. The decrease in direct operating costs during the six months ended June 30, 2024 also included lower electricity and fuel costs due to continued electrification of facilities, partially offset by higher workover expenses and higher repairs and maintenance expenses at recycling and produced water handling facilities. On a per barrel basis, direct operating costs decreased $0.05 year over year, primarily due to a decrease in groundwater purchases and lower electricity and fuel costs at produced water handling and recycling facilities.
Depreciation, Amortization and Accretion Expenses
Depreciation, amortization and accretion expense for the three and six months ended June 30, 2024 as compared with the three and six months ended June 30, 2023 slightly increased due to higher depreciation expense related to new assets placed in service.
General and Administrative Expenses
General and administrative (“G&A”) expenses increased $3.4 million for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023 primarily due to a $1.5 million increase in stock-based compensation expense, which was $4.4 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively. The increase in G&A expenses during the three months ended June 30,
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2024 also included higher compensation and benefits expenses related to higher headcount, higher legal fees, higher insurance expense and higher office rent expense primarily related to our new corporate office lease.
G&A expenses increased $6.1 million for the six months ended June 30, 2024 as compared with the six months ended June 30, 2023, and included a $2.4 million increase in stock-based compensation expense, which was $7.6 million and $5.2 million for the six months ended June 30, 2024 and 2023, respectively. The increase in G&A expenses during the six months ended June 30, 2024 also included higher compensation and benefits expenses related to higher headcount, higher legal fees, higher insurance expense and higher office rent expense primarily related to our new corporate office lease.
Research and Development Expense
Research and development expense is related to the development of technologies for the beneficial reuse of produced water. Research and development expense increased for the three and six months ended June 30, 2024 as compared with the three and six months ended June 30, 2023 due to internal beneficial reuse research and development, as well as the JIP, as described above.
For the three months ended June 30, 2024 and 2023, we incurred $2.6 million and $2.0 million, respectively, in total research and development expenses relating to the JIP, of which $0.7 million and $0.5 million was the Company’s share, respectively. For the six months ended June 30, 2024 and 2023, we incurred $5.2 million and $2.1 million, respectively, in total research and development expenses relating to the JIP, of which $1.3 million and $0.5 million was the Company’s share, respectively.
Other Operating Expense (Income), Net
Other operating expense (income), net includes net gains and losses on asset sales, abandoned projects, abandoned well costs, transaction costs and other expenses. See Item 1. Financial Statements ─ Note 3. Additional Financial Statement Information and Note 4. Property, Plant and Equipment.
Interest Expense, Net
Components of interest expense, net are as follows for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||
(in thousands) | June 30, | June 30, | ||||||||||
2024 |
| 2023 | 2024 | 2023 | ||||||||
Interest on Debt Instruments | $ | 8,596 | $ | 8,543 | $ | 16,897 | $ | 17,104 | ||||
Amortization of Debt Issuance Costs | 763 | 608 | 1,529 | 1,218 | ||||||||
Total Interest Expense | 9,359 | 9,151 | 18,426 | 18,322 | ||||||||
Less: Amounts Capitalized | (546) | (1,180) | (1,175) | (2,690) | ||||||||
Interest Expense, Net | $ | 8,813 | $ | 7,971 | $ | 17,251 | $ | 15,632 |
Total interest expense for the three and six months ended June 30, 2024 remained relatively flat as compared with the three and six months ended June 30, 2023. The average outstanding debt balance for the three months ended June 30, 2024 was $438 million compared with $447 million for the three months ended June 30, 2023. The average outstanding debt balance for the six months ended June 30, 2024 was $432 million compared with $446 million for the six months ended June 30, 2023. Interest expense, net for the three and six months ended June 30, 2024 increased as compared with the three and six months ended June 30, 2023 due to a decrease in offsetting capitalized interest as a result of a decrease in assets under construction.
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Non-GAAP Financial Measures
Adjusted EBITDA, Adjusted Operating Margin and Adjusted Operating Margin Per Barrel are supplemental non-GAAP measures that we use to evaluate current, past and expected future performance. Although these non-GAAP financial measures are important factors in assessing our operating results and cash flows, they should not be considered in isolation or as a substitute for net income or gross margin or any other measures prepared under GAAP.
We believe this presentation is used by investors and professional research analysts for the valuation, comparison, rating, and investment recommendations of companies within our industry. Additionally, we use this information for comparative purposes within our industry. Adjusted EBITDA, Adjusted Operating Margin and Adjusted Operating Margin per Barrel are not measures of financial performance under GAAP and should not be considered as measures of liquidity or as alternatives to net income or gross margin. Adjusted EBITDA, Adjusted Operating Margin and Adjusted Operating Margin per Barrel as defined by us may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income and other measures prepared in accordance with GAAP, such as gross margin, operating income or cash flows from operating activities.
Adjusted EBITDA
We use Adjusted EBITDA as a performance measure to assess the ability of our assets to generate sufficient cash to pay interest costs, support indebtedness and, at the discretion of our Board of Directors, return capital to equity holders. We also use Adjusted EBITDA as a performance measure under our short-term incentive plan. We define Adjusted EBITDA as net income (loss) plus: interest expense; income taxes; depreciation, amortization and accretion expense; abandoned well costs, asset impairment and abandoned project charges; losses on the sale of assets; transaction costs; research and development expense; change in payables related to the Tax Receivable Agreement liability as a result of state tax rate changes; loss on debt modification; stock-based compensation expense; and other non-recurring or unusual expenses or charges (such as litigation expenses and severance costs), less any gains on the sale of assets.
Adjusted Operating Margin and Adjusted Operating Margin per Barrel
Our Adjusted Operating Margin and Adjusted Operating Margin per Barrel are dependent upon the volume of produced water we gather and handle, the volume of recycled water and groundwater we sell and transfer, the fees we charge for such services and the recurring operating expenses we incur to perform such services. We define Adjusted Operating Margin as Gross Margin plus depreciation, amortization and accretion. We define Adjusted Operating Margin per Barrel as Adjusted Operating Margin divided by total volumes handled, sold or transferred. Adjusted Operating Margin and Adjusted Operating Margin per Barrel are non-GAAP financial measures.
We seek to maximize our Adjusted Operating Margin in part by minimizing, to the extent appropriate, expenses directly tied to operating our assets. Landowner royalties, utilities, direct labor costs, chemical costs, workover, repair and maintenance costs and contract services comprise the most significant portion of our expenses. Our operating expenses are largely variable and as such, generally fluctuate in correlation with throughput volumes.
Our Adjusted Operating Margin incrementally benefits from increased Water Solutions recycled water sales. When produced water is recycled, we recognize cost savings from reduced landowner royalties, reduced pumping costs, lower chemical treatment and filtration costs and reduced power consumption.
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The following table sets forth a reconciliation of net income as determined in accordance with GAAP to Adjusted EBITDA and Gross Margin as determined in accordance with GAAP to Adjusted Operating Margin for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||
(in thousands) | June 30, | June 30, | ||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net Income | $ | 13,112 | $ | 10,431 | $ | 29,942 | $ | 18,139 | ||||
Interest Expense, Net | 8,813 | 7,971 | 17,251 | 15,632 | ||||||||
Income Tax Expense | 1,994 | 1,559 | 4,583 | 2,886 | ||||||||
Depreciation, Amortization and Accretion | 19,707 | 19,086 | 39,128 | 37,692 | ||||||||
Abandoned Well Costs | (25) | — | 310 | — | ||||||||
Stock-Based Compensation | 4,693 | 3,117 | 8,214 | 5,585 | ||||||||
Abandoned Projects | 16 | 128 | 745 | 128 | ||||||||
Loss on Disposal of Assets, Net | 168 | 70 | 114 | 57 | ||||||||
Transaction Costs | 89 | 100 | 96 | 145 | ||||||||
Research and Development Expense | 1,128 | 650 | 2,193 | 1,058 | ||||||||
Other | 300 | (490) | 527 | (594) | ||||||||
Adjusted EBITDA | $ | 49,995 | $ | 42,622 | $ | 103,103 | $ | 80,728 | ||||
Total Revenue | $ | 101,117 | $ | 96,633 | $ | 204,523 | $ | 188,204 | ||||
Cost of Revenue | (59,901) | (63,532) | (118,968) | (125,983) | ||||||||
Gross Margin | 41,216 | 33,101 | 85,555 | 62,221 | ||||||||
Depreciation, Amortization and Accretion | 19,707 | 19,086 | 39,128 | 37,692 | ||||||||
Adjusted Operating Margin | $ | 60,923 | $ | 52,187 | $ | 124,683 | $ | 99,913 | ||||
Total Volumes (thousands of barrels) | 132,372 | 136,282 | 270,974 | 260,097 | ||||||||
Adjusted Operating Margin/BBL | $ | 0.46 | $ | 0.38 | $ | 0.46 | $ | 0.38 |
Liquidity and Capital Resources
Overview
Our primary needs for cash are permitting, development and construction of water handling and recycling assets to meet customers’ needs, and the payment of contractual obligations including debt and working capital obligations. When appropriate, we enhance shareholder returns by returning capital to shareholders, such as through dividend payments and share buybacks (to the extent determined by our Board of Directors).
Funding for these cash needs may be provided by any combination of internally generated cash flow, borrowings under our Credit Facility or accessing the capital markets. We believe that our cash flows, availability under our Credit Facility and leverage profile provide us with the financial flexibility to fund attractive growth opportunities in the future.
As of June 30, 2024, we had a cash balance of $11.5 million and working capital, defined as current assets less current liabilities, of $28.9 million. We had $400.0 million face value of Notes outstanding and $48.0 million outstanding under our Credit Facility, with $298.7 million of availability under our Credit Facility. As of June 30, 2024, we were in compliance with all the covenants under our Credit Facility and the indenture governing the Notes.
As of August 5, 2024, we had an outstanding balance of $45.0 million under our Credit Facility at a weighted average interest rate of 8.165%. The borrowings are primarily being used to fund our capital program.
We have an agreement with an unaffiliated water disposal company to dispose of a minimum volume of produced water. As of June 30, 2024, the remaining minimum commitment under this agreement was $23.3 million, undiscounted. As of June 30, 2024, we had short-term purchase obligations for products and services
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of approximately $14.8 million due in the next twelve months. See Item 1. Financial Statements ─ Note 10. Commitments and Contingencies.
Dividends and Distributions
Our Board of Directors declared a dividend of $0.09 per share and $0.105 per share for the first and second quarters of 2024, respectively, on our Class A common stock. In conjunction with the dividend payments, a distribution of $0.09 per unit and $0.105 per unit was paid to unit holders of Solaris LLC for the first and second quarters of 2024, respectively, subject to the same payment and record dates.
Our Board of Directors declared a dividend on our Class A common stock for the third quarter of 2024 of $0.105 per share. In conjunction with the dividend payment, a distribution of $0.105 per unit will be paid to unit holders of Solaris LLC. The dividend will be paid on September 19, 2024 to holders of record of our Class A common stock as of the close of business on September 5, 2024. The distribution to unit holders of Solaris LLC will be subject to the same payment and record dates.
Cash Flows from Operating Activities
For the six months ended June 30, 2024, net cash provided by operating activities totaled $58.1 million as compared with $96.5 million for the six months ended June 30, 2023. The net decrease is primarily related to a net decrease of $26.2 million in working capital items for the six months ended June 30, 2024 compared to a net increase of $30.6 million for the six months ended June 30, 2023. The six months ended June 30, 2024 includes a decrease in working capital items primarily related to accrued liabilities for capital expenditures, as less capital-related work was performed during the six months ended June 30, 2024 as compared with the six months ended June 30, 2023. The six months ended June 30, 2023 includes a decrease in accounts receivable balances associated with improved collections timing.
Cash Flows from Investing Activities
For the six months ended June 30, 2024, net cash used in investing activities totaled $56.8 million as compared with $76.2 million for the six months ended June 30, 2023 and was primarily related to expenditures for property, plant and equipment. The decrease in expenditures during the six months ended June 30, 2024 was a result of lower capital spending required to accommodate our long-term contracted customers.
Cash Flows from Financing Activities
For the six months ended June 30, 2024, net cash provided by financing activities totaled $5.1 million and consisted of net Credit Facility borrowings of $22.0 million, $11.8 million in dividends and distributions payments, $3.8 million in payments related to the insurance premium financing and $1.3 million treasury stock repurchases related to tax withholding on stock awards that vested. For the six months ended June 30, 2023, net cash used in financing activities totaled $17.3 million and consisted of $6.0 million in net Credit Facility repayments, $10.7 million in dividends and distributions payments and $0.6 million treasury stock repurchases related to tax withholding on stock awards that vested.
Capital Requirements
We expect our capital expenditures will be between approximately $85.0 million to $105.0 million for 2024, which is based on our currently contracted customers’ latest outlooks on our dedicated acreage. Factors that could result in an increase in our capital expenditures include an increase in expected drilling activity due to the sale or exchange of dedicated acreage to customers with more active drilling practices and other changes in drilling programs. We intend to fund capital requirements through our primary sources of liquidity, which include cash on hand and cash flows from operations and, if needed, our borrowing capacity under the Credit Facility.
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Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our condensed consolidated financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our common stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates. Going forward, our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes. We believe that our exposures to market risk have not changed materially since those reported under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our 2023 Annual Report.
Commodity Price Risk
The market for our services is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels and timing of activity of our customers in the exploration and production and oilfield services industries.
A portion of our revenue is directly exposed to fluctuations in the price of crude oil because one of our largest customer contracts provides for rates that periodically fluctuate within a defined range in response to changes in WTI. According to the terms of the contract, the per barrel fee increases when WTI exceeds a certain base price. In addition, skim oil sales revenue is directly exposed to fluctuations in the price of crude oil.
We do not currently hedge our exposure to commodity price risk.
Interest Rate Risk
We are subject to interest rate risk on a portion of our long-term debt under the Credit Facility. As of June 30, 2024, we had $48.0 million of outstanding borrowings under our Credit Facility at a weighted-average interest rate of 8.165%. The outstanding borrowings under our Credit Facility generally bear a rate of interest at the Secured Overnight Financing Rate (“SOFR”) plus 0.1% plus an alternative base rate spread and are therefore susceptible to interest rate fluctuations. A hypothetical one percentage point increase in interest rates on our borrowings outstanding under our Credit Facility at June 30, 2024 would increase our annual interest expense by approximately $0.5 million.
Item 4. Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
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Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting identified in the evaluation for the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Due to the nature of our business, we may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. During the reporting period, there have been no material changes to the status of the legal proceedings previously disclosed in Part II, Item 1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024. In the opinion of our management, there are no other pending litigation, disputes or claims against us which, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations.
Item 1A. Risk Factors
There have been no material changes or updates to our risk factors that were previously disclosed in Part I, Item 1A of our 2023 Annual Report.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the repurchases of our common stock occurring in the second quarter of 2024:
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of | Approximate Dollar | |||||
4/1/2024 - 4/30/2024 | - | $ | - | - | - | ||||
5/1/2024 - 5/31/2024 | - | - | - | - | |||||
6/1/2024 - 6/30/2024 (1) | 1,048 | 15.37 | - | - | |||||
Total | 1,048 | $ | 15.37 | - | - |
(1) | Represents shares of our Class A common stock received by us from employees for the payment of withholding taxes due on shares of common stock issued under our 2021 Equity Incentive Plan. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Trading Arrangements for Directors and Officers
During the quarter ended
Item 6. Exhibits
The exhibits listed are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
3.1 | ||
3.2 | ||
10.1 | ||
31.1* | ||
31.2* | ||
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32.1** | ||
32.2** | ||
101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH* | Inline XBRL Schema Document. | |
101.CAL* | Inline XBRL Calculation Linkbase Document. | |
101.DEF* | Inline XBRL Definition Linkbase Document. | |
101.LAB* | Inline XBRL Label Linkbase Document. | |
101.PRE* | Inline XBRL Presentation Linkbase Document. | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith.
**Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
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