Earnings call transcript: Aris Water Solutions Q4 2024 misses EPS but revenue shines

Aris Water Solutions Inc. (NYSE:ARIS), with a market capitalization of $1.5 billion, reported its fourth-quarter 2024 earnings, revealing a slight miss on earnings per share (EPS) but a significant revenue beat. The company posted an EPS of $0.29, falling short of the expected $0.32. However, revenue surged to $118.61 million, surpassing the forecast of $108.95 million. Following the announcement, Aris Water Solutions saw its stock price rise by 19.41% in after-hours trading, reflecting investor optimism regarding the company's strong revenue performance and strategic initiatives. According to InvestingPro data shows the stock has delivered an impressive 167% return over the past year, with a 55% gain in the last six months alone. The stock's beta of 1.94 indicates higher volatility compared to the market, presenting both opportunities and risks for investors.

Outlook & Guidance

Looking ahead, Aris Water Solutions forecasts produced water volumes to increase by 5% in 2025, with water solutions volumes projected to grow by 15%. The company expects adjusted EBITDA to range between $215 million and $235 million, reflecting continued operational strength and strategic growth initiatives.

Executive Commentary

"We ended 2024 without a single employee or contractor recordable safety incident," stated Bill Zartler, Founder and Executive Chairman, highlighting the company's commitment to safety and operational excellence. Amanda Brock, President and CEO, emphasized the strategic importance of the McNeil Ranch acquisition, stating, "We are looking at developing this ranch in the sort of 2026, '27 timeframe."

Risks and Challenges

• Potential regulatory changes impacting water disposal and treatment operations.
• Fluctuations in oil and gas production affecting water demand.
• Execution risks associated with new projects and acquisitions.
• Competitive pressures in the industrial water treatment market.
• Macro-economic factors, including interest rates and inflation, impacting operational costs.

Q&A

During the earnings call, analysts inquired about the strategic significance of the McNeil Ranch acquisition and its long-term impact. Executives assured that no significant capital expenditures are expected for the ranch's development, aligning with the company's disciplined capital allocation strategy. Additionally, there was interest in the progress of the beneficial reuse project, which is advancing with a permit application.

Full transcript - Aris Water Solutions Inc (ARIS) Q4 2024:

Conference Operator: Greetings, and welcome to ARRIS Water Solutions Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce David Turf.

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Thank you, David. You may begin.

David Turf, Investor Relations, ARRIS Water Solutions: Good morning, and welcome to the ARRIS Water Solutions fourth quarter twenty twenty four earnings conference call. I am joined today by our President and CEO, Amanda Brock our Founder and Executive Chairman, Bill Zartler and our CFO, Stephen Thompson. Before we begin, I'd like to remind you that in this call and the related presentation, we will make forward looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from results and events contemplated by such forward looking statements. You are cautioned not to place undue reliance on forward looking statements. Please refer to the risk factors and other cautionary statements included in our filings made from time to time with the Securities and Exchange Commission.

I would also like to point out that our investor presentation and today's conference call will contain discussion of non GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with U. S. GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation.

I'll now turn the call over to our Founder and Executive Chairman, Bill Zartler.

Bill Zartler, Founder and Executive Chairman, ARRIS Water Solutions: Thank you, David. ARRIS finished a tremendous 2024 with a strong fourth quarter. We saw continued steady produced water volumes as well as increased completion activity during the quarter leading to a record quarter for our Water Solutions business. Margins remained strong in the fourth quarter and we pair robust earnings with continued capital efficiency generating significant free cash flow for the quarter and the year. 2024 represented a meaningful inflection point in cash generation which allows us to significantly increase shareholder returns in 2025 and beyond while continuing to reinvest in the business.

We have much to be proud of as we assess the year, but of all our metrics, our most important accomplishment was safety. We ended 2024 without a single employee or contractor recordable safety incident. I'd like to congratulate our entire operations team and recognize the diligence that they demonstrate every hour of every day. There's no greater priority than the safety of our team and those on our sites and we're immensely proud of what was accomplished during 2024. As we look to 2025, we see steady completion activity and production growth from our long term contracted customers.

We will continue to pursue operating efficiencies to maintain and expand the margins we achieved in 2024 and will continue our disciplined capital investment focusing on cash generation and increasing returns to shareholders. Alongside a solid outlook for our current business, we closed a few strategic initiatives including the purchase of the McNeil Ranch in Lee County, New Mexico and Gaines And Andrew Counties, Texas continued progress on our beneficial reuse activities and mineral extraction as well as expansion into industrial water treatment beyond the oil and gas industry. We want to express our thanks to our team, our customers and our suppliers for a phenomenal 2024 and are excited as we look forward into 2025 and beyond. With that, I'll turn it over to Amanda for more details.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thank you, Bill. Twenty twenty four was a remarkable year and I'm extremely proud of our entire team. Our goals at this time last year were to operate safely, grow alongside our customers as they expanded their production on our dedicated acreage, improve our margins and operational efficiency and leverage our existing asset footprint to optimize our capital spending. We're proud to say we exceeded those objectives and as a result, we generated significant free cash flow. Supported by this cash and consistent with our commitment to increasing shareholder returns, we're pleased to announce a 33% increase to our dividend to $0.14 per share.

We had a strong finish to the year. We achieved record quarterly volumes in our Water Solutions business and we grew our Water Solutions volumes 14% sequentially. We continue to see consistent activity on our

: dedicated acreage in the

Amanda Brock, President and CEO, ARRIS Water Solutions: core of the Permian Basin from our large long term dedicated customers. We grew our produced water volume 7% year over year in 2024 and our customers still have multiple decades of remaining inventory in our dedicated acreage providing us significant visibility long term. We maintained our improved margins in the fourth quarter, achieving an adjusted operating margin of $0.44 a barrel and adjusted EBITDA of $54,500,000 For the year, we invested approximately $101,000,000 in CapEx and generated $73,000,000 of free cash flow. Steve will go into more detail on our strong financial performance. As the industry becomes more efficient with larger pad designs, longer lateral lengths and faster completions, operators need access to large scale infrastructure to ensure a reliable, long term supply of recycled produced water.

We recently extended an acreage dedication contract on one of our largest customers that dedicates their water sourcing in New Mexico to ARRIS and we now have over 450,000 acres dedicated to our Water Solutions business with an average contracted tenor of approximately eight years. This means that over 80% of our forecasted 2025 Water Solutions volumes are now under long term contract, which together with our long term contracts and produced water handling gives us substantial visibility into future volumes. Looking forward to 2025, our customers are forecasting mid single digit production growth in the Permian Basin and our produced water volumes will grow alongside them. We anticipate an increase in water solutions activity in 2025 as certain customers increase their completion activity in our dedicated areas. We believe we can maintain the margin improvements we achieved in 2024 and we anticipate further growth in free cash flow.

Steve will provide additional details around our 2025 guidance. We will also continue to pursue strategic initiatives that will allow us to accelerate our growth well into the future. As Bill mentioned, in the fourth quarter, we acquired the McNeil branch comprised of approximately 45,000 surface acres, which provides areas with significant optionality and long term operational advantages. We believe the location of the ranch can support the industry's growing need for long term water injection. We purchased the Ranch after detailed subsurface analysis in collaboration with several of our largest customers and believe it features promising geology and porosity for long term water infrastructure development.

The Ranch also provides a compelling opportunity to reduce our largest downhole operating expense by eliminating landowner royalties for volumes disposed on the Ranch. In addition, we have significant flexibility to maximize the value of the ranch by generating surface income through rights of way, utilization of the surface for power and renewable development, beneficial reuse and other industrial applications. We are in discussions with both current and potential new customers to commercialize the use of the ranch, which we purchased at an attractive valuation relative to recent transactions on adjacent acreage. We continue to make progress on beneficial reuse alongside our partners ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) and Kotera. After extensive testing and development of treatment technologies, we have applied to the Texas Commission on Environmental Quality for a discharge permit for up to 475,000 barrels of reclaimed water per day.

We hope to have a permit in hand by the end of twenty twenty five with the ability to discharge water in 2026. ARRIS is also applying its expertise in complex water treatment to industrial uses outside of the oil and gas industry. We're extremely pleased to have recently added assets, intellectual property and an experienced team to help us with our expansion into the broader industrial market. This team has developed projects for numerous large industrial companies and positions us well strategically. We look forward to providing further updates as this business grows.

And with that, I'll turn it over to Steve to discuss our financial results for the quarter and details on our outlook for 2025.

Stephen Thompson, CFO, ARRIS Water Solutions: Thank you, Amanda. We recorded adjusted EBITDA for the fourth quarter of $54,500,000 and adjusted operating margin of $0.44 per barrel. For the full year, we recorded adjusted EBITDA of $211,900,000 up 21% from 2023 and adjusted operating margins of $0.45 per barrel up 15% from the prior year. Turning to CapEx, we spent $18,000,000 in the fourth quarter and 101,000,000 for the full year. Expenditures were down 35% year over year, which paired with our strong earnings performance generated $73,000,000 in free cash flow during the year.

Looking ahead to 2025, we expect produced water volumes for the year to be between one point one five million and one point two one million barrels per day, up 5% versus 2024 at the midpoint. We're forecasting skim recoveries of approximately eighteen twenty barrels of oil per day for the year at an average price of $70 per barrel, which is down approximately $4 per barrel or 7% as compared to 2024 for an estimated $3,000,000 annual impact. In the Water Solutions business, we expect volumes to average between 980,000 barrels per day for the year, up 15% versus 2024 due to increased customer completion activity. We are forecasting continued strong margin performance with adjusted operating margin anticipated to be between $0.43 and $0.45 per barrel depending on skim oil recoveries, skim oil pricing and customer volume mix. This continued produced water volume growth, strong completion activity and sustained margin strength are expected to deliver adjusted EBITDA of $215,000,000 to $235,000,000 for 2025.

Finally, our capital expenditures are anticipated to be between $85,000,000 and $105,000,000 consistent with 2024 levels leading to free cash flow generation between $75,000,000 and $95,000,000 up 17% over 2024 at the midpoint. For the first quarter, we expect produced water volumes to be between one point zero eight five million and one point one two five million barrels per day and water solutions volumes to be between 1,060,000 barrels per day. This outlook reflects the impact of cold weather, which shut in some customer production in January and February. This forecast also reflects unexpected well completion downtime from one of our largest customers, which pushed out certain water solutions volumes in January and February. While these issues have been resolved and activity is expected to resume in March, there is potential that some activity could be delayed until later in the year.

Despite these volume impacts, we believe our margins will be largely unaffected between $0.43 and $0.45 per barrel for the quarter. While production has now returned to normal levels, we anticipate the one time weather related impact to ARRIS' first quarter adjusted EBITDA to be approximately $1,500,000 Net of this amount for the first quarter, Turning to our balance sheet, we ended the quarter with net debt of $422,000,000 and a two point zero times debt to adjusted EBITDA ratio with $332,000,000 of liquidity. In terms of financing, our $400,000,000 senior notes are scheduled to go current in April and we have begun assessing our refinancing options. Finally, we declared our first quarter dividend of $0.14 per share to be paid March 27 to shareholders of record on March 13. This dividend represents a 33% increase over the fourth quarter of twenty twenty four and is a reflection of our stable contracted cash flows, low leverage and confidence in 2025 and beyond.

With that, I'll turn it back to Amanda.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks, Steve. In closing, we would like to offer sincere appreciation to our loyal customers and also our team for all of their hard work and consistent execution in 2024. Our performance was exceptional across all metrics: safety, commercial contracting, volumetric growth, cost efficiency and disciplined capital investment. Alongside continuous focus on our core business, our new strategic initiatives set us up for additional growth in 2025 and beyond in both produced water infrastructure and adjacent industries. We remain focused on providing exceptional service to our customers, prudently reinvesting in the business and returning excess cash to shareholders.

We've built a sustainable platform from which we can make investments in new growth areas, and we look forward to updating you throughout 2025 on our progress. And with that, we are happy to take questions.

Conference Operator: Thank you. We'll now be conducting a question and answer session. And our first question comes from John McKay with Goldman Sachs. Please proceed with your question.

John McKay, Analyst, Goldman Sachs: Hey, good morning. Thanks for the time. I want to start on the Ranch acquisition. It's definitely screening much lower per acre than some other deals we've seen. Just curious if you could frame up for us how you're thinking about the return profile on the acquisition and maybe just what the steps are to realizing that return?

Amanda Brock, President and CEO, ARRIS Water Solutions: Certainly. Thanks, John. So early last year, we began looking at suitable locations with great surface characteristics for us to secure future disposal locations for ourselves and our customers looking forward. And we bought the McNeil Ranch at a very attractive price. We evaluated the subsurface with two of our largest customers and we believe that Ranch has great porosity and injectivity.

It gives us great optionality. It is located adjacent to some of the fastest growing areas of the Northern Delaware. It's got rail powered gas transmission lines. It straddles New Mexico and Texas. And we believe there were over 400,000 barrels of available disposal capacity.

And we've already been granted six permits of about 180,000 barrels of disposal capacity. That being said, we think there is great future growth associated with this ranch. We're in discussions with our customers on accessing this launch for future volumes in the 2627 timeframe. So we expect that any CapEx associated with the development of this launch will be underwritten by long term contracts and MVCs at attractive rates and we expect to develop the launch in the same way as we have developed our existing network, which is to enter into contracts with our customers and then underwrite the infrastructure and expansion needed. So as we look forward, it is early days.

We are in discussions with our customers. We are also very encouraged by inbounds that have come in, unrelated to subsurface. We've had inbounds on solar, leasing the launch for solar, for wind, for battery. We've got right of way for substations. So all in all, this has been a great acquisition giving us great optionality and operational advantages.

So we look forward to updating you as we go forward. We view this as a great growth opportunity for us to continue to develop it. And at the same time, we're remaining very focused on long term free cash flow generation and we're going to be balancing returns to shareholders and growth. Steve, if you want to add in terms of how we look at it from a financial perspective, we're just very encouraged.

Stephen Thompson, CFO, ARRIS Water Solutions: Yes. And just to echo some of what Amanda said, this is really about the strategic ability to secure force base for future growth for the next five to ten years. Tidjane, when we look at ownership of the land, this really comes down to lease versus buy. And as long as we can retain the strategic optionality for the force base and development of it, it's going to come down to you having to compete on a return basis with any other project.

John McKay, Analyst, Goldman Sachs: That's clear. Thanks for Rob. Just comment.

Amanda Brock, President and CEO, ARRIS Water Solutions: Sorry, John. The last thing to mention is that we did foreshadow some of this as it related to addressing royalties. And for barrels that we dispose on this ranch, we obviously will be not paying royalties.

John McKay, Analyst, Goldman Sachs: Absolutely, that's clear. Maybe just a quick follow-up, you touched on this briefly, but would you expect to kind of stay active on the surface acquisition side? Is this kind of it for now? You've talked more broadly about kind of more traditional water M and A, maybe just frame up the kind of go forward acquisition strategy for us?

Amanda Brock, President and CEO, ARRIS Water Solutions: We continue to look for opportunities for inorganic growth and we continue to evaluate companies as they come to market. But as we have consistently said, they've got to have great contracts, great assets, good inventory and for there to be strategic imperatives to buy them at a price that we believe can be supported. So we will continue to look at companies and we will continue to look at other opportunities to ensure that we have got a pathway to robust growth in the future.

Bill Zartler, Founder and Executive Chairman, ARRIS Water Solutions: And I don't think, John, this is we believe that we're going to acquire a continue to grow the land business and kind of the pace that we added this over the next year is that's probably not part of the core strategy, but really a strategic move to really protect the business and have a lot of options with it.

John McKay, Analyst, Goldman Sachs: All right. Absolutely. That's clear. Appreciate the time. Thank you.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks, John.

Conference Operator: Thank you. And our next question comes from Spiro Dounis with Citi. Please proceed with your question.

Chad, Analyst, Citi: Hi, this is Chad on for Spiro. I think just starting off on the dividend, you've grown it very rapidly over the past two years. Can you talk about what more normalized growth looks like? And if you have a specific target or yield in mind going forward?

Stephen Thompson, CFO, ARRIS Water Solutions: Yes, Jay, good morning. Thanks for the question. We have stated that growing shareholder returns in a sustainable manner is really one of our key goals and we're pleased that we could deliver with this increase to our shareholders. We have been starting up from relatively low payout relative to midstream names. And with strong performance that we had in 2024, this 33% increase was really meant to underscore our commitment to growing those returns over time, as well as reflecting management's confidence in the long term outlook for the business.

So going forward, we don't have an explicit target around payouts, but we will look to evaluate dividends most likely on an annual basis. I would expect future increases to be at a more consistent level, though likely at a lower growth rate relative to the 33%. But we don't have a specific number or range at this time.

Chad, Analyst, Citi: Okay, understood. And then just following up on McNeil acquisition, can you talk about sort of timing to develop this asset and when we can expect to see benefits show up in EBITDA?

Amanda Brock, President and CEO, ARRIS Water Solutions: Certainly. I think we are looking at developing this ranch in the sort of 2026, '20 '20 '7 timeframe. And so looking at revenue of the ranch, other than the surface revenue associated with some of the activities that we are looking at right now, Meaningful impact really in those later years and sort of 2027 timeframe.

Chad, Analyst, Citi: Okay, got it. Thanks for the time. That's all I had.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks, Chad.

Conference Operator: Thank you. And our next question comes from Jeremy Tonet with JPMorgan. Please proceed with your question.

John McKay, Analyst, Goldman Sachs: Hey, this is Noah Katz on for Jeremy. Thanks for the question. Going back to the McNeil Ranch acquisition, you guys spoke to it a bit, but how do you plan to integrate the ranch into your existing operations and what synergies do you expect to receive from the acquisition? Can you speak to any optimization efforts that can be accomplished to cut future costs? Thanks.

Amanda Brock, President and CEO, ARRIS Water Solutions: Good morning, Noah, and thanks for the question. So I mean, the comment I made to John's question, if we are disposing on the ranch, we don't pay royalties. And that is one of our largest OpEx items. So that immediately is an optimization, is a benefit as we look to grow our position. The location of the ranch is adjacent to one of the fastest growing areas in the Northern Delaware.

So it is associated with where we have been investing in infrastructure and signing contracts in that area. So we see it as very synergistic. We see it as giving us great optionality and giving us the operational advantages associated with the fact that the Ranch has got these great subsurface characteristics that some of our largest customers have found very attractive. So guiding to have an OpEx advantage and we think positions us well for future growth opportunities with our customers.

John McKay, Analyst, Goldman Sachs: Thanks for that. And then switching gears a bit as a follow-up. Can you provide an update on the potential you see for the desalination and mineral extraction projects? Should we expect any other projects coming up the pipeline like these? And do you have any further updates you can provide relating to these revenue streams in 2025?

Thanks.

Amanda Brock, President and CEO, ARRIS Water Solutions: No, we've been pretty specific that there's unlikely to be revenue in 2025. We are looking more toward 2026. We continue to work on the iodine projects in sighting those locations. We expect to be under construction toward the end of the year on those projects where we will be looking at a royalty stream type structure and not be required to contribute any CapEx. We are working on magnesium.

We are continuing to see progress in our pilot. And most importantly, we have filed for a permit with the TCEQ in Texas, which has been very constructive for the surface discharge of 475,000 barrels a day. We expect to have draft permits on hand by year end and be able to in 2026 work with our customers who want access to that disposal capacity to develop and operate facilities to discharge this water safely.

John McKay, Analyst, Goldman Sachs: Okay. Thanks for that. I'll leave it there.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thank you, sir.

Conference Operator: Thank you. And our next question comes from Puneet Satish with Wells Fargo. Please proceed with your question.

Puneet Satish, Analyst, Wells Fargo: Thanks. Good morning. So I guess you kind of alluded to this, but seems like the plan for the ranch is potentially building a water pipeline to bring your customers' volumes to new disposal wells that you build at the ranch. Can you give us a ballpark of how much CapEx would be involved with this type of project and developing it? Would it be comparable in scale to one of your peers announced a large water pipeline last night, would it be kind of in that range in the hundreds of millions of dollars or potentially less than that?

Amanda Brock, President and CEO, ARRIS Water Solutions: Morning, Puneet. And yes, we expected given timing of that release that we would get a question like that. So the answer is no, we do not expect to be looking at CapEx in that range. One of the advantages of the location of this Ranch and where development is, is that we have the ability to do this in phases. And so we will work very closely with our customers as these new volumes need to be moved to the ranch.

It's all going to be phase development as I said, so we do not expect to have a significant CapEx number like the headline number that was in the release from West. Steve, you want to talk about how we look at underwriting this?

Stephen Thompson, CFO, ARRIS Water Solutions: Yes. I think, Puneet, as we look at potential commercial opportunities here, it is going to be underwritten by contracts that support long term growth, free cash flow growth to company. So it's going to be consistent with a structure that's going to support the company's long term outlook and balance sheet health.

Puneet Satish, Analyst, Wells Fargo: Got it. And then maybe turning to beneficial reuse of the permit with the Texas Commission of 475,000 barrels, pretty quite significant. First question, do you have customers already committed to this volume or expressing interest? And then what kind of capital would be required for this project? I guess it's called the Red Bluff Treatment Facility.

How large is that? Would you bring in any partners? And when would you need to make an FID decision on that?

Amanda Brock, President and CEO, ARRIS Water Solutions: Great questions, Praneeth. And from a competitive standpoint, I will just sort of say, yes, we are in detailed discussions and there is considerable interest in accessing those volumes. We work very closely as you know in the consortium with Exxon and Cokera, Conoco and Chevron, all of whom are very familiar with what we are proposing to do with this project. We anticipate it will be a combined project where we ultimately will operate it. We are going to be looking at FEED toward end of year as we see the project go through the regulatory process.

So this is something that we will update you on as we go, but it will absolutely be with partners and we expect our role to be more technology, design, operation for a consortium.

Puneet Satish, Analyst, Wells Fargo: Got it. Okay. Thank you.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thank you. And

Conference Operator: our next question comes from Jeffrey Campbell with Seaport Research Partners. Please proceed with your question.

Jeffrey Campbell, Analyst, Seaport Research Partners: Good morning and congratulations on the strong quarter. I wanted to ask a couple of questions about the industrial water recycling that you alluded to on Slide five of

: the

Jeffrey Campbell, Analyst, Seaport Research Partners: presentation. The first question is, this sounds like this is going to involve working with somebody else's water versus deriving value from your own. Is that correct? If so, that seems like an intrinsically different business. And I wondered if you could just give us a kind of an early snapshot of what this might look like?

Amanda Brock, President and CEO, ARRIS Water Solutions: Sure, Jeffrey. Yes. The industrial water sector is growing rapidly and we have been pretty consistent on saying that we have developed expertise in proprietary treatment and we know how to deal with complex water. We've been doing that for the produced water industry. As we look forward, we believe there is a real opportunity to take our expertise to the treatment of industrial wastewater.

And so that is why we brought this team in house. They've got deep expertise in industrial wastewater projects where they've successfully completed projects for large industrial customers. Their focus is on high recovery treatment solutions, where they're minimizing waste streams. It is in some part using reverse osmosis systems, which we are using in beneficial reuse. So this is a great platform of bringing in people, expertise and assets to help us not only in our own beneficial reuse efforts, but also to position us very well to continue using them and their backlog in delivering projects outside of oil and gas in adjacent verticals.

We are very encouraged by what we think we can do in the industrial water sector.

Jeffrey Campbell, Analyst, Seaport Research Partners: Great. And then just as a follow-up to that is depending on how this evolves, would these projects be primarily limited to Texas and New Mexico near your current oil and gas operations or could this become a multi state endeavor?

Amanda Brock, President and CEO, ARRIS Water Solutions: Jeffrey, the way we see this is really as a multi state endeavor. This team already has a backlog of projects in multiple states. It has great references with very large industrials and we would see this as obviously not just Texas and not related to the Permian, but in a multi state rollout.

Jeffrey Campbell, Analyst, Seaport Research Partners: Great. Thank you. I appreciate the color.

Conference Operator: Thank you. And our next question comes from Derrick Whitfield with Texas Capital. Please proceed with your question.

: Thanks. Good morning, all, and congrats on your year end closing updates. Starting on McNeil Ranch and thinking beyond your direct operations, could you speak to how you're organizing your commercial teams to attract other service activity, which would drive additional income through power development, beneficial reuse and other industrial applications?

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks for the question, Derek. And honestly, we closed on the ranch at the end of last year. And we have not exactly gone out looking for opportunities. We are very encouraged because these have been inbounds from people who know where the ranch is, who understand what the advantages are associated with the ranch. It's got a gas transmission line, a power line, it's got a railway line, there are substations being built around it, there's a power plant being built across the street, it's located next door to Hubs, which is the fastest growing town in New Mexico.

So these inbounds have come to us without us having to go out. At this point, however, we are allocating time and people to responding to these inbounds as we continue to focus on our core operations, which is permitting, working with customers for long term opportunities associated with disposal and beneficial reuse.

: Terrific. And then maybe leaning in on Slide 12 a bit, you're providing a more fulsome update on beneficial reuse cases with this update regarding reservoir replenishment. How should we think about the cost of desalination and the potential ramp to discharge up to 475,000 barrels?

Amanda Brock, President and CEO, ARRIS Water Solutions: We've spent a lot of time with the pilot and focusing on technologies that not only are robust enough to deal with this complex water, but are cost effective. And we have made tremendous progress with our partners on getting the cost of desalination on an operational perspective down to a place that it becomes to be competitive. And as we look at how we are going to do this, as I said in an earlier answer, the CapEx associated with this, which I think is what your question is about, will be with partners and we are evaluating one, how we phase into this, whether or not we start with 100,000 desalination from a design perspective is modular. So it is easy to add desalination trains as you grow. So we look forward to sort of giving you more data on this as we get further with the permit process.

: Terrific. Great update.

Conference Operator: Thank you. And our next question comes from Don Crist with Johnson Rice. Please proceed with your question.

David Turf, Investor Relations, ARRIS Water Solutions0: Good morning, everybody. I wanted to touch on activity levels. It feels like most of your customers are very stable in their operations, but one of your larger customers has come out with some layoffs and stuff around the world and didn't know if that impacted you all at all. Just wanted to clarify that the activity that one of your larger customers is doing on your active or in your dedicated acreage is still moving forward as we thought it would in the past years?

Amanda Brock, President and CEO, ARRIS Water Solutions: It is all systems go, Don. So I think Chevron has announced layoffs and they have announced some initiatives that will impact production in other parts of the world. But if you drill down to what they are saying about the Permian and what they are saying about their operations in the Delaware, they've been very specific about hitting this milestone of over 1,000,000 barrels a day. They are still ramping up. So we are not seeing anything that is impacting their activity on our property and our acreage dedications.

It is all systems go and if anything right now, we are seeing a slight uptick in activity definitely on the completion side. And what's great about that is that we know we're providing water for completions, we're going to get more water for disposal.

David Turf, Investor Relations, ARRIS Water Solutions0: That's good to hear. And one kind of broader kind of industry question, particularly on M and A. Diamondback (NASDAQ:FANG) came out and said that they could possibly sell their water systems to pay down some of the debt from the acquisitions they did recently. I don't know if that is necessarily in your wheelhouse or not, but just a broader M and A question. Do you feel like that is that the industry is going to continue to consolidate over the next couple of years?

And would you all be a major player in that?

Bill Zartler, Founder and Executive Chairman, ARRIS Water Solutions: Don, I think that's right. As we said, we really make sure that what we're looking at from an asset perspective really fits the criteria that we're looking for in terms of quality assets, quality of contract. And obviously, if an operator is spinning out some of their owned and operated assets, you need to make sure that you can commercialize that business for other folks' water to really make the economics work. And then you're really negotiating the contract directly with the operator to ensure that you have a position. And we did that with Concho and Conoco several years ago.

So that model still exists and there's still opportunity sets both for consolidation among water peers as well as operator owned systems that might find a better home with more of a water midstream operator.

David Turf, Investor Relations, ARRIS Water Solutions0: I appreciate the color. Thanks a lot guys.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks, Adam.

Conference Operator: Thank you. And it looks like there are no further questions at this time. I would like to turn the call back to Amanda Brock for closing comments.

Amanda Brock, President and CEO, ARRIS Water Solutions: Thanks. So we had a great 2024 and as we've expressed, we're very encouraged about our 2025 outlook. We want to thank our customers, we want to thank the team and we look forward to updating you on our progress and the strategic initiatives as the year develops. So thank you for calling in. And if we don't talk to you before, we will talk to you at the next quarter earnings.

Have a great day.

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