Q1 2024 Aris Water Solutions Inc Earnings Call
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Greetings and welcome to <unk> water solution <unk> 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Operator: Greetings and welcome to Aris Water Solutions' 1Q 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on the telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. David tough senior Vice President.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Tuerff, Senior Vice President, Finance and Investor Relations. Thank you, Mr. Tuerff. You may begin.
David Tuerff: Finance and Investor Relations. Thank you Mr. Tough you may begin.
David Tuerff: Good morning, and welcome to the Arris water solutions first quarter 2020 earnings conference call I'm joined today by our President and CEO, Amanda Brock, our founder and executive Chairman Bill <unk> and our CFO Stephen Thompson before we begin I'd like to remind you that in this call and the related presentation.
David Tuerff: Good morning, and welcome to the Aris Water Solutions first quarter 2024 earnings conference call. I am joined today by our president and CEO, Amanda Brock, our founder and executive chairman, Bill Zartler, and our CFO, Stephan Thompson.
David Tuerff: 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.
David Tuerff: 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.
David Tuerff: You're 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 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.
David Tuerff: 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.
David Tuerff: 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 Darling.
David Tuerff: 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. Thank you, David.
William A. Zartler: Thank you, David. Aris is off to a great start in 2024, continuing our momentum and strong execution from last year. We grew our produced water volumes while expanding our operating margins to a new record high. Our consistent performance is a testament to the hard work of our team, the continued production growth of our customers, and our expansive and critical infrastructure. It's been about two and a half years since we went public, and I think it's important to reiterate what differentiates Aris.
William A. Zartler: Thank you David Maris is off to a great start in 2020 for continuing our momentum and strong execution from last year.
William A. Zartler: Our produced water volumes, while expanding our operating margins to a new record high.
William A. Zartler: Consistent performance is a testament to the hard work of our teams the continued production growth of our customers or expansion infrastructure.
William A. Zartler: It's been about two and a half years since we went public and I think it's important to reiterate what differentiates Paris over 80% of our revenue comes from currently flowing production volumes under long term contracts with great well capitalize inactive customers. These long term infrastructure contracts provide revenue visibility and security as evidenced by our <unk>.
William A. Zartler: Over 80% of our revenue comes from currently flowing production volumes under long-term contracts with great, well-capitalized, and active customers. These long-term infrastructure contracts provide revenue, visibility, and security, as evidenced by our 10th consecutive quarter of produced water volume growth and repaired those volumes with continued margin expansion, reaching a new high for adjusted operating margin per barrel in the first quarter. Consistent volumetric growth and now record profitability are leading to accelerating earnings growth, which we are combining with enhanced capital efficiency.
William A. Zartler: 10 consecutive quarter of produced water volume growth the.
William A. Zartler: The parent those volumes with continued margin expansion, reaching a new high for executive operating margin per barrel in the first quarter.
William A. Zartler: Consistent volumetric growth and now record profitability are leading to accelerating earnings growth, which we are combining with an enhanced capital efficiency as our asset footprint has increased and scale, we're now reducing our capital spending by approximately 40% year over year versus 2023, combined with our accelerating earnings profile we've reached it.
William A. Zartler: As our asset footprint has increased in scale, we're now reducing our capital spending by approximately 40% year-over-year versus 2023. Combined with our accelerating earnings profile, we've reached a point where we can generate excess cash and are modifying our capital allocation framework to return additional capital to shareholders. We're off to a great start and are encouraged by our outlook for the rest of the year. With that, I'll turn it over to Amanda. Thank you.
William A. Zartler: Point, where we can generate excess cash and are modifying our capital allocation framework to return additional capital to shareholders. We're off to a great start charged by our outlook for the rest of the year with that I'll turn it over to Amanda <unk>.
Amanda M. Brock: Thank you, Bill. As Bill said, we're off to a fantastic start this year, continuing our positive momentum and consistent growth. Volumetrically, we grew our produced water volume 6% sequentially and 19% year-over-year. We achieved adjusted EBITDA of $53 million for the quarter, up 8% sequentially and up nearly 40% year over year. While quarterly volumes will fluctuate with our customers' activity, our long-term volumetric growth is supported by our long-dated infrastructure contracts on the core of the Permian Basin, covering over 625,000 contracted acres with Premier operators, which deliver stable, growing, and reliable revenue.
William A. Zartler: Bill.
Amanda M. Brock: All said, we're off to a fantastic start this year continue our positive momentum.
Amanda M. Brock: Well.
Amanda M. Brock: Domestically, we produced most of the body and 6% sequentially and 19% year over year.
Amanda M. Brock: We achieved adjusted EBITDA of 53 million for the quarter.
Amanda M. Brock: 8% sequentially and up nearly 40% year over year.
Amanda M. Brock: Coffee volumes will fluctuate with our customers' activity our long term volumetric growth is supported by a long dated infrastructure contracts in a corner Permian basin covering over 625000 contracted acres with premier operators.
Amanda M. Brock: Which deliver stable growing and reliable revenues.
Amanda M. Brock: In the water solutions business, we sold 364,000 barrels of water per day, down seasonally from the fourth quarter as anticipated but ahead of our expectations. And, as we stated last quarter, we expect water solution sales to ramp throughout the year. In the first quarter, we also achieved a record-adjusted operating margin of $0.46 per barrel.
Amanda M. Brock: And the water solutions business, we sold 364000 barrels of oil per day down seasonally from the fourth quarter as anticipated, but ahead of our expectations and as we stated last quarter, we expect once installation sales to ramp throughout the year.
Amanda M. Brock: In the first quarter. We also achieved a record adjusted operating margin of 46 cents per barrel.
Amanda M. Brock: This high point reflects the benefits of not only top-line growth from inflation escalators in our long-term contracts but also cost improvements from our now substantially complete electrification efforts and additional efficiencies such as reduced chemical costs and improved processes for solid waste handling. We also benefited from a pull-forward of volumes and skim oil proceeds, as well as delays and scheduled maintenance in the quarter, which Steve will elaborate on. Absent these timing impacts, our margins have successfully recovered from the inflationary pressures we saw in late 2022, and I want to congratulate our team for the hard work, dedication, and creativity it required to not only restore our profitability but also exceed our targets.
Amanda M. Brock: Its high point reflects the benefits have not had any topline growth from inflation escalators in our long term contracts, but also cost improvements are now substantially complete electrification assets and additional efficiencies such as reduced chemical costs and improved processes by solid waste handling.
Amanda M. Brock: He also benefited from a pull forward of volumes and skim oil proceeds as well as delays in scheduled maintenance and the quota, which Steve will elaborate on.
Amanda M. Brock: Absent these timing impacts our margins have successfully recovered from the inflationary pressures. We saw in late 2022, and I want to congratulate our team for the hard work dedication and.
Amanda M. Brock: Creativity and required to not any restore our profitability, but also exceed our targets.
Amanda M. Brock: Quarterly timing aside, we continue to benefit from the deep inventory of highly profitable acreage that our long-term contracted customers are committed to developing in the Northern Delaware Basin. Our consistent growth in volumes, record profitability, efficient capital spending, and significant outperformance in the first quarter have given us increased confidence in the growth of our free cash flow. As a result, we are increasing our quarterly dividend 17% to $0.105 per share. Our capital return priorities remain the same.
Amanda M. Brock: Quarterly timing aside we continue to benefit from a deep inventory of highly economic acreage that are long term contracted customers are committed to developing in the northern Delaware basin.
Amanda M. Brock: Our consistent growth in <unk> record profitability.
Amanda M. Brock: <unk> capital spending and significant outperformance in the first quarter has given us increased confidence in the growth of our free cash class.
Amanda M. Brock: As a result, we are increasing our quarterly dividend, 17% to 10 and a half cents per share.
Speaker Change: I'll pass on return priorities remain the same.
Amanda M. Brock: We will prioritize balance sheet strength and flexibility. We will invest in high-return organic growth capital and return excess free cash flow to shareholders in line with the business's growth over time. As early leaders in the development of the energy water infrastructure business, we look to the future of the industry by developing and advancing technologies for beneficial reuse and mineral extraction. The current desalination pilot projects we are leading with the consortium of ConocoPhillips, Chevron, and ExxonMobil are scheduled to be completed by the end of the third quarter.
Amanda M. Brock: We will prioritize balance sheet strength and flexibility.
Amanda M. Brock: Fast and high return organic growth capital and return excess free cash flow to shareholders in line with the business has grown over time.
Amanda M. Brock: And it really isn't the development in the energy water infrastructure business, we look to the future of the industry by developing and advancing technologies and beneficial reuse and mineral extraction.
Amanda M. Brock: The current desalination pilot projects, we are leading with the consortium with Conocophillips Chevron and Exxonmobil are scheduled to be completed by the end of the third quarter.
Amanda M. Brock: At this point, we have successfully tested two desalination and treatment processes and are currently testing a third, which could also meet standards for aquifer replenishment, agricultural, and other industrial uses. The next phase of the trial is to evaluate the most cost-effective means of scaling these technologies.
Amanda M. Brock: At this point, we have successfully tested two desalination and treatment processes and are currently testing a fad, which can also meet standards I prefer a replenishment agricultural and other industrial uses.
Amanda M. Brock: The next phase of the trials to evaluate the most cost effective means of scaling these technologies.
Amanda M. Brock: As we progress our efforts, in the second quarter, we will be working with the Texas Railroad Commission for a land use permit for surface discharge of produced water related to our DOE-funded project which will use treated produced water for non-consumptive agriculture. Additionally, after testing our produced water for over a year, we've developed a better understanding of our produced water minerals content across our assets. We have focused our efforts on high-value minerals that can possibly be economically recovered.
Amanda M. Brock: And we progressed how assets in the second quarter, we will be working with the Texas Railroad Commission for land use permit for surface discharge a produced water related to our D. O. We funded project, which will use treating produced water for non consumptive aquaculture.
Amanda M. Brock: Italy after testing our produced water for over a year, we have developed a better understanding about produced water mineral content across all assets.
Amanda M. Brock: We have focused our efforts on high value mineral that can possibly be economically recovered we are now evaluating technologies and potential partnership.
Amanda M. Brock: We are now evaluating technologies and potential partnerships for the commercialization of brine mining and minerals recovery from our produced water and concentrated brine. While we are focused on significant opportunities in our cold water gathering infrastructure and recycling business, we are taking the lead in developing future options for sustainable, full-cycle water management for the energy industry. And with that, I'll turn it over to Steve to discuss our financial results for the quarter and details on our outlook for the rest of the year.
Steve: [noise] solicitation of brine mining and minerals recovery from our produced water and concentrated brine.
Steve: Well, we have focused on significant opportunities not cold water gathering infrastructure and recycling business. We are taking the lead in developing future options for sustainable full cycle water management for the energy industry.
Amanda M. Brock: And with that I'll turn it to Steve to discuss our financial results for the quarter and details on our outlook for the rest of the year.
Amanda M. Brock: Amanda.
Steve: Amanda, we recorded adjusted EBITDA for the first quarter of $53.1 million, up 39% from the first quarter of 2023 and up 8% sequentially from the fourth quarter of 2023, again exceeding our expectations for the quarter. The sequential increase was due to earlier and larger flowbacks from new well connections and associated skim oil, as well as the benefit of both top-line CPI escalators and cost savings initiatives such as our electrification efforts. As we mentioned last quarter, our 2024 capital program is front-end weighted.
Steve: We recorded adjusted EBITDA for the first quarter of $53 $1 million up 39% from the first quarter of 2023 and up 8% sequentially from the fourth quarter of 2023 again exceeding our expectations for the quarter.
Steve: The sequential increase was due to earlier than larger flow backs from new well connections and associated skim oil as well as the benefit of both topline CPI escalators and cost savings initiatives, such as our electrification efforts.
Steve: As we mentioned last quarter, our 2024 capital program is front end weighted.
Steve: We invested approximately $38 million in the first quarter, slightly ahead of our expectations due to the early completion of budgeted projects. And we remain on track for a full year CapEx of $85 to $105 million, consistent with our prior guidance. Looking ahead to the second quarter, we expect produced water volumes to be between 1.02 and 1.05 million barrels per day, down sequentially from the first quarter due to the pull-forward of volumes referenced earlier, and we're forecasting skim recoveries of approximately 1,200 barrels of oil per day.
Steve: We invested approximately $38 million in the first quarter slightly ahead of our expectations due to early completion of budgeted projects and we remain on track for full year capex of $85 million to $105 million consistent with our prior guidance.
Steve: Looking ahead to the second quarter, we expect produced water volumes to be between 1.02, and 1.05 million barrels per day.
Steve: Sequentially from the first quarter due to the pull forward of volumes referenced earlier.
Steve: We're forecasting skim recoveries of approximately 1200 barrels of oil per day.
Steve: So the water solutions business, we expect second quarter volumes averaged 400 to 430000 barrels per day.
Steve: For the water solutions business, we expect second quarter volumes to average 400 to 430,000 barrels per day, up approximately 15% sequentially over the first quarter as activity ramps throughout the year. As Amanda mentioned, we had an approximately $4 million pull forward of EVITA, driven primarily by acceleration of contracted volumes and associated skim oil, as well as delayed well maintenance costs. Adjusting for these timing differences, we believe we will continue to maintain margin improvements with adjusted operating margins anticipated to be between 42 and 44 cents per barrel for the second quarter, delivering adjusted EBITDA between 44 and 48 million dollars.
Steve: Approximately 15% sequentially over the first quarter as activity ramps throughout the year.
Steve: As Amanda mentioned, we had an approximately $4 million pull forward of EBITDA, driven primarily by acceleration of contract volumes and associated skim oil as well as delayed well maintenance costs.
Steve: Adjusting for these timing differences, we believe we will continue to maintain margin improvements with adjusted operating margins are anticipated to be between 42, and 44 cents per barrel for the second quarter delivering adjusted EBITDA between 44 $48 million.
Steve: This includes the impact of the deferred maintenance expense from the first quarter.
Steve: This includes the impact of the deferred maintenance expense from the first quarter. For the full year, we now expect the adjusted EBITDA to be in the range of $185 to $200 million, as we are bringing up the bottom end of the range to reflect the first quarter outperformance. Turning to our balance sheet, we ended the quarter with a healthy 2.15 times debt-to-adjusted EBITDA ratio below the low end of our long-term leverage target and $345 million of available liquidity, which provides us with significant financial flexibility.
Steve: For the full year, we now expect adjusted EBITDA to be in the range of $185 million to $200 million as we were bringing up the bottom end of the range to reflect the first quarter outperformance.
Steve: Turning to our balance sheet, we ended the quarter with a healthy 215 times debt to adjusted EBITDA ratio below the low end of our long term leverage target of $345 million of available liquidity, which provides us with significant financial flexibility.
Steve: Finally, we are raising our quarterly dividend, 17% to 10 and a half cents per share to be paid June 20th shareholders of record as of June 6th.
Steve: Finally, we are raising our quarterly dividend 17% to $0.105 per share to be paid on June 20th to shareholders of record as of June 6th. This increase in shareholder payout reflects our confidence in our contracted volume outlook, sustainable margin recovery, and the growing free cash flow we expect over the course of 2024 and beyond. Looking forward, we will continue to evaluate the dividend periodically as part of our overall capital allocation framework and anticipate increasing shareholder returns over time in line with business growth in a sustainable manner which allows for additional investment in high-return business development opportunities while maintaining financial strength. With that, I'll turn it over to Amanda. Thanks, Steve.
Steve: This increase in shareholder payout reflects our confidence in our contracted volume outlook sustainable margin recovery.
Amanda: The growing free cash flow, we expect over the course of 'twenty 'twenty four and beyond.
Amanda: Looking forward, we will continue to evaluate the dividend periodically as part of our overall capital allocation framework and anticipate increasing shareholder returns over time in line with business growth in a sustainable manner, which allows for additional investments in high return business development opportunities.
Amanda: Trading financial strength.
Steve: With that I'll turn it over to Amanda to wrap up thanks, Steve.
Amanda M. Brock: In closing, I want to again congratulate our talented and dedicated team on the start of the year and to thank our customers for their continued confidence in our ability to deliver critical water management solutions. Our focused effort on margin recovery has pushed margins to new highs alongside further optimized capital spending. We're running the business more efficiently, and it's evident in our results. We're seeing increased demand for our water infrastructure and full-cycle water treatment capabilities as operators further recognize the critical nature of reliable water management to their operations.
Amanda: Clothing, I want to again congratulate our talented and dedicated team on the start to the year and to think how customers for their continued confidence in our ability to deliver pretty cold water management solutions.
Amanda M. Brock: I'll focus that that our margin recovery has pushed margins new highs alongside further optimize capital spending.
Amanda M. Brock: We're running the business more efficiently and it's evident in our results.
Amanda M. Brock: We're seeing increased demand for our water infrastructure and full cycle water treatment capabilities as operators further recognize the critical nature of reliable water management to their operations.
Amanda M. Brock: We remain confident in our ability to increase free cash flow and shareholder returns, both in 2024 and beyond, as reflected by a dividend increase this quarter. Alongside the solid performance in our core business, we are leading the future of water technology, preserving scarce groundwater resources in the areas in which we operate, and extracting additional value from complex wastewater streams. With that, we are happy to take questions.
Amanda M. Brock: We remain confident in our ability to increase free cash flow and shareholder returns both in 'twenty 'twenty four and beyond as were affected by a dividend increase this quarter.
Amanda M. Brock: Alongside the solid performance in our coal business, we are leading the future of warning technology preserving Scott Brown water resources in the areas in which we operate and extracting additional value from context wastewater strains.
Amanda M. Brock: And with that we are happy to take questions.
Amanda M. Brock: Yes.
Speaker Change: Thank you.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions. The first question comes from the line of John Mackay with Goldman Sachs. Please go ahead.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on the telephone keypad.
John Ross Mackay: Confirmation tone will indicate your line is in the question queue keep up that starts to if you would like to move your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
John Ross Mackay: First question comes from the line of John Mckay with Goldman Sachs. Please go ahead.
John Ross Mackay: Hey, good morning. Thank you for the time. Maybe we'll start on the margin side, if you don't mind. You guys have made a lot of progress in kind of working through some of those OPEX issues. Maybe just can you break down for us, if you're backing out the $4 million of incremental gains this quarter, just what underlying margin strength looks like, and then how we should think about that moving from here.
John Ross Mackay: Hey, good morning. Thank you for the time, maybe we'll start on the margin side. If you don't mind you guys have made a lot of progress.
John Ross Mackay: And kind of working through some of this opex issues, maybe just can you breakdown for us if you're backing out the 4 million of incremental gains this quarter, just what underlying margin strength looks like and then how we should think about that moving from here.
Speaker: Thanks, John. Yeah, I'm happy to do that.
Speaker Change: Thanks, John.
John: Yeah happy to do that.
Speaker Change: We sort of discussed before and as we've talked about.
Speaker: As we sort of discussed before and as we've talked about, you know, we saw a high point of margins this quarter at $0.46. We also have indicated that we saw a pull forward of about $4 million. So when you normalize that, we think this quarter was still an all-time high at about $0.43, which is what we've also guided to in Q2. But, Steve, why don't you go ahead and break that down in terms of what we saw with increased flowbacks and how we account for that $4 million pull forward?
John: We saw a high point I'm up margins this quarter at the 46 that we also have indicated that we saw a pull forward of about 4 million. So when you normalize that we think this quarter was still an all time high at about 43 cents, which is what we've also guided to in Q2.
Speaker: Steve Why don't you go ahead and break that down in terms of what we sold with increased flow backs and how we account for that format and pull forward.
Steve: Yeah, John, the $4 million pull forward, there were some volumes we originally expected in Q2, which we saw come forward in Q1, both earlier timing as well as larger volumes, and then there was associated skim oil with some of our volumes that was well inaccessible, as we typically see. We also see some CPI escalators come in January of each year, so we had an uptick in some of our contracts, so you see some revenue there. But going forward, as Amanda alluded to, it's about three cents per barrel on the margin side, which was in Q1.
Steve: Yeah, John the 4 million pull forward there was some volume than we originally expected in Q2, which we saw come forward in Q1, both of them earlier timing as well as larger volumes and then there was associated skim oil volumes that was well in excess of what we see typically we also see some CPI escalators come in January of each year. So we had.
Steve: Some uptick in some of our contracts as you see some revenue there.
Steve: But going forward as Amanda alluded to it's about three cents per barrel on the margin side that it was in Q1 that.
Speaker: We had some maintenance items pushed into Q2.
Steve: It wouldn't be at all one time items, we had some maintenance items pushing to Q2, yes. It's true we had a $2 million BARDA expense are related to well maintenance that's going to go into Q2.
Speaker: [inaudible]
Speaker: And that was just more of a timing issue.
Speaker: So as we look forward.
Speaker: And that was just more of a timing issue. As we look forward, you know, we're very pleased with the progress that we've made. We guide 43, that is a high, and so overall, we think it is sustainable, and we continue to look at our operations, how we are running our operations to find additional efficiencies, which you know, we still see opportunities for, but they won't be sort of some of the big strides forward that we were able to take in 23 in this quarter.
Speaker: We're very pleased with the progress that we've made we guide 43 that is a high and so overall, we think it is sustainable and we continue to look at our operations. How we are running our operations to find additional efficiencies, which you know, we we still see opportunities, but they won't be.
Speaker: I appreciate that detail. It all makes sense.
Speaker: So to some of the big strides forward that we were able to take in 'twenty three in this quarter.
Speaker: I appreciate that detail all makes sense, maybe I'm just turning to the dividend congrats on the announcement, maybe if you could just kind of frame up.
John Ross Mackay: Maybe just turning to the dividend, congrats on the announcement. Maybe if you could just kind of frame up, you know, how you thought about the size of the increase. I know, Stephen, you talked a little bit about the growth pace going forward, but maybe you could kind of just talk about the balance between, you know, investing in the business, growing the dividend, and any other kind of capital allocation pieces you might have. How do we think about that?
John Ross Mackay: You know how you thought about the size of the increase I know Stephen you talked a little bit about the growth pace going forward, but maybe you could kind of just talk about the balance between investing in the business growing the dividend and any other kind of capital allocation pieces. He might have how do we think about that going forward.
Steve: Great question. Steve, why don't you go ahead and sort of talk about the deliberations on this one? Yeah, John, we've been thinking about growing shareholder returns for the last couple quarters, and given the outperformance of Q1 and given the forecast for reduced capital, it seemed like the best time to go ahead and start increasing shareholder returns. Looking forward, yeah, we'll look to assess it periodically, and we do expect to grow shareholder returns alongside growth in EBITDA and free cash flow over time.
Speaker Change: Great question and see why did you go ahead and sort of talk about the deliberations on this one yeah, John we've been thinking about growing shareholder returns over the last couple of quarters and given the outperformance in Q1 and given the forecast for reduced capital it seemed like the.
Steve: Best time to go ahead and start increasing shareholder returns.
Steve: Looking forward, we look to assess it periodically and we do expect to grow shareholder returns alongside growth in EBITDA and free cash flow overtime.
Steve: That could come, you know, through annual dividend increases or could come through share repurchases, which is something else that we've considered. So it's going to be at a measured pace that's sustainable and doesn't impede the balance sheet in any way.
Speaker Change: That could come through annual dividend increases or could come through share repurchases.
Steve: So we've considered so it's gonna be in a measured pace, that's sustainable and doesn't impede balance sheet anyway.
Speaker Change: I appreciate that thank you very much.
Speaker: I appreciate that. Thank you very much.
Speaker: It's your question about how we're going to grow the business, considering how we look at the dividend and future. It's organic and inorganic.
Speaker Change: So question on how are we going to grow the business and considering you know how we look at the dividend in future organic.
Speaker: Organic and inorganic we have great organic opportunities, we continue to pursue opportunities in our area, we've got great infrastructure great customers.
William A. Zartler: We have great organic opportunities. We continue to pursue opportunities in our area. We've got great infrastructure, great customers. It's the core of the Permian Basin. I think on the inorganic side, Bill, would you like to?
Bill: It's you know.
William A. Zartler: Core in the Permian Basin, I think on the inorganic side Bill would you like to.
William A. Zartler: I think if you look at the dividend, it is still a relatively low portion of our cash flow. So from a traditional MLP coverage ratio perspective, we've made a commitment to keep the dividend, and we'll keep it there. It's got plenty of room to continue to grow, or we can use that cash to reinvest. The balance sheet's in great shape, so we're not having to do any repair work there. And so we'll see how. We will evaluate these as we continue to grow along the way, and we've reserved capital that is included in the current plan, which does include some growth along with the core maintenance capital.
Bill: When you look at the dividend and is still a relatively low portion of our cash flow from our traditional MLP coverage ratio perspective, where we've made a commitment to keep the dividend and we will keep it there. It's got plenty of room to continue to grow or we use that cash to reinvest the balance sheets in great shape. So we're not having to do any repair work there.
William A. Zartler: And so we'll see how.
William A. Zartler: We will evaluate these as we continue to grow along the way we've reserved here with capital.
William A. Zartler: Included in the current plan, which does include some growth along with the core maintenance capital.
Speaker Change: All right that's clear thank you.
Speaker: All right, that's clear. Thank you.
Speaker: Thank you next question comes from the line of Spiro <unk> with Citi. Please go ahead.
Spiro Michael Dounis: Thank you. The next question comes from the line of Spiro Dounis with Citi. Please go ahead.
Spiro Michael Dounis: Thanks, operator, good morning team, maybe want to pick up on some of those last comments you always talked about your capital allocation priorities balance sheet first but as you described your sort of below your leverage target here.
Operator: Thanks, operator, morning team. Maybe I just want to pick up on some of those last comments. You all have talked about your capital allocation priorities, the balance sheet first, but as you described, you're sort of below your leverage target here, seem to have a lot of dry powder, but second comes growth capital and investing there. And so we're hoping to get maybe a little bit more color. One, with respect to M&A; I'm just curious what the opportunity set looks like right now.
Operator: There are a lot of dry powder, but the second key growth capital and investing there and so was hoping to get maybe a little bit more color one with respect to M&A just curious what the opportunity set looks like right now and then with respect to commercial.
Operator: And then with respect to commercial, it was tough for us to see kind of what's going on beneath the surface, but curious as you think about grabbing more market share there, what that market looks like today, and just how to think about some of the competitive dynamics.
Operator: It was tough for us to see kind of what's going on beneath the surface, but I'm curious as you think about grabbing more market share there what that market looks like today and just how to think about some of the competitive dynamics.
Speaker: Morning Spiro, certainly on M&A, we've talked about it consistently that this is something we would like to do under the right circumstances if it's accretive and you know if it strategically helps us expand our footprint and we can do more with the assets. So why don't you sort of talk about the landscape right now? Yeah, they're still based on where we're at.
Operator: When I say around and secondly on M&A, we've talked about it consistently that this is something we would like to do under the right circumstances, if its accretive.
Spiro: If it strategically it helps us expand our footprint and we can do more with the assets, but why did you set a totally out of Atlanta.
Spiro: Right now Theres still based on where we're valued a bit of a gap between seller expectations and where we're valued ultimately we're very comfortable and highly confident in our assets our customers aren't contracts and looking at other businesses Theres a relative a relative difference in some cases in some cases, it's small.
Speaker: There's still, based on where we're valued, a bit of a gap between seller expectations and where we're valued. Ultimately, we're very comfortable and highly confident in our assets, our customers, and our contracts. Looking at other businesses, there's a relative difference in some cases. In some cases, it's small.
Speaker: In some cases, it's large in this business. As this water industry has evolved and developed, the way businesses have grown has been very different in approaches around contracting and around building assets. We're very careful in evaluating and valuing bolt-on acquisitions, but we do think there are some synergies there. We do like the additional size that it could give us, but we're not going to do anything that doesn't ultimately make great economic sense for our shareholders. If you look at our cash position today and relative balance sheet strength, our stock is a better buy than what other people think their businesses are worth.
Speaker: In some cases as large in this business. So there's a bit of as this water industry has evolved and developed.
Speaker: The way they have businesses have grown it has been very different than approaches around contracting and right around building assets and so we're very careful in evaluating and valuing our bolt on acquisitions. We do think there are some synergies there and we do like the additional size it could give us, but we're not going to do anything that doesn't ultimately.
Speaker: We make great economic sense for our shareholders.
Speaker: If you look at our cash position today relative balance sheet strength.
Speaker: Our stock is a better buy than what other people think their businesses their worst so.
Speaker Change: Well, we'll see.
Speaker: And on the commercial side, we continue to have great relationships with our customers getting repeat business from them as they expand their footprint. So we do see continued growth in the basin and of course, you know it's a basin that were in the northern Delaware is in many respects.
Amanda M. Brock: And on the commercial side, Spiro, you know, we continue to have great relationships with our customers, getting repeat business from them as they expand their footprint. So we do see continued growth in the basin, and of course, the basin that we're in, Northern Delaware, is, in many respects, the growth engine of the Permian. So in terms of future market share, we are very deliberate. We are seeing, you know, high-return projects. We have an exceptional, you know, BD commercial team, and I expect us to continue to grow our market share.
Amanda M. Brock: Our growth engine at the Permian So in terms of future market share. We are very deliberate we are seeing you know high return projects and we have an exceptional you know BD commercial team.
Amanda M. Brock: And I expect us to continue to to grow our market share.
Spiro Michael Dounis: Great. Second question, Amanda, maybe you just want to touch on some of these reuse initiatives. You seem to be leaning in more here with this latest print. One, you mentioned the sort of mineral extraction and then also this hydrogen pilot. Sounds early stages in both cases, but curious if you could just give us a sense of what these projects look like over time and maybe some milestones.
Amanda M. Brock: Great.
Spiro Michael Dounis: Question a minute maybe just wanted to touch on some of these reuse initiatives you all seem to be leaning in more.
Spiro Michael Dounis: Here with this latest spring one you'd mentioned the sort of mineral extraction and then also this hydrogen pilot it sounds early stages in both cases, but curious if you could give us a sense of what these projects look like overtime and maybe some milestones we should be able to look out for.
Amanda M. Brock: Certainly, Spiro, as we've tried to emphasize, the expansion into beneficial reuse and additional initiatives like mineral extraction does take time. The last thing we want to do is to start to set expectations.
Spiro Michael Dounis: 70 stay around as we've tried to emphasize.
Amanda M. Brock: The expansion into beneficial reuse and additional initiatives like mineral extraction does take time. The last thing we want to do is to start to set expectations.
Amanda M. Brock: And we've seen that happened to other companies and we are going to be very deliberate in what we say and we are going to be coming back with milestones as we feel confident that what we are seeing can actually come to fruition on the mineral extraction side, yes, we have referred to that now we've spent over a year in examining the.
Amanda M. Brock: We've seen that happen to other companies, and we are going to be very deliberate in what we say, and we are going to be coming back with milestones as we feel confident that what we are seeing can actually come to fruition. On the mineral extraction side, yes, we have referred to that now. We've spent over a year examining the mineral content in our water across our assets, and we now have a much better idea and understanding of what is in our water.
Amanda M. Brock: Medical content and our water across our assets and we now have a much better idea and understanding of what is in our water. So at this point, we are moving forward and evaluating opportunities to see them with partners and other technology providers.
Amanda M. Brock: So at this point, we are moving forward and evaluating opportunities to see with partners and other technology providers to see how we can commercialize, and look at what revenue might be expected. We do not expect any revenue from beneficial reuse or mineral extraction, definitely not 24, 25 potentially in mineral extraction, but we'll continue to be deliberate.
Amanda M. Brock: To see how we can commercialize and look at what revenue might be expected. We do not expect any revenue from beneficial reuse or mineral extraction definitely not you know 'twenty four 'twenty.
Amanda M. Brock: 25, potentially a mineral extraction, but they'll continue to be deliberate we see this is promising and.
Speaker: We see this as promising, and we will come back to you with milestones. The reference in our materials, our quarterly materials on the hydrogen project, is just to reinforce that we are being viewed as leaders in the development of technology and the ability to bring innovative water treatment processes to different applications. So we've had majors come to us who are looking at smaller hydrogen projects to be their water treatment partner and to develop processes to potentially use treated produced water in hydrogen production. So stand by, and we will continue to be deliberate.
Speaker: And we will come back to you with milestones the referenced and you know on materials I'm totally materials on the hydrogen project. It just to reinforce that we are being viewed as leaders and in the development of technology and the ability to bring innovative water treatment and processes two different type.
Speaker: Vacation. So we've had major has come to us and so we're looking at smaller hydrogen projects to be that water treatment partner.
Speaker: And to develop processes to potentially use treating produced water in hydrogen production.
Stan: So Stan.
Speaker: We ended up right.
Speaker: Understood how those always makes with Gallagher you got it.
Speaker: understood. Helpful as always. Thanks for the call, everybody. Thank you.
Speaker Change: Thank you.
Wade Anthony Suki: Thank you next question comes from the line of will be Suki with capital. One. Please go ahead.
Operator: Thank you. The next question comes from the line of Wade Suki with Capital One. Please go ahead.
Operator: Yeah.
Wade Anthony Suki: Wadia mute.
Wade Anthony Suki: Wade, are you on mute?
Operator: Mr. Suki, please go ahead with your question.
Wade Anthony Suki: Mr. <unk>. Please go ahead with your question.
Wade Anthony Suki: Okay. Here, we go can you hear me.
Wade Anthony Suki: Okay, here we go. Can you hear me?
Operator: Good morning. Good morning.
Wade Anthony Suki: Good morning, good morning Wanda.
Wade Anthony Suki: wonderful Good morning.
Wade Anthony Suki: Thanks for taking my questions I think most of them have been answered at this point, but just taking a step back I'm wondering how.
Wade Anthony Suki: Thanks for taking my questions. I think most of them have been answered at this point, but just taking a step back, I'm wondering how you think about the durability, sustainability, or maybe, as you put it, the visibility into the longer-term kind of revenue, cash flow of the business, kind of given the profile, contracting, customer, geography, all that kind of stuff that underpins the business today. How do you think about that on a longer term basis?
Wade Anthony Suki: How do you think about the durability sustainability or maybe as you put it the visibility it's the longer term kind of revenue cash flow.
Wade Anthony Suki: <unk> of the business kind of given the profile of contracting customers geography, all of that kind of stuff that underpin the business today, how do you think about that on a longer term basis.
Speaker: We feel really good about it, Wade. You know, if you think about where we sit, we've got these long-dated contracts with great customers, premier customers in the basin, and we've got great visibility under those contracts into 25 and beyond. And I think, you know, you pair that with our infrastructure, you pair it with the fact that we get repeat contracts with customers, and the basin's expanding, and then, most importantly, under these long-dated contracts, the fact that 80% of our revenue is coming from production that's currently flowing under these contracts, I think, you know, anybody with that type of profile will feel good about, you know, what the future looks like. We're going to continue to work extremely hard, but we feel good about it.
Speaker Change: We feel really good about it way.
Speaker: And if you think about you know, where we said we've got these long dated contracts with great customers premiere customers and in the basin and we've got great visibility under those contracts into 'twenty, five and beyond and I think you know you pair that with our infrastructure you pair it with the fact that we get.
Speaker: Pete contracts with the customers and the basis is expanding and then most importantly under these long dated contracts. The fact that 80% by revenue is coming from production. That's currently flowing under these contracts I think you know anybody with that type of profile will respectfully.
Speaker: Good about you know what the future looks like.
Speaker:
Speaker: We're going to continue to work extremely hard, but we feel good about it.
Speaker Change: Fantastic. Thank you and if I could just dovetail on a couple of the questions before thinking about capital allocation free cash flow et cetera.
Wade Anthony Suki: I just want to make sure I'm kind of reading the tea leaves right here or at least analyzing things within the ballpark. Pre-cash, obviously, excellent performance in the first quarter. Looking at the second half of the year, could I think about kind of a similar cadence per quarter, before dividends, after dividends? Is that reasonable to think about?
Speaker Change: Just wanted to make sure I'm I'm kind of reading the tea leaves right here or at least the analyzing things.
Wade Anthony Suki: Within the ballpark free.
Wade Anthony Suki: Free cash obviously.
Wade Anthony Suki: Excellent.
Wade Anthony Suki: Performance in the first quarter, but I'm looking at the second half of the year cause I think about kind of a similar cadence per quarter before dividends. After dividends is that a is that reasonable to think about.
Speaker: While we do look at free cash flow quarter-to-quarter, of course, we are looking at this on more of a long-term basis. So you're always going to have some noise from working capital and timing of capital projects. So we sort of look through cycles as we think about cash flow and shareholder return growth. So it's not necessarily going to be quarterly dividend increases. We'll look at it on a more annual basis, and there will be timing considerations just from a free cash flow standpoint.
Wade Anthony Suki: But what we do look at the free cash flow quarter to quarter of course relegated to set them on more of a long term basis. So you're always going to have some noise from working capital and timing of capital projects. So we sort of look through cycle as we think about cash flow and shareholder return growth. So it's not gonna be necessarily you know quarterly dividend increases.
Speaker: As we look at it more of an annual basis.
Speaker: There will be timing considerations, just from a free cash flow standpoint.
Speaker Change: Understood. Thank you so much appreciate your taking my questions.
Wade Anthony Suki: I understand. Thank you so much. I appreciate you taking my questions.
Wade Anthony Suki: Yeah.
Operator: Thank you. The next question comes from the line of Jeremy Tonnet with JPMorgan Chase & Co. Please go ahead.
Wade Anthony Suki: Thank you next question comes from the line of Jeremy Tonet with JP Morgan Chase <unk> co. Please go ahead.
Noah Katz: Hey, this is Noah cats on for Jeremy first I wanted to touch on your line of sight into your customer needs in performance I think you've previously said you receive a six month notice from customers. So if you could touch on any upside the volumes you're seeing in the second half of 2024, and what gives you guys confidence in providing your two key guidance. Thank you.
Noah Katz: Hey, this is Noah Katz on for Jeremy. First, I wanted to touch on your line of sight into your customer needs and performance. I think you've previously said you receive a six-month notice from customers. So could you touch on any upside to volumes you're seeing in the second half of 2024 and what gave you guys confidence in providing your 2Q guidance? Thank you.
Speaker: Thanks, Noah. Yes, we do, under our contracts, have to get a six-month notice. But we are talking to our customers constantly, and while that is a contractual provision, we do have visibility into more than six months. Longer-dated. We know where they are. We run our own forecast. We talk to them every day. You know, the commercial team is, you know, very embedded. It's a very sticky relationship.
Speaker Change: Thanks Noah.
Speaker: And yes, we do under our contracts have to get a six month notice, but we are talking to our customers constantly and while that is a contractual provision we do have visibility into more than six months longer dated we know where they are we run our forecast we talk to them every day.
Speaker: The commercial team is you know very embedded it's very sticky relationships that we do have great visibility and we do see total volumes trending into a ramp.
Speaker: So we do have great visibility, and we do see total volumes trending into a ramp, you know, by the end of the year. So it does give us confidence, and I think we're signaling that by, you know, the dividend increase, but we do see volumes ramping at the end of the year, but it's pretty steady.
Speaker: And you know by the end of the year. So it does give us confidence and I think we signaled that by you know the dividend increase that.
Speaker: But we do see volumes ramping.
Speaker: At the end of the year.
Speaker: But it's pretty steady.
Speaker Change: That's great. Thank you and as a follow up on I know you guys reduce leverage again this quarter to the 2.15 times Mark from 2.4 previously.
Speaker: That's great. Thank you. And as a follow-up, I know you guys reduced leverage again this quarter to the 2.15 times mark from 2.4 previously. With the reduced leverage and the dividend raise this quarter, can you speak to how repurchases stack up with your capital allocation priorities?
Speaker: With the reduced leverage and a dividend raise this quarter can you speak to how repurchases stack up with your capital allocation priorities.
Speaker: Yeah, repurchases, you know, provide flexibility and capital return to shareholders because you can match pre-cash flow timing with the repurchases themselves. One of the considerations we have, of course, is the relative low float, which impedes trading day-to-day. So if you take large amounts of shares out of the market, it could have some negative impacts there. But given where we're trading right now from a valuation standpoint, as Bill mentioned earlier, there's tremendous upside value in the stock right now. So it's going to be a tool that we'll look at alongside dividend growth for long-term shareholder returns.
Speaker Change: Please go ahead, yeah repurchases you don't provide flexibility in capital returned to shareholders. Because you can match free cashless I mean with the repurchases themselves do you one of the considerations. We have of course is relative low float.
Speaker: Impedes trading day to day. So if you go take large amounts of shares out of the market. It could have some negative impacts there.
Speaker: But given where we're trading right now from valuation standpoint, as Bill mentioned earlier, there's tremendous upside value in the stock right now so it's going to be a tool that we will look at it alongside dividend growth for long term shareholder returns.
Speaker:
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker: Thank you next question comes from the line of <unk> Satish with Wells Fargo. Please go ahead.
Operator: Thank you. The next question comes from the line of Praneeth Satish with Wells Fargo. Please go ahead.
Operator: Thanks.
Praneeth Satish: Thanks. Good morning.
Praneeth Satish: Good morning, maybe just to follow up on that prior question on buybacks.
Praneeth Satish: You know I guess the way I'd think about it is if you're going to you're going to look to do M&A.
Speaker: Maybe just to follow up on that prior question on buybacks, you know. I guess the way I think about it is you're going to look to do M&A, and to the extent you can't get deals done, it sounds like maybe you'll consider buybacks, but I don't want to put words in your mouth. So, one, is that true? And then as a follow-up, it sounds like, based on your comments on the M&A market from a previous question, there is a gap between where you are valued and where assets are selling for.
Speaker: And to the extent you can't get deals done it sounds like maybe you'll consider buybacks, but I don't want to put words in your mouth. So one is that true and then as a follow up at.
Speaker: It sounds like based on your comments on the M&A market from previous question. There is a gap between where you are valued and where assets are selling for so if I read into those comments. It sounds like maybe we need to wait a little bit of time here for for the bid ask spreads to narrow on acquisition, so kind of putting that together.
Speaker: So, if I read into those comments, it sounds like maybe we need to wait a little bit of time for the bid-ask spreads to narrow on acquisitions. So, kind of putting that together, it feels like if you may or may not do M&A this year, which maybe does that open the door to doing buybacks in the second half of this year.
Speaker: Gather it feels like if you you may or may not do M&A. This year, which maybe does that open the door to doing buybacks in the second half of this year.
Speaker: I mean, all of that is on the table, and we're very patient with our capital, and if it means we continue to approve the balance sheet for a couple of quarters, we continue to approve the balance sheet for a couple of quarters. We're in no rush to do anything that doesn't make any sense.
Speaker Change: All of that is on the on the table and you know, we're we're very patient with our capital and if it means we continue to improve the balance sheet for a couple of quarters. We continue to improve the balance sheet further quarters, where we're in no rush to do anything that doesn't make any sense. So if we evaluate steady long term dividend growth, which we believe will be a key.
Speaker: So if we evaluate steady, long-term dividend growth, which we believe will be a core part of the strategy, as we indicated two years ago, we started off with a low dividend at the IPO, and we've continued it now. This will be our first increase, and probably the first of many over the next several years. And we'll evaluate whether we do. As Stephen alluded to, we don't have a ton of flow today, so that is a consideration with buybacks.
Speaker: Part of the strategy as.
Speaker: As we indicated two years ago, we started off with a low dividend to the IPO and we've continued to know this will be our first increase in probably the first of many over the next several years and we'll evaluate where the weather what do we do as Steven alluded to you know we don't have a ton of float today. So you know that is a consideration with buybacks that said.
Speaker: That said, we will have excess cash beginning to build on the balance sheet, or at least lower leverage covenants to well, well below market averages. I don't think, as you said, where deals are getting done; I don't think anything's really getting done. So there is a realization, and it's sort of a relative value thing that will come into play over the course of the next, who knows, whether it's a quarter or a year or two.
Speaker: We'll have excess cash and beginning to build on the balance sheet or at least lower leverage covenants to well well below market averages I don't think as you said where deals were getting done I don't think anything's really getting done.
Speaker: So there's a there is a realization of it as sort of a relative value, saying that will come into play over the course of the next you know who knows whether its a quarter or a year or two but eventually we believe these assets do consolidate in some form or fashion because it does make sense to operate them efficiency. You know there is a tremendous opportunity.
Speaker: But eventually, we believe these assets will consolidate in some form or fashion because it does make sense to operate them efficiently. There is a tremendous opportunity in the Delaware Basin today and where we act, and there's continued growth. We've seen announcements by some of the larger players on their continued growth and interest level in the area. One of our large midstream counterparts called it the Permanent Basin rather than the Permian Basin, and I think that that is a very accurate description of what we see, the length of inventory and the economics of our customers, which at a two to four to five to one water to oil ratio continues to grow our business quite rapidly over time.
Speaker: In the Delaware Basin today, and where we act and there's continued growth we've seen the announcements by some of the larger players on their continued growth and interest level in there and I think one of our large midstream counterparts and called it the permanent basin, rather than the Permian basin and I think that that that is a very accurate description of what we see the length of inventory and the economic.
Speaker: <unk> of our customers, which you know.
Speaker: You know two to four to five to one water oil ratio continues to grow our business quite rapidly over overtime.
Speaker Change: Got it no. That's helpful and then when I look at the guidance for Q2, it seems like it implies a sequential decline here and produced water volumes between Q1 and Q2 can you help explain what's driving that I mean, I know you mentioned that you pulled forward some produced water volumes from Q2 into.
Praneeth Satish: Got it, now that's helpful. And then when I look at the guidance for Q2, it seems like it implies a sequential decline here in produced water volumes between Q1 and Q2. Can you help explain what's driving that? I mean, I know you mentioned that you pulled forward some produced water volumes from Q2 into Q1, but I would imagine that that would continue into Q2, so I'm just trying to understand that decline there.
Praneeth Satish: Q1, but I would imagine that that would continue into Q2, so I'm just trying to understand that decline there.
Speaker: Some of that, Praneeth, is the pull forward, where 20 well pads are flowbacks, and that flowback is sort of your highest volume of water. So that decline is actually sharper as time goes on. So that does have an impact, which is why we're sort of guiding lower in Q2. Obviously, we're going to do everything we can, as we always do, to reverse that.
Praneeth Satish: That for me if I am is the pull forward.
Speaker: That 20, well pad flow backs and that flow back as sort of your highest volume of water. So that decline is actually shop as you as time goes on so that does have an impact which is why we sort of guiding guiding lower in Q2, obviously, we got to do everything we can as we always do to reserve.
Speaker: But a lot of this is just a function of what our customers are doing and what we're seeing in terms of either steady state production setbacks and we see some of our larger customers that have acreage outside of our area either in the Texas, Delaware or in the Midland Basin and they do move.
Speaker: And we see some of our larger customers that have acreage outside of our area, either in Texas, Delaware, or in the Midland Basin, and they do move fraternal crews back and forth. And so I think we're seeing a little timing of that from the second, third quarter, which is why if you talk about a ramp, this is effectively a ramp based on the movement of frat crews back and forth across the acreage that we have pretty good visibility into. There's just a little bit of quarter-on-quarter noise on that, but this growth continues to be steady.
Speaker: Frac crews back and forth and so I think we're seeing a little timing of that from the second and third quarter, which is why you're talking about a ramp.
Speaker: This is a effectively a ramp based on the movement of Frac crews back and forth across the acreage that we have a pretty good visibility into so it's there is just a little bit on a quarter on quarter noise on that but this growth continues to be steady.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you next question comes from the line of Shawn Michelle Daniel Energy Partners. Please go ahead.
Operator: Thank you. The next question comes from the line of Sean Mitchell with Daniel Energy Partners. Please go ahead.
Sean Mitchell: Good morning, Amanda. Thanks for taking the questions. Quickly, just skim little recoveries were up significantly. I'm kind of not very smart on this, but what drove that, and like, it looks like you have that coming back down in Q2, and how impactful is that from a profitability standpoint in terms of your outperformance for the quarter?
Sean Mitchell: Good morning, Amanda Thanks for taking the questions congrats on the quarter.
Sean Mitchell: Quickly just skim oil recoveries were up significantly I'm kind of not very smart on this but what drove that and like it. It looks like you have that coming back down in Q2, and how impactful is that from a profitability standpoint in terms of your outperformance for the quarter.
Speaker: So, Sean, good to hear from you. And, you know, skim oil was a surprise in Q1. In the early part of that quarter, there were some flowbacks in a particular area, and there was some outside, you know, production of skim oil. The operator then made some changes, and skim oil declined. So, how much do we get is always just a function of what our customers are doing. So, we do guide over the year, but we do have some lumpiness depending on activity, area, whether it's recycling, and whether it's sort of flowback.
Amanda: Thanks, Sean and good.
Speaker Change: Can you hear it from you and yes, you know skim oil.
Speaker: <unk> was a surprise in Q1 and the early part of that quarter. There were some flow backs them in a particular area and they were some outside.
Speaker: You know production of skim oil. The operator, then made some changes and that you know skim oil decline so okay.
Speaker: It's always just a function of what our customers are doing so we do guide.
Speaker: And over the year, but we do have some lumpiness depending on activity on area, whether its recycle them and whether it's in a flowback.
Sean Mitchell: Got it Okay, and then maybe remind us and any color you can provide around your inflation escalators on your long term contracts, obviously, that's very impressive.
Sean Mitchell: Got it. Okay. And then maybe remind us in any color you can provide around your inflation escalators on your long-term contracts. Obviously, that's very impressive. Can you give us any color around those inflation escalators?
Speaker Change: Can you can you give us any color around that and inflation escalator happy.
Speaker: Happy to do that. David, why don't you go ahead and explain how they come in at different times during the year? Sure.
Sean Mitchell: Happy to do that David why don't you go ahead and explain how they come in at different times during the yeah sure Oh, they they usually reset annually depending on the signature date of the contract are some of our larger ones occur in the middle of the year and then we have a couple at the beginning of the year as Steve referenced earlier.
David: They usually reset annually, depending on the signature date of the contract. Some of our larger ones occur in the middle of the year, and then we have a couple at the beginning of the year, as Steve referenced earlier.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, guys.
Speaker Change: Have a great day.
Speaker Change: Thank you.
Speaker Change: Thank you.
David: Ladies and gentlemen, we have reached the end of question and answer session I would now like to turn the floor over to Amanda Brock for closing comments.
Operator: Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Amanda Brock for closing comments.
Amanda M. Brock: Thank you.
Amanda M. Brock: As you saw and have had we had a great first quarter, we continuing to work very hard and with that I want to again emphasize that.
Amanda M. Brock: As you saw and have heard, we had a great first quarter. We're continuing to work very hard. And with that, I want to again emphasize that. Last year and this quarter would not have been possible without an amazing, dedicated team and customers who've supported us and have confidence in our ability to perform, so thank you all. We look forward to updating you next quarter, and thank you for participating this morning.
Amanda M. Brock: Lost share in this call he would not be possible without an amazing dedicated team and customers, who supported us and have confidence in our ability to perform so thank you all and we look forward to updating you next quarter and thanks for participating this morning.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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