SELECT ENERGY SERVICES ANNOUNCES FIRST QUARTER 2023 FINANCIAL RESULTS AND OPERATIONAL UPDATES
Generated revenue of
Water Infrastructure segment generated revenue of
Net income increased
Contracted multiple new infrastructure projects supported by long-term contracts in the Haynesville, Midcon and Rockies regions
John Schmitz, Chairman of the Board, President and CEO, stated "The first quarter represented a strong quarter of sequential earnings and revenue growth, most notably the
"The market for sustainable, scalable full lifecycle water solutions in the energy industry has never been stronger. We are clearly seeing the operational synergies, growth and earnings benefits of our recent acquisitions, particularly in the Permian Basin. However, in addition to the multiple new acquisitions and projects we previously announced and executed on in the Midland and Delaware Basins during the first quarter, we also added new long-term contracted infrastructure projects in
"Our previously announced corporate rebranding initiative to transform into Select Water Solutions remains on-target for a second quarter consummation. While our brand and invoicing channel consolidation draws closer, our cash flow remained challenged during the first quarter as a sizable working capital build resulted from both growing revenues and a continued build-up of acquisition-related invoicing. We have dedicated significant internal and external resources to our ongoing systems integration and ERP project implementation efforts and are working diligently to complete these efforts in conjunction with our rebranding effort. These investments will allow us to meaningfully improve our internal processes, better support our customers, resolve the integration-related ticketing and invoicing backlog, and unlock a meaningful amount of cash from the balance sheet during the second half of 2023. Towards that goal, we are targeting a reduction of
"We remain steadfast in our vision to be the recognized leader and trusted partner in sustainable water management solutions, and we believe our continued dedication to achieving operational excellence across the entire organization, including back-office administration, will further enhance that vision. Ultimately, we are confident in our ability to continue to improve the operational performance of the business and we remain committed to our robust free cash flow outlook for the year.
"Accordingly, we continually evaluate our capital allocation opportunities in light of this anticipated free cash flow. Returning capital to shareholders is an important part of our capital allocation strategy, and in support of our existing base dividend program, we were pleased to reinitiate our share repurchase program during the first quarter with an additional
"I am pleased with our financial performance during the first quarter of 2023 and am confident meaningful opportunities lie ahead to continue developing our sustainable water infrastructure solutions while driving long-term growth and substantial financial returns. Supported by our recent acquisitions, advanced chemical technologies, strategic investments and increased organic infrastructure growth opportunities, we expect to see continued revenue, adjusted EBITDA and net income growth in 2023. We look forward to building upon our strong first quarter results, while significantly expanding our free cash flow generation during the remainder of 2023. This will provide ample opportunities for incremental growth, while also allowing us to advance our support of committed capital returns for our shareholders," concluded Schmitz.
First Quarter 2023 Consolidated Financial Information
Revenue for the first quarter of 2023 was
For the first quarter of 2023, gross profit was
Selling, General & Administrative expenses ("SG&A") during the first quarter of 2023 was
Adjusted EBITDA was
Business Segment Information
The Water Services segment generated revenues of
The Water Infrastructure segment generated revenues of
The Oilfield Chemicals segment generated revenues of
Cash Flow and Capital Expenditures
Cash flow from operations for the fourth quarter of 2023 was
Net capital expenditures for the first quarter of 2023 were
Cash flow used in investing activities during the first quarter of 2023 included
Balance Sheet and Capital Structure
Total cash and cash equivalents were
As of March 31, 2023 and December 31, 2022, the borrowing base under the sustainability-linked credit facility was
Total liquidity was
Business Development Updates
Haynesville Gathering Expansion & Acreage Dedication
During the first quarter of 2023, Select signed a multi-year gathering and disposal agreement with a minimum volume commitment ("MVC") in exchange for a capacity dedication with a large independent operator in the Haynesville Shale. Select is in the process of constructing a 5-mile produced water pipeline that would connect the operator's water infrastructure system to Select's existing 60-mile underground twin pipeline network in the Haynesville Shale in
MidCon Gathering & Disposal Project
During the first quarter of 2023, Select signed a multi-year gathering and disposal agreement with a large public operator in the MidCon region. The
DJ Basin Water Distribution Pipeline
Select recently signed a multi-year water sourcing and delivery agreement with an MVC in exchange for a reserved volume commitment with a major integrated oil and gas company in the DJ Basin in
East Texas Gathering & Disposal Projects
Select recently signed two multi-year gathering and disposal agreements with the same public operator in the Haynesville Shale region in
Conference Call
Select has scheduled a conference call on Wednesday, May 3, 2023 at 11:00 a.m. Eastern time / 10:00 a.m. Central time. Please dial 201-389-0872 and ask for the Select Energy Services call at least 10 minutes prior to the start time of the call, or listen to the call live over the Internet by logging on to the website at the address https://investors.selectenergy.com/events-and-presentations/current. A telephonic replay of the conference call will be available through May 17, 2023 and may be accessed by calling 201-612-7415 using passcode 13737963#. A webcast archive will also be available at the link above shortly after the call and will be accessible for approximately 90 days.
About Select Energy Services, Inc.
Select is a leading provider of sustainable water and chemical solutions to the energy industry. These solutions are supported by the Company's critical water infrastructure assets, chemical manufacturing and water treatment and recycling capabilities. As a leader in sustainable water and chemical solutions, Select places the utmost importance on safe, environmentally responsible management of oilfield water throughout the lifecycle of a well. Additionally, Select believes that responsibly managing water resources throughout its operations to help conserve and protect the environment is paramount to the Company's continued success. For more information, please visit Select's website, https://www.selectenergy.com/.
Cautionary Statement Regarding Forward-Looking Statements
All statements in this communication other than statements of historical facts are forward-looking statements which contain our current expectations about our future results. We have attempted to identify any forward-looking statements by using words such as "could," "believe," "anticipate," "expect," "intend," "project," "will," "estimate" and other similar expressions. Examples of forward-looking statements include, but are not limited to, the expectations of plans, business strategies, objectives and growth and anticipated financial and operational performance. Although we believe that the expectations reflected, and the assumptions or bases underlying our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause our actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include the risks that the benefits contemplated from our recent acquisitions may not be realized, the ability of Select to successfully integrate the acquired businesses' operations, including employees, and realize anticipated synergies and cost savings and the potential impact of the consummation of the acquisitions on relationships, including with employees, suppliers, customers, competitors and creditors. Factors that could materially impact such forward-looking statements include, but are not limited to: the global macroeconomic uncertainty related to the
Contacts:
Select Energy Services
Chris George – Senior Vice President, Corporate
Development, Investor Relations & Sustainability
(713) 296-1073
IR@selectenergyservices.com
Dennard Lascar Investor Relations
Ken Dennard
(713) 529-6600
WTTR@dennardlascar.com
WTTR-ER
SELECT ENERGY SERVICES, INC. | |||||||||
Three months ended | |||||||||
March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||
Revenue | |||||||||
Water Services | $ | 228,597 | $ | 218,524 | $ | 163,606 | |||
Water Infrastructure | 101,547 | 77,178 | 58,554 | ||||||
Oilfield Chemicals | 86,448 | 85,974 | 72,609 | ||||||
Total revenue | 416,592 | 381,676 | 294,769 | ||||||
Costs of revenue | |||||||||
Water Services | 181,699 | 178,146 | 137,046 | ||||||
Water Infrastructure | 72,576 | 59,899 | 44,378 | ||||||
Oilfield Chemicals | 69,709 | 70,978 | 62,163 | ||||||
Depreciation and amortization | 32,943 | 31,082 | 26,500 | ||||||
Total costs of revenue | 356,927 | 340,105 | 270,087 | ||||||
Gross profit | 59,665 | 41,571 | 24,682 | ||||||
Operating expenses | |||||||||
Selling, general and administrative | 35,829 | 34,143 | 28,315 | ||||||
Depreciation and amortization | 595 | 573 | 567 | ||||||
Trademark abandonment | 11,106 | — | — | ||||||
Impairment of cost-based investment | 60 | — | — | ||||||
Lease abandonment costs | 76 | 113 | 91 | ||||||
Total operating expenses | 47,666 | 34,829 | 28,973 | ||||||
Income (loss) from operations | 11,999 | 6,742 | (4,291) | ||||||
Other income (expense) | |||||||||
Gain on sales of property and equipment and divestitures, net | 2,911 | 287 | 1,653 | ||||||
Interest expense, net | (1,483) | (870) | (720) | ||||||
Foreign currency (loss) gain, net | (4) | 1 | 3 | ||||||
Bargain purchase gain | — | (416) | 11,434 | ||||||
Other | 846 | 2,449 | 249 | ||||||
Income before income tax expense | 14,269 | 8,193 | 8,328 | ||||||
Income tax expense | (198) | (285) | (214) | ||||||
Equity in losses of unconsolidated entities | (366) | (337) | (129) | ||||||
Net income | 13,705 | 7,571 | 7,985 | ||||||
Less: net (income) loss attributable to noncontrolling interests | (1,358) | 78 | (1,183) | ||||||
Net income attributable to Select Energy Services, Inc. | $ | 12,347 | $ | 7,649 | $ | 6,802 | |||
Net income (loss) per share attributable to common stockholders: | |||||||||
Class A—Basic | $ | 0.12 | $ | 0.08 | $ | 0.07 | |||
Class B—Basic | $ | — | $ | — | $ | — | |||
Net income (loss) per share attributable to common stockholders: | |||||||||
Class A—Diluted | $ | 0.12 | $ | 0.07 | $ | 0.07 | |||
Class B—Diluted | $ | — | $ | — | $ | — | |||
SELECT ENERGY SERVICES, INC. | |||||||||||
March 31, 2023 | December 31, 2022 | ||||||||||
(unaudited) | (unaudited) | ||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 6,028 | $ | 7,322 | |||||||
Accounts receivable trade, net of allowance for credit losses of | 492,613 | 429,983 | |||||||||
Accounts receivable, related parties | 607 | 5,087 | |||||||||
Inventories | 40,846 | 41,164 | |||||||||
Prepaid expenses and other current assets | 39,774 | 34,380 | |||||||||
Total current assets | 579,868 | 517,936 | |||||||||
Property and equipment | 1,112,899 | 1,084,005 | |||||||||
Accumulated depreciation | (597,861) | (584,451) | |||||||||
Total property and equipment, net | 515,038 | 499,554 | |||||||||
Right-of-use assets, net | 44,562 | 47,662 | |||||||||
Other intangible assets, net | 125,799 | 138,800 | |||||||||
Other long-term assets, net | 19,985 | 18,901 | |||||||||
Total assets | $ | 1,285,252 | $ | 1,222,853 | |||||||
Liabilities and Equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 77,585 | $ | 61,539 | |||||||
Accrued accounts payable | 75,625 | 67,462 | |||||||||
Accounts payable and accrued expenses, related parties | 4,469 | 3,305 | |||||||||
Accrued salaries and benefits | 15,431 | 28,686 | |||||||||
Accrued insurance | 23,503 | 26,180 | |||||||||
Sales tax payable | 4,036 | 3,056 | |||||||||
Accrued expenses and other current liabilities | 19,783 | 23,292 | |||||||||
Current operating lease liabilities | 16,898 | 17,751 | |||||||||
Current portion of finance lease obligations | 19 | 19 | |||||||||
Total current liabilities | 237,349 | 231,290 | |||||||||
Long-term operating lease liabilities | 43,372 | 46,388 | |||||||||
Long-term debt | 75,500 | 16,000 | |||||||||
Other long-term liabilities | 45,696 | 45,447 | |||||||||
Total liabilities | 401,917 | 339,125 | |||||||||
Commitments and contingencies | |||||||||||
Class A common stock, | 1,090 | 1,094 | |||||||||
Class A-2 common stock, | — | — | |||||||||
Class B common stock, | 162 | 162 | |||||||||
Preferred stock, | — | — | |||||||||
Additional paid-in capital | 1,063,149 | 1,075,915 | |||||||||
Accumulated deficit | (298,847) | (311,194) | |||||||||
Total stockholders' equity | 765,554 | 765,977 | |||||||||
Noncontrolling interests | 117,781 | 117,751 | |||||||||
Total equity | 883,335 | 883,728 | |||||||||
Total liabilities and equity | $ | 1,285,252 | $ | 1,222,853 | |||||||
SELECT ENERGY SERVICES, INC. | ||||||
Three months ended | ||||||
March 31, 2023 | March 31, 2022 | |||||
Cash flows from operating activities | ||||||
Net income | $ | 13,705 | $ | 7,985 | ||
Adjustments to reconcile net income to net cash used in operating activities | ||||||
Depreciation and amortization | 33,538 | 27,067 | ||||
Gain on disposal of property and equipment and divestitures | (2,911) | (1,653) | ||||
Equity in losses of unconsolidated entities | 366 | 129 | ||||
Bad debt expense | 1,975 | 571 | ||||
Amortization of debt issuance costs | 122 | 294 | ||||
Inventory write-downs | 75 | — | ||||
Equity-based compensation | 2,964 | 3,275 | ||||
Impairment of cost-based investment | 60 | — | ||||
Trademark abandonment | 11,106 | — | ||||
Bargain purchase gain | — | (11,434) | ||||
Unrealized loss on short-term investment | — | 40 | ||||
Other operating items, net | (442) | 99 | ||||
Changes in operating assets and liabilities | ||||||
Accounts receivable | (64,922) | (46,622) | ||||
Prepaid expenses and other assets | (5,431) | 4,554 | ||||
Accounts payable and accrued liabilities | (8,221) | (2,855) | ||||
Net cash used in operating activities | (18,016) | (18,550) | ||||
Cash flows from investing activities | ||||||
Purchase of property and equipment | (27,885) | (15,463) | ||||
Purchase of equity method investments | — | (3,467) | ||||
Collection of note receivable | — | 184 | ||||
Distribution from cost method investment | — | 20 | ||||
Acquisitions and divestitures | (9,418) | 6,941 | ||||
Proceeds received from sales of property and equipment | 6,724 | 12,123 | ||||
Other | — | (429) | ||||
Net cash used in investing activities | (30,579) | (91) | ||||
Cash flows from financing activities | ||||||
Borrowings from revolving line of credit, net | 59,500 | — | ||||
Payments on long-term debt | — | (18,780) | ||||
Payments of finance lease obligations | (5) | (61) | ||||
Payment of debt issuance costs | — | (2,031) | ||||
Dividends and distributions paid | (6,206) | — | ||||
Proceeds from share issuance | — | 12 | ||||
Distributions to noncontrolling interests | 4,950 | — | ||||
Repurchase of common stock | (10,935) | (18,908) | ||||
Net cash provided by (used in) financing activities | 47,304 | (39,768) | ||||
Effect of exchange rate changes on cash | (3) | 7 | ||||
Net decrease in cash, cash equivalents and restricted cash | (1,294) | (58,402) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 7,322 | 85,801 | ||||
Cash, cash equivalents and restricted cash, end of period | $ | 6,028 | $ | 27,399 | ||
Comparison of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, gross profit before depreciation and amortization (D&A) and gross margin before D&A are not financial measures presented in accordance with accounting principles generally accepted in the
Net income (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Gross profit is the GAAP measure most directly comparable to gross profit before D&A. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or gross profit before D&A in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and gross profit before D&A may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income, which is the most directly comparable GAAP measure for the periods presented:
Three months ended, | |||||||||||
March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||
(unaudited) | |||||||||||
(in thousands) | |||||||||||
Net income | $ | 13,705 | $ | 7,571 | $ | 7,985 | |||||
Interest expense, net | 1,483 | 870 | 720 | ||||||||
Income tax expense | 198 | 285 | 214 | ||||||||
Depreciation and amortization | 33,538 | 31,655 | 27,067 | ||||||||
EBITDA | 48,924 | 40,381 | 35,986 | ||||||||
Trademark abandonment | 11,106 | — | — | ||||||||
Impairment of cost-based investment | 60 | — | — | ||||||||
Bargain purchase gain | — | 416 | (11,434) | ||||||||
Non-cash loss on sale of assets or subsidiaries | 823 | 1,259 | 520 | ||||||||
Non-cash compensation expenses | 2,964 | 4,547 | 3,275 | ||||||||
Non-recurring transaction costs | 2,881 | 4,211 | 3,617 | ||||||||
Lease abandonment costs | 76 | 113 | 91 | ||||||||
Non-recurring change in vacation policy | — | 918 | — | ||||||||
Equity in losses of unconsolidated entities | 366 | 337 | 129 | ||||||||
Foreign currency loss (gain), net | 4 | (1) | (3) | ||||||||
Adjusted EBITDA | $ | 67,204 | $ | 52,181 | $ | 32,181 | |||||
The following table presents a reconciliation of gross profit before D&A to total gross profit, which is the most directly comparable GAAP measure, and a calculation of gross margin before D&A for the periods presented:
Three months ended, | ||||||||||
March 31, 2023 | December 31, 2022 | March 31, 2022 | ||||||||
(unaudited) | ||||||||||
(in thousands) | ||||||||||
Gross profit by segment | ||||||||||
Water services | $ | 28,763 | $ | 20,479 | $ | 10,998 | ||||
Water infrastructure | 16,246 | 7,892 | 5,745 | |||||||
Oilfield chemicals | 14,656 | 13,200 | 7,939 | |||||||
As reported gross profit | 59,665 | 41,571 | 24,682 | |||||||
Plus depreciation and amortization | ||||||||||
Water services | 18,135 | 19,899 | 15,562 | |||||||
Water infrastructure | 12,725 | 9,387 | 8,431 | |||||||
Oilfield chemicals | 2,083 | 1,796 | 2,507 | |||||||
Total depreciation and amortization | 32,943 | 31,082 | 26,500 | |||||||
Gross profit before D&A | $ | 92,608 | $ | 72,653 | $ | 51,182 | ||||
Gross profit before D&A by segment | ||||||||||
Water services | 46,898 | 40,378 | 26,560 | |||||||
Water infrastructure | 28,971 | 17,279 | 14,176 | |||||||
Oilfield chemicals | 16,739 | 14,996 | 10,446 | |||||||
Total gross profit before D&A | $ | 92,608 | $ | 72,653 | $ | 51,182 | ||||
Gross margin before D&A by segment | ||||||||||
Water services | 20.5 % | 18.5 % | 16.2 % | |||||||
Water infrastructure | 28.5 % | 22.4 % | 24.2 % | |||||||
Oilfield chemicals | 19.4 % | 17.4 % | 14.4 % | |||||||
Total gross margin before D&A | 22.2 % | 19.0 % | 17.4 % | |||||||
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SOURCE Select Energy Services, Inc.
