Select Energy Services Reports Second Quarter 2020 Financial Results And Operational Updates
Select Energy Services (NYSE: WTTR) reported a significant revenue drop in Q2 2020, at $92.2 million, down from $278.3 million in Q1 2020 and $323.9 million in Q2 2019. The company faced a net loss of $53.0 million, contrasting sharply with a net income of $8.1 million in Q2 2019. Gross margins plummeted to -25.7% from 5.5% in Q1 2020. Despite these challenges, Select achieved $56 million in cash flow from operations and reduced capital expenditures to effectively zero. The company maintains a strong balance sheet with $166 million in cash and no bank debt as of June 30, 2020.
- Achieved cash flow from operations of $56 million in Q2 2020.
- Reduced capital expenditures to effectively zero during the quarter.
- Maintained $166 million in cash with no bank debt as of June 30, 2020.
- Revenue decreased significantly to $92.2 million in Q2 2020 from $278.3 million in Q1 2020.
- Net loss of $53.0 million in Q2 2020, compared to net income of $8.1 million in Q2 2019.
- Gross margin dropped to -25.7% in Q2 2020 from 5.5% in Q1 2020.
HOUSTON, Aug. 4, 2020 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of water management and chemical solutions to the U.S. unconventional oil and gas industry, today announced results for the quarter ended June 30, 2020.
Revenue for the second quarter of 2020 was
Gross loss was
Adjusted EBITDA was (
Holli Ladhani, President and CEO, stated, "As we look back on the second quarter, I'd first like to thank our employees for their continued dedication during what has been one of the most challenging periods we've ever been through, both for our company and our industry as a whole. Our thoughts are with all those that have been affected by COVID-19, particularly our employees, our industry colleagues and their families and all of the professionals leading the response to this pandemic.
"Select's performance in the second quarter, while clearly challenged, reflects the team's ability to take the difficult actions necessary to protect the business and safeguard the strong balance sheet we've worked so hard to establish. While it is always challenging to manage costs downward as quickly as activity can drop, the rapid pace of the declines in the second quarter was particularly trying. However, I am confident that the cost savings measures we've taken will allow us to operate in a manner that protects our balance sheet and cash flows heading into the back half of the year. These measures should also allow us to continue providing the superior service quality that our customers expect, delivering innovative solutions to meet our customers' needs and ultimately generating long-term returns for our investors. We are taking key steps to further our leadership as the industry's premier water solutions and oilfield chemicals provider and are positioning the business to capitalize on the opportunities ahead.
"During 2019, we proved that our business model can deliver substantial free cash flow, even after making strategic investments supporting targeted growth areas like Water Infrastructure. In 2020, we're demonstrating the agility of our business model to adapt and respond to changing market conditions. Even in the face of significant revenue declines, we held decremental margins to approximately
"Additionally, we achieved significant cash flow from operations during the second quarter, driven primarily by collections, and were able to substantially reduce our pace of capital spending. Our capital discipline, combined with asset sales, resulted in effectively zero net capital expenditures during the quarter. This resulted in cash flow from operations less capex, net of asset sales, of
"There will certainly be challenges in the industry for quarters to come, but I am confident Select is well positioned to meet them. We are navigating these volatile times from a position of strength as the market leader for our services, with an incredible employee base, and an enviable balance sheet with significant liquidity. Just as we've done in the past, we will continue to be disciplined and patient, but are optimistic we will identify opportunities to enhance our position in the market and create value for our shareholders in these turbulent times," concluded Ladhani.
Business Segment Information
The Water Services segment generated revenues of
The Water Infrastructure segment generated revenues of
The Oilfield Chemicals segment generated revenues of
Select's consolidated Adjusted EBITDA during the quarter includes
Cash Flow and Balance Sheet
Cash flow from operations for the second quarter of 2020 was
Total liquidity was
Conference Call
Select has scheduled a conference call on Wednesday, August 5, 2020 at 10:00 a.m. Eastern time / 9:00 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 http://investors.selectenergyservices.com/events-and-presentations. A telephonic replay of the conference call will be available through August 19, 2020 and may be accessed by calling 201-612-7415 using passcode 13706828#. 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 Energy Services, Inc. ("Select") is a leading provider of total water management and chemical solutions to the unconventional oil and gas industry in the United States. Select provides for the sourcing and transfer of water, both by permanent pipeline and temporary hose, prior to its use in the drilling and completion activities associated with hydraulic fracturing, as well as complementary water-related services that support oil and gas well completion and production activities, including containment, monitoring, treatment and recycling, flowback, hauling, gathering and disposal. Select, under its Rockwater Energy Solutions brand, develops and manufactures a full suite of specialty chemicals used in the well completion process and production chemicals used to enhance performance over the producing life of a well. Select currently provides services to exploration and production companies and oilfield service companies operating in all the major shale and producing basins in the United States. For more information, please visit Select's website, http://www.selectenergyservices.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 "expect," "will," "estimate" and other similar expressions. 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. Factors that could materially impact such forward-looking statements include, but are not limited to: the severity and duration of world health events, including the COVID-19 pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business; the current significant surplus in the supply of oil and actions by the members of OPEC+ with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations; operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions; the level of capital spending and access to capital markets by oil and gas companies, including significant recent reductions and potential additional reductions in capital expenditures by oil and gas producers in response to commodity prices and dramatically reduced demand; trends and volatility in oil and gas prices, and our ability to manage through such volatility; and other factors discussed or referenced in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Reports on Form 10-Q for the three months ended March 31, 2020 and June 30, 2020, and in any subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K. Investors should not place undue reliance on our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
WTTR-ER
SELECT ENERGY SERVICES, INC. | ||||||||||||
Three Months Ended June 30, | Six months ended June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Revenue | ||||||||||||
Water Services | $ | 55,807 | $ | 202,011 | $ | 205,318 | $ | 422,606 | ||||
Water Infrastructure | 15,300 | 51,710 | 73,062 | 105,326 | ||||||||
Oilfield Chemicals | 21,132 | 63,001 | 92,144 | 129,830 | ||||||||
Other | — | 7,165 | — | 28,771 | ||||||||
Total revenue | 92,239 | 323,887 | 370,524 | 686,533 | ||||||||
Costs of revenue | ||||||||||||
Water Services | 54,014 | 155,151 | 183,128 | 318,272 | ||||||||
Water Infrastructure | 13,871 | 38,456 | 61,684 | 79,886 | ||||||||
Oilfield Chemicals | 22,562 | 54,051 | 82,438 | 113,578 | ||||||||
Other | 3 | 7,447 | 7 | 28,500 | ||||||||
Depreciation and amortization | 25,508 | 28,843 | 51,690 | 60,361 | ||||||||
Total costs of revenue | 115,958 | 283,948 | 378,947 | 600,597 | ||||||||
Gross (loss) profit | (23,719) | 39,939 | (8,423) | 85,936 | ||||||||
Operating expenses | ||||||||||||
Selling, general and administrative | 17,658 | 27,297 | 42,947 | 59,673 | ||||||||
Depreciation and amortization | 834 | 906 | 1,519 | 1,906 | ||||||||
Impairment of goodwill and trademark | — | — | 276,016 | 4,396 | ||||||||
Impairment and abandonment of property and equipment | 4,726 | 374 | 7,910 | 893 | ||||||||
Lease abandonment costs | 868 | 183 | 1,821 | 1,256 | ||||||||
Total operating expenses | 24,086 | 28,760 | 330,213 | 68,124 | ||||||||
(Loss) income from operations | (47,805) | 11,179 | (338,636) | 17,812 | ||||||||
Other expense | ||||||||||||
Losses on sales of property and equipment and divestitures, net | (2,183) | (1,709) | (2,618) | (6,200) | ||||||||
Interest expense, net | (513) | (839) | (844) | (1,932) | ||||||||
Foreign currency gain (loss), net | 27 | 67 | (19) | 327 | ||||||||
Other (expense) income, net | (2,700) | (59) | (2,441) | 210 | ||||||||
(Loss) income before income tax benefit (expense) | (53,174) | 8,639 | (344,558) | 10,217 | ||||||||
Income tax benefit (expense) | 130 | (571) | 294 | (749) | ||||||||
Net (loss) income | (53,044) | 8,068 | (344,264) | 9,468 | ||||||||
Less: net loss (income) attributable to noncontrolling interests | 8,746 | (1,868) | 54,104 | (2,133) | ||||||||
Net (loss) income attributable to Select Energy Services, Inc. | $ | (44,298) | $ | 6,200 | $ | (290,160) | $ | 7,335 | ||||
Net (loss) income per share attributable to common stockholders: | ||||||||||||
Class A—Basic | $ | (0.52) | $ | 0.08 | $ | (3.39) | $ | 0.09 | ||||
Class B—Basic | $ | — | $ | — | $ | — | $ | — | ||||
Net (loss) income per share attributable to common stockholders: | ||||||||||||
Class A—Diluted | $ | (0.52) | $ | 0.08 | $ | (3.39) | $ | 0.09 | ||||
Class B—Diluted | $ | — | $ | — | $ | — | $ | — | ||||
SELECT ENERGY SERVICES, INC. | ||||||
June 30, 2020 | December 31, 2019 | |||||
(unaudited) | ||||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 166,407 | $ | 79,268 | ||
Accounts receivable trade, net of allowance for credit losses of | 105,465 | 267,628 | ||||
Accounts receivable, related parties | 1,649 | 4,677 | ||||
Inventories | 38,186 | 37,542 | ||||
Prepaid expenses and other current assets | 22,790 | 26,486 | ||||
Total current assets | 334,497 | 415,601 | ||||
Property and equipment | 930,308 | 1,015,379 | ||||
Accumulated depreciation | (537,323) | (562,986) | ||||
Property and equipment held-for-sale, net | — | 885 | ||||
Total property and equipment, net | 392,985 | 453,278 | ||||
Right-of-use assets, net | 59,431 | 70,635 | ||||
Goodwill | — | 266,934 | ||||
Other intangible assets, net | 121,761 | 136,952 | ||||
Other assets, net | 2,640 | 4,220 | ||||
Total assets | $ | 911,314 | $ | 1,347,620 | ||
Liabilities and Equity | ||||||
Current liabilities | ||||||
Accounts payable | $ | 11,151 | $ | 35,686 | ||
Accrued accounts payable | 13,248 | 47,547 | ||||
Accounts payable and accrued expenses, related parties | 240 | 2,789 | ||||
Accrued salaries and benefits | 10,624 | 20,079 | ||||
Accrued insurance | 10,379 | 8,843 | ||||
Sales tax payable | 1,014 | 2,119 | ||||
Accrued expenses and other current liabilities | 12,957 | 15,375 | ||||
Current operating lease liabilities | 14,746 | 19,315 | ||||
Current portion of finance lease obligations | 297 | 128 | ||||
Total current liabilities | 74,656 | 151,881 | ||||
Long-term operating lease liabilities | 65,928 | 72,143 | ||||
Other long-term liabilities | 11,093 | 10,784 | ||||
Total liabilities | 151,677 | 234,808 | ||||
Class A common stock, | 869 | 879 | ||||
Class A-2 common stock, | — | — | ||||
Class B common stock, | 162 | 162 | ||||
Preferred stock, | — | — | ||||
Additional paid-in capital | 906,164 | 914,699 | ||||
Accumulated (deficit) retained earnings | (268,723) | 21,437 | ||||
Total stockholders' equity | 638,472 | 937,177 | ||||
Noncontrolling interests | 121,165 | 175,635 | ||||
Total equity | 759,637 | 1,112,812 | ||||
Total liabilities and equity | $ | 911,314 | $ | 1,347,620 | ||
SELECT ENERGY SERVICES, INC. | ||||||
Six months ended June 30, | ||||||
2020 | 2019 | |||||
Cash flows from operating activities | ||||||
Net (loss) income | $ | (344,264) | $ | 9,468 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities | ||||||
Depreciation and amortization | 53,209 | 62,267 | ||||
Net loss on disposal of property and equipment | 2,207 | 2,794 | ||||
Bad debt expense | 4,810 | 1,312 | ||||
Amortization of debt issuance costs | 344 | 344 | ||||
Inventory write-downs | 566 | 209 | ||||
Equity-based compensation | 1,816 | 8,308 | ||||
Impairment of goodwill and trademark | 276,016 | 4,396 | ||||
Impairment and abandonment of property and equipment | 7,910 | 893 | ||||
Loss on divestitures | 411 | 3,406 | ||||
Other operating items, net | 404 | (178) | ||||
Changes in operating assets and liabilities | ||||||
Accounts receivable | 160,204 | 3,346 | ||||
Prepaid expenses and other assets | 3,276 | 1,245 | ||||
Accounts payable and accrued liabilities | (64,176) | (23,075) | ||||
Net cash provided by operating activities | 102,733 | 74,735 | ||||
Cash flows from investing activities | ||||||
Working capital settlement | — | 691 | ||||
Proceeds received from divestitures | 197 | 25,259 | ||||
Purchase of property and equipment | (16,461) | (57,513) | ||||
Proceeds received from sales of property and equipment | 11,015 | 10,507 | ||||
Net cash used in investing activities | (5,249) | (21,056) | ||||
Cash flows from financing activities | ||||||
Borrowings from revolving line of credit | — | 5,000 | ||||
Payments on long-term debt | — | (50,000) | ||||
Payments of finance lease obligations | (121) | (549) | ||||
Proceeds from share issuance | 44 | 56 | ||||
Contributions from (distributions to) noncontrolling interests | 383 | (225) | ||||
Repurchase of common stock | (10,638) | (1,516) | ||||
Net cash used in financing activities | (10,332) | (47,234) | ||||
Effect of exchange rate changes on cash | (13) | 136 | ||||
Net increase in cash and cash equivalents | 87,139 | 6,581 | ||||
Cash and cash equivalents, beginning of period | 79,268 | 17,237 | ||||
Cash and cash equivalents, end of period | $ | 166,407 | $ | 23,818 | ||
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 GAAP. We define EBITDA as net income, plus interest expense, taxes and depreciation & amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment charges or asset write-offs pursuant to accounting principles generally accepted in the U.S. ("GAAP"), plus non-cash losses on the sale of assets or subsidiaries, non-recurring compensation expense, non-cash compensation expense, and non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus any inventory write-downs. We define gross profit before D&A as revenue less cost of revenue, excluding cost of sales D&A expense. We define gross margin before D&A as gross profit before D&A divided by revenue. EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A are supplemental non-GAAP financial measures that we believe provide useful information to external users of our financial statements, such as industry analysts, investors, lenders and rating agencies because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and non-recurring items outside the control of our management team. We present EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.
Net income 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. For further discussion, please see "Item 6. Selected Financial Data" in our Annual Report on Form 10-K for the year ended December 31, 2019.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
(in thousands) | ||||||||||||
Net (loss) income | $ | (53,044) | $ | 8,068 | $ | (344,264) | $ | 9,468 | ||||
Interest expense, net | 513 | 839 | 844 | 1,932 | ||||||||
Income tax (benefit) expense | (130) | 571 | (294) | 749 | ||||||||
Depreciation and amortization | 26,342 | 29,749 | 53,209 | 62,267 | ||||||||
EBITDA | (26,319) | 39,227 | (290,505) | 74,416 | ||||||||
Impairment of goodwill and trademark | — | — | 276,016 | 4,396 | ||||||||
Non-recurring severance expenses | 3,666 | — | 7,168 | 1,680 | ||||||||
Impairment and abandonment of property and equipment | 4,726 | 374 | 7,910 | 893 | ||||||||
Yard closure costs related to consolidating operations | 1,011 | — | 2,961 | — | ||||||||
Non-cash loss on sale of assets or subsidiaries | 3,874 | 7,314 | 5,501 | 13,220 | ||||||||
Lease abandonment costs | 868 | 183 | 1,821 | 1,256 | ||||||||
Non-cash compensation expenses | 1,242 | 4,129 | 1,816 | 8,308 | ||||||||
Foreign currency (gain) loss, net | (27) | (67) | 19 | (327) | ||||||||
Non-recurring transaction costs | 2,611 | 412 | 2,623 | 1,074 | ||||||||
Inventory write-down | — | — | — | 75 | ||||||||
Adjusted EBITDA | $ | (8,348) | $ | 51,572 | $ | 15,330 | $ | 104,991 | ||||
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, | |||||||||
June 30, 2020 | March 31, 2020 | June 30, 2019 | |||||||
(unaudited) | |||||||||
(in thousands) | |||||||||
Gross (loss) profit by segment | |||||||||
Water services | $ | (14,088) | $ | 3,241 | $ | 25,837 | |||
Water infrastructure | (5,594) | 2,921 | 7,181 | ||||||
Oilfield chemicals | (4,034) | 9,138 | 7,203 | ||||||
Other | (3) | (4) | (282) | ||||||
As reported gross (loss) profit | (23,719) | 15,296 | 39,939 | ||||||
Plus depreciation and amortization | |||||||||
Water services | 15,881 | 17,156 | 21,023 | ||||||
Water infrastructure | 7,023 | 7,028 | 6,073 | ||||||
Oilfield chemicals | 2,604 | 1,998 | 1,747 | ||||||
Other | — | — | — | ||||||
Total depreciation and amortization | 25,508 | 26,182 | 28,843 | ||||||
Gross profit before D&A | $ | 1,789 | $ | 41,478 | $ | 68,782 | |||
Gross profit (loss) before D&A by segment | |||||||||
Water services | 1,793 | 20,397 | 46,860 | ||||||
Water infrastructure | 1,429 | 9,949 | 13,254 | ||||||
Oilfield chemicals | (1,430) | 11,136 | 8,950 | ||||||
Other | (3) | (4) | (282) | ||||||
Total gross profit before D&A | $ | 1,789 | $ | 41,478 | $ | 68,782 | |||
Gross margin before D&A by segment | |||||||||
Water services | |||||||||
Water infrastructure | |||||||||
Oilfield chemicals | ( | ||||||||
Other | n/a | n/a | ( | ||||||
Total gross margin before D&A | |||||||||
Contacts: | Select Energy Services |
Chris George - VP, Investor Relations & Treasurer | |
(713) 296-1073 | |
Dennard Lascar Investor Relations | |
Ken Dennard / Lisa Elliott | |
713-529-6600 | |
View original content:http://www.prnewswire.com/news-releases/select-energy-services-reports-second-quarter-2020-financial-results-and-operational-updates-301106042.html
SOURCE Select Energy Services, Inc.
FAQ
What were Select Energy Services' revenue figures for Q2 2020?
How much did Select Energy Services lose in Q2 2020?
What is the cash position of Select Energy Services as of June 30, 2020?
How did gross margin perform in Q2 2020 for Select Energy Services?
What operational cash flow did Select Energy Services generate in Q2 2020?
