Select Water Solutions, Inc. — Q2 2023 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2023, compared with the same 2022 periods. The company provides water-management and chemical solutions to the U.S. energy industry through Water Services, Water Infrastructure and Chemical Technologies. In May 2023, it changed its name from Select Energy Services, Inc. to reflect its strategic focus on water; its NYSE ticker remains WTTR.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $404.6 million | $335.9 million | $821.2 million | $630.7 million |
| Gross profit / margin | $61.2 million / 15.1% | $35.7 million / 10.6% | $120.8 million / 14.7% | $60.3 million / 9.6% |
| Operating income | $25.7 million | $8.3 million | $37.7 million | $4.0 million |
| Net income | $22.6 million | $14.6 million | $36.3 million | $22.6 million |
| Net income attributable to Select | $20.1 million | $12.5 million | $32.5 million | $19.3 million |
| Class A EPS, diluted | $0.20 | $0.13 | $0.31 | $0.20 |
| Adjusted EBITDA | $69.8 million | $47.7 million | $137.1 million | $79.8 million |
- Revenue by segment in Q2: Water Services $264.6 million, up 14.8%; Water Infrastructure $55.3 million, up 114.4%; Chemical Technologies $84.8 million, up 6.4%. Increases reflected demand, pricing, acquisitions and, for Infrastructure, a new long-term Rockies pipeline-distribution agreement.
- Cash flow: For the first six months, operating cash flow was $83.9 million, versus cash used of $7.5 million a year earlier. Investing used $71.4 million, including $67.2 million of property and equipment purchases and $13.4 million for acquisitions. Financing used $9.4 million, including $49.6 million of share repurchases and $12.1 million of dividends and distributions. Cash increased $3.2 million to $10.6 million.
- Debt and liquidity: Debt was $65.0 million at June 30, up from $16.0 million at year-end; the floating rate on borrowings was 9.20%. The company reported $182.1 million of unused credit-facility capacity at June 30, and compliance with all debt covenants. At July 31, borrowings were $35.0 million and available capacity was $212.1 million. Management stated it expects liquidity to meet obligations for at least the next 12 months.
- Balance sheet: Total assets were $1.23 billion; current assets were $521.0 million and current liabilities $207.8 million. Total liabilities were $363.1 million. Trade receivables, net, were $430.8 million.
Material changes and unusual items
- Revenue rose 20.5% in Q2 and 30.2% for the first half. Gross margin improved year over year in both periods, while operating income and adjusted EBITDA increased substantially.
- Acquisitions contributed to growth, including Breakwater and Cypress, as well as other acquired assets. The company invested $13.4 million in asset acquisitions during the first half. Breakwater purchase accounting remained preliminary at June 30; $4.7 million of goodwill was recorded.
- First-half results included $11.1 million of trademark-abandonment expense following the rebranding. The prior-year periods included bargain-purchase gains of $5.6 million in Q2 and $17.0 million in the first half, making reported comparisons less directly comparable.
- Q2 share repurchases totaled approximately $38.7 million; first-half repurchases totaled $49.6 million. The company declared a $0.05-per-share quarterly dividend after quarter-end, payable August 17, subject to board approval of future payments.
- Effective June 1, certain water sourcing and transfer activities shifted from Water Infrastructure to Water Services, with prior periods recast. The Oilfield Chemicals segment was renamed Chemical Technologies.
Outlook, risks and contingencies
- No specific revenue, earnings or capital-spending guidance is provided. Management described current oil prices as supportive of customer drilling and completion programs but noted lower natural-gas prices had reduced activity and led to development cuts. It also cautioned that activity and profitability forecasting remain uncertain.
- Management cited opportunities from produced-water recycling and reuse, integrated water logistics and chemical treatment, and potential industrial applications beyond oil and gas. It also noted completion efficiencies can reduce time on site and revenue for some day-rate services.
- Key risks include commodity-price and customer-capital-spending volatility; OPEC+ production decisions; interest rates and access to capital; customer consolidation or financial distress; regulation of oil, gas and water operations; weather and operational events; and competition and labor availability.
- The company reported ordinary-course lawsuits and claims, including environmental and employee-related matters, but does not expect pending matters to have a material adverse effect. It is self-insured for certain claims. No material off-balance-sheet arrangements were reported.
Investor verification priorities
- Assess whether the revenue and margin gains persist after accounting for acquisition contributions, pricing, segment realignment and the prior-year bargain-purchase gains.
- Track receivables, allowance for credit losses and operating cash flow conversion; first-half cash flow benefited from improved billing and collections.
- Monitor borrowing levels, floating-rate interest expense, credit-facility availability, covenant headroom and the reported reduction in borrowings after quarter-end.
- Review the returns and integration of acquired assets, including final Breakwater purchase accounting and expected infrastructure synergies.
- Verify whether the announced quarterly dividend continues and how repurchases, capital expenditures and acquisition spending affect liquidity.