Select Water Solutions, Inc. — 2023 Form 10-K Summary
Business context and period. This annual report covers the fiscal year ended December 31, 2023; the filing does not provide a clear standalone fourth-quarter income statement summary. Select provides U.S. oilfield water-management and chemical solutions through Water Services, Water Infrastructure and Chemical Technologies. The company renamed itself from Select Energy Services in May 2023 to reflect its water-focused strategy.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $1.585 billion | $1.387 billion | Up 14.3% |
| Gross profit / margin | $231.7 million / 14.6% | $160.8 million / 11.6% | Margin up 3.0 percentage points |
| Income from operations | $61.2 million | $39.2 million | Up 56.2% |
| Net income | $79.2 million | $54.9 million | Up 44.4% |
| Net income attributable to Select; diluted Class A EPS | $74.4 million; $0.72 | $48.3 million; $0.50 | Higher |
| EBITDA | $164.5 million | $174.2 million | Down $9.7 million |
| Adjusted EBITDA | $258.3 million | $194.8 million | Up $63.5 million |
| Cash from operating activities | $285.4 million | $33.2 million | Up $252.1 million |
| Capital expenditures for property and equipment | $135.9 million | $71.9 million | Up $64.0 million |
Revenue by segment was Water Services $1.033 billion (up 9.4%), Water Infrastructure $230.0 million (up 83.6%) and Chemical Technologies $322.5 million (up 1.5%). The infrastructure increase reflected acquisitions and the ramp-up of long-term recycling and treatment agreements.
Liquidity and debt. At year-end, cash was $57.1 million, revolving-credit borrowings were zero, and available facility capacity was $250.3 million after letters of credit. Current assets were $454.1 million and current liabilities $211.5 million. At February 19, 2024, the company reported $55.0 million of debt and $146.3 million of available capacity. The credit facility matures in March 2027; Select reported covenant compliance at year-end.
Material changes and notable items
- Operating cash flow improved substantially, principally from collecting receivables and better billing and collection processes. Trade receivables fell to $322.6 million from $430.0 million.
- Gross margins improved across all three segments, with higher pricing, activity and scale in Water Services; stronger recycling and treatment margins in Water Infrastructure; and product mix and manufacturing efficiencies in Chemical Technologies.
- EBITDA declined despite higher operating income, reflecting higher SG&A, $38.2 million of tax receivable agreement expense, $12.6 million of impairment and abandonment charges, and the absence of a $13.4 million bargain-purchase gain recorded in 2022. Adjusted EBITDA excludes specified items and is a non-GAAP measure.
- A $60.2 million income-tax benefit materially supported reported net income. The company released part of its deferred-tax valuation allowance based on improved profitability; it still reported a $112.3 million valuation allowance at year-end.
- The company recorded a $38.2 million liability and expense for tax receivable agreements, under which it generally owes specified holders 85% of certain tax savings. Estimated termination payments would have been approximately $62 million at December 31, 2023, subject to assumptions.
- Rebranding led to $11.1 million of trademark abandonment expense. The company also recorded $1.5 million of property-and-equipment abandonment and impairment charges.
- Capital returns included $61.8 million of share repurchases and $24.9 million of dividends and distributions in 2023. The quarterly dividend rose from $0.05 to $0.06 per share in November; future payments remain subject to board approval and facility restrictions.
Outlook, management commentary and risks
Management emphasized investment in contracted water infrastructure, produced-water recycling and integrated lifecycle solutions, which it believes can provide steadier revenue and stronger customer relationships. It did not provide numerical 2024 revenue, earnings or cash-flow guidance in the supplied filing text. A January 2024 acquisition announced after year-end is expected to add approximately 450,000 barrels per day of permitted disposal capacity for about $90 million in cash consideration.
Management noted that lower 2023 natural-gas prices reduced activity in some areas, while oil prices remained supportive of customer programs. Customer consolidation may temporarily slow activity but could also create demand for larger integrated water networks. Key risks include dependence on oil-and-gas customer spending, Permian Basin concentration (about 48% of 2023 revenue), commodity-price volatility, inflation and labor costs, competition and customer in-sourcing, water availability and permitting, disposal-well restrictions and induced seismicity, environmental and climate regulation, supply-chain disruption, and execution of acquisitions and the ERP rollout. The company also identified cybersecurity, safety, and access-to-capital risks.
There are no numerical forward-looking financial targets in the supplied filing text. Management stated it believes cash, operating cash flow and borrowing availability are sufficient to meet obligations for at least the next 12 months, subject to business conditions. That assessment predates the post-year-end acquisition and the February 2024 borrowing level.
Most important facts for investors to verify
- How much of the reported net income and EPS improvement is attributable to the deferred-tax valuation-allowance release, and what future taxable income supports realization of deferred tax assets?
- How will the $38.2 million tax receivable agreement liability develop, and what are the timing and funding implications of future payments?
- Can the company sustain improved operating cash flow as receivables and working-capital needs evolve, while funding elevated infrastructure capital spending, dividends and repurchases?
- What are the financing, integration and expected returns from the approximately $90 million post-year-end acquisition, especially given February 2024 debt of $55.0 million and reduced borrowing availability?
- Are recycling contracts and margins ramping as expected, and how exposed are disposal volumes and assets to seismicity rules, permits and regional water restrictions?
- How do Permian concentration, customer consolidation and oil-and-gas activity trends affect revenue, pricing and utilization?