Select Energy Services, Inc. — Q3 2022 Form 10-Q
Business context and period. The filing covers the three and nine months ended September 30, 2022. The company provides water-management, water-infrastructure and oilfield-chemical services to U.S. oil and gas customers. Comparisons below are with the corresponding 2021 periods. The filing identifies the registrant as Select Energy Services, Inc.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $375.1 million | $204.6 million | $1,005.7 million | $509.5 million |
| Gross profit / margin | $58.8 million / 15.7% | $9.0 million / 4.4% | $119.2 million / 11.9% | $3.0 million / 0.6% |
| Operating income (loss) | $28.4 million | $(13.8) million | $32.4 million | $(57.2) million |
| Net income (loss) | $24.7 million | $(14.2) million | $47.3 million | $(61.2) million |
| Net income attributable to Select | $21.3 million | $(12.0) million | $40.6 million | $(51.7) million |
| Class A diluted EPS | $0.22 | $(0.14) | $0.43 | $(0.60) |
| Adjusted EBITDA (non-GAAP) | $62.8 million | $15.1 million | $142.6 million | $23.6 million |
- Q3 segment revenue: Water Services $221.2 million, Water Infrastructure $74.4 million, and Oilfield Chemicals $79.4 million. Growth versus Q3 2021 was 96.7%, 102.2%, and 43.5%, respectively.
- For the first nine months, segment revenue was $580.8 million for Water Services, $193.2 million for Water Infrastructure, and $231.7 million for Oilfield Chemicals.
- Nine-month operating cash flow was negative $2.1 million, compared with negative $13.9 million a year earlier. Investing cash outflow was $29.5 million; financing cash outflow was $41.0 million. Capital expenditures were $50.8 million.
- Cash fell to $13.2 million at September 30, 2022, from $85.8 million at year-end 2021. Trade receivables rose to $388.8 million from $232.8 million; management attributed the working-capital use largely to collection timing amid revenue growth.
- Total assets were $1.072 billion, total liabilities $303.0 million, and total equity $769.4 million at quarter-end. The filing reports no bank borrowings outstanding; operating lease liabilities were $65.5 million in total.
Changes, outlook and notable items
- Revenue and profitability improved substantially year over year, reflecting higher customer activity and pricing, improved utilization and margins, and contributions from acquisitions. Acquisitions completed between July 2021 and February 2022 make periods less directly comparable.
- Management cited inflation in labor, fuel and services costs, noting that surcharges and pricing increases offset much of the impact. Higher activity also produced economies of scale in Water Services and improved cost absorption in Oilfield Chemicals.
- The company had a $270 million sustainability-linked revolving credit facility, a $254.4 million borrowing base, $22.9 million of letters of credit and $231.5 million of available borrowing capacity at September 30. It reported compliance with all debt covenants. Management stated it expected liquidity to be sufficient for at least the next 12 months.
- The Nuverra acquisition closed in February 2022 for $35.9 million of stock consideration. Its purchase-price allocation remained preliminary; the company recorded a $7.1 million bargain-purchase gain for Nuverra. Total nine-month bargain-purchase gains were $13.8 million, including acquisition-related adjustments.
- After quarter-end, the board declared a quarterly dividend of $0.05 per share, subject to quarterly review and approval. On November 1, 2022, the company closed stock-for-stock acquisitions of Breakwater Energy Services and certain Cypress saltwater-disposal assets; it issued approximately 9.2 million and 950,000 shares, respectively. Breakwater-related debt and other obligations of approximately $12.6 million were repaid or assumed.
- No formal financial guidance is presented. Management cautioned that results are exposed to oil and gas activity, commodity-price volatility, customer spending, inflation, supply availability, geopolitical and economic uncertainty, regulation, weather, and the continuing effects of COVID-19. Faster completion efficiencies may also reduce time-based service revenue opportunities.
- Ordinary-course litigation and claims were not expected to have a material adverse effect, though outcomes are uncertain. No material off-balance-sheet arrangements or material changes to previously disclosed risk factors were reported. Disclosure controls were judged effective.
Investor verification points
- Assess whether operating cash generation improves as the elevated receivables balance is collected; nine-month operating cash flow remained negative despite reported net income.
- Review the composition and collectability of trade receivables, the allowance for credit losses, and working-capital needs as activity expands.
- Verify acquisition integration, realized synergies, and the final Nuverra purchase-price allocation, including the sustainability of reported bargain-purchase gains.
- Track segment-level margins, pricing versus labor and fuel inflation, and dependence on oilfield activity and customer capital budgets.
- Monitor liquidity after the dividend and subsequent acquisitions, revolver availability and borrowing-base changes, and compliance with credit-facility covenants.
- Consider share issuance and dilution from acquisitions, equity compensation and the dividend distribution to SES Holdings unit holders.