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Select Energy Services Reports Fourth Quarter And Full Year 2017 Results

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HOUSTON, March 7, 2018 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of total water management and chemical solutions to the U.S. unconventional oil and gas industry, today announced results for the fourth quarter and fiscal year ended December 31, 2017. As previously announced, Select completed its merger with Rockwater Energy Solutions, Inc. ("Rockwater") on November 1, 2017.  All reported financial results for Select for the fourth quarter and fiscal year ended December 31, 2017 include two months of contribution from Rockwater.

Revenue for the fourth quarter of 2017 was $304.2 million, a 98% increase compared to $153.9 million in the third quarter of 2017 and a 251% increase compared to $86.7 million in the fourth quarter of 2016.  Net loss for the fourth quarter was $14.9 million as compared to net income of $2.6 million in the third quarter of 2017 and a net loss of $24.7 million in the fourth quarter of 2016.  Adjusted EBITDA was $43.9 million in the fourth quarter of 2017 compared to $32.4 million in the third quarter of 2017 and $6.7 million in the fourth quarter of 2016.  Additionally, given the timing of the merger close on November 1, 2017, fourth quarter results do not include Rockwater's operating results for the month of October, including approximately $70.1 million in revenue, $0.7 million in net income and $7.7 million in Adjusted EBITDA.  Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net loss (a GAAP measure) in this release. 

John Schmitz, Select's Executive Chairman, stated, "2017 marked a momentous year for Select as we executed on a number of strategic initiatives while the industry continued to make positive strides in its recovery.  The completion of our IPO in the second quarter marked a significant step towards positioning Select as the clear pure-play market leader in the water solutions industry.  We are pleased to have closed the transformative merger between Select and Rockwater during the fourth quarter and have made substantial progress in executing on our integration strategy.  In addition to the Rockwater merger, we executed on five other strategic acquisitions throughout the year as we focus on expanding and solidifying our leading water solutions footprint across North America. We are excited about the future of the combined company, and as we enter the first quarter of 2018, we believe our prospects for this year remain strong." 

Holli Ladhani, President and CEO, added, "Looking back on 2017, it is gratifying to see what Select has been able to accomplish in such a short period of time.  The fourth quarter continued to provide an active industry environment, although it did present the expected seasonal fluctuations and other challenges towards the end of the year.  While we saw modest sequential consolidated revenue growth on a combined-company basis in the fourth quarter, our margins were impacted by a combination of seasonality, revenue mix and merger-related expenses.  We expect all of those factors to moderate in 2018 and we are extremely focused on delivering improved margins.  

"Looking to 2018, I am confident that a resilient oil price environment, coupled with a robust economic outlook, can lead to improved performance as we continue to lead the water solutions and chemicals industries.  We have built a business model that we believe will allow us to generate meaningful free cash flow and we are exploring several opportunities to re-invest portions of that cash flow at attractive returns.  Over the past several years, we have assembled a strong management team with the skills and experience to manage our operations and the merger-integration process, and we believe the opportunities in front of us are tremendous," concluded Ladhani.

Conference Call

Select has scheduled a conference call on Thursday, March 8, 2018 at 10:00 a.m. eastern 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 live over the Internet by logging on to the web at the address http://investors.selectenergyservices.com/events-and-presentations. A telephonic replay of the conference call will be available through March 15, 2018 and may be accessed by calling 201-612-7415 using passcode 13676696#.  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 total water management and chemical solutions to the North American unconventional oil and gas industry.  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, 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 and Western Canada.  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 factors discussed or referenced in the "Risk Factors" section of the prospectus we filed with the SEC on April 24, 2017 relating to our recently completed initial public offering and the "Risk Factors" section of our most recent Quarterly Report on Form 10-Q filed with the SEC.  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. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share data)

















Three Months Ended December 31,


Twelve Months Ended December 31,



2017


2016


2017


2016

Revenue













Water solutions


$

217,034


$

68,298


$

528,309


$

241,455

Oilfield chemicals



41,586





41,586



Wellsite services



45,617



18,436



122,596



60,944

Total revenue



304,237



86,734



692,491



302,399














Costs of revenue













  Water solutions



169,150



55,746



395,887



200,399

  Oilfield chemicals



37,024





37,024



  Wellsite services



37,303



15,764



100,155



51,108

Depreciation and amortization



34,501



21,146



101,645



95,020

  Total costs of revenue



277,978



92,656



634,711



346,527

  Gross profit (loss)



26,259



(5,922)



57,780



(44,128)














Operating expenses













Selling, general and administrative



33,105



8,715



82,403



34,643

Depreciation and amortization



492



443



1,804



2,087

Impairment of goodwill and other intangible assets









138,666

Impairment of property and equipment    









60,026

Lease abandonment costs



701



6,254



3,572



19,423

  Total operating expenses



34,298



15,412



87,779



254,845

Loss from operations



(8,039)



(21,334)



(29,999)



(298,973)














Other income (expense)













Interest expense, net



(4,744)



(4,336)



(6,629)



(16,128)

Foreign currency gains, net



281





281



Other income, net



(2,973)



41



369



629

Loss before tax benefit



(15,475)



(25,629)



(35,978)



(314,472)

Tax benefit



525



916



851



524

Net loss



(14,950)



(24,713)



(35,127)



(313,948)

Less: net loss attributable to Predecessor





21,122





306,481

Less: net loss attributable to noncontrolling interests



5,298



2,548



18,311



6,424

Net loss attributable to Select Energy Services, Inc.


$

(9,652)


$

(1,043)


$

(16,816)


$

(1,043)

Allocation of net loss attributable to:













Class A stockholders


$

(8,851)


$

(199)


$

(12,560)


$

(199)

Class A-1 stockholders





(844)



(3,691)



(844)

Class A-2 stockholders



(801)





(565)



Class B stockholders











$

(9,652)


$

(1,043)


$

(16,816)


$

(1,043)

Weighted average shares outstanding:













Class A—Basic & Diluted



49,316,923



3,802,972



24,612,853



3,802,972

Class A-1—Basic & Diluted





16,100,000



7,233,973



16,100,000

Class A-2—Basic & Diluted



4,463,506





1,106,605



Class B—Basic & Diluted



39,675,033



38,462,541



38,768,156



38,462,541














Net loss per share attributable to common stockholders:













Class A—Basic & Diluted


$

(0.18)


$

(0.05)


$

(0.51)


$

(0.05)

Class A-1—Basic & Diluted


$


$

(0.05)


$

(0.51)


$

(0.05)

Class A-2—Basic & Diluted


$

(0.18)


$


$

(0.51)


$

Class B—Basic & Diluted


$


$


$


$

 

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)











As of December 31, 



2017


2016

Assets







Current assets







Cash and cash equivalents


$

2,774


$

40,041

Accounts receivable trade, net of allowance for doubtful accounts of $2,979 and $2,144, respectively



373,633



75,892

Accounts receivable, related parties



7,669



135

Inventories



44,598



1,001

Prepaid expenses and other current assets



17,842



7,586

Total current assets



446,516



124,655

Property and equipment



1,034,995



739,386

Accumulated depreciation



(560,886)



(490,519)

Property and equipment, net



474,109



248,867

Goodwill



273,421



12,242

Other intangible assets, net



156,066



11,586

Other assets



6,256



7,716

Total assets


$

1,356,368


$

405,066

Liabilities and Equity







Current liabilities







Accounts payable


$

52,579


$

10,796

Accounts payable and accrued expenses, related parties



2,772



648

Accrued salaries and benefits



21,324



2,511

Accrued insurance



12,510



10,338

Sales tax payable



12,931



66

Accrued expenses and other current liabilities



81,112



22,025

Current portion of capital lease obligations



1,965



Total current liabilities



185,193



46,384

Accrued lease obligations



18,979



15,946

Other long term liabilities



13,827



8,028

Long-term debt



75,000



Total liabilities



292,999



70,358

Commitments and contingencies







Class A common stock, $0.01 par value; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017; 250,000,000 shares authorized and 3,802,972 shares issued and outstanding as of December 31, 2016



592



38

Class A-1 common stock, $0.01 par value; no shares authorized, issued or outstanding as of December 31, 2017; 40,000,000 shares authorized and 16,100,000 shares issued and outstanding as of December 31, 2016





161

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, 6,731,845 shares issued and outstanding as of December 31, 2017; no shares authorized, issued or outstanding as of December 31, 2016



67



Class B common stock, $0.01 par value; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017; 150,000,000 shares authorized and 38,462,541 shares issued and outstanding as of December 31, 2016



404



385

Preferred stock, $0.01 par value; 50,000,000 shares authorized and no shares issued and outstanding as of December 31, 2017 and 2016





Additional paid-in capital



673,141



113,175

Accumulated deficit



(17,859)



(1,043)

Accumulated other comprehensive income



302



Total stockholders' equity



656,647



112,716

Noncontrolling interests



406,722



221,992

Total equity



1,063,369



334,708

Total liabilities and equity


$

1,356,368


$

405,066

 

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)











Year Ended December 31, 



2017


2016

Cash flows from operating activities







Net loss


$

(35,127)


$

(313,948)

Adjustments to reconcile net loss to net cash provided by operating activities







Depreciation and amortization



103,449



97,107

Gain on disposal of property and equipment



(2,726)



(97)

Gain realized on previously held interest in Rockwater



(1,210)



Bad debt expense



1,542



2,385

Amortization of debt issuance costs



4,031



3,435

Equity-based compensation



7,691



317

Impairment of goodwill and other intangible assets





138,666

Impairment of property and equipment





60,026

Other operating items, net



(353)



(1,619)

Changes in operating assets and liabilities







Accounts receivable



(100,485)



1,290

Prepaid expenses and other assets



(2,177)



1,224

Accounts payable and accrued liabilities



22,466



16,345

Net cash (used in) provided by operating activities



(2,899)



5,131

Cash flows from investing activities







Acquisitions, net of cash received



(65,488)



Purchase of property, equipment, and intangible assets



(98,722)



(36,290)

Proceeds received from sale of property and equipment



7,479



9,335

Net cash used in investing activities



(156,731)



(26,955)

Cash flows from financing activities







Proceeds from 144A Offering, net of underwriter fees and expenses





297,248

Proceeds from revolving line of credit and issuance of long-term debt



109,000



27,500

Payments on long-term debt



(111,000)



(298,000)

Payment of debt issuance costs



(3,442)



(4,497)

Proceeds from initial public offering



140,070



Payments incurred for initial public offering



(11,566)



Purchase of noncontrolling interests





(348)

(Distributions to) proceeds from noncontrolling interests



(368)



138

Purchase of treasury stock



(297)



Member contributions





23,519

Net cash provided by financing activities



122,397



45,560

Effect of exchange rate changes on cash



(34)



Net (decrease) increase in cash and cash equivalents



(37,267)



23,736

Cash and cash equivalents, beginning of period



40,041



16,305

Cash and cash equivalents, end of period


$

2,774


$

40,041

Supplemental cash flow disclosure:







Cash paid for interest


$

1,999


$

12,773

Cash refunded for taxes


$

54


$

192

Supplemental disclosure of noncash investing activities:







Capital expenditures included in accounts payable and accrued liabilities


$

11,137


$

1,563

Comparison of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. 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 or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA 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 or net loss, which is the most directly comparable GAAP measure for the periods presented:



Three Months Ended


Twelve Months Ended


Rockwater



December 31,


December 31,


One Month Ended



2017


2016


2017


2016


October 31, 2017 (1)



(unaudited)



(in thousands)

Net (loss) income


$

(14,950)


$

(24,713)


$

(35,127)


$

(313,948)


$

701

Interest expense



4,744



4,336



6,629



16,128



468

Tax (benefit) expense



(525)



(916)



(851)



(524)



121

Depreciation and amortization



34,993



21,589



103,449



97,107



4,806

EBITDA



24,262



296



74,100



(201,237)



6,096

Impairment









198,692



Lease abandonment costs



701



6,254



3,572



19,423



50

Non-recurring severance expenses (2)



4,039



197



4,161



886



125

Non-recurring transaction costs (3)



4,717





10,179



(236)



627

Non-cash compensation expenses



5,910



1



7,691



(487)



387

Non-cash loss (gain) on sale of subsidiaries and other assets



965



(68)



1,740



(97)



(3)

Non-recurring phantom equity and IPO-related compensation







12,537





Foreign currency (gain) loss



(281)





(281)





404

Other non-recurring charges (4)



3,563





3,563





21

Adjusted EBITDA


$

43,876


$

6,680


$

117,262


$

16,944


$

7,707



(1)

The selected stand-alone Rockwater results for the month of October 31, 2017 are presented to provide an understanding of the combined company's fourth quarter 2017 results. This information is voluntarily provided to reflect the pre-merger historical information of Rockwater and reflects the accounting policies of Rockwater prior to the merger. Additionally, the information provided does not reflect any impacts related to the merger and does not reflect what the results are expected to be following the merger. Accordingly, it is only shown for supplemental purposes.



(2)

For the three and twelve months ended December 31, 2017, these costs are associated with severance incurred in connection with the Rockwater merger. For the three and twelve months ended December 31, 2016, these costs are associated with the reduction in headcount as a result of the industry downturn.



(3)

For the three and twelve months ended December 31, 2017, these costs are primarily associated with the Rockwater merger and GRR acquisition. For the twelve months ended December 31, 2016, these costs are associated with our evaluation and negotiation of various transactions that never materialized. 



(4)

Represents estimated sales tax liability related primarily to calendar years 2012-2015, offset by gain realized on the Company's previously held interest in Rockwater stock.

 

Contacts:

Select Energy Services


Gary Gillette - CFO & SVP


Chris George - Sr. Director, Finance & Investor Relations


(713) 296-1073


IR@selectenergyservices.com




Dennard Lascar Investor Relations


Ken Dennard / Lisa Elliott


713-529-6600


WTTR@dennardlascar.com

 

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SOURCE Select Energy Services, Inc.

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