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Select Energy Services Reports Second Quarter Results 2018

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Select Energy Services Reports Second Quarter Results 2018

Net Income of $25.0 million, or $0.24 fully diluted earnings per share

Adjusted EBITDA(1) of $68.2 million

Operating Cash Flow of $64.3 million in the six-month year-to-date period, including $29.1 million generated in second quarter of 2018

PR Newswire

HOUSTON, Aug. 9, 2018 /PRNewswire/ -- Select Energy Services, Inc. (NYSE:WTTR) ("Select" or "the Company"), a leading provider of total water management and chemical solutions to the North American unconventional oil and gas industry, today announced results for the quarter ended June 30, 2018.

Revenue for the second quarter of 2018 was $393.2 million as compared to $376.4 million in the first quarter of 2018 and $134.4 million in the second quarter of 2017.  Net income for the second quarter of 2018 was $25.0 million as compared to $16.1 million in the first quarter of 2018 and a net loss of $10.5 million in the second quarter of 2017.  Adjusted EBITDA was $68.2 million or 17.3% of revenue in the second quarter of 2018 as compared to $59.6 million or 15.8% of revenue in the first quarter of 2018. Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net income in this release.

Holli Ladhani, President and CEO, stated, "The strategic rationale for the merger of Select and Rockwater is being proven out as we continue to see the benefits of our added scale and scope of services, particularly at a time when our customers are dealing with the challenges associated with more complicated, ultra-high-density drilling pads.

"With a dedicated focus on operational execution and margin enhancement, the team delivered strong incremental margins in the second quarter. We expect to see further margin improvements as we continue to identify more cost-effective ways to service our customers through investments in technology, the right equipment for today's completions and logistically correct water sources and infrastructure.

__________________________

(1) "Adjusted EBITDA" is not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). Please see the supplemental financial information in the table under "Comparison of Non-GAAP Financial Measures" at the end of this earnings release for a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to its most directly comparable GAAP financial measure.

"Select's advanced technology, scale and access to advantaged water sources make us an ideal partner in the dynamic Permian Basin. While the region faces production takeaway challenges in the near term, we view those as temporary, and expect the Permian will continue to be an important region for our business. Fortunately, our national footprint uniquely positions us to allocate people and equipment anywhere they are needed in the short term until sufficient takeaway capacity is added to this growing basin," concluded Ladhani.

Business Segment Information

The Water Solutions segment generated revenues of $273.7 million in the second quarter of 2018 as compared to revenues of $257.5 million in the first quarter of 2018 and $107.8 million in the second quarter of 2017.  Increased customer demand for Select's water transfer and flowback and well testing services in the Permian was the primary driver of this increase.

The Oilfield Chemicals segment, which operates through our subsidiary Rockwater Energy Solutions, generated revenues of $64.8 million in the second quarter of 2018 as compared to $63.6 million in the first quarter of 2018. Rising sales of friction reducer products offset declines in guar and crosslinker volumes.

The Wellsite Services segment generated revenues of $54.7 million in the second quarter of 2018 as compared to revenues of $55.2 million in the first quarter of 2018 and $26.6 million in the second quarter of 2017. Increased activity in our accommodations and sand hauling business lines was offset by seasonal activity declines in Canada for spring breakup.

Select's consolidated gross profit was $56.7 million in the second quarter of 2018 as compared to $47.9 million in the first quarter of 2018. Total gross margin for Select was 14.4% in the second quarter of 2018 as compared to 12.7% in the first quarter of 2018. Gross margin before depreciation and amortization ("D&A") for Water Solutions was 25.6% in the second quarter of 2018 as compared to 24.6% in the first quarter of 2018.  Gross margin before D&A for Oilfield Chemicals was 9.7% in the second quarter of 2018 as compared to 10.3% in the first quarter of 2018.  Gross margin before D&A for Wellsite Services was 19.8% in the second quarter of 2018 as compared to 15.9% in the first quarter of 2018.  Please refer to the reconciliation of gross profit before D&A (a non-GAAP measure) to gross profit in this release.

Included in the first and second quarter of 2018 segment results were full-quarter contributions from Rockwater Energy Solutions, which Select acquired in November 2017; as such, these results are not included in 2017 second quarter results.

Cash Flow and Balance Sheet

Cash flow from operations for the six-month period ending June 30, 2018 was $64.3 million, of which $29.1 million was generated in the second quarter of 2018.  Capital expenditures for the first half of the year were $59.1 million, net of asset sales of $4.0 million, of which $28.1 million was spent in the 2018 second quarter. Both our 2018 year-to-date and second quarter net capital expenditures were fully funded with cash flow from operations. 

Total liquidity was $199.9 million as of June 30, 2018, as compared to $166.9 million as of March 31, 2018. The Company had approximately $188.6 million of available borrowing capacity under its revolving credit facility, after giving effect to $18.3 million of outstanding letters of credit. Total cash and cash equivalents were $11.3 million at June 30, 2018 as compared to $6.1 million at March 31, 2018, and outstanding borrowings as of June 30, 2018 totaled $80.0 million.

Conference Call

Select has scheduled a conference call on Friday, August 10, 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 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 24, 2018 and may be accessed by calling 201-612-7415 using passcode 13680753#.  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 our Annual Report on Form 10-K for the year ended December 31, 2017 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.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)


















Three Months Ended June 30, 


Six Months Ended June 30, 




2018


2017


2018


2017


Revenue














Water solutions


$

273,733


$

107,812


$

531,276


$

186,189


Oilfield chemicals



64,807





128,437




Wellsite services



54,707



26,637



109,929



48,185


Total revenue



393,247



134,449



769,642



234,374


Costs of revenue














Water solutions



203,681



78,028



397,743



138,649


Oilfield chemicals



58,500





115,584




Wellsite services



43,893



21,647



90,311



39,989


Depreciation and amortization



30,445



22,520



61,327



43,724


Total costs of revenue



336,519



122,195



664,965



222,362


Gross profit



56,728



12,254



104,677



12,012


Operating expenses














Selling, general and administrative



26,871



23,254



52,552



33,211


Depreciation and amortization



807



491



1,348



937


Impairment of property and equipment



2,282





2,282




Impairment of investment







2,000




Lease abandonment costs



1,973



418



3,097



2,281


Total operating expenses



31,933



24,163



61,279



36,429


Income (loss) from operations



24,795



(11,909)



43,398



(24,417)


Other income (expense)














Interest expense, net



(1,342)



(671)



(2,493)



(1,401)


Foreign currency losses, net



(340)





(740)




Other income, net



2,060



1,952



1,602



3,016


Income (loss) before tax expense



25,173



(10,628)



41,767



(22,802)


Tax (expense) benefit



(150)



138



(612)



32


Net income (loss)



25,023



(10,490)



41,155



(22,770)


Less: net (income) loss attributable to noncontrolling interests



(8,060)



6,274



(14,093)



14,382


Net income (loss) attributable to Select Energy Services, Inc.


$

16,963


$

(4,216)


$

27,062


$

(8,388)
















Net income (loss) per share attributable to common stockholders:














Class A—Basic


$

0.24


$

(0.16)


$

0.40


$

(0.36)


Class A-1—Basic


$


$

(0.16)


$


$

(0.36)


Class A-2—Basic


$


$


$

0.40


$


Class B—Basic


$


$


$


$
















Net income (loss) per share attributable to common stockholders:














Class A—Diluted


$

0.24


$

(0.16)


$

0.39


$

(0.36)


Class A-1—Diluted


$


$

(0.16)


$


$

(0.36)


Class A-2—Diluted


$


$


$

0.39


$


Class B—Diluted


$


$


$


$




























 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 (in thousands, except share data)










June 30, 2018


December 31, 2017

Assets







Current assets







Cash and cash equivalents


$

11,301


$

2,774

Accounts receivable trade, net of allowance for doubtful accounts of $3,762 and $2,979, respectively



425,217



373,633

Accounts receivable, related parties



820



7,669

Inventories



51,680



44,598

Prepaid expenses and other current assets



29,800



17,842

Total current assets



518,818



446,516

Property and equipment



1,063,847



1,034,995

Accumulated depreciation



(580,102)



(560,886)

Property and equipment, net



483,745



474,109

Goodwill



278,359



273,421

Other intangible assets, net



148,908



156,066

Other assets



3,912



6,256

Total assets


$

1,433,742


$

1,356,368

Liabilities and Equity







Current liabilities







Accounts payable


$

66,756


$

52,579

Accounts payable and accrued expenses, related parties



3,924



2,772

Accrued salaries and benefits



14,394



21,324

Accrued insurance



23,260



12,510

Sales tax payable



9,870



12,931

Accrued expenses and other current liabilities



96,409



81,112

Current portion of capital lease obligations



1,468



1,965

Total current liabilities



216,081



185,193

Accrued lease obligations



19,220



18,979

Other long term liabilities



9,629



13,827

Long-term debt



80,000



75,000

Total liabilities



324,930



292,999

Commitments and contingencies







Class A common stock, $0.01 par value; 350,000,000 shares authorized and 77,298,660 shares issued and outstanding as of June 30, 2018; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017



773



592

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, no shares issued or outstanding as of June 30, 2018; 40,000,000 shares authorized, 6,731,845 shares issued and outstanding as of December 31, 2017





67

Class B common stock, $0.01 par value; 150,000,000 shares authorized and 29,383,320 shares issued and outstanding as of June 30, 2018; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017



294



404

Preferred stock, $0.01 par value; 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2018 and December 31, 2017





Additional paid-in capital



790,699



673,141

Retained earnings (accumulated deficit)



9,203



(17,859)

Accumulated other comprehensive (deficit) income



(148)



302

Total stockholders' equity



800,821



656,647

Noncontrolling interests



307,991



406,722

Total equity



1,108,812



1,063,369

Total liabilities and equity


$

1,433,742


$

1,356,368

 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)










Six Months Ended June 30,



2018


2017

Cash flows from operating activities







Net income (loss)


$

41,155


$

(22,770)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities







Depreciation and amortization



62,675



44,661

Gain on disposal of property and equipment



(1,503)



(2,919)

Bad debt expense



876



708

Amortization of debt issuance costs



344



618

Equity-based compensation



5,465



1,232

Impairment of property and equipment



2,282



Impairment of investment



2,000



Other operating items, net



291



(237)

Changes in operating assets and liabilities







Accounts receivable



(46,057)



(47,998)

Prepaid expenses and other assets



(17,848)



(830)

Accounts payable and accrued liabilities



14,625



3,525

Net cash provided by (used in) operating activities



64,305



(24,010)

Cash flows from investing activities







Acquisitions, net of cash received





(55,507)

Purchase of property and equipment



(63,050)



(41,680)

Proceeds received from sale of property and equipment



3,953



5,738

Net cash used in investing activities



(59,097)



(91,449)

Cash flows from financing activities







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



25,000



34,000

Payments on long-term debt



(20,000)



(34,000)

Payments of capital lease obligations



(1,029)



Proceeds from initial public offering





140,070

Proceeds from share issuance



431



Payments incurred for initial public offering





(11,566)

Distributions to noncontrolling interests



(280)



(309)

Other



(657)



Net cash provided by financing activities



3,465



128,195

Effect of exchange rate changes on cash



(146)



Net increase in cash and cash equivalents



8,527



12,736

Cash and cash equivalents, beginning of period



2,774



40,041

Cash and cash equivalents, end of period


$

11,301


$

52,777

Supplemental cash flow disclosure:







Cash paid for interest


$

1,959


$

849

Cash (refunds) paid for income taxes


$

(1,188)


$

27

Supplemental disclosure of noncash investing activities:







Capital expenditures included in accounts payable and accrued liabilities


$

25,013


$

4,961

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 GAAP, plus/(minus) non-cash losses/(gains) 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, 2017.

The following tables present 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, 2018


March 31, 2018


June 30, 2017



(unaudited)



(in thousands)

Net income (loss)


$

25,023


$

16,132


$

(10,490)

Interest expense



1,342



1,151



671

Tax expense (benefit)



150



462



(138)

Depreciation and amortization



31,252



31,423



23,011

EBITDA



57,767



49,168



13,054

Impairment of property and equipment



2,282





Impairment of investment





2,000



Lease abandonment costs



1,973



1,124



418

Non-recurring severance expenses







122

Non-recurring transaction costs



2,481



2,694



332

Non-cash compensation expenses



2,984



2,481



589

Non-cash loss on sale of assets or subsidiaries



249



1,515



198

Non-recurring phantom equity and IPO-related compensation







12,537

Foreign currency losses



340



400



Inventory write downs



128



266



Adjusted EBITDA


$

68,204


$

59,648


$

27,250

The following tables present 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, 2018


March 31, 2018




(unaudited)




(in thousands)


Gross profit by segment








Water solutions


$

48,453


$

42,238


Oilfield chemicals



3,484



3,631


Wellsite services



4,791



2,080


As reported gross profit



56,728



47,949










Plus depreciation and amortization








Water solutions



21,599



21,243


Oilfield chemicals



2,823



2,915


Wellsite services



6,023



6,724


Total Depreciation and amortization



30,445



30,882










Gross profit before D&A



87,173



78,831










Gross Profit before D&A by segment








Water solutions



70,052



63,481


Oilfield chemicals



6,307



6,546


Wellsite services



10,814



8,804


Total gross profit before D&A


$

87,173


$

78,831










Gross Margin before D&A by segment








Water solutions



25.6%



24.6%


Oilfield chemicals



9.7%



10.3%


Wellsite services



19.8%



15.9%


Total gross margin before D&A



22.2%



20.9%


 

Contacts:

Select Energy Services


Nick Swyka - CFO & SVP


Chris George - VP, Investor Relations & Treasurer


(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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