Select Energy Services Reports Second Quarter 2019 Financial Results And Operational Updates
HOUSTON, Aug. 6, 2019 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of water management and chemical solutions to the U.S. unconventional oil and gas industry, today announced results for the second quarter ended June 30, 2019.
Revenue for the second quarter of 2019 was $323.9 million as compared to $362.6 million in the first quarter of 2019 and $393.2 million in the second quarter of 2018. Revenue in the second quarter of 2019 was impacted by the divestment of certain non-core operations that contributed an incremental $14.4 million of revenue in the first quarter of 2019 and an incremental $31.6 million in the second quarter of 2018. Net income for the second quarter of 2019 was $8.1 million, which was negatively impacted by several non-recurring charges, largely related to completing the divestment of non-core operations, compared to $1.4 million in the first quarter of 2019 and $25.0 million in the second quarter of 2018.
Gross profit was $39.9 million in the second quarter of 2019 compared to $46.0 million in the first quarter of 2019 and $56.7 million in the second quarter of 2018. Total gross margin for Select was 12.3% in the second quarter of 2019 as compared to 12.7% in the first quarter of 2019 and 14.4% in the second quarter of 2018. Gross margin before depreciation and amortization ("D&A") for the second quarter of 2019 was 21.2% compared to 21.4% for the first quarter of 2019 and 22.2% for the second quarter of 2018.
Adjusted EBITDA was $51.6 million or 15.9% of revenue in the second quarter of 2019 as compared to $53.4 million or 14.7% of revenue in the first quarter of 2019 and $68.2 million or 17.3% of revenue in the second quarter of 2018. Please refer to the end of this release for reconciliations of gross profit before D&A (non-GAAP measure) to gross profit and of Adjusted EBITDA (non-GAAP measure) to net income.
Holli Ladhani, President and CEO, stated, "The team did a good job executing on our strategic objectives during the quarter. Our Northern Delaware Pipeline project is progressing on time and on budget as we continue to advance our additional commercialization discussions. The recently expanded Midland chemicals manufacturing facility hit full stride, leading to improving margins for the Oilfield Chemicals segment, and we completed the divestitures of our non-core operations within the expected range of proceeds. We accomplished all of this while further augmenting a best-in-class balance sheet, concluding the quarter with a net cash balance.
"While 2019 is shaping up to be a tough year for the oilfield services industry, we are taking action to weather the storm. We remain focused on the things we can control, such as costs, customer service, capital discipline, and maintaining a strong balance sheet. Despite pricing pressures that led to a sequential decline in revenue, our consolidated Adjusted EBITDA margins improved in the second quarter. In short, we are adapting to market conditions, and continue to deliver value with more efficiency.
"In addition to our continued focus on costs, we will be judicious in putting additional capital to work this year. Our priorities will be the completion of our Northern Delaware Pipeline project, investing in technology to both advance our service offerings and improve our operational efficiencies as well as investing to maintain our existing asset base. Given current industry conditions, we have revisited our capital budget for 2019, and have reduced it to a range of $120 million to $140 million relative to the range of $140 million to $160 million previously provided. Even after investing in our operations, I remain confident our ongoing business will generate meaningful free cash flow and reiterate our previous unallocated free cash flow expectations."
"I'm also optimistic about our ability to continue to source and execute attractive infrastructure investment opportunities and strategic acquisitions. As we navigate a market that requires ever greater efficiency from service providers, our breadth of capabilities and pristine balance sheet enable us to bring full life cycle solutions to our customers. We also believe our positive net cash position and strong free cash flow generation should provide unique advantages in the current environment," concluded Ladhani.
Business Segment Information
The Water Services segment generated revenues of $202.0 million in the second quarter of 2019, as compared to $220.6 million in the first quarter of 2019 and $234.0 million in the second quarter of 2018. Gross margin before D&A for Water Services was 23.2% in the second quarter of 2019 as compared to 26.1% in the first quarter of 2019 and 24.5% in the second quarter of 2018. The sequential decline in revenue and gross margin before D&A was driven largely by pricing pressures during the quarter.
The Water Infrastructure segment generated revenues of $51.7 million in the second quarter of 2019 as compared to $53.6 million in the first quarter of 2019 and $55.7 million in the second quarter of 2018. The sequential decline in revenues was driven primarily by decreased volumes through the Company's Bakken Pipelines from key customers. Much of these volumes were deferred to the third quarter, and the Company expects activity on these pipelines to increase in the third quarter. Gross margin before D&A for Water Infrastructure was 25.6% in the second quarter of 2019 as compared to 22.7% in the first quarter of 2019 and 32.0% in the second quarter of 2018. The improvement in sequential gross margin before D&A in the second quarter of 2019 was driven primarily by reduced costs in the Northern Delaware infrastructure operations from first quarter seasonal impacts as well as improved profitability in the water sourcing and gathering and disposal operations.
The Oilfield Chemicals segment generated revenues of $63.0 million in the second quarter of 2019, as compared to $66.8 million in the first quarter of 2019 and $64.8 million during the second quarter of 2018. Gross margin before D&A for Oilfield Chemicals was 14.2% in the second quarter of 2019 as compared to 10.9% in the first quarter of 2019 and 9.7% in the second quarter of 2018. The segment continues to see strong demand for its friction reducer product lines, with sequential margin growth driven by decreased freight costs as a result of expanding in-basin friction reducer manufacturing and improved inventory management.
The "Other" category, which contains the results of non-core operations that were in the process of being divested and wound down, generated revenues of $7.2 million in the second quarter of 2019, down from $21.6 million in the first quarter of 2019 and $38.8 million in the second quarter of 2018. The "Other" category contributed gross loss before D&A of ($0.3) million in the second quarter of 2019 as compared to gross profit of $0.6 million in the first quarter of 2019 and $5.6 million in the second quarter of 2018. With the divestments and wind down of the remaining non-core operations completed during the second quarter, these revenues and gross profit contributions should be immaterial moving forward.
Select's consolidated Adjusted EBITDA during the quarter includes $8.3 million of adjustments primarily related to non-recurring and non-cash items from the divestments of portions of non-core businesses, including $7.3 million of loss on sales of subsidiaries and other assets, primarily associated with the sale of the remaining Canadian operations, $0.4 million of asset impairments related to Canada, $0.4 million of transaction costs, and $0.2 million of lease abandonment costs largely related to the former Affirm operations. Non-cash compensation expense accounted for an additional $4.1 million adjustment and foreign currency gains related to Canadian operations produced a net impact of ($0.1) million.
Cash Flow and Balance Sheet
Cash flow from operations for the second quarter of 2019 was $38.1 million. Capital expenditures for the second quarter of 2019 were $17.9 million, net of ordinary course asset sales of $3.1 million. This figure includes approximately $9.0 million of capital expenditures related to ongoing development activities in the Northern Delaware Basin. Cash flow from operations less cash flow from investing activities was $33.7 million during the second quarter. Cash flow from investing activities includes non-ordinary course net proceeds of approximately $13.5 million during the second quarter of 2019 related to divestment activities.
Total liquidity was $263.8 million as of June 30, 2019, as compared to $221.9 million as of December 31, 2018. Following the repayment of $25.0 million of borrowings during the second quarter, the Company had no remaining outstanding borrowings under the Company's revolving credit facility as of June 30, 2019, compared to $45.0 million as of December 31, 2018. As of June 30, 2019, the Company had approximately $240.0 million of available borrowing capacity under its revolving credit facility, after giving effect to $16.4 million of outstanding letters of credit. Total cash and cash equivalents were $23.8 million at June 30, 2019 as compared to $17.2 million at December 31, 2018.
Conference Call
Select has scheduled a conference call on Wednesday, August 7, 2019 at 10:00 a.m. Eastern time / 9:00 a.m. Central 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 21, 2019 and may be accessed by calling 201-612-7415 using passcode 13692088#. 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 Energy Services, Inc. ("Select") is a leading provider of total water management and chemical solutions to the unconventional oil and gas industry in the United States. 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, gathering 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. 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, 2018 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,
2019 2018 2019 2018
Revenue
Water services $
202,011 $
233,954 $
422,606 $
452,184
Water infrastructure 51,710 55,727 105,326 109,784
Oilfield chemicals 63,001 64,807 129,830 128,437
Other 7,165 38,759 28,771 79,237
Total revenue 323,887 393,247 686,533 769,642
Costs of revenue
Water services 155,151 176,571 318,272 341,201
Water infrastructure 38,456 37,884 79,886 77,980
Oilfield chemicals 54,051 58,500 113,578 115,584
Other 7,447 33,119 28,500 68,873
Depreciation and amortization 28,843 30,445 60,361 61,327
Total costs of revenue 283,948 336,519 600,597 664,965
Gross profit 39,939 56,728 85,936 104,677
Operating expenses
Selling, general and administrative 27,297 26,871 59,673 52,552
Depreciation and amortization 906 807 1,906 1,348
Impairment of goodwill 4,396
Impairment of property and equipment 374 2,282 893 2,282
Impairment of cost-method investment 2,000
Lease abandonment costs 183 1,973 1,256 3,097
Total operating expenses 28,760 31,933 68,124 61,279
Income from operations 11,179 24,795 17,812 43,398
Other income (expense)
(Losses) gains on sales of property and
equipment, net (1,709) 2,056 (6,200) 1,502
Interest expense, net (839) (1,342) (1,932) (2,493)
Foreign currency gain (loss), net 67 (340) 327 (740)
Other expense income, net (59) 4 210 100
Income before income tax expense 8,639 25,173 10,217 41,767
Income tax expense (571) (150) (749) (612)
Net income 8,068 25,023 9,468 41,155
Less: net income attributable to
noncontrolling interests (1,868) (8,060) (2,133) (14,093)
Net income attributable to Select Energy
Services, Inc. $
6,200 $
16,963 $
7,335 $
27,062
Net income per share attributable to
common stockholders:
Class A-Basic $
0.08 $
0.24 $
0.09 $
0.40
Class A-2-Basic
$
$
$ $
0.40
Class B-Basic
$
$
$
$
Net income per share attributable to
common stockholders:
Class A-Diluted $
0.08 $
0.24 $
0.09 $
0.39
Class A-2-Diluted
$
$
$ $
0.39
Class B-Diluted
$
$
$
$
SELECT ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, 2019 December 31, 2018
(unaudited)
Assets
Current assets
Cash and cash equivalents $
23,818 $
17,237
Accounts receivable trade, net of
allowance for doubtful accounts of $4,921
and $5,329, respectively 324,918 341,711
Accounts receivable, related parties 3,105 1,119
Inventories 39,952 44,992
Prepaid expenses and other current assets 29,435 27,093
Total current assets 421,228 432,152
Property and equipment 1,069,496 1,114,378
Accumulated depreciation (603,191) (611,530)
Property and equipment held-for-sale,
net 1,906
Total property and equipment, net 468,211 502,848
Right-of-use assets 75,302
Goodwill 266,934 273,801
Other intangible assets, net 142,438 148,377
Other assets 3,064 3,427
Total assets $
1,377,177 $
1,360,605
Liabilities and Equity
Current liabilities
Accounts payable $
53,107 $
53,847
Accrued accounts payable 43,311 62,536
Accounts payable and accrued expenses,
related parties 3,417 5,056
Accrued salaries and benefits 16,734 22,113
Accrued insurance 15,799 14,849
Sales tax payable 1,282 5,820
Accrued expenses and other current
liabilities 10,615 14,560
Current operating lease liabilities 19,553
Current portion of finance lease
obligations 421 938
Total current liabilities 164,239 179,719
Long-term operating lease liabilities 75,169 16,752
Other long-term liabilities 10,921 8,361
Long-term debt 45,000
Total liabilities 250,329 249,832
Commitments and contingencies
Class A common stock, $0.01 par value;
350,000,000 shares authorized; 80,176,078
and 78,956,555 shares issued and
outstanding as of June 30, 2019 and
December 31, 2018, respectively 802 790
Class A-2 common stock, $0.01 par value;
40,000,000 shares authorized, no shares
issued or outstanding as of June 30, 2019
and December 31, 2018
Class B common stock, $0.01 par value;
150,000,000 shares authorized; 26,026,843
shares issued and outstanding as of June
30, 2019 and December 31, 2018 260 260
Preferred stock, $0.01 par value;
50,000,000 shares authorized and no
shares issued and outstanding as of June
30, 2019 and December 31, 2018
Additional paid-in capital 821,968 813,599
Retained earnings 25,988 18,653
Accumulated other comprehensive deficit (380) (368)
Total stockholders' equity 848,638 832,934
Noncontrolling interests 278,210 277,839
Total equity 1,126,848 1,110,773
Total liabilities and equity $
1,377,177 $
1,360,605
SELECT ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months ended June 30,
2019 2018
Cash flows from operating activities
Net income $
9,468 $
41,155
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 62,267 62,675
Net loss (gain) on disposal of
property and equipment 2,794 (1,503)
Bad debt expense 1,312 876
Amortization of debt issuance costs 344 344
Inventory write-down 209 394
Equity-based compensation 8,308 5,465
Impairment of goodwill 4,396
Impairment of property and equipment 893 2,282
Impairment of cost-method investment 2,000
Loss on divestitures 3,406
Other operating items, net (178) (103)
Changes in operating assets and
liabilities
Accounts receivable 3,346 (46,057)
Prepaid expenses and other assets 1,245 (17,848)
Accounts payable and accrued
liabilities (23,075) 14,625
Net cash provided by operating
activities 74,735 64,305
Cash flows from investing activities
Working capital settlement 691
Proceeds received from divestitures 25,259
Purchase of property and equipment (57,513) (63,050)
Proceeds received from sale of
property and equipment 10,507 3,953
Net cash used in investing activities (21,056) (59,097)
Cash flows from financing activities
Borrowings from revolving line of
credit 5,000 25,000
Payments on long-term debt (50,000) (20,000)
Payments of finance lease obligations (549) (1,029)
Proceeds from share issuance 56 431
Distributions to noncontrolling
interests, net (225) (280)
Repurchase of common stock (1,516) (657)
Net cash (used in) provided by
financing activities (47,234) 3,465
Effect of exchange rate changes on
cash 136 (146)
Net increase in cash and cash
equivalents 6,581 8,527
Cash and cash equivalents, beginning
of period 17,237 2,774
Cash and cash equivalents, end of
period $
23,818 $
11,301
Supplemental cash flow disclosure:
Cash paid for interest $
2,024 $
1,959
Cash paid (refunds received) for
income taxes $
204 $
(1,188)
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, 2018.
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, 2019 March 31, 2019 June 30, 2018
(unaudited)
(in thousands)
Net income $
8,068 $
1,400 $
25,023
Interest expense 839 1,093 1,342
Income tax expense 571 178 150
Depreciation and amortization 29,749 32,518 31,252
EBITDA 39,227 35,189 57,767
Impairment of goodwill 4,396
Impairment of property and equipment 374 519 2,282
Lease abandonment costs 183 1,073 1,973
Non-recurring severance expenses 1,680
Non-recurring transaction costs 412 662 2,481
Non-cash compensation expenses 4,129 4,179 2,984
Non-cash loss on sale of assets or subsidiaries 7,314 5,906 249
Foreign currency (gain) loss (67) (260) 340
Inventory write-down 75 128
Adjusted EBITDA $
51,572 $
53,419 $
68,204
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, 2019 March 31, 2019 June 30, 2018
(unaudited)
(in thousands)
Gross profit by segment
Water services $
25,837 $
36,212 $
38,435
Water infrastructure 7,181 6,097 12,624
Oilfield chemicals 7,203 4,849 3,484
Other (282) (1,161) 2,185
As reported gross profit 39,939 45,997 56,728
Plus depreciation and
amortization
Water services 21,023 21,262 18,948
Water infrastructure 6,073 6,089 5,219
Oilfield chemicals 1,747 2,453 2,823
Other 1,714 3,455
Total depreciation and
amortization 28,843 31,518 30,445
Gross profit before D&A $
68,782 $
77,515 $
87,173
Gross Profit before D&A by
segment
Water services 46,860 57,474 57,383
Water infrastructure 13,254 12,186 17,843
Oilfield chemicals 8,950 7,302 6,307
Other (282) 553 5,640
Total gross profit before
D&A $
68,782 $
77,515 $
87,173
Gross Margin before D&A by
segment
Water services 23.2% 26.1% 24.5%
Water infrastructure 25.6% 22.7% 32.0%
Oilfield chemicals 14.2% 10.9% 9.7%
Other (3.9)% 2.6% 14.6%
Total gross margin before
D&A 21.2% 21.4% 22.2%
Contacts:
Select Energy Services
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.
