Form: 8-K

Current report filing

August 3, 2017

Select Energy Services Reports 2017 Second Quarter Results



- Second quarter revenue was $134.4 million, 35% increase over the first quarter in 2017

- On July 18th, announced definitive merger agreement with Rockwater Energy Solutions, giving Select a  pro forma market capitalization in excess of $1.5 billion at current stock price

GAINESVILLE, Texas, Aug. 3, 2017 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of total water solutions to the U.S. unconventional oil and gas industry, today announced results for the second quarter ended June 30, 2017.

Revenue for the second quarter of 2017 was $134.4 million, a 35% increase compared to the $99.9 million in the first quarter of 2017 and a 114% increase compared to the $62.9 million in the second quarter of 2016. Net loss for the second quarter was $10.5 million as compared to a net loss of $12.3 million in the first quarter of 2017 and a net loss of $228.2 million in the second quarter of 2016. This net loss of $10.5 million for the second quarter of 2017 includes $12.5 million of one-time phantom equity and other IPO-related compensation expenses. Adjusted EBITDA was $27.3 million in the second quarter of 2017 compared to $13.8 million in the first quarter of 2017 and $0.6 million in the second quarter of 2016. 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 Chairman & CEO, stated, "In our second quarter, we saw continued momentum in completion-related activity as additional frac spreads were deployed into the market. Even with that, the population of drilled, uncompleted wells (DUC's) continues to grow, and is now over 6,000 per the EIA, which indicates that completion activity has yet to catch up to the growth in drilling rigs and this DUC population will provide us with a sizable backlog of future work."

Subsequent to the end of the second quarter, Select entered into a definitive merger agreement with privately-held Rockwater Energy Solutions, Inc. ("Rockwater") in a stock-for-stock transaction on July 18, 2017. Schmitz added, "This transaction represents a very exciting opportunity to combine two companies that are highly-focused on the challenge of providing world-class water-related services to the major shale basins. We are well underway on completing all of the required regulatory steps, but at the same time, are working to ensure that both companies remain focused on the near-term opportunities at hand."

The transaction is targeted to close in the third quarter of 2017, subject to customary closing conditions, including U.S. governmental approval under the Hart-Scott-Rodino Act.

Conference Call

Select has scheduled a conference call on Friday, August 4, 2017 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, or 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 August 11, 2017 and may be accessed by calling 201-612-7415 using passcode 13665037#. 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 solutions to the U.S. unconventional oil and gas industry. Select provides for the sourcing and transfer of water (both by permanent pipeline and temporary pipe) 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, flowback, hauling, and disposal. For more information, please visit http://selectenergyservices.com.

Forward Looking Statements

All statements in this news release 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 position to differ materially from those included within or implied by such forward-looking statements.

Factors that could cause our actual results to differ materially from the results contemplated by 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 U.S. Securities and Exchange Commission on April 24, 2017, relating to our recently completed initial public offering.

You 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.

Additional Information and Where to Find It

In connection with the proposed merger transaction mentioned, Select intends to file relevant materials with the Securities and Exchange Commission (the "SEC"), including Select's information statement in preliminary and definitive form. Stockholders are advised to read all relevant documents filed with the SEC, including Select's information statement, because they will contain important information about the proposed transaction. These documents will be available at no charge on the SEC's website at www.sec.gov. In addition, documents will also be available for free from Select by contacting the Company at 1820 N I-35, Gainesville, TX 76240 or (940)-668-1818.

WTTR-ER

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share data)




Three Months Ended June 30, 


Six Months Ended June 30, 



2017


2016


2017


2016

Revenue









Water solutions


$          107,812


$       49,893


$          186,189


$      112,182

Accommodations and rentals


13,327


5,233


22,842


13,747

Wellsite completion and construction services


13,310


7,793


25,343


15,829










Total revenue


134,449


62,919


234,374


141,758










Costs of revenue









Water solutions


78,028


43,123


138,649


94,657

Accommodations and rentals


10,799


4,320


18,722


10,558

Wellsite completion and construction services


10,848


6,656


21,267


13,518

Depreciation and amortization


22,520


26,119


43,724


52,261










Total costs of revenue


122,195


80,218


222,362


170,994










Gross profit (loss)


12,254


(17,299)


12,012


(29,236)










Operating expenses









Selling, general and administrative


23,254


8,184


33,211


17,164

Depreciation and amortization


491


647


937


1,281

Impairment of goodwill and other intangible assets


-


138,666


-


138,666

Impairment of property and equipment


-


60,026


-


60,026

Lease abandonment costs


418


-


2,281


-










Total operating expenses


24,163


207,523


36,429


217,137










Loss from operations


(11,909)


(224,822)


(24,417)


(246,373)










Other income (expense)









Interest expense, net


(671)


(4,082)


(1,401)


(7,449)

Other income, net


1,952


723


3,016


157










Loss before tax expense


(10,628)


(228,181)


(22,802)


(253,665)










Tax benefit (expense)


138


(57)


32


(366)










Net loss


(10,490)


(228,238)


(22,770)


(254,031)










Less: Net loss attributable to Predecessor


-


225,091


-


250,428

Less: Net loss attributable to noncontrolling interests


6,274


3,147


14,382


3,603










Net loss attributable to Select Energy Services, Inc.


$            (4,216)


$               -


$            (8,388)


$                -










Allocation of net loss attributable to:









Class A-1 stockholders


$            (2,032)




$            (5,188)



Class A stockholders


(2,184)




(3,200)



Class B stockholders


-




-





$            (4,216)




$            (8,388)



Weighted average shares outstanding:









Class A-1 - Basic & Diluted


13,092,308




14,587,845



Class A - Basic & Diluted


14,075,052




8,999,294



Class B - Basic & Diluted


38,462,541




38,462,541



Net loss per share attributable to common stockholders:









Class A-1 - Basic & Diluted


$              (0.16)




$              (0.36)



Class A - Basic & Diluted


$              (0.16)




$              (0.36)



Class B - Basic & Diluted


$                      -




$                      -



SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)




June 30, 2017


December 31, 2016



(unaudited)



Assets










Current assets





Cash and cash equivalents


$               52,777


$                           40,041

Accounts receivable trade, net of allowance for doubtfulaccounts of $2,517 and $2,144, respectively


129,539


75,892

Accounts receivable, related parties


389


135

Inventories


691


1,001

Prepaid expenses and other current assets


7,781


7,586

Total current assets


191,177


124,655

Property and equipment


789,924


739,386

Accumulated depreciation


(519,080)


(490,519)

Property and equipment, net


270,844


248,867

Goodwill


23,278


12,242

Other intangible assets, net


35,380


11,586

Other assets


7,922


7,716

Total assets


$             528,601


$                         405,066






Liabilities and Equity





Current liabilities





Accounts payable


$               12,122


$                           10,796

Accounts payable and accrued expenses, related parties


846


648

Accrued salaries and benefits


2,499


2,511

Accrued insurance


9,136


10,338

Accrued expenses and other current liabilities


30,378


22,091

Total current liabilities


54,981


46,384

Accrued lease obligations


17,029


15,946

Other long term liabilities


7,726


8,028

Long-term debt, net of current maturities


-


-

Total liabilities


79,736


70,358

Commitments and contingencies (Note 8)





Class A-1 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding as of June 30, 2017; 16,100,000 shares issued and outstanding as of December 31, 2016


-


161

Class A common stock, $0.01 par value; 250,000,000 shares authorized; 30,311,340 shares issued and outstanding as of June 30, 2017; 3,802,972 shares issued andoutstanding as of December 31, 2016


303


38

Class B common stock, $0.01 par value; 150,000,000 shares authorized; 38,462,541 shares issued and outstanding as of June 30, 2017 and December 31, 2016


385


385

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of June 30, 2017 and December 31, 2016


-


-

Additional paid-in capital


204,295


113,175

Accumulated deficit


(9,431)


(1,043)

Total stockholders' equity


195,552


112,716

Noncontrolling interests


253,313


221,992

Total equity


448,865


334,708

Total liabilities and equity


$             528,601


$                         405,066

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)




Six Months Ended June 30, 



2017


2016






Cash flows from operating activities





Net loss


$             (22,770)


$          (254,031)

Adjustments to reconcile net loss to net cash





provided by operating activities





Depreciation and amortization


44,661


53,542

(Gain) loss on disposal of property and equipment


(2,919)


462

Bad debt expense


708


345

Amortization of debt issuance costs


618


1,364

Equity-based compensation


1,232


318

Other Operating Items


(237)


197,887

Changes in operating assets and liabilities





Accounts receivable


(47,998)


24,446

Prepaid expenses and other assets


(830)


(1,593)

Accounts payable and accrued liabilities 


3,525


(11,763)






Net cash (used in) provided by operating activities


(24,010)


10,977






Cash flows from investing activities





Acquisitions, net of cash received


(55,507)


-

Purchase of property, equipment, and intangible assets


(41,680)


(26,009)

Proceeds received from sale of property and equipment


5,738


6,277






Net cash used in investing activities


(91,449)


(19,732)






Cash flows from financing activities





Proceeds from revolving line of credit


34,000


8,500

Payments on long-term debt


(34,000)


(13,250)

Payment of debt issuance costs


-


(376)

Proceeds from initial public offering


140,070


-

Payments incurred for initial public offering


(11,566)


-

Member (distributions) contributions


(309)


212






Net cash (used in) provided by financing activities


128,195


(4,914)






Net increase (decrease) in cash and cash equivalents


12,736


(13,669)






Cash and cash equivalents, beginning of period


40,041


16,305






Cash and cash equivalents, end of period


$              52,777


$               2,636






Supplemental cash flow disclosure:





Cash paid for interest


$                   849


$               6,123

Cash paid for taxes


$                     27


$                  610






Supplemental disclosure of noncash investing activities:





Capital expenditures included in accounts payable and accrued liabilities


$                4,961


$                    69

Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income, plus taxes, interest expense, and depreciation and 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.

Our board of directors, management and investors use EBITDA and Adjusted EBITDA to assess our financial performance 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 items outside the control of our management team. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.

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 (loss), which is the most directly comparable GAAP measure for the periods presented:


Three months ended,


June 30, 2017


March 31, 2017


June 30, 2016


(in thousands)






Net loss

$        (10,490)


$       (12,280)


$        (228,238)

   Interest expense

671


730


4,082

   Depreciation and amortization

23,011


21,650


26,766

   Tax (benefit) expense

(138)


106


57

EBITDA

13,054


10,206


(197,333)

   Impairment

-


-


198,692

   Lease abandonment costs

418


1,863


-

   Severance costs

122


-


146

   Deal-related costs

332


748


24

   Non-cash incentive compensation

589


643


(796)

   Non-cash loss on sale of subsidiaries and other assets

198


309


(160)

   Phantom equity and IPO-related compensation

12,537


-


-

Adjusted EBITDA

$          27,250


$          13,769


$              573

Contacts:

Select Energy Services


Gary Gillette, CFO & SVP


Justin Briscoe, VP, Corporate Development


(940) 668-0259


IR@selectenergyservices.com




Dennard â–ª Lascar Associates


Ken Dennard / Lisa Elliott


713-529-6600


WTTR@dennardlascar.com