May 1, 2024 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 001-38066

SELECT WATER SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)


Delaware	81-4561945
(State of incorporation)	(IRS Employer Identification Number)

1233 W. Loop South, Suite 1400 Houston, TX	77027
(Address of principal executive offices)	(Zip Code)

(713) 235-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	WTTR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company. Yes ☐ No ☑

As of April 29, 2024, the registrant had 102,694,571 shares of Class A common stock and 16,221,101 shares of Class B common stock outstanding.

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SELECT WATER SOLUTIONS, INC.

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		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50

Item 4.	Controls and Procedures	51

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	53

Item 6.	Exhibits	53

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, in this Quarterly Report and those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

●

global economic distress, including that resulting from the sustained Russia-Ukraine war and related economic sanctions, the conflict in the Israel-Gaza region and continued hostilities in the Middle East, including rising tensions with Iran, inflation and elevated interest rates, and potential energy insecurity in Europe, each of which may decrease demand for oil and natural gas or contribute to volatility in the prices for oil and natural gas, which may decrease demand for our services;

●

actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with announced supply limitations, which may be exacerbated by an increase in hostilities in the Middle East;

●

the level of capital spending and access to capital markets by oil and gas companies in response to changes in commodity prices or reduced demand;

●

the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources, including any delays and/or supply chain disruptions due to increased hostilities in the Middle East;

●

the impact of central bank policy actions, such as sustained, elevated rates of interest in response to high rates of inflation, and disruptions in the bank and capital markets;

●

the severity and duration of world health events and any resulting impact on commodity prices and supply and demand considerations;

●

the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies;

●

the degree to which consolidation among our customers may affect spending on U.S. drilling and completions, including the recent consolidation in the Permian Basin;

●

trends and volatility in oil and gas prices, and our ability to manage through such volatility;

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●

the impact of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater, transferring produced water, interstate freshwater transfer, chemicals, carbon pricing, pipeline construction, taxation or emissions, leasing, permitting or drilling on federal lands and various other environmental matters;

●

regional impacts to our business, including our key infrastructure assets within the Bakken, the Northern Delaware and Midland Basin portions of the Permian Basin, and the Haynesville;

●

capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets;

●

regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our services, including as a result of the Inflation Reduction Act of 2022 (“IRA 2022”) or otherwise;

●

actions taken by the Biden Administration or state governments, such as executive orders or new or expanded regulations, that may negatively impact the future production of oil and natural gas in the U.S. or our customers’ access to federal and state lands for oil and gas development operations, thereby reducing demand for our services in the affected areas;

●

changes in global political or economic conditions, generally, including as a result of the fall 2024 presidential election and any resultant political uncertainty, and in the markets we serve, including the rate of inflation and potential economic recession;

●

growing demand for electric vehicles that may result in reduced demand for refined products deriving from crude oil such as gasoline and diesel fuel, and therefore the demand for our services;

●

our ability to hire and retain key management and employees, including skilled labor;

●

our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms, including as a result of sustained increases in cost of capital resulting from Federal Reserve policies and otherwise;

●

our health, safety and environmental performance;

●

the impact of competition on our operations;

●

the degree to which our exploration and production (“E&P”) customers may elect to operate their water-management services in-house rather than source these services from companies like us;

●

our level of indebtedness and our ability to comply with covenants contained in our Sustainability-Linked Credit Facility (as defined herein) or future debt instruments;

●

delays or restrictions in obtaining permits by us or our customers;

●

constraints in supply or availability of equipment used in our business;

●

the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis;

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●

acts of terrorism, war or political or civil unrest in the U.S. or elsewhere, such as the Russia-Ukraine war, the conflict in the Israel-Gaza region and/or other instability and hostilities in the Middle East;

●

accidents, weather, natural disasters or other events affecting our business; and

●

the other risks identified in our most recent Annual Report on Form 10-K and under the headings “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A. Risk Factors” in this Quarterly Report.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Part I―Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “Part II―Item 1A. Risk Factors” in this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary note.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	March 31, 2024		December 31, 2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	12,753	$	57,083
Accounts receivable trade, net of allowance for credit losses of $5,259 and $5,318, respectively		323,113		322,611
Accounts receivable, related parties		330		171
Inventories		37,636		38,653
Prepaid expenses and other current assets		37,886		35,541
Total current assets		411,718		454,059
Property and equipment		1,242,133		1,144,989
Accumulated depreciation		(650,952)		(627,408)
Total property and equipment, net		591,181		517,581
Right-of-use assets, net		42,931		39,504
Goodwill		31,202		4,683
Other intangible assets, net		127,649		116,189
Deferred tax assets, net		60,489		61,617
Other long-term assets		26,137		24,557
Total assets	$	1,291,307	$	1,218,190
Liabilities and Equity
Current liabilities
Accounts payable	$	54,389	$	42,582
Accrued accounts payable		62,833		66,182
Accounts payable and accrued expenses, related parties		4,227		4,086
Accrued salaries and benefits		17,692		28,401
Accrued insurance		17,227		19,720
Sales tax payable		2,973		1,397
Current portion of tax receivable agreements liabilities		469		469
Accrued expenses and other current liabilities		35,800		33,511
Current operating lease liabilities		16,241		15,005
Current portion of finance lease obligations		196		194
Total current liabilities		212,047		211,547
Long-term tax receivable agreements liabilities		37,718		37,718
Long-term operating lease liabilities		39,667		37,799
Long-term debt		75,000		—
Other long-term liabilities		38,554		38,954
Total liabilities		402,986		326,018
Commitments and contingencies (Note 9)
Class A common stock, $0.01 par value; 350,000,000 shares authorized and 102,705,260 shares issued and outstanding as of March 31, 2024; 350,000,000 shares authorized and 102,172,863 shares issued and outstanding as of December 31, 2023		1,027		1,022
Class B common stock, $0.01 par value; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of March 31, 2024 and December 31, 2023		162		162
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2024 and December 31, 2023		—		—
Additional paid-in capital		1,001,967		1,008,095
Accumulated deficit		(233,166)		(236,791)
Total stockholders’ equity		769,990		772,488
Noncontrolling interests		118,331		119,684
Total equity		888,321		892,172
Total liabilities and equity	$	1,291,307	$	1,218,190

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)


	Three months ended March 31,
	2024		2023
Revenue
Water Services	$	228,307	$	274,678
Water Infrastructure		63,508		55,466
Chemical Technologies		74,733		86,448
Total revenue		366,548		416,592
Costs of revenue
Water Services		181,532		219,942
Water Infrastructure		33,692		34,333
Chemical Technologies		61,755		69,709
Depreciation, amortization and accretion		36,892		32,943
Total costs of revenue		313,871		356,927
Gross profit		52,677		59,665
Operating expenses
Selling, general and administrative		43,980		35,829
Depreciation and amortization		1,258		595
Impairments and abandonments		45		11,166
Lease abandonment costs		389		76
Total operating expenses		45,672		47,666
Income from operations		7,005		11,999
Other income (expense)
Gain on sales of property and equipment and divestitures, net		325		2,911
Interest expense, net		(1,272)		(1,483)
Other		(282)		842
Income before income tax expense and equity in losses of unconsolidated entities		5,776		14,269
Income tax expense		(1,452)		(198)
Equity in losses of unconsolidated entities		(449)		(366)
Net income		3,875		13,705
Less: net income attributable to noncontrolling interests		(250)		(1,358)
Net income attributable to Select Water Solutions, Inc.	$	3,625	$	12,347

Net income per share attributable to common stockholders (Note 15):
Class A—Basic	$	0.04	$	0.12
Class B—Basic	$	—	$	—

Net income per share attributable to common stockholders (Note 15):
Class A—Diluted	$	0.04	$	0.12
Class B—Diluted	$	—	$	—

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)


	Three months ended March 31,
	2024		2023
Net income	$	3,875	$	13,705
Comprehensive income		3,875		13,705
Less: comprehensive income attributable to noncontrolling interests		(250)		(1,358)
Comprehensive income attributable to Select Water Solutions, Inc.	$	3,625	$	12,347

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended March 31, 2024 and 2023

(unaudited)

(in thousands, except share data)


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of December 31, 2023	102,172,863	$	1,022	16,221,101	$	162	$	1,008,095	$	(236,791)	$	772,488	$	119,684	$	892,172
Equity-based compensation	—		—	—		—		5,490		—		5,490		869		6,359
Issuance of restricted shares	1,118,836		11	—		—		1,136		—		1,147		(1,147)		—
Repurchase of common stock	(830,337)		(8)	—		—		(6,885)		—		(6,893)		(103)		(6,996)
Restricted shares forfeited	(60,019)		(1)	—		—		(61)		—		(62)		62		—
Performance shares vested	303,917		3	—		—		308		—		311		(311)		—
Dividend and distribution declared:
Class A common stock ($0.06 per share)	—		—	—		—		(5,931)		—		(5,931)		—		(5,931)
Unvested restricted stock ($0.06 per share)	—		—	—		—		(185)		—		(185)		—		(185)
Class B common stock ($0.06 per share)	—		—	—		—		—		—		—		(973)		(973)
Net income	—		—	—		—		—		3,625		3,625		250		3,875
Balance as of March 31, 2024	102,705,260	$	1,027	16,221,101	$	162	$	1,001,967	$	(233,166)	$	769,990	$	118,331	$	888,321


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of December 31, 2022	109,389,528	$	1,094	16,221,101	$	162	$	1,075,915	$	(311,194)	$	765,977	$	117,751	$	883,728
Equity-based compensation	—		—	—		—		2,581		—		2,581		383		2,964
Issuance of restricted shares	1,275,859		13	—		—		1,155		—		1,168		(1,168)		—
Repurchase of common stock	(1,657,203)		(17)	—		—		(11,019)		—		(11,036)		101		(10,935)
Restricted shares forfeited	(26,861)		—	—		—		(25)		—		(25)		25		—
Contributions from noncontrolling interests	—		—	—		—		—		—		—		153		153
NCI income tax adjustment	—		—	—		—		11		—		11		(11)		—
Dividend and distribution declared:
Class A common stock ($0.05 per share)	—		—	—		—		(5,258)		—		(5,258)		—		(5,258)
Unvested restricted stock ($0.05 per share)	—		—	—		—		(211)		—		(211)		—		(211)
Class B common stock ($0.05 per share)	—		—	—		—				—		—		(811)		(811)
Net income	—		—	—		—		—		12,347		12,347		1,358		13,705
Balance as of March 31, 2023	108,981,323	$	1,090	16,221,101	$	162	$	1,063,149	$	(298,847)	$	765,554	$	117,781	$	883,335

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Three months ended March 31,
	2024		2023
Cash flows from operating activities
Net income	$	3,875	$	13,705
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation, amortization and accretion		38,150		33,538
Deferred tax expense (benefit)		1,129		(6)
Gain on disposal of property and equipment and divestitures		(325)		(2,911)
Equity in losses of unconsolidated entities		449		366
Bad debt expense		596		1,975
Amortization of debt issuance costs		122		122
Inventory adjustments		(33)		75
Equity-based compensation		6,359		2,964
Impairments and abandonments		45		11,166
Other operating items, net		312		(218)
Changes in operating assets and liabilities
Accounts receivable		128		(64,922)
Prepaid expenses and other assets		(2,180)		(5,431)
Accounts payable and accrued liabilities		(16,498)		(8,439)
Net cash provided by (used in) operating activities		32,129		(18,016)
Cash flows from investing activities
Purchase of property and equipment		(33,763)		(27,885)
Acquisitions, net of cash received		(108,311)		(9,418)
Proceeds received from sales of property and equipment		5,166		6,724
Net cash used in investing activities		(136,908)		(30,579)
Cash flows from financing activities
Borrowings from revolving line of credit		90,000		76,750
Payments on revolving line of credit		(15,000)		(17,250)
Payments of finance lease obligations		(66)		(5)
Dividends and distributions paid		(7,487)		(6,206)
Contributions from noncontrolling interests		—		4,950
Repurchase of common stock		(6,996)		(10,935)
Net cash provided by financing activities		60,451		47,304
Effect of exchange rate changes on cash		(2)		(3)
Net decrease in cash and cash equivalents		(44,330)		(1,294)
Cash and cash equivalents, beginning of period		57,083		7,322
Cash and cash equivalents, end of period	$	12,753	$	6,028
Supplemental cash flow disclosure:
Cash paid for interest	$	954	$	1,119
Cash refunds for income taxes, net	$	(33)	$	—
Supplemental disclosure of noncash investing activities:
Capital expenditures included in accounts payable and accrued liabilities	$	39,046	$	31,398

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

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SELECT WATER SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Description of the business: Select Water Solutions, Inc. (“we,” “Select Inc.,” “Select” or the “Company”), formerly Select Energy Services, Inc., was incorporated as a Delaware corporation on November 21, 2016. On May 8, 2023, Select Energy Services, Inc.’s Fifth Amended and Restated Certificate of Incorporation became effective upon filing with the Secretary of State of the State of Delaware which, among other things, changed the name of the company from Select Energy Services, Inc. to Select Water Solutions, Inc. to reflect its strategic focus as a water-focused company. We retained our stock ticker “WTTR” trading on the New York Stock Exchange. The Company is a holding company whose sole material asset consists of common units (“SES Holdings LLC Units”) in SES Holdings, LLC (“SES Holdings”).

We are a leading provider of sustainable water-management and chemical solutions to the energy industry in the United States (“U.S.”). As a leader in the water solutions industry, we place the utmost importance on safe, environmentally responsible management of oilfield water throughout the lifecycle of a well. Additionally, we believe that responsibly managing water resources through our operations to help conserve and protect the environment in the communities in which we operate is paramount to our continued success.

Class A and Class B common stock: As of March 31, 2024, the Company had both Class A and Class B common shares issued and outstanding. Holders of shares of our Class A common stock, par value $0.01 per share (“Class A common stock”) and Class B common stock, par value $0.01 per share (“Class B common stock”) are entitled to one vote per share and vote together as a single class on all matters presented to our stockholders for their vote or approval.

Exchange rights: Under the Eighth Amended and Restated Limited Liability Company Agreement of SES Holdings (the “SES Holdings LLC Agreement”), SES Legacy Holdings LLC (“Legacy Owner Holdco”) and its permitted transferees have the right (an “Exchange Right”) to cause SES Holdings to acquire all or a portion of its SES Holdings LLC Units for, at SES Holdings’ election, (i) shares of Class A common stock at an exchange ratio of one share of Class A common stock for each SES Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value (as defined within the SES Holdings LLC Agreement) of such Class A common stock. Alternatively, upon the exercise of any Exchange Right, Select Inc. has the right (the “Call Right”) to acquire the tendered SES Holdings LLC Units from the exchanging unitholder for, at its election, (i) the number of shares of Class A common stock the exchanging unitholder would have received under the Exchange Right or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock. In connection with any exchange of SES Holdings LLC Units pursuant to an Exchange Right or Call Right, the corresponding number of shares of Class B common stock will be cancelled.

Basis of presentation: The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) and pursuant to the rules and regulations of the SEC. These unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with GAAP.

This Quarterly Report relates to the three months ended March 31, 2024 (the “Current Quarter”) and the three months ended March 31, 2023 (the “Prior Quarter”). The Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), filed with the SEC on February 21, 2024, includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been reflected. The results for the Current Quarter may not be indicative of the results to be expected for the full year.

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The unaudited interim consolidated financial statements include the Company’s accounts and all of its majority-owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

For investments in subsidiaries that are not wholly-owned, but where the Company exercises control, the equity held by the minority owners and their portion of net income or loss are reflected as noncontrolling interests. Investments in entities in which the Company exercises significant influence over operating and financial policies are accounted for using the equity-method, and investments in entities for which the Company does not have significant control or influence are accounted for using the cost-method or other appropriate basis as applicable. As of March 31, 2024, the Company had three equity-method investments. The Company’s investments are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. When circumstances indicate that the fair value of its investment is less than its carrying value and the reduction in value is other than temporary, the reduction in value is recognized in earnings. Our investments in unconsolidated entities are summarized below and are included in the assets of our Water Services segment:


	Year				As of March 31,	As of December 31,
Type of Investment	attained	Accounting method	Balance Sheet Location	2024		2023

				(in thousands)
20% minority interest	2020	Equity-method	Other long-term assets	$	4,253	$	4,314
39% minority interest	2021	Equity-method	Other long-term assets		3,805		4,174
47% minority interest	2021	Equity-method	Other long-term assets		3,240		3,305

Dividends: During the Current Quarter, the Company paid $5.9 million in dividends accounted for as a reduction to additional paid-in capital, $1.0 million of distributions accounted for as a reduction to noncontrolling interests and $0.6 million as a reduction to accrued expenses and other current liabilities. As of March 31, 2024, the Company had $0.4 million of dividends payable included in accrued expenses and other current liabilities in connection with unvested restricted stock awards. All future dividend payments are subject to quarterly review and approval by the board of directors.

Segment reporting: The Company has three reportable segments. Reportable segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s current reportable segments are Water Services, Water Infrastructure, and Chemical Technologies. See “Note 16—Segment Information” for additional information.

Effective June 1, 2023, our CODM began to strategically view and manage certain water sourcing and transfer operations, previously included in our Water Infrastructure segment, as part of our Water Services segment. These changes were driven by multiple factors, including the preponderance of our water sourcing business that integrates with our water transfer operations, the continued transition of completions water demand from fresh and brackish water to recycled water, and the anticipation of more efficient sharing and utilization of resources to realize potential synergies. Prior periods have been recast to include the water sourcing and transfer operations within the Water Services segment and remove the results of those operations from the Water Infrastructure segment.

Concurrently, the Company also decided to rename its Oilfield Chemicals segment as Chemical Technologies. This change was based on a number of factors, including the continued success of our chemicals business in delivering customized, specialty chemicals products developed through our own research and development efforts and the de-emphasis of certain traditional commoditized chemistry products within the oil and gas industry, as well as the continued investments in time and resources we make to manufacture and sell our specialty chemical products into non-oilfield industrial-related applications. We believe these segment changes better align the business with the current and future state of the Company’s operations and capital allocation and strategic objectives. This change was a naming convention only change that did not impact any Current Quarter or Prior Quarter numbers.

The Water Services segment consists of the Company’s services businesses, including water sourcing, water transfer, flowback and well testing, fluids hauling, water monitoring, water containment and water network automation,

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primarily serving E&P companies. Additionally, this segment includes the operations of our accommodations and rentals business.

The Water Infrastructure segment consists of the Company’s fixed infrastructure assets, including operations associated with our water distribution pipeline infrastructure, our water recycling solutions, and our produced water gathering systems and saltwater disposal wells (“SWDs”), as well as waste solutions facilities, primarily serving E&P companies.

The Chemical Technologies segment provides technical solutions, products and expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing and well completions for customers ranging from pressure pumpers to major integrated and independent oil and gas producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the fracturing fluid system in conjunction with the quality of water used in well completions.

Reclassifications: Certain reclassifications have been made to the Company’s prior period consolidated financial information to conform to the current year presentation. These presentation changes did not impact the Company’s consolidated net income, consolidated cash flows, total assets, total liabilities or total stockholders’ equity.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies: The Company’s significant accounting policies are disclosed in Note 2 of the consolidated financial statements for the year ended December 31, 2023, included in the 2023 Form 10-K.

Use of estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the recoverability of long-lived assets and intangibles, useful lives used in depreciation, amortization and accretion, uncollectible accounts receivable, inventory reserve, income taxes, self-insurance liabilities, share-based compensation, contingent liabilities, lease-related reasonably certain option exercise assessments, and the incremental borrowing rate for leases. The Company bases its estimates on historical and other pertinent information that are believed to be reasonable under the circumstances. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

Allowance for credit losses: The Company’s allowance for credit losses relates to trade accounts receivable. The Company treats trade accounts receivable as one portfolio and records an initial allowance calculated as a percentage of revenue recognized based on a combination of historical information and future expectations. Additionally, the Company adjusts this allowance based on specific information in connection with aged receivables. Historically, most bad debt has been incurred when a customer’s financial condition significantly deteriorates, which in some cases leads to bankruptcy. Market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods.

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The change in the allowance for credit losses is as follows:


	Three months ended March 31, 2024
	(in thousands)
Balance as of December 31, 2023	$	5,318
Increase to allowance based on a percentage of revenue		735
Charge-offs		(836)
Recoveries		42
Balance as of March 31, 2024	$	5,259

Asset retirement obligations: The Company’s asset retirement obligations (“ARO”) relate to disposal facilities with obligations for plugging wells, removing surface equipment, and returning land to its pre-drilling condition. The following table describes the changes to the Company’s ARO liability for the Current Quarter:



	Three months ended March 31, 2024
	(in thousands)
Balance as of December 31, 2023	$	37,262
Accretion expense		254
Acquired AROs		3,695
Revisions		200
Payments		(2,895)
Balance as of March 31, 2024	$	38,516

Short-term ARO liability		8,243
Long-term ARO liability		30,273
Balance as of March 31, 2024	$	38,516

We review the adequacy of our ARO liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed. The Company’s ARO liabilities are included in accrued expenses and other current liabilities and other long-term liabilities in the accompanying consolidated balance sheets.

Lessor Income: The Company is a lessor for a nominal number of owned facilities and also recognizes income related to multiple facility subleases that are accounted for as follows:


		Three months ended March 31,
		2024		2023

		(in thousands)
Category	Classification
Lessor income	Costs of revenue	$	33	$	77
Sublease income	Lease abandonment costs and Costs of revenue		454		384

The Company also generates short-term equipment rental revenue. See “Note 4—Revenue” for a discussion of revenue recognition for the accommodations and rentals business.

During the Current Quarter, the Company made the decision to abandon operations at two leased Water Services locations. As a result, the Company recorded $0.5 million of right-of-use asset impairment charges.

Defined Contribution Plan: The Company sponsors a defined contribution 401(k) Profit Sharing Plan for the benefit of substantially all employees of the Company. The Company incurred $1.7 million and $1.5 million match expense in the Current Quarter and Prior Quarter, respectively.

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Severance: During the Current Quarter, the Company incurred $0.6 million of severance in connection with the termination of the former Chief Financial Officer included in selling, general and administrative within the consolidated statements of operations and the full amount is included in accrued salaries and benefits as of March 31, 2024.

Recent accounting pronouncements: In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. ASU 2023-07 will be effective for our fiscal year ending December 31, 2024, and for interim periods starting in our first quarter of 2025. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. We are currently reviewing the impact that the adoption of ASU 2023-07 may have on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 will be effective for our fiscal year ending December 31, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating ASU 2023-09 to determine its impact on the Company’s disclosures.

NOTE 3—ACQUISITIONS

The following table presents key information connected with our 2024 and 2023 acquisitions (dollars in thousands):


Assets and Operations Acquired	Acquisition Date		Cash Consideration		Acquisition related costs for Asset Acquisition		Total Consideration	Segments
Buckhorn	March 1, 2024	$	17,881	$	-	$	17,881	Water Infrastructure
Iron Mountain Energy	January 8, 2024		14,000		-		14,000	Water Infrastructure
Tri-State Water Logistics	January 3, 2024		58,330		-		58,330	Water Infrastructure
Rockies produced water gathering and disposal infrastructure	January 1, 2024		18,100		-		18,100	Water Infrastructure
Four Smaller Asset Acquisitions	Multiple 2023 Dates		7,293		-		7,293	Water Infrastructure
Asset Acquisition	April 3, 2023		4,000		-		4,000	Water Services
Asset Acquisition	January 31, 2023		6,250		150		6,400	Water Infrastructure
Total		$	125,854	$	150	$	126,004

Buckhorn Acquisition

On March 1, 2024, the Company completed the acquisition of membership interests from Buckhorn Waste Services, LLC and equity interests from Buckhorn Disposal, LLC (together “Buckhorn” or the “Buckhorn Acquisition”). The Company paid initial consideration of $17.9 million at closing. The acquisition strengthened Select’s solids waste management capabilities in the Bakken region, adding additional landfills in North Dakota and in Montana to support Select’s existing landfill operations in the region.

The Buckhorn Acquisition was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments, assumptions and valuation of the property and equipment acquired, intangible assets, current assets and current liabilities are preliminary and have not been finalized as of March 31, 2024. The assets

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acquired and liabilities assumed are included in the Company’s Water Infrastructure segment and a portion of the goodwill acquired is deductible for income tax purposes. The Company incurred $0.5 million of transaction-related costs related to this acquisition during the Current Quarter, and such costs are included in selling, general and administrative within the consolidated statements of operations.

Iron Mountain Energy Acquisition

On January 8, 2024, the Company acquired substantially all of the assets and operations of Iron Mountain Energy, LLC (the “Iron Mountain Acquisition”). The Company paid initial consideration of $14.0 million at closing. The acquisition strengthened Select’s fluids and solids treatment and disposal assets and operations in the Haynesville region.

The Iron Mountain Acquisition was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments, assumptions and valuation of the property and equipment acquired, intangible assets, current assets, current liabilities and long-term liabilities are preliminary and have not been finalized as of March 31, 2024. The assets acquired and liabilities assumed are included in the Company’s Water Infrastructure segment and the goodwill acquired is deductible for income tax purposes. The Company incurred $0.7 million of transaction-related costs related to this acquisition during the Current Quarter, and such costs are included in selling, general and administrative within the consolidated statements of operations.

Tri-State Water Logistics Acquisition

On January 3, 2024, the Company acquired the assets and operations of Tri-State Water Logistics, LLC and certain of its affiliates (the “Tri-State Acquisition”). The Company paid initial consideration of $58.3 million at closing. The acquisition strengthened Select’s fluids and solids treatment and disposal assets and operations in the Haynesville region.

The Tri-State Acquisition was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments, assumptions and valuation of the property and equipment acquired, intangible assets, current assets, current liabilities and long-term liabilities are preliminary and have not been finalized as of March 31, 2024. The assets acquired and liabilities assumed are included in the Company’s Water Infrastructure segment and the goodwill acquired is deductible for income tax purposes. The Company incurred $0.7 million of transaction-related costs related to this acquisition during the Current Quarter, and such costs are included in selling, general and administrative within the consolidated statements of operations.

Rockies produced water gathering and disposal infrastructure Acquisition

On January 1, 2024, the Company acquired certain disposal assets, operations and disposal and recycling permits in the Rockies region (the “Rockies Infrastructure Acquisition”). The Company paid initial consideration of $18.1 million at closing. The acquisition strengthened Select’s water disposal assets and operations in the Rockies region.

The Rockies Infrastructure Acquisition was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments, assumptions and valuation of the property and equipment acquired, intangible assets, current assets, current liabilities and long-term liabilities are preliminary and have not been finalized as of March 31, 2024. The assets acquired and liabilities assumed are included in the Company’s Water Infrastructure segment and the goodwill acquired is deductible for income tax purposes. The Company incurred $0.2 million of transaction-related costs related to this acquisition during the Current Quarter, and such costs are included in selling, general and administrative within the consolidated statements of operations.

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A summary of the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed as of the date of the Company’s 2024 acquisitions is located below:

Form: 10-Q

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