July 31, 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 June 30, 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 July 29, 2024, the registrant had 102,796,012 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.

TABLE OF CONTENTS


		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	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58

Item 4.	Controls and Procedures	58

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	60

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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 heightened 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;

●

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

●

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 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 federal and 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;

●

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;

●

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;

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●

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

●

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)


	June 30, 2024		December 31, 2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	16,417	$	57,083
Accounts receivable trade, net of allowance for credit losses of $5,914 and $5,318, respectively		295,115		322,611
Accounts receivable, related parties		98		171
Inventories		37,501		38,653
Prepaid expenses and other current assets		35,142		35,541
Total current assets		384,273		454,059
Property and equipment		1,312,239		1,144,989
Accumulated depreciation		(663,284)		(627,408)
Total property and equipment, net		648,955		517,581
Right-of-use assets, net		42,293		39,504
Goodwill		36,664		4,683
Other intangible assets, net		126,834		116,189
Deferred tax assets, net		54,529		61,617
Other long-term assets		29,572		24,557
Total assets	$	1,323,120	$	1,218,190
Liabilities and Equity
Current liabilities
Accounts payable	$	36,746	$	42,582
Accrued accounts payable		72,493		66,182
Accounts payable and accrued expenses, related parties		3,251		4,086
Accrued salaries and benefits		24,342		28,401
Accrued insurance		17,399		19,720
Sales tax payable		2,493		1,397
Current portion of tax receivable agreements liabilities		469		469
Accrued expenses and other current liabilities		38,282		33,511
Current operating lease liabilities		16,934		15,005
Current portion of finance lease obligations		199		194
Total current liabilities		212,608		211,547
Long-term tax receivable agreements liabilities		37,718		37,718
Long-term operating lease liabilities		37,938		37,799
Long-term debt		90,000		—
Other long-term liabilities		42,726		38,954
Total liabilities		420,990		326,018
Commitments and contingencies (Note 9)
Class A common stock, $0.01 par value; 350,000,000 shares authorized and 102,799,602 shares issued and outstanding as of June 30, 2024; 350,000,000 shares authorized and 102,172,863 shares issued and outstanding as of December 31, 2023		1,028		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 June 30, 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 June 30, 2024 and December 31, 2023		—		—
Additional paid-in capital		1,001,123		1,008,095
Accumulated deficit		(220,298)		(236,791)
Total stockholders’ equity		782,015		772,488
Noncontrolling interests		120,115		119,684
Total equity		902,130		892,172
Total liabilities and equity	$	1,323,120	$	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 June 30,				Six months ended June 30,
	2024		2023		2024		2023
Revenue
Water Services	$	230,008	$	264,597	$	458,315	$	539,275
Water Infrastructure		68,564		55,277		132,072		110,743
Chemical Technologies		66,559		84,754		141,292		171,202
Total revenue		365,131		404,628		731,679		821,220
Costs of revenue
Water Services		178,308		206,576		359,840		426,517
Water Infrastructure		33,581		34,392		67,273		68,726
Chemical Technologies		55,641		67,303		117,396		137,012
Depreciation, amortization and accretion		37,445		35,183		74,337		68,126
Total costs of revenue		304,975		343,454		618,846		700,381
Gross profit		60,156		61,174		112,833		120,839
Operating expenses
Selling, general and administrative		38,981		34,335		82,961		70,164
Depreciation and amortization		748		739		2,006		1,334
Impairments and abandonments		46		356		91		11,522
Lease abandonment costs		17		9		406		85
Total operating expenses		39,792		35,439		85,464		83,105
Income from operations		20,364		25,735		27,369		37,734
Other income (expense)
Gain (loss) on sales of property and equipment and divestitures, net		382		(1,246)		707		1,665
Interest expense, net		(2,026)		(2,042)		(3,298)		(3,525)
Other		42		873		(240)		1,715
Income before income tax expense and equity in gains (losses) of unconsolidated entities		18,762		23,320		24,538		37,589
Income tax expense		(3,959)		(387)		(5,411)		(585)
Equity in gains (losses) of unconsolidated entities		96		(372)		(353)		(738)
Net income		14,899		22,561		18,774		36,266
Less: net income attributable to noncontrolling interests		(2,031)		(2,446)		(2,281)		(3,804)
Net income attributable to Select Water Solutions, Inc.	$	12,868	$	20,115	$	16,493	$	32,462

Net income per share attributable to common stockholders (Note 15):
Class A—Basic	$	0.13	$	0.20	$	0.17	$	0.31
Class B—Basic	$	—	$	—	$	—	$	—

Net income per share attributable to common stockholders (Note 15):
Class A—Diluted	$	0.13	$	0.20	$	0.16	$	0.31
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 June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net income	$	14,899	$	22,561	$	18,774	$	36,266
Comprehensive income		14,899		22,561		18,774		36,266
Less: comprehensive income attributable to noncontrolling interests		(2,031)		(2,446)		(2,281)		(3,804)
Comprehensive income attributable to Select Water Solutions, Inc.	$	12,868	$	20,115	$	16,493	$	32,462

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 six months ended June 30, 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	—		—	—		—		10,845		—		10,845		1,715		12,560
Issuance of restricted shares	1,231,832		12	—		—		1,250		—		1,262		(1,262)		—
Stock options exercised	129,716		1	—		—		(1)		—		—		—		—
Repurchase of common stock	(964,718)		(9)	—		—		(7,022)		—		(7,031)		(121)		(7,152)
Restricted shares forfeited	(74,008)		(1)	—		—		(75)		—		(76)		76		—
Performance shares vested	303,917		3	—		—		308		—		311		(311)		—
Dividend and distribution declared:
Class A common stock ($0.06 per share)	—		—	—		—		(11,933)		—		(11,933)		—		(11,933)
Unvested restricted stock ($0.06 per share)	—		—	—		—		(344)		—		(344)		—		(344)
Class B common stock ($0.06 per share)	—		—	—		—		—		—		—		(1,947)		(1,947)
Net income	—		—	—		—		—		16,493		16,493		2,281		18,774
Balance as of June 30, 2024	102,799,602	$	1,028	16,221,101	$	162	$	1,001,123	$	(220,298)	$	782,015	$	120,115	$	902,130


	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	—		—	—		—		6,744		—		6,744		1,029		7,773
Issuance of restricted shares	1,460,944		15	—		—		1,330		—		1,345		(1,345)		—
Issuance of shares for acquisitions	(48,688)		—	—		—		(401)		—		(401)		(9)		(410)
Repurchase of common stock	(6,950,850)		(70)	—		—		(49,505)		—		(49,575)		(54)		(49,629)
Restricted shares forfeited	(51,119)		(1)	—		—		(47)		—		(48)		48		—
Distributions to noncontrolling interests	—		—	—		—		—		—		—		(1,581)		(1,581)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		153		153
NCI income tax adjustment	—		—	—		—		59		—		59		(59)		—
Dividend and distribution declared:
Class A common stock ($0.05 per share)	—		—	—		—		(10,300)		—		(10,300)		—		(10,300)
Unvested restricted stock ($0.05 per share)	—		—	—		—		(425)		—		(425)		—		(425)
Class B common stock ($0.05 per share)	—		—	—		—		—		—		—		(1,622)		(1,622)
Net income	—		—	—		—		—		32,462		32,462		3,804		36,266
Balance as of June 30, 2023	103,799,815	$	1,038	16,221,101	$	162	$	1,023,370	$	(278,732)	$	745,838	$	118,115	$	863,953

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 June 30, 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 March 31, 2024	102,705,260	$	1,027	16,221,101	$	162	$	1,001,967	$	(233,166)	$	769,990	$	118,331	$	888,321
Equity-based compensation	—		—	—

Form: 10-Q

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