November 6, 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 September 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)

1820 North I-35 Gainesville, TX	76240
(Address of principal executive offices)	(Zip Code)

(940) 668-1818

(Registrant’s telephone number, including area code)

1233 W. Loop South, Suite 1400 Houston, TX

(Former name, former address and former fiscal year, if changed since last report)

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 November 4, 2024, the registrant had 103,088,670 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	42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59

Item 4.	Controls and Procedures	59

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults Upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	61

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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 related hostilities in the Middle East, including heightened tensions with Iran, Lebanon and Yemen, inflation and elevated interest rates, 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, among other things, 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;

●

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, including with Lebanon and Yemen;

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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)


	September 30, 2024		December 31, 2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	10,938	$	57,083
Accounts receivable trade, net of allowance for credit losses of $5,413 and $5,318, respectively		298,676		322,611
Accounts receivable, related parties		119		171
Inventories		35,819		38,653
Prepaid expenses and other current assets		51,130		35,541
Total current assets		396,682		454,059
Property and equipment		1,363,666		1,144,989
Accumulated depreciation		(689,978)		(627,408)
Total property and equipment, net		673,688		517,581
Right-of-use assets, net		39,714		39,504
Goodwill		30,259		4,683
Other intangible assets, net		127,930		116,189
Deferred tax assets, net		48,879		61,617
Other long-term assets		29,495		24,557
Total assets	$	1,346,647	$	1,218,190
Liabilities and Equity
Current liabilities
Accounts payable	$	41,435	$	42,582
Accrued accounts payable		66,172		66,182
Accounts payable and accrued expenses, related parties		5,891		4,086
Accrued salaries and benefits		21,142		28,401
Accrued insurance		29,970		19,720
Sales tax payable		2,668		1,397
Current portion of tax receivable agreements liabilities		469		469
Accrued expenses and other current liabilities		37,866		33,511
Current operating lease liabilities		16,781		15,005
Current portion of finance lease obligations		207		194
Total current liabilities		222,601		211,547
Long-term tax receivable agreements liabilities		37,718		37,718
Long-term operating lease liabilities		34,792		37,799
Long-term debt		80,000		—
Other long-term liabilities		52,110		38,954
Total liabilities		427,221		326,018
Commitments and contingencies (Note 9)
Class A common stock, $0.01 par value; 350,000,000 shares authorized and 102,797,453 shares issued and outstanding as of September 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 September 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 September 30, 2024 and December 31, 2023		—		—
Additional paid-in capital		999,812		1,008,095
Accumulated deficit		(204,507)		(236,791)
Total stockholders’ equity		796,495		772,488
Noncontrolling interests		122,931		119,684
Total equity		919,426		892,172
Total liabilities and equity	$	1,346,647	$	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 September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue
Water Services	$	234,019	$	251,870	$	692,334	$	791,145
Water Infrastructure		82,017		58,375		214,089		169,118
Chemical Technologies		55,313		79,028		196,605		250,230
Total revenue		371,349		389,273		1,103,028		1,210,493
Costs of revenue
Water Services		186,041		200,361		545,881		626,878
Water Infrastructure		35,503		34,992		102,776		103,718
Chemical Technologies		48,450		63,005		165,846		200,017
Depreciation, amortization and accretion		38,906		34,650		113,243		102,776
Total costs of revenue		308,900		333,008		927,746		1,033,389
Gross profit		62,449		56,265		175,282		177,104
Operating expenses
Selling, general and administrative		37,268		38,983		120,229		109,147
Depreciation and amortization		661		512		2,667		1,846
Impairments and abandonments		—		32		91		11,554
Lease abandonment costs		5		(12)		411		73
Total operating expenses		37,934		39,515		123,398		122,620
Income from operations		24,515		16,750		51,884		54,484
Other income (expense)
Gain on sales of property and equipment and divestitures, net		1,624		23		2,331		1,688
Interest expense, net		(1,906)		(765)		(5,204)		(4,290)
Other		(78)		767		(318)		2,482
Income before income tax expense and equity in gains (losses) of unconsolidated entities		24,155		16,775		48,693		54,364
Income tax expense		(5,852)		(483)		(11,263)		(1,068)
Equity in gains (losses) of unconsolidated entities		507		(978)		154		(1,716)
Net income		18,810		15,314		37,584		51,580
Less: net income attributable to noncontrolling interests		(3,019)		(968)		(5,300)		(4,772)
Net income attributable to Select Water Solutions, Inc.	$	15,791	$	14,346	$	32,284	$	46,808

Net income per share attributable to common stockholders (Note 15):
Class A—Basic	$	0.16	$	0.14	$	0.32	$	0.46
Class B—Basic	$	—	$	—	$	—	$	—

Net income per share attributable to common stockholders (Note 15):
Class A—Diluted	$	0.15	$	0.14	$	0.32	$	0.45
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 September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net income	$	18,810	$	15,314	$	37,584	$	51,580
Comprehensive income		18,810		15,314		37,584		51,580
Less: comprehensive income attributable to noncontrolling interests		(3,019)		(968)		(5,300)		(4,772)
Comprehensive income attributable to Select Water Solutions, Inc.	$	15,791	$	14,346	$	32,284	$	46,808

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 nine months ended September 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	—		—	—		—		15,854		—		15,854		2,505		18,359
Issuance of restricted shares	1,239,597		12	—		—		1,258		—		1,270		(1,270)		—
Stock options exercised	287,686		3	—		—		(3)		—		—		—		—
Repurchase of common stock	(1,103,993)		(11)	—		—		(7,149)		—		(7,160)		(163)		(7,323)
Restricted shares forfeited	(102,617)		(1)	—		—		(105)		—		(106)		106		—
Performance shares vested	303,917		3	—		—		308		—		311		(311)		—
Dividend and distribution declared:
Class A common stock ($0.06 per share)	—		—	—		—		(17,948)		—		(17,948)		—		(17,948)
Unvested restricted stock ($0.06 per share)	—		—	—		—		(498)		—		(498)		—		(498)
Class B common stock ($0.06 per share)	—		—	—		—		—		—		—		(2,920)		(2,920)
Net income	—		—	—		—		—		32,284		32,284		5,300		37,584
Balance as of September 30, 2024	102,797,453	$	1,028	16,221,101	$	162	$	999,812	$	(204,507)	$	796,495	$	122,931	$	919,426


	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	—		—	—		—		11,080		—		11,080		1,707		12,787
Issuance of restricted shares	1,633,849		16	—		—		1,449		—		1,465		(1,465)		—
Issuance of shares for acquisitions	(48,688)		—	—		—		(401)		—		(401)		(9)		(410)
Repurchase of common stock	(6,984,375)		(70)	—		—		(49,747)		—		(49,817)		(88)		(49,905)
Restricted shares forfeited	(72,363)		(1)	—		—		(46)		—		(47)		47		—
Distributions to noncontrolling interests	—		—	—		—		—		—		—		(1,581)		(1,581)
Contributions from noncontrolling interests	—		—	—		—		—		—		—		1,153		1,153
NCI income tax adjustment	—		—	—		—		76		—		76		(76)		—
Dividend and distribution declared:
Class A common stock ($0.05 per share)	—		—	—		—		(15,287)		—		(15,287)		—		(15,287)
Unvested restricted stock ($0.05 per share)	—		—	—		—		(633)		—		(633)		—		(633)
Class B common stock ($0.05 per share)	—		—	—		—		—		—		—		(2,433)		(2,433)
Net income	—		—	—		—		—		46,808		46,808		4,772		51,580
Balance as of September 30, 2023	103,917,951	$	1,039	16,221,101	$	162	$	1,022,406	$	(264,386)	$	759,221	$	119,778	$	878,999

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 September 30, 2024 and 2023

(unaudited)

(in thousands, except share data)

Class A

Class B

Stockholders

Class A

Class B

Additional

Total

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

Shares

Stock

Shares

Stock

Capital

Deficit

Equity

Interests

Total

Balance as of June 30, 2024

102,799,602

Form: 10-Q

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