Select Energy Services Announces Second Quarter 2019 Financial Results and Operational Updates
Aug 6, 2019
Revenue for the second quarter of 2019 was
Gross profit was
Adjusted EBITDA was
Holli Ladhani, President and CEO, stated, “The team did a good job executing on our strategic objectives during the quarter. Our Northern Delaware Pipeline project is progressing on time and on budget as we continue to advance our additional commercialization discussions. The recently expanded Midland chemicals manufacturing facility hit full stride, leading to improving margins for the Oilfield Chemicals segment, and we completed the divestitures of our non-core operations within the expected range of proceeds. We accomplished all of this while further augmenting a best-in-class balance sheet, concluding the quarter with a net cash balance.
“While 2019 is shaping up to be a tough year for the oilfield services industry, we are taking action to weather the storm. We remain focused on the things we can control, such as costs, customer service, capital discipline, and maintaining a strong balance sheet. Despite pricing pressures that led to a sequential decline in revenue, our consolidated Adjusted EBITDA margins improved in the second quarter. In short, we are adapting to market conditions, and continue to deliver value with more efficiency.
“In addition to our continued focus on costs, we will be judicious in putting additional capital to work this year. Our priorities will be the completion of our Northern Delaware Pipeline project, investing in technology to both advance our service offerings and improve our operational efficiencies as well as investing to maintain our existing asset base. Given current industry conditions, we have revisited our capital budget for 2019, and have reduced it to a range of
“I’m also optimistic about our ability to continue to source and execute attractive infrastructure investment opportunities and strategic acquisitions. As we navigate a market that requires ever greater efficiency from service providers, our breadth of capabilities and pristine balance sheet enable us to bring full life cycle solutions to our customers. We also believe our positive net cash position and strong free cash flow generation should provide unique advantages in the current environment,” concluded Ladhani.
Business Segment Information
The Water Services segment generated revenues of
The Water Infrastructure segment generated revenues of
The Oilfield Chemicals segment generated revenues of
The “Other” category, which contains the results of non-core operations that were in the process of being divested and wound down, generated revenues of
Select’s consolidated Adjusted EBITDA during the quarter includes
Cash Flow and Balance Sheet
Cash flow from operations for the second quarter of 2019 was
Total liquidity was
Conference Call
Select has scheduled a conference call on Wednesday, August 7, 2019 at 10:00 a.m. Eastern time / 9:00 a.m. Central time. Please dial 201-389-0872 and ask for the Select Energy Services call at least 10 minutes prior to the start time of the call, or listen to the call live over the Internet by logging on to the website at the address http://investors.selectenergyservices.com/events-and-presentations. A telephonic replay of the conference call will be available through August 21, 2019 and may be accessed by calling 201-612-7415 using passcode 13692088#. A webcast archive will also be available at the link above shortly after the call and will be accessible for approximately 90 days.
About Select Energy Services, Inc.
Select Energy Services, Inc. (“Select”) is a leading provider of total water management and chemical solutions to the unconventional oil and gas industry in the United States. Select provides for the sourcing and transfer of water, both by permanent pipeline and temporary hose, prior to its use in the drilling and completion activities associated with hydraulic fracturing, as well as complementary water-related services that support oil and gas well completion and production activities, including containment, monitoring, treatment and recycling, flowback, hauling, gathering and disposal. Select, under its Rockwater Energy Solutions brand, develops and manufactures a full suite of specialty chemicals used in the well completion process and production chemicals used to enhance performance over the producing life of a well. Select currently provides services to exploration and production companies and oilfield service companies operating in all the major shale and producing basins in the United States. For more information, please visit Select’s website, https://www.selectenergy.com.
Cautionary Statement Regarding Forward-Looking Statements
All statements in this communication other than statements of historical facts are forward-looking statements which contain our current expectations about our future results. We have attempted to identify any forward-looking statements by using words such as “expect,” “will,” “estimate” and other similar expressions. Although we believe that the expectations reflected, and the assumptions or bases underlying our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause our actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements. Factors that could materially impact such forward-looking statements include, but are not limited to, the factors discussed or referenced in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018 and in any subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K. Investors should not place undue reliance on our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
WTTR-ER
SELECT ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) |
||||||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||
Revenue |
||||||||||||
Water services |
$ |
202,011 |
$ |
233,954 |
$ |
422,606 |
$ |
452,184 |
||||
Water infrastructure |
51,710 |
55,727 |
105,326 |
109,784 |
||||||||
Oilfield chemicals |
63,001 |
64,807 |
129,830 |
128,437 |
||||||||
Other |
7,165 |
38,759 |
28,771 |
79,237 |
||||||||
Total revenue |
323,887 |
393,247 |
686,533 |
769,642 |
||||||||
Costs of revenue |
||||||||||||
Water services |
155,151 |
176,571 |
318,272 |
341,201 |
||||||||
Water infrastructure |
38,456 |
37,884 |
79,886 |
77,980 |
||||||||
Oilfield chemicals |
54,051 |
58,500 |
113,578 |
115,584 |
||||||||
Other |
7,447 |
33,119 |
28,500 |
68,873 |
||||||||
Depreciation and amortization |
28,843 |
30,445 |
60,361 |
61,327 |
||||||||
Total costs of revenue |
283,948 |
336,519 |
600,597 |
664,965 |
||||||||
Gross profit |
39,939 |
56,728 |
85,936 |
104,677 |
||||||||
Operating expenses |
||||||||||||
Selling, general and administrative |
27,297 |
26,871 |
59,673 |
52,552 |
||||||||
Depreciation and amortization |
906 |
807 |
1,906 |
1,348 |
||||||||
Impairment of goodwill |
— |
— |
4,396 |
— |
||||||||
Impairment of property and equipment |
374 |
2,282 |
893 |
2,282 |
||||||||
Impairment of cost-method investment |
— |
— |
— |
2,000 |
||||||||
Lease abandonment costs |
183 |
1,973 |
1,256 |
3,097 |
||||||||
Total operating expenses |
28,760 |
31,933 |
68,124 |
61,279 |
||||||||
Income from operations |
11,179 |
24,795 |
17,812 |
43,398 |
||||||||
Other income (expense) |
||||||||||||
(Losses) gains on sales of property and equipment, net |
(1,709) |
2,056 |
(6,200) |
1,502 |
||||||||
Interest expense, net |
(839) |
(1,342) |
(1,932) |
(2,493) |
||||||||
Foreign currency gain (loss), net |
67 |
(340) |
327 |
(740) |
||||||||
Other expense income, net |
(59) |
4 |
210 |
100 |
||||||||
Income before income tax expense |
8,639 |
25,173 |
10,217 |
41,767 |
||||||||
Income tax expense |
(571) |
(150) |
(749) |
(612) |
||||||||
Net income |
8,068 |
25,023 |
9,468 |
41,155 |
||||||||
Less: net income attributable to noncontrolling interests |
(1,868) |
(8,060) |
(2,133) |
(14,093) |
||||||||
Net income attributable to Select Energy Services, Inc. |
$ |
6,200 |
$ |
16,963 |
$ |
7,335 |
$ |
27,062 |
||||
Net income per share attributable to common stockholders: |
||||||||||||
Class A—Basic |
$ |
0.08 |
$ |
0.24 |
$ |
0.09 |
$ |
0.40 |
||||
Class A-2—Basic |
$ |
— |
$ |
— |
$ |
— |
$ |
0.40 |
||||
Class B—Basic |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||
Net income per share attributable to common stockholders: |
||||||||||||
Class A—Diluted |
$ |
0.08 |
$ |
0.24 |
$ |
0.09 |
$ |
0.39 |
||||
Class A-2—Diluted |
$ |
— |
$ |
— |
$ |
— |
$ |
0.39 |
||||
Class B—Diluted |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
SELECT ENERGY SERVICES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) |
||||||
June 30, 2019 |
December 31, 2018 |
|||||
(unaudited) |
||||||
Assets |
||||||
Current assets |
||||||
Cash and cash equivalents |
$ |
23,818 |
$ |
17,237 |
||
Accounts receivable trade, net of allowance for doubtful accounts of |
324,918 |
341,711 |
||||
Accounts receivable, related parties |
3,105 |
1,119 |
||||
Inventories |
39,952 |
44,992 |
||||
Prepaid expenses and other current assets |
29,435 |
27,093 |
||||
Total current assets |
421,228 |
432,152 |
||||
Property and equipment |
1,069,496 |
1,114,378 |
||||
Accumulated depreciation |
(603,191) |
(611,530) |
||||
Property and equipment held-for-sale, net |
1,906 |
— |
||||
Total property and equipment, net |
468,211 |
502,848 |
||||
Right-of-use assets |
75,302 |
— |
||||
Goodwill |
266,934 |
273,801 |
||||
Other intangible assets, net |
142,438 |
148,377 |
||||
Other assets |
3,064 |
3,427 |
||||
Total assets |
$ |
1,377,177 |
$ |
1,360,605 |
||
Liabilities and Equity |
||||||
Current liabilities |
||||||
Accounts payable |
$ |
53,107 |
$ |
53,847 |
||
Accrued accounts payable |
43,311 |
62,536 |
||||
Accounts payable and accrued expenses, related parties |
3,417 |
5,056 |
||||
Accrued salaries and benefits |
16,734 |
22,113 |
||||
Accrued insurance |
15,799 |
14,849 |
||||
Sales tax payable |
1,282 |
5,820 |
||||
Accrued expenses and other current liabilities |
10,615 |
14,560 |
||||
Current operating lease liabilities |
19,553 |
— |
||||
Current portion of finance lease obligations |
421 |
938 |
||||
Total current liabilities |
164,239 |
179,719 |
||||
Long-term operating lease liabilities |
75,169 |
16,752 |
||||
Other long-term liabilities |
10,921 |
8,361 |
||||
Long-term debt |
— |
45,000 |
||||
Total liabilities |
250,329 |
249,832 |
||||
Commitments and contingencies |
||||||
Class A common stock, |
802 |
790 |
||||
Class A-2 common stock, |
— |
— |
||||
Class B common stock, |
260 |
260 |
||||
Preferred stock, |
— |
— |
||||
Additional paid-in capital |
821,968 |
813,599 |
||||
Retained earnings |
25,988 |
18,653 |
||||
Accumulated other comprehensive deficit |
(380) |
(368) |
||||
Total stockholders’ equity |
848,638 |
832,934 |
||||
Noncontrolling interests |
278,210 |
277,839 |
||||
Total equity |
1,126,848 |
1,110,773 |
||||
Total liabilities and equity |
$ |
1,377,177 |
$ |
1,360,605 |
SELECT ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) |
||||||
Six months ended June 30, |
||||||
2019 |
2018 |
|||||
Cash flows from operating activities |
||||||
Net income |
$ |
9,468 |
$ |
41,155 |
||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||
Depreciation and amortization |
62,267 |
62,675 |
||||
Net loss (gain) on disposal of property and equipment |
2,794 |
(1,503) |
||||
Bad debt expense |
1,312 |
876 |
||||
Amortization of debt issuance costs |
344 |
344 |
||||
Inventory write-down |
209 |
394 |
||||
Equity-based compensation |
8,308 |
5,465 |
||||
Impairment of goodwill |
4,396 |
— |
||||
Impairment of property and equipment |
893 |
2,282 |
||||
Impairment of cost-method investment |
— |
2,000 |
||||
Loss on divestitures |
3,406 |
— |
||||
Other operating items, net |
(178) |
(103) |
||||
Changes in operating assets and liabilities |
||||||
Accounts receivable |
3,346 |
(46,057) |
||||
Prepaid expenses and other assets |
1,245 |
(17,848) |
||||
Accounts payable and accrued liabilities |
(23,075) |
14,625 |
||||
Net cash provided by operating activities |
74,735 |
64,305 |
||||
Cash flows from investing activities |
||||||
Working capital settlement |
691 |
— |
||||
Proceeds received from divestitures |
25,259 |
— |
||||
Purchase of property and equipment |
(57,513) |
(63,050) |
||||
Proceeds received from sale of property and equipment |
10,507 |
3,953 |
||||
Net cash used in investing activities |
(21,056) |
(59,097) |
||||
Cash flows from financing activities |
||||||
Borrowings from revolving line of credit |
5,000 |
25,000 |
||||
Payments on long-term debt |
(50,000) |
(20,000) |
||||
Payments of finance lease obligations |
(549) |
(1,029) |
||||
Proceeds from share issuance |
56 |
431 |
||||
Distributions to noncontrolling interests, net |
(225) |
(280) |
||||
Repurchase of common stock |
(1,516) |
(657) |
||||
Net cash (used in) provided by financing activities |
(47,234) |
3,465 |
||||
Effect of exchange rate changes on cash |
136 |
(146) |
||||
Net increase in cash and cash equivalents |
6,581 |
8,527 |
||||
Cash and cash equivalents, beginning of period |
17,237 |
2,774 |
||||
Cash and cash equivalents, end of period |
$ |
23,818 |
$ |
11,301 |
||
Supplemental cash flow disclosure: |
||||||
Cash paid for interest |
$ |
2,024 |
$ |
1,959 |
||
Cash paid (refunds received) for income taxes |
$ |
204 |
$ |
(1,188) |
Comparison of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, gross profit before depreciation and amortization (D&A) and gross margin before D&A are not financial measures presented in accordance with GAAP. We define EBITDA as net income, plus interest expense, taxes and depreciation & amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment charges or asset write-offs pursuant to GAAP, plus/(minus) non-cash losses/(gains) on the sale of assets or subsidiaries, non-recurring compensation expense, non-cash compensation expense, and non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus any inventory write-downs. We define gross profit before D&A as revenue less cost of revenue, excluding cost of sales D&A expense. We define gross margin before D&A as gross profit before D&A divided by revenue. EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A are supplemental non-GAAP financial measures that we believe provide useful information to external users of our financial statements, such as industry analysts, investors, lenders and rating agencies because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and non-recurring items outside the control of our management team. We present EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.
Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Gross profit is the GAAP measure most directly comparable to gross profit before D&A. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or gross profit before D&A in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and gross profit before D&A may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. For further discussion, please see “Item 6. Selected Financial Data” in our Annual Report on Form 10-K for the year ended December 31, 2018.
The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented:
Three months ended, |
|||||||||||||||||||
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
|||||||||||||||||
(unaudited) |
|||||||||||||||||||
(in thousands) |
|||||||||||||||||||
Net income |
$ |
8,068 |
$ |
1,400 |
$ |
25,023 |
|||||||||||||
Interest expense |
839 |
1,093 |
1,342 |
||||||||||||||||
Income tax expense |
571 |
178 |
150 |
||||||||||||||||
Depreciation and amortization |
29,749 |
32,518 |
31,252 |
||||||||||||||||
EBITDA |
39,227 |
35,189 |
57,767 |
||||||||||||||||
Impairment of goodwill |
— |
4,396 |
— |
||||||||||||||||
Impairment of property and equipment |
374 |
519 |
2,282 |
||||||||||||||||
Lease abandonment costs |
183 |
1,073 |
1,973 |
||||||||||||||||
Non-recurring severance expenses |
— |
1,680 |
— |
||||||||||||||||
Non-recurring transaction costs |
412 |
662 |
2,481 |
||||||||||||||||
Non-cash compensation expenses |
4,129 |
4,179 |
2,984 |
||||||||||||||||
Non-cash loss on sale of assets or subsidiaries |
7,314 |
5,906 |
249 |
||||||||||||||||
Foreign currency (gain) loss |
(67) |
(260) |
340 |
||||||||||||||||
Inventory write-down |
— |
75 |
128 |
||||||||||||||||
Adjusted EBITDA |
$ |
51,572 |
$ |
53,419 |
$ |
68,204 |
|||||||||||||
The following tables present a reconciliation of gross profit before D&A to total gross profit, which is the most directly comparable GAAP measure, and a calculation of gross margin before D&A for the periods presented:
Three months ended, |
|||||||||
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
|||||||
(unaudited) |
|||||||||
(in thousands) |
|||||||||
Gross profit by segment |
|||||||||
Water services |
$ |
25,837 |
$ |
36,212 |
$ |
38,435 |
|||
Water infrastructure |
7,181 |
6,097 |
12,624 |
||||||
Oilfield chemicals |
7,203 |
4,849 |
3,484 |
||||||
Other |
(282) |
(1,161) |
2,185 |
||||||
As reported gross profit |
39,939 |
45,997 |
56,728 |
||||||
Plus depreciation and amortization |
|||||||||
Water services |
21,023 |
21,262 |
18,948 |
||||||
Water infrastructure |
6,073 |
6,089 |
5,219 |
||||||
Oilfield chemicals |
1,747 |
2,453 |
2,823 |
||||||
Other |
— |
1,714 |
3,455 |
||||||
Total depreciation and amortization |
28,843 |
31,518 |
30,445 |
||||||
Gross profit before D&A |
$ |
68,782 |
$ |
77,515 |
$ |
87,173 |
|||
Gross Profit before D&A by segment |
|||||||||
Water services |
46,860 |
57,474 |
57,383 |
||||||
Water infrastructure |
13,254 |
12,186 |
17,843 |
||||||
Oilfield chemicals |
8,950 |
7,302 |
6,307 |
||||||
Other |
(282) |
553 |
5,640 |
||||||
Total gross profit before D&A |
$ |
68,782 |
$ |
77,515 |
$ |
87,173 |
|||
Gross Margin before D&A by segment |
|||||||||
Water services |
23.2% |
26.1% |
24.5% |
||||||
Water infrastructure |
25.6% |
22.7% |
32.0% |
||||||
Oilfield chemicals |
14.2% |
10.9% |
9.7% |
||||||
Other |
(3.9)% |
2.6% |
14.6% |
||||||
Total gross margin before D&A |
21.2% |
21.4% |
22.2% |
Contacts: |
Select Energy Services |
Chris George – VP, Investor Relations & Treasurer |
|
(713) 296-1073 |
|
Dennard Lascar Investor Relations |
|
Ken Dennard / Lisa Elliott |
|
713-529-6600 |
|
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SOURCE Select Energy Services, Inc.