10-Q 1 wttr-20180331x10q.htm 10-Q wttr_Current_Folio_10Q

 

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, 2018

or

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 ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

81‑4561945

(State of incorporation)

(IRS Employer

Identification Number)

 

 

515 Post Oak Boulevard, Suite 200

Houston, TX

77027

(Address of principal executive offices)

(Zip Code)

 

(713)  235‑9500

(Registrant’s telephone number, including area code)

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐

 

 

(Do not check if a 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 May 7, 2018, the registrant had 66,254,863 shares of Class A common stock and 40,331,989 shares of Class B common stock outstanding.

 

 

 


 

2


 

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 and under the heading “Item 1A. Risk Factors” in this Quarterly Report. 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:

·

the ultimate outcome and results of integrating our operations with the operations of Rockwater (as defined herein);

·

the effects of our business combination with Rockwater, including the combined company’s future financial condition, results of operations, strategy and plans;

·

potential adverse reactions or changes to business relationships resulting from the completion of the Rockwater Merger (as defined herein);

·

expected benefits from the Rockwater Merger and the ability of the combined company to realize those benefits;

·

the level of capital spending by U.S. and Canadian oil and gas companies;

·

trends and volatility in oil and gas prices;

·

demand for our services;

·

regional impacts to our business, including our key infrastructure assets within the Bakken;

·

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

·

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;

·

our safety performance;

·

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 and various environmental matters;

·

our ability to retain key management and employees;

3


 

·

the impacts of competition on our operations;

·

our ability to hire and retain skilled labor;

·

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

·

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

·

the impacts of advancements in drilling and well service technologies;

·

changes in global political or economic conditions, generally, and in the markets we serve;

·

accidents, weather, seasonality 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 “Item 1A. Risk Factors,” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”).

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 “Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “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.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

 

    

(unaudited)

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,117

 

$

2,774

Accounts receivable trade, net of allowance for doubtful accounts of $3,341 and $2,979, respectively

 

 

407,046

 

 

373,633

Accounts receivable, related parties

 

 

7,206

 

 

7,669

Inventories

 

 

44,501

 

 

44,598

Prepaid expenses and other current assets

 

 

20,295

 

 

17,842

Total current assets

 

 

485,165

 

 

446,516

Property and equipment

 

 

1,051,970

 

 

1,034,995

Accumulated depreciation

 

 

(578,220)

 

 

(560,886)

Property and equipment, net

 

 

473,750

 

 

474,109

Goodwill

 

 

275,795

 

 

273,421

Other intangible assets, net

 

 

152,215

 

 

156,066

Other assets

 

 

4,084

 

 

6,256

Total assets

 

$

1,391,009

 

$

1,356,368

Liabilities and Equity

 

 

 

 

 

  

Current liabilities

 

 

 

 

 

  

Accounts payable

 

$

62,415

 

$

52,579

Accounts payable and accrued expenses, related parties

 

 

2,600

 

 

2,772

Accrued salaries and benefits

 

 

20,222

 

 

21,324

Accrued insurance

 

 

11,928

 

 

12,510

Sales tax payable

 

 

12,570

 

 

12,931

Accrued expenses and other current liabilities

 

 

91,400

 

 

81,112

Current portion of capital lease obligations

 

 

1,706

 

 

1,965

Total current liabilities

 

 

202,841

 

 

185,193

Accrued lease obligations

 

 

18,321

 

 

18,979

Other long term liabilities

 

 

13,577

 

 

13,827

Long-term debt

 

 

75,000

 

 

75,000

Total liabilities

 

 

309,739

 

 

292,999

Commitments and contingencies (Note 9)

 

 

 

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 66,258,163 shares issued and outstanding as of March 31, 2018; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017

 

 

662

 

 

592

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, no shares issued or outstanding as of March 31, 2018; 40,000,000 shares authorized, 6,731,845 shares issued and outstanding as of December 31, 2017

 

 

 —

 

 

67

Class B common stock, $0.01 par value; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of March 31, 2018; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017

 

 

404

 

 

404

Preferred stock, $0.01 par value; 50,000,000 shares authorized and no shares issued and outstanding as of March 31, 2018 and December 31, 2017

 

 

 —

 

 

 —

Additional paid-in capital

 

 

675,895

 

 

673,141

Accumulated deficit

 

 

(7,760)

 

 

(17,859)

Accumulated other comprehensive income

 

 

43

 

 

302

Total stockholders’ equity

 

 

669,244

 

 

656,647

Noncontrolling interests

 

 

412,026

 

 

406,722

Total equity

 

 

1,081,270

 

 

1,063,369

Total liabilities and equity

 

$

1,391,009

 

$

1,356,368

 

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

5


 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2018

    

2017

Revenue

 

 

  

 

 

  

Water solutions and related services

 

$

281,555

 

$

78,377

Accommodations and rentals

 

 

14,744

 

 

9,515

Wellsite completion and construction services

 

 

16,466

 

 

12,033

Oilfield chemical product sales

 

 

63,630

 

 

 —

Total revenue

 

 

376,395

 

 

99,925

Costs of revenue

 

 

  

 

 

  

Water solutions and related services

 

 

215,425

 

 

60,621

Accommodations and rentals

 

 

10,665

 

 

7,923

Wellsite completion and construction services

 

 

14,390

 

 

10,419

Oilfield chemical product sales

 

 

57,084

 

 

 —

Depreciation and amortization

 

 

30,882

 

 

21,204

Total costs of revenue

 

 

328,446

 

 

100,167

Gross profit (loss)

 

 

47,949

 

 

(242)

Operating expenses

 

 

  

 

 

  

Selling, general and administrative

 

 

25,681

 

 

9,957

Depreciation and amortization

 

 

541

 

 

446

Impairment of investment

 

 

2,000

 

 

 —

Lease abandonment costs

 

 

1,124

 

 

1,863

Total operating expenses

 

 

29,346

 

 

12,266

Income (loss) from operations

 

 

18,603

 

 

(12,508)

Other income (expense)

 

 

  

 

 

  

Interest expense, net

 

 

(1,151)

 

 

(730)

Foreign currency losses, net

 

 

(400)

 

 

 —

Other (expense) income, net

 

 

(458)

 

 

1,064

Income (loss) before tax expense

 

 

16,594

 

 

(12,174)

Tax expense

 

 

(462)

 

 

(106)

Net income (loss)

 

 

16,132

 

 

(12,280)

Less: net (income) loss attributable to noncontrolling interests

 

 

(6,033)

 

 

8,108

Net income (loss) attributable to Select Energy Services, Inc.

 

$

10,099

 

$

(4,172)

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders (Note 15):

 

 

 

 

 

  

Class A—Basic

 

$

0.15

 

$

(0.21)

Class A-1—Basic

 

$

 —

 

$

(0.21)

Class A-2—Basic

 

$

0.15

 

$

 —

Class B—Basic

 

$

 —

 

$

 —

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders (Note 15):

 

 

 

 

 

  

Class A—Diluted

 

$

0.15

 

$

(0.21)

Class A-1—Diluted

 

$

 —

 

$

(0.21)

Class A-2—Diluted

 

$

0.15

 

$

 —

Class B—Diluted

 

$

 —

 

$

 —

 

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

6


 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2018

    

2017

Net income (loss)

 

$

16,132

 

$

(12,280)

Other comprehensive income (loss)

 

 

  

 

 

  

Foreign currency translation adjustment, net of tax of $0

 

 

(259)

 

 

 —

Net change in unrealized loss

 

 

(259)

 

 

 —

Comprehensive income (loss)

 

 

15,873

 

 

(12,280)

Less: comprehensive (income) loss attributable to noncontrolling interests

 

 

(5,936)

 

 

8,108

Comprehensive income (loss) attributable to Select Energy Services, Inc.

 

$

9,937

 

$

(4,172)

 

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

 

 

7


 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class A-2

 

Class B

 

Preferred

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Stockholders

 

Stockholders

 

Stockholders

 

Stockholders

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

 

Class A-2

 

 

 

Class B

 

 

 

 

 

 

Additional

 

 

 

 

Comprehensive

 

Total

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

Common

 

 

 

Common

 

 

 

Preferred

 

Paid-In

 

Accumulated

 

Income

 

Stockholders’

 

Noncontrolling

 

 

 

 

  

Shares

  

Stock

  

Shares

  

Stock

  

Shares

  

Stock

  

Shares

  

Stock

  

Capital

  

Deficit

  

(Loss)

  

Equity

  

Interests

  

Total

Balance as of December 31, 2017

 

59,182,176

 

$

592

 

6,731,845

 

$

67

 

40,331,989

 

$

404

 

 —

 

$

 —

 

$

673,141

 

$

(17,859)

 

$

302

 

$

656,647

 

$

406,722

 

$

1,063,369

Conversion of Class A-2 to Class A

 

6,731,839

 

 

67

 

(6,731,839)

 

 

(67)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,542

 

 

 —

 

 

 —

 

 

1,542

 

 

939

 

 

2,481

Issuance of restricted shares

 

331,389

 

 

 3

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,421

 

 

 —

 

 

 —

 

 

1,424

 

 

(1,424)

 

 

 —

Exercise of restricted stock units

 

27,235

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 —

 

 

 2

 

 

(2)

 

 

 —

Stock options exercised

 

19,398

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

81

 

 

 —

 

 

 —

 

 

81

 

 

49

 

 

130

Repurchase of common stock

 

(15,234)

 

 

 —

 

(6)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(222)

 

 

 —

 

 

 —

 

 

(222)

 

 

(42)

 

 

(264)

Restricted shares forfeited

 

(18,640)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(70)

 

 

 —

 

 

 —

 

 

(70)

 

 

70

 

 

 —

Noncontrolling interest in subsidiary

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(161)

 

 

(161)

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(259)

 

 

(259)

 

 

(158)

 

 

(417)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

10,099

 

 

 —

 

 

10,099

 

 

6,033

 

 

16,132

Balance as of March 31, 2018

 

66,258,163

 

$

662

 

 —

 

$

 —

 

40,331,989

 

$

404

 

 —

 

$

 —

 

$

675,895

 

$

(7,760)

 

$

43

 

$

669,244

 

$

412,026

 

$

1,081,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class A-1

 

Class A-2

 

Class B

 

Preferred

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Stockholders

 

Stockholders

 

Stockholders

 

Stockholders

 

Stockholders

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

 

Class A-1

 

 

 

Class A-2

 

 

 

Class B

 

 

 

 

 

 

Additional

 

 

 

 

Comprehensive

 

Total

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

Common

 

 

 

Common

 

 

 

Common

 

 

 

Preferred

 

Paid-In

 

Accumulated

 

Income

 

Stockholders’

 

Noncontrolling

 

 

 

 

  

Shares

  

Stock

  

Shares

  

Stock

  

Shares

  

Stock

  

Shares

  

Stock

  

Shares

  

Stock

  

Capital

  

Deficit

  

(Loss)

  

Equity

  

Interests

  

Total

Balance as of December 31, 2016

 

3,802,972

 

$

38

 

16,100,000

 

$

161

 

 —

 

$

 —

 

38,462,541

 

$

385

 

 —

 

$

 —

 

$

113,175

 

$

(1,043)

 

$

 —

 

$

112,716

 

$

221,992

 

$

334,708

Issuance of shares for acquisition

 

274,998

 

 

 3

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,495

 

 

 —

 

 

 —

 

 

2,498

 

 

3,002

 

 

5,500

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

221

 

 

 —

 

 

 —

 

 

221

 

 

422

 

 

643

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,172)

 

 

 —

 

 

(4,172)

 

 

(8,108)

 

 

(12,280)

Balance as of March 31, 2017

 

4,077,970

 

$

41

 

16,100,000

 

$

161

 

 —

 

$

 —

 

38,462,541

 

$

385

 

 —

 

$

 —

 

$

115,891

 

$

(5,215)

 

$

 —

 

$

111,263

 

$

217,308

 

$

328,571

 

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

 

 

8


 

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2018

 

2017

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

16,132

 

$

(12,280)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

31,423

 

 

21,650

Loss (gain) on disposal of property and equipment

 

 

554

 

 

(1,105)

Bad debt expense

 

 

485

 

 

334

Amortization of debt issuance costs

 

 

172

 

 

309

Equity-based compensation

 

 

2,481

 

 

643

Impairment of investment

 

 

2,000

 

 

 —

Other operating items, net

 

 

117

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(33,691)

 

 

(21,157)

Prepaid expenses and other assets

 

 

(1,017)

 

 

1,337

Accounts payable and accrued liabilities

 

 

16,549

 

 

2,333

Net cash provided by (used in) operating activities

 

 

35,205

 

 

(7,936)

Cash flows from investing activities

 

 

 

 

 

 

Acquisitions, net of cash received

 

 

 —

 

 

(49,004)

Purchase of property and equipment

 

 

(32,612)

 

 

(10,806)

Proceeds received from sale of property and equipment

 

 

1,609

 

 

1,753

Net cash used in investing activities

 

 

(31,003)

 

 

(58,057)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from revolving line of credit and issuance of long-term debt

 

 

 —

 

 

34,000

Payments of capital lease obligations

 

 

(511)

 

 

 —

Proceeds from share issuance

 

 

130

 

 

 —

Distributions to noncontrolling interests

 

 

(161)

 

 

 —

Share repurchases

 

 

(264)

 

 

 —

Net cash (used in) provided by financing activities

 

 

(806)

 

 

34,000

Effect of exchange rate changes on cash

 

 

(53)

 

 

 —

Net increase (decrease) in cash and cash equivalents

 

 

3,343

 

 

(31,993)

Cash and cash equivalents, beginning of period

 

 

2,774

 

 

40,041

Cash and cash equivalents, end of period

 

$

6,117

 

$

8,048

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid for interest

 

$

991

 

$

427

Cash paid for taxes

 

$

344

 

$

12

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

Capital expenditures included in accounts payable and accrued liabilities

 

$

9,632

 

$

4,766

 

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

 

9


 

SELECT ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Description of the business:  Select Energy Services, Inc. (‘we,” “Select Inc.” or “the Company”) was incorporated as a Delaware corporation on November 21, 2016. The Company is a holding company whose sole material asset consists of a membership interest in SES Holdings, LLC (“SES Holdings”).

On November 1, 2017, the Company completed the transactions in which subsidiaries of Select Inc. and SES Holdings merged with Rockwater Energy Solutions, Inc. (“Rockwater”) and Rockwater Energy Solutions, LLC (“Rockwater LLC”), respectively, in a stock-for-stock or unit-for-unit transaction (the “Rockwater Merger”). See Note 3—Acquisitions for further discussion.

We are a leading provider of total water management and chemical solutions to the oil and gas industry in the United States and Western Canada. The oilfield water services market has grown rapidly over the past decade, driven by advances in drilling, completion and production technologies. Within the major onshore oil and gas plays in the United States, we believe we are a market leader in sourcing, transfer (both by permanent pipeline and temporary hose) and temporary containment of water prior to its use in drilling and completion activities associated with hydraulic fracturing or “fracking,” which we collectively refer to as “pre‑frac water services.” We also provide well testing and flowback services immediately following the well completion and in most of our areas of operations, we provide additional complementary water‑related services that support oil and gas well completion and production activities including monitoring, treatment, hauling, recycling and disposal. In addition to our water-related services, we also develop and manufacture specialty chemicals used in frac fluid systems and production chemicals used to enhance performance over the life of a well. Furthermore, we develop and manufacture chemicals required by oil and gas companies to maintain and enhance oil and gas production over the life of a typical well. We believe we are the only oilfield services company that provides total water solutions together with complementary chemical products and related expertise, which we believe gives us a unique competitive advantage in our industry.

We also offer wellsite services that complement our total water management and chemical solutions offering. These services include equipment rental, accommodations, crane and logistics services, wellsite and pipeline construction, field and well services, sand hauling and fluids logistic services. In addition, we provide water transfer, fluids hauling, containment and rental services in Canada.

Reorganization:  On December 20, 2016, Select Inc. completed a private placement (the “Select 144A Offering”) of 16,100,000 shares of Select Inc. Class A‑1  common stock, par value $0.01 per share (“Class A-1 Common Stock”) at an offering price of $20.00 per share. In conjunction with the Select 144A Offering, SES Holdings’ then existing Class A and Class B units were converted into a single class of common units (the “SES Holdings LLC Units”) and SES Holdings effected a 10.3583 for 1 unit split. In exchange for the contribution of all net proceeds from the Select 144A Offering to SES Holdings, SES Holdings issued 16,100,000 SES Holdings LLC Units to Select Inc., and Select Inc. became the sole managing member of SES Holdings. Select Inc. issued 38,462,541 shares of its Class B common stock, par value $0.01 per share (“Class B Common Stock”), to the other member of SES Holdings, SES Legacy Holdings, LLC (“Legacy Owner Holdco”) or one share for each SES Holdings LLC Unit held by Legacy Owner Holdco. Select Inc. also acquired 3,802,972 SES Holdings LLC Units from certain legacy owners (the “Contributing Legacy Owners”) in exchange for the issuance of 3,802,972 shares of Select Inc. Class A common stock, par value $0.01 per share (“Class A Common Stock”). Upon the effectiveness on June 13, 2017 of a shelf registration statement registering such shares for resale, all shares of Class A-1 Common Stock converted into shares of Class A Common Stock on a one-for-one basis. Refer below for further discussion. Shareholders of Class A Common Stock, and Class B Common Stock vote together as a single class on all matters, subject to certain exceptions in the Company’s amended and restated certificate of incorporation. Holders of Class B Common Stock have voting rights only and are not entitled to an economic interest in Select Inc. based on their ownership of Class B Common Stock. The reorganization transactions were treated as a combination of entities under common control with assets and liabilities transferred at their carrying amounts in a manner similar to a pooling of interests.

10


 

Initial Public Offering: On April 26, 2017, the Company completed its initial public offering (“IPO”) of 8,700,000 shares of Class A Common Stock at a price of $14.00 per share. On May 10, 2017, the underwriters of the IPO exercised their over-allotment option to purchase an additional 1,305,000 shares of Class A Common Stock at the IPO price of $14.00 per share. After deducting underwriting discounts and commissions and estimated offering expenses payable by it, the Company received $128.5 million of the aggregate net proceeds from the IPO (including the over-allotment option). The Company contributed all of the net proceeds received by it to SES Holdings in exchange for SES Holdings LLC Units. SES Holdings used the net proceeds in the following manner: (i) $34.0 million was used to repay borrowings incurred under the Company’s Previous Credit Facility (as defined and discussed in Note 8) to fund the cash portion of the purchase price of the GRR Acquisition, as defined below, (ii) $7.8 million was used for the cash settlement of outstanding phantom unit awards and (iii) the remaining net proceeds were intended to be used for general corporate purposes, including funding capital expenditures.

Rockwater Merger: On November 1, 2017, we completed the Rockwater Merger, as contemplated by the Agreement and Plan of Merger, dated as of July 18, 2017 (the “Merger Agreement”), by and among us, SES Holdings, Raptor Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary, Raptor Merger Sub, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of SES Holdings, Rockwater and Rockwater LLC. Pursuant to the Merger Agreement, we combined with Rockwater in a stock‑for‑stock transaction in which we issued approximately 25.9 million shares of Class A Common Stock, 6.7 million shares of Select Inc. Class A-2 common stock, par value $0.01 (the “Class A‑2 Common Stock”) and 4.4 million shares of Class B Common Stock to the former holders of Rockwater common stock and a unit‑for‑unit transaction in which SES Holdings issued approximately 37.3 million common units of SES Holdings  (each, an “SES Holdings LLC Unit”) to the former holders of units in Rockwater LLC (each, a “Rockwater LLC Unit”). See Note 3 – Acquisitions for further discussion.

Credit Agreement:  Concurrent with the Rockwater Merger, the Company entered into the Credit Agreement, a  $300.0 million senior secured revolving credit facility. In addition, the obligations under the Previous Credit Facility were repaid in full and the Previous Credit Facility was terminated. See Note 8—Debt for further discussion.

Exchange rights:  Under the Eighth Amended and Restated Limited Liability Company Agreement of SES Holdings (the “SES Holdings LLC Agreement”), 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.

11


 

Registration rights:  In December 2016, in connection with the closing of the Select 144A Offering, Select Inc. entered into a registration rights agreement with FBR Capital Markets & Co. for the benefit of the investors in the Select 144A Offering. Under this registration rights agreement, the Company agreed, at its expense, to file with the U.S Securities and Exchange Commission (“SEC”), in no event later than April 30, 2017, a shelf registration statement registering for resale the 16,100,000 shares of Class A Common Stock issuable upon conversion of the Class A‑1  Common Stock sold in the Select 144A Offering plus any additional shares of Class A‑1  Common Stock issued in respect thereof whether by stock dividend, stock distribution, stock split or otherwise, and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as practicable but in any event within 60 days after the closing of the IPO. The Company filed this registration statement with the SEC on April 28, 2017 and this registration statement was declared effective by the SEC on June 13, 2017. Accordingly, each share of Class A‑1  Common Stock outstanding automatically converted into a share of Class A Common Stock on a one‑for‑one basis at that time. In addition, Legacy Owner Holdco has the right, under certain circumstances, to cause the Company to register the shares of Class A Common Stock obtained pursuant to the Exchange Right.

Rockwater Registration Rights Agreement: In connection with the closing of the Rockwater Merger, pursuant to that certain Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”), dated as of November 1, 2017, by and between Rockwater and Select Inc., Rockwater assigned, and Select Inc. assumed, Rockwater’s rights and obligations under that certain Registration Rights Agreement made and entered into as of February 16, 2017, between Rockwater and FBR Capital Markets & Co. (as assumed by Select Inc. pursuant to the Assignment and Assumption Agreement, the “Rockwater Registration Rights Agreement”). Under the Rockwater Registration Rights Agreement, Select Inc. agreed, at its expense, to file with the SEC a shelf registration statement registering for resale shares of Class A Common Stock into which the outstanding shares of Class A-2 Common Stock were convertible, and to cause such registration statement to be declared effective by the SEC as soon as practicable but in any event within 180 days after the initial filing of such registration statement

On January 12, 2018, the Company, pursuant to the Rockwater Registration Rights Agreement, filed with the SEC a shelf registration statement registering for resale of 6,653,777 shares of Class A Common Stock into which certain of the outstanding shares of Class A-2 Common Stock registered under such registration statement were convertible. Pursuant to the Company’s Third Amended and Restated Certificate of Incorporation, upon the effectiveness of this registration statement on March 29, 2018,  each outstanding share of Class A-2 Common Stock converted automatically into a share of Class A Common Stock on a one-for-one basis. No shares of Class A-2 Common Stock are currently outstanding.

Tax receivable agreements:  In connection with the Company’s restructuring at the Select 144A Offering, Select Inc. entered into two tax receivable agreements (the “Tax Receivable Agreements”) with Legacy Owner Holdco and certain other affiliates of the then-holders of SES Holdings LLC Units (each such person and any permitted transferee thereof, a “TRA Holder” and together, the “TRA Holders”). On July 18, 2017, the Company’s board of directors approved amendments to each of the Tax Receivable Agreements. See Note 12—Related Party Transactions for further discussion.

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 United States (“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. Accordingly, the accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the Company’s annual consolidated financial statements and related notes included in the annual report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”), filed with the SEC on March 19, 2018.  The unaudited interim consolidated financial statements include the accounts of the Company and all of its majority‑owned or controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

12


 

In the opinion of management, all adjustments which are of a normal recurring nature and considered necessary for a fair presentation of the Company’s interim financial statements have been included in these unaudited interim consolidated financial statements. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.

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. As of March 31, 2018, the Company has no equity method investees and one cost method investee. 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. During the three months ended March 31, 2018, the Company determined that its cost method investee was no longer fully recoverable and was written down to its estimated fair value of $0.5 million. The impairment expense of $2.0 million is included in impairment of investment within the consolidated statement of operations.

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

13


 

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 years ended December 31, 2017, 2016 and 2015 included in the Company’s most recent Annual Report on Form 10-K. There have been no significant changes in such policies or the application of such policies during the quarter ended March 31, 2018.

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 recoverability of long‑lived assets and intangibles, useful lives used in depreciation and amortization, uncollectible accounts receivable, income taxes, self‑insurance liabilities, share‑based compensation and contingent liabilities. 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.

Change in depreciable lives of property and equipment: In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. This review indicated that the economic lives of the assets were longer than the historic asset lives previously used by Select Inc. As a result, effective January 1, 2018, the Company changed its estimates of the useful lives of certain assets included in vehicles & equipment and machinery & equipment to better reflect the estimated periods during which these assets will remain in service. The average estimated useful lives of the assets impacted in vehicles and equipment category increased from 6.0 to 8.1 years while the average estimated useful lives of assets impacted in machinery & equipment increased from 5.5 years to 6.9 years. The change in the estimated useful lives of fixed assets is change implemented on a prospective basis and does not require restatement of previously reported depreciation and amortization. The effect of this change in accounting estimates was to reduce depreciation and amortization expense by $4.7 million, increase net income by $4.7 million and increase basic and diluted earnings per share by $0.04 each attributable to Class A and Class A-2 stockholders.

Emerging Growth Company status:  Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), the Company is an “emerging growth company,” or an “EGC,” which allows the Company to have an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company intends to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase‑in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until the Company is no longer an emerging growth company. The Company’s election to use the phase‑in periods permitted by this election may make it difficult to compare the Company’s financial statements to those of non‑emerging growth companies and other emerging growth companies that have opted out of the longer phase‑in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. If the Company was to subsequently elect to immediately comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

The Company will remain an emerging growth company until, at the latest, December 31, 2022, the last day of the fiscal year following the fifth anniversary of our IPO, although we will lose that status sooner if we have $1.07 billion or more in revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates as of any June 30 or issue more than $1.0 billion of non-convertible debt over a rolling three-year period.

14


 

Recent accounting pronouncements:  In May 2014, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) on a comprehensive new revenue recognition standard that will supersede Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers, creates a framework under which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either “full retrospective” adoption, meaning that the standard is applied to all of the periods presented with a cumulative catch‑up as of the earliest period presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch‑up as of the current period. In August 2015, the FASB decided to defer the original effective date by one year to be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In accordance with the JOBS Act, the Company is afforded the extended transition period and therefore is not required to adopt the ASU until January 1, 2019. The Company has assembled a team to scope the project, identify relevant revenue streams and understand the revenue recognition implications of the new guidance. The Company is currently evaluating whether the adoption of the ASU will have a material impact on its consolidated financial statements and related disclosures, and internal controls over financial reporting, and the Company has not yet determined the method by which it will adopt the standard.

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB’s new revenue recognition standard. However, the ASU eliminates the use of bright‑line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to better enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, using a modified retrospective approach. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share‑based payment award transactions. ASU 2016-09 was effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement was effective for annual reporting periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Certain amendments in this update should be applied prospectively, while other amendments in the update should be applied retrospectively, with early adoption permitted in any interim or annual period. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

15


 

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. The amendments provide guidance in the presentation and classification of certain cash receipts and cash payments in the statement of cash flows including debt prepayment or debt extinguishment costs, settlement of zero‑coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate‑owned life insurance policies and distributions received from equity method investees. ASU 2016-15 was effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The amendments in this ASU should be applied using a retrospective approach. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update was effective for fiscal years and interim periods within fiscal years beginning after December 15, 2017. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The amendments in this ASU should be applied prospectively. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This pronouncement removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This update is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this ASU should be applied prospectively. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. This pronouncement provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. This update was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The pronouncement should be applied prospectively to an award modified on or after the adoption date. This ASU became effective for the Company in 2018, and the adoption of this guidance did not materially affect its consolidated financial statements and related disclosures.

In January 2018, the FASB issued ASU 2018-01, Land Easements. The amendments in this update permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02. The Company is currently evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

16


 

NOTE 3— ACQUISITIONS

Business combinations

Rockwater Merger 

On November 1, 2017, the Company completed the Rockwater Merger in which the Company combined with Rockwater. Total consideration was $620.2 million based on the closing price of the Company’s shares of Class A Common Stock on November 1, 2017. Consideration transferred consisted of shares of Class A Common Stock, shares of Class A-2 Common Stock, shares of Class B Common Stock, and SES Holdings LLC Units. Consideration transferred also included the Company’s previously held interest in Rockwater, which was acquired as consideration in a sale of assets by Select’s predecessor to Rockwater’s predecessor in 2008 prior to the contribution of those assets to Rockwater and the related conversion of the ownership interests received by Select’s predecessor to ownership interests in Rockwater in 2011, and the fair value of Rockwater’s replaced share-based payments attributed to pre-acquisition service. In addition, the Company’s previously held interest in Rockwater was cancelled pursuant to the Merger Agreement. The previously held interest in Rockwater was previously included in other assets in the consolidated balance sheet. It was remeasured to a fair value of $2.3 million, which resulted in a gain of $1.2 million recognized in the fourth quarter of 2017 in other income in the consolidated statement of operations. For the three months ended March 31, 2018, the Company expensed $2.3 million of transaction-related costs which are included in selling, general and administrative within the consolidated statement of operations.

The Rockwater Merger was accounted for as a business combination under the acquisition method of accounting. Assets acquired and liabilities assumed in the Rockwater Merger were recorded at their estimated fair values as of the merger date. The Company has not finalized these estimates; therefore, the fair value estimates set forth below are subject to adjustment during a one-year measurement period following the merger date. The final allocation of purchase consideration could include changes in the estimated fair value of working capital, property and equipment, intangible assets, other long-term assets, deferred tax liabilities and other long-term liabilities. Adjustments in the purchase price allocation may require a change in the amount allocated to goodwill during the period in which the adjustments are determined.

When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The Company also engaged third-party valuation experts to assist in the purchase price allocation and the recorded valuation of property and equipment. The Company has received preliminary reports from these experts including estimates, judgments and assumptions for the valuation of the tangible and intangible assets acquired and liabilities assumed. These preliminary reports along with the analysis and expertise of management have formed the basis for the preliminary allocation. Detailed analysis and review of the assets acquired, including confirmation of the condition, existence and utility of the assets is currently ongoing. Management believes that the current information provides a reasonable basis for estimating fair values of assets acquired and liabilities assumed. These estimates, judgments and assumptions are subject to change and should be treated as preliminary values as there could be significant changes upon final valuation. Management currently believes that its valuation work and the work of its third-party experts will be completed and a final purchase price allocation will be recorded by June 30, 2018. Included in the working capital figure in the table below is accounts receivable acquired with a fair value of $196.9 million, and a gross contractual amount of $199.1 million. The Company expects $2.2 million of the gross contractual amount to be uncollectible. Management estimated that total consideration paid exceeded the fair value of the net assets acquired and liabilities assumed by $249.6 million, which excess was recognized as goodwill. The goodwill recognized was primarily attributable to synergies driven by expanding into new geographies and service offerings, strengthening existing service lines, acquiring an established, trained workforce and expected cost reductions. Goodwill of $233.4 million and $16.2 million was allocated to the Company’s Water Solutions and Oilfield Chemicals segments, respectively.

17


 

The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition:  

 

 

 

 

Preliminary purchase price allocation

 

Amount

Consideration  transferred

 

(in thousands)

Class A Common Stock (25,914,260 shares)

 

$

423,957

Class A-2 Common Stock (6,731,845 shares)