10-Q 1 wttr-20180630x10q.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 June 30, 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 August 3, 2018, the registrant had 79,337,119 shares of Class A common stock and 27,351,022 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 “Part II―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 oil and gas companies;

·

trends and volatility in oil and gas prices;

·

demand for our services;

·

regional impacts to our business such as takeaway capacity and our key infrastructure assets;

·

our ability to retain key management and employees;

·

our ability to hire and retain skilled labor;

·

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;

3


 

·

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 fresh water transfer, chemicals and various environmental matters;

·

the impacts of competition on our operations;

·

the degree to which customers may elect to source water services internally;

·

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, or changes in costs, in drilling, completions 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 “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.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

June 30, 2018

 

December 31, 2017

 

    

(unaudited)

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,301

 

$

2,774

Accounts receivable trade, net of allowance for doubtful accounts of $3,762 and $2,979, respectively

 

 

425,217

 

 

373,633

Accounts receivable, related parties

 

 

820

 

 

7,669

Inventories

 

 

51,680

 

 

44,598

Prepaid expenses and other current assets

 

 

29,800

 

 

17,842

Total current assets

 

 

518,818

 

 

446,516

Property and equipment

 

 

1,063,847

 

 

1,034,995

Accumulated depreciation

 

 

(580,102)

 

 

(560,886)

Property and equipment, net

 

 

483,745

 

 

474,109

Goodwill

 

 

278,359

 

 

273,421

Other intangible assets, net

 

 

148,908

 

 

156,066

Other assets

 

 

3,912

 

 

6,256

Total assets

 

$

1,433,742

 

$

1,356,368

Liabilities and Equity

 

 

 

 

 

  

Current liabilities

 

 

 

 

 

  

Accounts payable

 

$

66,756

 

$

52,579

Accounts payable and accrued expenses, related parties

 

 

3,924

 

 

2,772

Accrued salaries and benefits

 

 

14,394

 

 

21,324

Accrued insurance

 

 

23,260

 

 

12,510

Sales tax payable

 

 

9,870

 

 

12,931

Accrued expenses and other current liabilities

 

 

96,409

 

 

81,112

Current portion of capital lease obligations

 

 

1,468

 

 

1,965

Total current liabilities

 

 

216,081

 

 

185,193

Accrued lease obligations

 

 

19,220

 

 

18,979

Other long term liabilities

 

 

9,629

 

 

13,827

Long-term debt

 

 

80,000

 

 

75,000

Total liabilities

 

 

324,930

 

 

292,999

Commitments and contingencies (Note 9)

 

 

 

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 77,298,660 shares issued and outstanding as of June 30, 2018; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017

 

 

773

 

 

592

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, no shares issued or outstanding as of June 30, 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 29,383,320 shares issued and outstanding as of June 30, 2018; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017

 

 

294

 

 

404

Preferred stock, $0.01 par value; 50,000,000 shares authorized and no shares issued and outstanding as of June 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

Additional paid-in capital

 

 

790,699

 

 

673,141

Retained earnings (accumulated deficit)

 

 

9,203

 

 

(17,859)

Accumulated other comprehensive (deficit) income

 

 

(148)

 

 

302

Total stockholders’ equity

 

 

800,821

 

 

656,647

Noncontrolling interests

 

 

307,991

 

 

406,722

Total equity

 

 

1,108,812

 

 

1,063,369

Total liabilities and equity

 

$

1,433,742

 

$

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 June 30, 

 

Six Months Ended June 30,

 

    

2018

    

2017

 

2018

 

2017

Revenue

 

 

  

 

 

  

 

 

 

 

 

 

Water solutions and related services

 

$

297,446

 

$

107,812

 

$

579,001

 

$

186,189

Accommodations and rentals

 

 

15,949

 

 

13,327

 

 

30,693

 

 

22,842

Wellsite completion and construction services

 

 

15,045

 

 

13,310

 

 

31,511

 

 

25,343

Oilfield chemical product sales

 

 

64,807

 

 

 —

 

 

128,437

 

 

 —

Total revenue

 

 

393,247

 

 

134,449

 

 

769,642

 

 

234,374

Costs of revenue

 

 

  

 

 

  

 

 

 

 

 

 

Water solutions and related services

 

 

223,758

 

 

78,028

 

 

439,183

 

 

138,649

Accommodations and rentals

 

 

10,773

 

 

10,799

 

 

21,438

 

 

18,722

Wellsite completion and construction services

 

 

13,043

 

 

10,848

 

 

27,433

 

 

21,267

Oilfield chemical product sales

 

 

58,500

 

 

 —

 

 

115,584

 

 

 —

Depreciation and amortization

 

 

30,445

 

 

22,520

 

 

61,327

 

 

43,724

Total costs of revenue

 

 

336,519

 

 

122,195

 

 

664,965

 

 

222,362

Gross profit

 

 

56,728

 

 

12,254

 

 

104,677

 

 

12,012

Operating expenses

 

 

  

 

 

  

 

 

 

 

 

 

Selling, general and administrative

 

 

26,871

 

 

23,254

 

 

52,552

 

 

33,211

Depreciation and amortization

 

 

807

 

 

491

 

 

1,348

 

 

937

Impairment of property and equipment

 

 

2,282

 

 

 —

 

 

2,282

 

 

 —

Impairment of investment

 

 

 —

 

 

 —

 

 

2,000

 

 

 —

Lease abandonment costs

 

 

1,973

 

 

418

 

 

3,097

 

 

2,281

Total operating expenses

 

 

31,933

 

 

24,163

 

 

61,279

 

 

36,429

Income (loss) from operations

 

 

24,795

 

 

(11,909)

 

 

43,398

 

 

(24,417)

Other income (expense)

 

 

  

 

 

  

 

 

 

 

 

 

Interest expense, net

 

 

(1,342)

 

 

(671)

 

 

(2,493)

 

 

(1,401)

Foreign currency losses, net

 

 

(340)

 

 

 —

 

 

(740)

 

 

 —

Other income, net

 

 

2,060

 

 

1,952

 

 

1,602

 

 

3,016

Income (loss) before tax expense

 

 

25,173

 

 

(10,628)

 

 

41,767

 

 

(22,802)

Tax (expense) benefit

 

 

(150)

 

 

138

 

 

(612)

 

 

32

Net income (loss)

 

 

25,023

 

 

(10,490)

 

 

41,155

 

 

(22,770)

Less: net (income) loss attributable to noncontrolling interests

 

 

(8,060)

 

 

6,274

 

 

(14,093)

 

 

14,382

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

 

$

16,963

 

$

(4,216)

 

$

27,062

 

$

(8,388)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

  

 

 

 

 

 

 

Class A—Basic

 

$

0.24

 

$

(0.16)

 

$

0.40

 

$

(0.36)

Class A-1—Basic

 

$

 —

 

$

(0.16)

 

$

 —

 

$

(0.36)

Class A-2—Basic

 

$

 —

 

$

 —

 

$

0.40

 

$

 —

Class B—Basic

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

  

 

 

 

 

 

 

Class A—Diluted

 

$

0.24

 

$

(0.16)

 

$

0.39

 

$

(0.36)

Class A-1—Diluted

 

$

 —

 

$

(0.16)

 

$

 —

 

$

(0.36)

Class A-2—Diluted

 

$

 —

 

$

 —

 

$

0.39

 

$

 —

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 June 30, 

 

Six Months Ended June 30,

 

    

2018

    

2017

 

2018

 

2017

Net income (loss)

 

$

25,023

 

$

(10,490)

 

$

41,155

 

$

(22,770)

Other comprehensive income (loss)

 

 

  

 

 

  

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax of $0

 

 

(191)

 

 

 —

 

 

(450)

 

 

 —

Net change in unrealized loss

 

 

(191)

 

 

 —

 

 

(450)

 

 

 —

Comprehensive income (loss)

 

 

24,832

 

 

(10,490)

 

 

40,705

 

 

(22,770)

Less: comprehensive (income) loss attributable to noncontrolling interests

 

 

(7,998)

 

 

6,274

 

 

(13,939)

 

 

14,382

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

 

$

16,834

 

$

(4,216)

 

$

26,766

 

$

(8,388)

 

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

For the six months ended June 30, 2018 and 2017

(unaudited)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

Class A-2

 

Class B

 

Preferred

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Stockholders

 

Stockholders

 

Stockholders

 

Stockholders

 

 

 

 

Retained

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

 

Class A-2

 

 

 

Class B

 

 

 

 

 

 

Additional

 

Earnings

 

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)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Conversion of Class B to Class A

 

10,948,669

 

 

110

 

 —

 

 

 —

 

(10,948,669)

 

 

(110)

 

 —

 

 

 —

 

 

111,803

 

 

 —

 

 

 —

 

 

111,803

 

 

(111,803)

 

 

 —

ESPP shares issued

 

3,986

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

50

 

 

 —

 

 

 —

 

 

50

 

 

 4

 

 

54

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

3,617

 

 

 —

 

 

 —

 

 

3,617

 

 

1,848

 

 

5,465

Issuance of restricted shares

 

430,595

 

 

 4

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,261

 

 

 —

 

 

 —

 

 

2,265

 

 

(2,265)

 

 

 —

Exercise of restricted stock units

 

27,860

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

104

 

 

 —

 

 

 —

 

 

104

 

 

(104)

 

 

 —

Stock options exercised

 

37,209

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

376

 

 

 —

 

 

 —

 

 

376

 

 

 1

 

 

377

Repurchase of common stock

 

(45,034)

 

 

 —

 

(6)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(583)

 

 

 —

 

 

 —

 

 

(583)

 

 

(74)

 

 

(657)

Restricted shares forfeited

 

(18,640)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(70)

 

 

 —

 

 

 —

 

 

(70)

 

 

70

 

 

 —

Noncontrolling interest in subsidiary

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(280)

 

 

(280)

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(450)

 

 

(450)

 

 

(221)

 

 

(671)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

27,062

 

 

 —

 

 

27,062

 

 

14,093

 

 

41,155

Balance as of June 30, 2018

 

77,298,660

 

$

773

 

 —

 

$

 —

 

29,383,320

 

$

294

 

 —

 

$

 —

 

$

790,699

 

$

9,203

 

$

(148)

 

$

800,821

 

$

307,991

 

$

1,108,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Conversion of Class A-1 to Class A

 

16,100,000

 

 

161

 

(16,100,000)

 

 

(161)

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of shares for acquisition

 

403,368

 

 

 4

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

3,301

 

 

 —

 

 

 —

 

 

3,305

 

 

4,195

 

 

7,500

Issuance of shares for initial public offering

 

10,005,000

 

 

100

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

87,276

 

 

 —

 

 

 —

 

 

87,376

 

 

41,128

 

 

128,504

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

543

 

 

 —

 

 

 —

 

 

543

 

 

689

 

 

1,232

Noncontrolling interest in subsidiary

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —