10-Q 1 wttr-20180930x10q.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 September 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☑

Smaller reporting company ☐

 

 

 

Emerging growth company ☑

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company.   Yes  ☐    No  ☑

As of November 2, 2018, the registrant had 80,658,534 shares of Class A common stock and 26,026,843 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 level of capital spending by oil and gas companies;

·

trends and volatility in oil and gas prices;

·

demand for our services;

·

capacity constraints on regional oil and natural gas gathering, processing and pipeline systems that result in slowdown in drilling and completion investment, and thus the demand for our services in our core markets;

·

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

·

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 health, safety and environmental 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, interstate fresh water transfer, chemicals and various environmental matters;

·

the impact of competition on our operations;

·

the degree to which our exploration and production (“E&P”) customers may elect to bring their water-management services in-house rather than source these services from companies like us;

3


 

·

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

·

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

·

the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services;

·

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)

 

 

 

 

 

 

 

 

 

September 30, 2018

 

December 31, 2017

 

    

(unaudited)

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,050

 

$

2,774

Accounts receivable trade, net of allowance for doubtful accounts of $2,549 and $2,979, respectively

 

 

422,383

 

 

373,633

Accounts receivable, related parties

 

 

2,313

 

 

7,669

Inventories, net

 

 

49,457

 

 

44,598

Prepaid expenses and other current assets

 

 

20,805

 

 

17,842

Total current assets

 

 

508,008

 

 

446,516

Property and equipment

 

 

1,112,138

 

 

1,034,995

Accumulated depreciation

 

 

(608,040)

 

 

(560,886)

Property and equipment, net

 

 

504,098

 

 

474,109

Goodwill

 

 

274,753

 

 

273,421

Other intangible assets, net

 

 

148,327

 

 

156,066

Other assets

 

 

3,599

 

 

6,256

Total assets

 

$

1,438,785

 

$

1,356,368

Liabilities and Equity

 

 

 

 

 

  

Current liabilities

 

 

 

 

 

  

Accounts payable

 

$

54,437

 

$

52,579

Accounts payable and accrued expenses, related parties

 

 

4,341

 

 

2,772

Accrued salaries and benefits

 

 

25,614

 

 

21,324

Accrued insurance

 

 

20,492

 

 

12,510

Sales tax payable

 

 

5,155

 

 

12,931

Accrued expenses and other current liabilities

 

 

91,218

 

 

81,112

Current portion of capital lease obligations

 

 

1,176

 

 

1,965

Total current liabilities

 

 

202,433

 

 

185,193

Accrued lease obligations

 

 

18,547

 

 

18,979

Other long-term liabilities

 

 

10,133

 

 

13,827

Long-term debt

 

 

65,000

 

 

75,000

Total liabilities

 

 

296,113

 

 

292,999

Commitments and contingencies (Note 9)

 

 

 

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 80,658,534 shares issued and outstanding as of September 30, 2018; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017

 

 

807

 

 

592

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, no shares issued or outstanding as of September 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 26,026,843 shares issued and outstanding as of September 30, 2018; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017

 

 

260

 

 

404

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

 

 

 —

 

 

 —

Additional paid-in capital

 

 

828,137

 

 

673,141

Retained earnings (accumulated deficit)

 

 

32,153

 

 

(17,859)

Accumulated other comprehensive (deficit) income

 

 

(17)

 

 

302

Total stockholders’ equity

 

 

861,340

 

 

656,647

Noncontrolling interests

 

 

281,332

 

 

406,722

Total equity

 

 

1,142,672

 

 

1,063,369

Total liabilities and equity

 

$

1,438,785

 

$

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 September 30, 

 

Nine Months Ended September 30, 

 

    

2018

    

2017

 

2018

 

2017

Revenue

 

 

  

 

 

  

 

 

 

 

 

 

Water solutions and related services

 

$

301,410

 

$

125,086

 

$

880,411

 

$

311,275

Accommodations and rentals

 

 

18,022

 

 

15,615

 

 

48,715

 

 

38,457

Wellsite completion and construction services

 

 

13,553

 

 

13,179

 

 

45,064

 

 

38,522

Oilfield chemical product sales

 

 

63,985

 

 

 —

 

 

192,422

 

 

 —

Total revenue

 

 

396,970

 

 

153,880

 

 

1,166,612

 

 

388,254

Costs of revenue

 

 

  

 

 

  

 

 

 

 

 

 

Water solutions and related services

 

 

226,622

 

 

88,087

 

 

665,805

 

 

226,737

Accommodations and rentals

 

 

11,578

 

 

11,976

 

 

33,016

 

 

30,697

Wellsite completion and construction services

 

 

11,047

 

 

10,888

 

 

38,480

 

 

32,155

Oilfield chemical product sales

 

 

56,473

 

 

 —

 

 

172,057

 

 

 —

Depreciation and amortization

 

 

31,853

 

 

23,420

 

 

93,180

 

 

67,144

Total costs of revenue

 

 

337,573

 

 

134,371

 

 

1,002,538

 

 

356,733

Gross profit

 

 

59,397

 

 

19,509

 

 

164,074

 

 

31,521

Operating expenses

 

 

  

 

 

  

 

 

 

 

 

 

Selling, general and administrative

 

 

25,110

 

 

16,087

 

 

77,662

 

 

49,298

Depreciation and amortization

 

 

984

 

 

375

 

 

2,332

 

 

1,312

Impairment of property and equipment

 

 

 —

 

 

 —

 

 

2,282

 

 

 —

Impairment of investment

 

 

 —

 

 

 —

 

 

2,000

 

 

 —

Lease abandonment costs

 

 

1,045

 

 

590

 

 

4,142

 

 

2,871

Total operating expenses

 

 

27,139

 

 

17,052

 

 

88,418

 

 

53,481

Income (loss) from operations

 

 

32,258

 

 

2,457

 

 

75,656

 

 

(21,960)

Other income (expense)

 

 

  

 

 

  

 

 

 

 

 

 

Interest expense, net

 

 

(1,322)

 

 

(484)

 

 

(3,815)

 

 

(1,885)

Foreign currency gain (loss), net

 

 

248

 

 

 —

 

 

(492)

 

 

 —

Other income, net

 

 

1,498

 

 

326

 

 

3,099

 

 

3,342

Income (loss) before tax expense

 

 

32,682

 

 

2,299

 

 

74,448

 

 

(20,503)

Income tax (expense) benefit

 

 

(1,415)

 

 

294

 

 

(2,027)

 

 

326

Net income (loss)

 

 

31,267

 

 

2,593

 

 

72,421

 

 

(20,177)

Less: net (income) loss attributable to noncontrolling interests

 

 

(8,316)

 

 

(1,369)

 

 

(22,409)

 

 

13,013

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

 

$

22,951

 

$

1,224

 

$

50,012

 

$

(7,164)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

  

 

 

 

 

 

 

Class A—Basic

 

$

0.29

 

$

0.04

 

$

0.69

 

$

(0.28)

Class A-1—Basic

 

$

 —

 

$

 —

 

$

 —

 

$

(0.28)

Class A-2—Basic

 

$

 —

 

$

 —

 

$

0.69

 

$

 —

Class B—Basic

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

  

 

 

 

 

 

 

Class A—Diluted

 

$

0.29

 

$

0.04

 

$

0.69

 

$

(0.28)

Class A-1—Diluted

 

$

 —

 

$

 —

 

$

 —

 

$

(0.28)

Class A-2—Diluted

 

$

 —

 

$

 —

 

$

0.69

 

$

 —

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 September 30, 

 

Nine Months Ended September 30, 

 

    

2018

    

2017

 

2018

 

2017

Net income (loss)

 

$

31,267

 

$

2,593

 

$

72,421

 

$

(20,177)

Other comprehensive income (loss)

 

 

  

 

 

  

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax of $0

 

 

131

 

 

 —

 

 

(319)

 

 

 —

Net change in unrealized gain (loss)

 

 

131

 

 

 —

 

 

(319)

 

 

 —

Comprehensive income (loss)

 

 

31,398

 

 

2,593

 

 

72,102

 

 

(20,177)

Less: comprehensive (income) loss attributable to noncontrolling interests

 

 

(8,351)

 

 

(1,369)

 

 

(22,310)

 

 

13,013

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

 

$

23,047

 

$

1,224

 

$

49,792

 

$

(7,164)

 

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 nine months ended September 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

 

14,305,146

 

 

144

 

 —

 

 

 —

 

(14,305,146)

 

 

(144)

 

 —

 

 

 —

 

 

146,865

 

 

 —

 

 

 —

 

 

146,865

 

 

(146,865)

 

 

 —

ESPP shares issued

 

6,413

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

99

 

 

 —

 

 

 —

 

 

99

 

 

(13)

 

 

86

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,543

 

 

 —

 

 

 —

 

 

5,543

 

 

2,487

 

 

8,030

Issuance of restricted shares

 

438,182

 

 

 4

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,321

 

 

 —

 

 

 —

 

 

2,325

 

 

(2,325)

 

 

 —

Exercise of restricted stock units

 

27,860

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

104

 

 

 —

 

 

 —

 

 

104

 

 

(104)

 

 

 —

Stock options exercised

 

79,333

 

 

 1

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,018

 

 

 —

 

 

 —

 

 

1,019

 

 

(374)

 

 

645

Repurchase of common stock

 

(62,777)

 

 

(1)

 

(6)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(803)

 

 

 —

 

 

 —

 

 

(804)

 

 

(73)

 

 

(877)

Restricted shares forfeited

 

(49,638)

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(380)

 

 

 —

 

 

 —

 

 

(380)

 

 

379

 

 

(1)

Distributions to noncontrolling interests, net

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(506)

 

 

(506)

NCI income tax adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

229

 

 

 —

 

 

 —

 

 

229

 

 

(229)

 

 

 —

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(319)

 

 

(319)

 

 

(176)

 

 

(495)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

50,012

 

 

 —

 

 

50,012

 

 

22,409

 

 

72,421

Balance as of September 30, 2018

 

80,658,534

 

$

807

 

 —

 

$

 —

 

26,026,843

 

$

260

 

 —

 

$

 —

 

$

828,137

 

$

32,153

 

$

(17)

 

$

861,340

 

$

281,332

 

$

1,142,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

560,277

 

 

 6

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,360

 

 

 —

 

 

 —

 

 

4,366

 

 

5,514

 

 

9,880

Issuance of shares for initial public offering

 

10,005,000

 

 

100

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

87,835

 

 

 —

 

 

 —

 

 

87,935

 

 

40,569

 

 

128,504

Equity-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

788

 

 

 —

 

 

 —

 

 

788

 

 

993

 

 

1,781

Distributions to noncontrolling interests, net

 

 —