0001558370-22-016274.txt : 20221103 0001558370-22-016274.hdr.sgml : 20221103 20221103163058 ACCESSION NUMBER: 0001558370-22-016274 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 86 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221103 DATE AS OF CHANGE: 20221103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Select Energy Services, Inc. CENTRAL INDEX KEY: 0001693256 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 814561945 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38066 FILM NUMBER: 221358539 BUSINESS ADDRESS: STREET 1: 1233 W LOOP SOUTH, SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: (713) 235-9500 MAIL ADDRESS: STREET 1: 1233 W LOOP SOUTH, SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77027 10-Q 1 wttr-20220930x10q.htm 10-Q
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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, 2022

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)

1233 W. Loop South, Suite 1400

Houston, TX

77027

(Address of principal executive offices)

(Zip Code)

(713) 235-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

WTTR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of October 31, 2022, the registrant had 98,102,383 shares of Class A common stock and 16,221,101 shares of Class B common stock outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, in our subsequently filed Quarterly Reports on Form 10-Q, under the heading “Part II—Item 1A. Risk Factors” in this Quarterly Report and those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

the severity and duration of world health events, including the novel coronavirus (“COVID-19”) pandemic and its variants, and associated repercussions to supply and demand for oil and natural gas and the economy generally;
global economic distress resulting from sustained Russia-Ukraine war and related economic sanctions, rising interest rates, and potential energy shortages in Europe which may decrease demand for oil and demand for our services or contribute to volatility in the prices for oil and natural gas;
actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with announced supply limitations;
actions taken by the Biden Administration or state governments, such as executive orders or new or expanded regulations, that may negatively impact the future production of oil and natural gas in the United States (“U.S.”) or our customers’ access to federal and state lands for oil and gas development operations, thereby reducing demand for our services in the affected areas;
the level of capital spending and access to capital markets by oil and gas companies in response to changes in commodity prices or reduced demand;
the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources;
operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, measures taken to protect the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;
any new or additional measures required by national, state or local governments to combat COVID-19, such as a COVID-19 vaccine mandate, which if enacted, could reduce labor availability or add additional operational costs as we may experience constraints on our workforce and the workforce of our supply chain, which could have a negative impact on our operations;

3

the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies;
the degree to which consolidation among our customers may affect spending on U.S. drilling and completions;
trends and volatility in oil and gas prices, and our ability to manage through such volatility;
the impact of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater, transferring produced water, interstate freshwater transfer, chemicals, carbon pricing, pipeline construction, taxation or emissions, leasing, permitting or drilling on federal lands and various other environmental matters;
regional impacts to our business, including our key infrastructure assets within the Bakken, the Northern Delaware portion of the Permian Basin, and the Haynesville;
capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets;
regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our services;
growing demand for electric vehicles that may result in reduced demand for gasoline and therefore the demand for our services;
our ability to hire and retain key management and employees, including skilled labor;
our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms;
our health, safety and environmental performance;
the impact of competition on our operations;
the degree to which our exploration and production (“E&P”) customers may elect to operate their water-management services in-house rather than source these services from companies like us;
our level of indebtedness and our ability to comply with covenants contained in our Sustainability-Linked Credit Facility (as defined herein) or future debt instruments;
delays or restrictions in obtaining permits by us or our customers;
constraints in supply or availability of equipment used in our business;
the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis;
changes in global political or economic conditions, generally, and in the markets we serve, including the rate of inflation and potential economic recession;

4

acts of terrorism, war or political or civil unrest in the U.S. or elsewhere;
accidents, weather, natural disasters or other events affecting our business; and
the other risks identified in our most recent Annual Report on Form 10-K and under the headings “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A. Risk Factors” in this Quarterly Report.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Part I―Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “Part II―Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, and 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.

5

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30, 2022

December 31, 2021

    

(unaudited)

    

Assets

Current assets

 

Cash and cash equivalents

$

13,222

$

85,801

Accounts receivable trade, net of allowance for credit losses of $4,891 and $4,401, respectively

 

388,797

 

232,824

Accounts receivable, related parties

 

303

 

219

Inventories

 

40,314

 

44,456

Prepaid expenses and other current assets

 

37,334

 

31,486

Total current assets

 

479,970

 

394,786

Property and equipment

 

1,018,402

 

943,515

Accumulated depreciation

 

(591,340)

 

(551,727)

Total property and equipment, net

 

427,062

 

391,788

Right-of-use assets, net

48,275

47,732

Other intangible assets, net

 

100,455

 

108,472

Other long-term assets, net

 

16,639

 

7,414

Total assets

$

1,072,401

$

950,192

Liabilities and Equity

 

 

  

Current liabilities

 

 

  

Accounts payable

$

55,844

$

36,049

Accrued accounts payable

64,861

52,051

Accounts payable and accrued expenses, related parties

 

3,775

 

1,939

Accrued salaries and benefits

 

21,704

 

22,233

Accrued insurance

 

21,520

 

13,408

Sales tax payable

2,863

2,706

Accrued expenses and other current liabilities

 

21,957

 

19,544

Current operating lease liabilities

16,957

13,997

Current portion of finance lease obligations

 

19

 

113

Total current liabilities

 

209,500

 

162,040

Long-term operating lease liabilities

 

48,552

 

53,198

Other long-term liabilities

 

44,947

 

39,780

Total liabilities

 

302,999

 

255,018

Commitments and contingencies (Note 9)

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 98,097,930 shares issued and outstanding as of September 30, 2022; 350,000,000 shares authorized and 94,172,920 shares issued and outstanding as of December 31, 2021

 

981

 

942

Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued or outstanding as of September 30, 2022 and December 31, 2021

 

 

Class B common stock, $0.01 par value; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

162

 

162

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

Additional paid-in capital

 

977,063

 

950,464

Accumulated deficit

 

(318,843)

 

(359,472)

Total stockholders’ equity

 

659,363

 

592,096

Noncontrolling interests

 

110,039

 

103,078

Total equity

 

769,402

 

695,174

Total liabilities and equity

$

1,072,401

$

950,192

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

6

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, 

    

2022

    

2021

    

2022

    

2021

Revenue

 

  

 

  

Water Services

$

221,243

$

112,474

$

580,845

$

253,348

Water Infrastructure

74,396

36,787

193,234

107,916

Oilfield Chemicals

 

79,433

 

55,372

231,665

148,228

Total revenue

 

375,072

 

204,633

1,005,744

509,492

Costs of revenue

 

  

 

  

Water Services

170,845

94,667

465,951

227,736

Water Infrastructure

54,197

28,494

143,514

81,130

Oilfield Chemicals

 

64,519

49,583

194,670

132,103

Other

 

(1)

Depreciation and amortization

 

26,672

22,904

82,425

65,572

Total costs of revenue

 

316,232

 

195,648

886,560

506,541

Gross profit

 

58,840

 

8,985

119,184

2,951

Operating expenses

 

  

 

  

Selling, general and administrative

 

29,782

22,044

84,792

57,828

Depreciation and amortization

 

543

562

1,636

1,835

Lease abandonment costs

 

83

154

336

480

Total operating expenses

 

30,408

 

22,760

86,764

60,143

Income (loss) from operations

 

28,432

 

(13,775)

32,420

(57,192)

Other income (expense)

 

  

 

  

(Loss) gain on sales of property and equipment and divestitures, net

(479)

315

1,905

(1,921)

Interest expense, net

 

(616)

(419)

(1,830)

(1,254)

Foreign currency (loss) gain, net

(6)

(6)

(9)

1

Bargain purchase gain

(3,273)

13,768

Other

 

1,153

(222)

2,277

(956)

Income (loss) before income tax (expense) benefit

 

25,211

 

(14,107)

48,531

(61,322)

Income tax (expense) benefit

 

(276)

32

(672)

211

Equity in losses of unconsolidated entities

(218)

(129)

(576)

(129)

Net income (loss)

 

24,717

 

(14,204)

47,283

(61,240)

Less: net (income) loss attributable to noncontrolling interests

 

(3,393)

2,160

(6,654)

9,522

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

$

21,324

$

(12,044)

$

40,629

$

(51,718)

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

 

Class A—Basic

$

0.23

$

(0.14)

$

0.44

$

(0.60)

Class B—Basic

$

$

$

$

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

 

Class A—Diluted

$

0.22

$

(0.14)

$

0.43

$

(0.60)

Class B—Diluted

$

$

$

$

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

7

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)

Three months ended September 30, 

Nine months ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net income (loss)

$

24,717

$

(14,204)

$

47,283

$

(61,240)

Comprehensive income (loss)

 

24,717

 

(14,204)

47,283

(61,240)

Less: comprehensive (income) loss attributable to noncontrolling interests

 

(3,393)

 

2,160

(6,654)

9,522

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

$

21,324

$

(12,044)

$

40,629

$

(51,718)

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

8

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the nine months ended September 30, 2022 and 2021

(unaudited)

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional

Total

Common

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

   

Shares

   

Stock

   

Shares

   

Stock

   

Capital

   

Deficit

   

Equity

   

Interests

   

Total

Balance as of December 31, 2021

 

94,172,920

$

942

 

16,221,101

$

162

 

$

950,464

$

(359,472)

$

592,096

$

103,078

$

695,174

ESPP shares issued

4,681

 

 

34

34

1

35

Equity-based compensation

 

 

9,454

9,454

1,569

11,023

Issuance of restricted shares

 

2,529,231

25

 

 

2,220

2,245

(2,245)

Stock options exercised

 

70,000

1

 

 

583

584

24

608

Issuance of shares for acquisitions

4,203,323

42

 

 

34,456

34,498

1,356

35,854

Repurchase of common stock

(2,794,983)

(28)

 

 

(20,109)

(20,137)

(438)

(20,575)

Restricted shares forfeited

(87,242)

(1)

 

 

(78)

(79)

79

NCI income tax adjustment

 

 

39

39

(39)

Net income

 

 

 

40,629

40,629

6,654

47,283

Balance as of September 30, 2022

 

98,097,930

$

981

 

16,221,101

$

162

 

$

977,063

$

(318,843)

$

659,363

$

110,039

$

769,402

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional

Total

Common

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

   

Shares

   

Stock

   

Shares

   

Stock

   

Capital

   

Deficit

   

Equity

   

Interests

   

Total

Balance as of December 31, 2020

 

86,812,647

$

868

 

16,221,101

$

162

 

$

909,278

$

(317,247)

$

593,061

$

112,821

$

705,882

ESPP shares issued

7,787

44

44

(1)

43

Equity-based compensation

5,290

5,290

958

6,248

Issuance of restricted shares

2,154,897

22

2,162

2,184

(2,185)

(1)

Issuance of shares for acquisitions

3,600,000

36

20,627

20,663

(359)

20,304

Other

738

5

5

5

Repurchase of common stock

(199,976)

(2)

(1,223)

(1,225)

19

(1,206)

Restricted shares forfeited

(319,874)

(3)

(332)

(335)

335

Noncontrolling interest in subsidiary

(140)

(140)

(934)

(1,074)

NCI income tax adjustment

31

31

(31)

Net loss

 

 

 

 

 

 

 

(51,718)

 

(51,718)

 

(9,522)

 

 

(61,240)

Balance as of September 30, 2021

 

92,056,219

$

921

 

16,221,101

$

162

 

$

935,742

$

(368,965)

$

567,860

$

101,101

$

668,961

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

9

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended September 30, 2022 and 2021

(unaudited)

(in thousands, except share data)

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional

Total

Common

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

   

Shares

   

Stock

   

Shares

   

Stock

   

Capital

   

Deficit

   

Equity

   

Interests

   

Total

Balance as of June 30, 2022

 

98,160,573

$

982

 

16,221,101

$

162

 

$

974,066

$

(340,167)

$

635,043

$

106,102

$

741,145

ESPP shares issued

1,541

10

10

10

Equity-based compensation

3,265

3,265

539

3,804

Repurchase of common stock

(40,060)

(1)

(268)

(269)

(2)

(271)

Restricted shares forfeited

(24,124)

(22)

(22)

22

NCI income tax adjustment

12

12

(15)

(3)

Net income

 

 

 

 

 

 

 

21,324

 

21,324

 

3,393

 

 

24,717

Balance as of September 30, 2022

 

98,097,930

$

981

 

16,221,101

$

162

 

$

977,063

$

(318,843)

$

659,363

$

110,039

$

769,402