Select Water Solutions(WTTR) - 2024 Q3 - Quarterly Results

Overall Performance and Management Commentary Select Water Solutions reported solid Q3 2024 results with sequential revenue growth, improved profitability, and strong free cash flow, led by Water Infrastructure Q3 2024 Key Financial Highlights | Metric | Q3 2024 | Change (Sequential) | | :--- | :--- | :--- | | Revenue | $371 million | +2% | | Net Income | $18.8 million | +26% | | Adjusted EBITDA | $72.8 million | +4% | | Operating Cash Flow | $51.9 million | N/A | | Free Cash Flow | $20.4 million | N/A | - The Water Infrastructure segment was a key driver of performance, with revenue growing 20% and gross profit before D&A increasing 33% sequentially[1][3] - The company increased its quarterly base dividend by 17% for the upcoming November payment, reflecting confidence in its financial strength and outlook[3] - Management anticipates a temporary slowdown in Q4, with Adjusted EBITDA projected at $60 million - $62 million, due to seasonality and planned downtime for infrastructure upgrades, but a rebound to at or above Q3 levels is expected in Q1 2025[7] Consolidated Financial Performance Consolidated revenue increased sequentially to $371.3 million in Q3 2024, with net income and Adjusted EBITDA also rising, reflecting enhanced profitability Consolidated Financial Results (in millions) | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Revenue | $371.3 | $365.1 | $389.3 | | Net Income | $18.8 | $14.9 | $15.3 | | Gross Profit | $62.4 | $60.2 | $56.3 | | Adjusted EBITDA | $72.8 | $69.6 | $63.0 | Consolidated Gross Margin Performance | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Gross Margin | 16.8% | 16.5% | 14.5% | | Gross Margin before D&A | 27.3% | 26.7% | 23.4% | - Selling, General & Administrative (SG&A) expenses decreased to $37.3 million from $39.0 million in the prior quarter, partly due to lower non-recurring transaction and rebranding costs[11] Business Segment Information Water Infrastructure led segment performance with strong growth and margin expansion, while Water Services saw modest gains and Chemical Technologies declined Water Services The Water Services segment experienced a modest revenue increase in Q3 2024, with a projected decline in Q4 due to macro factors Water Services Segment Performance | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Revenue | $234.0 million | $230.0 million | $251.9 million | | Gross Margin before D&A | 20.5% | 22.5% | 20.5% | - Q4 2024 revenue is expected to decline by 10% - 15% due to macro activity declines and planned downtime at certain infrastructure assets, with gross margins before D&A holding steady at 20% - 21%[13] Water Infrastructure The Water Infrastructure segment demonstrated strong sequential growth and significant margin expansion in Q3 2024, driven by increased asset utilization Water Infrastructure Segment Performance | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Revenue | $82.0 million | $68.6 million | $58.4 million | | Gross Margin before D&A | 56.7% | 51.0% | 40.1% | - Growth was driven by increased asset utilization, benefits from year-to-date acquisitions, and higher recycling volumes, with gross margins before D&A improving by over five percentage points sequentially[14] - Q4 2024 revenue is expected to decrease by 10% - 15% due to the pull-forward of some work into Q3 and planned downtime of certain recycling and pipeline assets in the Northern Delaware Basin for expansion projects[14] Chemical Technologies The Chemical Technologies segment saw a decline in Q3 2024 revenue and margins due to lower activity, with a rebound expected in Q4 Chemical Technologies Segment Performance | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Revenue | $55.3 million | $66.6 million | $79.0 million | | Gross Margin before D&A | 12.4% | 16.4% | 20.3% | - The segment was impacted by lower activity and demand, particularly from pressure pumping customers[15] - For Q4 2024, revenues are anticipated to increase by mid-single-digit percentages and gross margins before D&A are expected to improve to 14% - 16%, driven by new product development and customer wins[15] Cash Flow and Capital Expenditures The company generated $51.9 million in operating cash flow and $20.4 million in free cash flow in Q3 2024, alongside significant capital expenditures Q3 2024 Cash Flow Summary (in millions) | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Cash Flow from Operations | $51.9 | $83.1 | $118.2 | | Net Capital Expenditures | $31.5 | N/A | N/A | | Free Cash Flow | $20.4 | $37.4 | $84.6 | - Cash flow from operations was impacted by a $15.4 million use of cash from working capital[16] - Financing activities included $10.0 million of payments on the credit facility and $7.0 million in dividends and distributions[19] Balance Sheet and Liquidity Select's total liquidity increased to $138.7 million as of September 30, 2024, with reduced borrowings and increased available borrowing capacity Balance Sheet and Liquidity (as of Sept 30, 2024) | Metric | Sept 30, 2024 | June 30, 2024 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $10.9 million | $16.4 million | | Borrowings Outstanding | $80.0 million | $90.0 million | | Available Borrowing Capacity | $127.8 million | $113.4 million | | Total Liquidity | $138.7 million | $129.8 million | Business Development and Strategic Updates Select expanded infrastructure via a strategic acquisition and secured four new long-term contracts, requiring capital investment for 2025 projects - Completed the acquisition of a disposal well in the Northern Delaware Basin for $4.5 million, adding approximately 10,000 barrels per day of disposal capacity[22] - Executed four new long-term contracts with an associated capital expenditure of $37 million - $42 million, with projects expected to be online in the first half of 2025[23] - Key contracts include a 12-year agreement for a Northern Delaware system expansion, adding 5,000 dedicated acres and a new recycling facility, and an 8-year agreement for an integrated project in the Midland Basin with a 20,000-acre dedication[24][25] Financial Statements and Non-GAAP Reconciliation This section presents unaudited consolidated financial statements for Q3 2024, including operations, balance sheets, cash flows, and non-GAAP reconciliations Consolidated Statements of Operations This section details the company's consolidated statements of operations, highlighting revenue, gross profit, and net income for Q3 2024 Q3 2024 Statement of Operations Highlights (in thousands) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Revenue | $371,349 | $389,273 | | Gross Profit | $62,449 | $56,265 | | Income from Operations | $24,515 | $16,750 | | Net Income | $18,810 | $15,314 | | Net Income per Share (Class A—Diluted) | $0.15 | $0.14 | Consolidated Balance Sheets This section presents the consolidated balance sheets, detailing assets, liabilities, and equity as of September 30, 2024 Balance Sheet Highlights (in thousands) | Line Item | Sept 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $396,682 | $454,059 | | Total Assets | $1,346,647 | $1,218,190 | | Total Current Liabilities | $222,601 | $211,547 | | Long-term Debt | $80,000 | $0 | | Total Equity | $919,426 | $892,172 | Consolidated Statements of Cash Flows This section outlines the consolidated statements of cash flows, detailing operating, investing, and financing activities for Q3 2024 Q3 2024 Statement of Cash Flows Highlights (in thousands) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,876 | $118,213 | | Net cash used in investing activities | ($40,124) | ($33,587) | | Net cash (used in) provided by financing activities | ($17,232) | ($70,142) | Non-GAAP Reconciliations This section provides reconciliations of non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, to their GAAP equivalents Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Income | $18,810 | $14,899 | $15,314 | | D&A, Interest, Taxes | $47,325 | $44,178 | $36,410 | | EBITDA | $66,135 | $59,077 | $51,724 | | Adjustments | $6,615 | $10,570 | $11,265 | | Adjusted EBITDA | $72,750 | $69,647 | $62,989 | Reconciliation of Operating Cash Flow to Free Cash Flow (in thousands) | Line Item | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $51,876 | $83,114 | $118,213 | | Purchase of property and equipment | ($35,204) | ($49,113) | ($35,166) | | Proceeds from sale of property and equipment | $3,730 | $3,379 | $1,579 | | Free Cash Flow | $20,402 | $37,380 | $84,626 |