Select Water Solutions(US:WTTR)2022-11-04 02:20Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $375 million, representing a 12% increase quarter-over-quarter, with 59% of this revenue increase contributing to higher gross profits [24][8] - Net income increased by 70% to $24.7 million, and adjusted EBITDA grew by 32% to $62.8 million, marking the highest quarterly net income and adjusted EBITDA since Q3 2018 [25][24] - Gross margins across all segments improved, with the Water Services segment achieving gross margins of 22.8% and the Chemicals segment increasing gross margin from 14.6% to 18.8% [31][35] Business Line Data and Key Metrics Changes - The Water Services segment saw a sequential revenue growth of 13% to $221 million, with gross margins increasing over 3 percentage points [31] - The Infrastructure segment experienced significant revenue gains, growing by 23% sequentially to $74 million, with gross margins before depreciation and amortization increasing to 27.2% [34] - The Chemicals segment maintained strong revenue growth, with expectations of mid-single-digit revenue growth in Q4 while maintaining margins around Q3 levels [35] Market Data and Key Metrics Changes - The U.S. onshore rig count increased by about 7%, although completions activity lagged with low-single-digit percent growth [19] - Despite the disparity in rig count and completions, the company saw strong demand for integrated water and chemistry solutions, indicating a solid commodity price environment [19] Company Strategy and Development Direction - The company is focused on improving its core business, advancing technology, sustainability, and diversification efforts, along with executing strategic mergers and acquisitions (M&A) [8] - Recent acquisitions of Breakwater Energy Partners and Cypress Environmental Services are expected to drive efficiencies and create value, with a focus on expanding water recycling capabilities [10][14] - The company initiated a regular quarterly dividend program, reflecting confidence in its operating performance and commitment to shareholder returns [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for continued operational efficiency gains and growth opportunities from recent acquisitions, anticipating a strong year in 2023 [21][20] - The company highlighted the importance of integrating new acquisitions and maintaining a disciplined capital structure to support growth [18][38] - Management noted that while working capital needs increased in Q3, they expect to reverse this trend in Q4 and generate substantial positive free cash flow in 2023 [60][61] Other Important Information - The company finished Q3 with a net cash position of $13.2 million and no bank debt, indicating strong liquidity [40] - The Breakwater acquisition is expected to generate approximately $110 million to $115 million in revenue and over $30 million in adjusted EBITDA on a full-year basis [15] Q&A Session Summary Question: Can you walk me through the process to develop Breakwater's capacity? - The permitting process can take as little as three to four months, but initially, it may take six months or more. Construction timelines vary based on size and treatment type, ranging from four to nine months [45][46] Question: Are there other M&A opportunities in different basins? - The company remains active in the market and believes there are more opportunities across the U.S. for water and chemical solutions [49][50] Question: How do you expect to reverse working capital flow in Q4? - The company plans to integrate recent acquisitions and upgrade ERP systems to streamline operations, aiming for substantial positive free cash flow in 2023 [60][61] Question: What is the current utilization rate of existing recycling facilities? - Utilization rates improved in Q3, with all facilities contributing for a full quarter, but half are still underutilized [63] Question: Did you negotiate with Cypress creditors during their restructuring? - Conversations occurred prior to the transaction, and the acquisition was made from a party involved in restructuring [65]