Select Water Solutions(WTTR)2022-08-04 00:46Financial Data and Key Metrics Changes - Revenue increased by 14% quarter-over-quarter, rising from $295 million to $336 million, primarily driven by pricing and activity improvements [17][19] - Adjusted EBITDA grew by 48%, from $32.2 million to $47.7 million, while net income surged by 83%, from $8 million to $14.6 million [19] - Gross margin improved from 8.4% to 10.6% in the second quarter [19] Business Segment Data and Key Metrics Changes - Water Services segment revenues grew by 20% to $196 million, with gross margins increasing over 3 percentage points to 19% [23] - Water Infrastructure revenue increased by 3% to just over $60 million, with margins rising to 25.5% [24] - Chemicals segment revenue expanded by 10% to nearly $80 million, with margins growing slightly to 14.6% [25] Market Data and Key Metrics Changes - The second quarter saw a meaningful double-digit percentage increase in drilling activity, while completion activity lagged with single-digit percentage growth [14] - The company expects mid to high single-digit revenue growth in the Water Services segment for the third quarter, supported by activity growth and pricing gains [23] Company Strategy and Development Direction - The company is focused on improving its base business, advancing technology, sustainability, and executing strategic M&A [7] - The asset-light business model is designed to generate substantial free cash flow through the cycle, without requiring large amounts of reactivation or maintenance CapEx [10] - The company aims to capitalize on market leadership in sustainable water and chemical solutions, with ambitious targets for water stewardship [12] Management's Comments on Operating Environment and Future Outlook - Management believes that US unconventional resources will be the primary growth driver for global energy needs in the coming years [10] - The company is confident in generating meaningful free cash flow during the second half of 2022, supported by strong financial conditions [15] - Management noted that the integration of recent acquisitions is progressing well, with expectations for continued efficiencies and synergies [11] Other Important Information - The company issued its inaugural sustainability report during the second quarter, highlighting its commitment to water stewardship [12] - The company has commenced operations at two new contracted fixed recycling facilities, increasing recycling capacity to over 600,000 barrels per day [13] Q&A Session Summary Question: Pricing outlook for the second half of 2022 and 2023 - Management indicated that pricing has largely been to cover costs, with expectations for continued price increases in Q3 due to inflationary pressures and supply-demand imbalances [30][32] Question: Freshwater sourcing displacement by recycling efforts - The company is moving about 35 million to 40 million barrels of produced water that would directly replace fresh water [34] Question: Demand in other areas outside the Permian Basin - Management noted increased demand for services across their footprint, including new recycling projects in Colorado [37] Question: Update on synergy realization and cost savings from acquisitions - Management provided an update on the progress of synergy realization, indicating that back office rationalization is nearing completion, while operational efficiencies and revenue synergies are still being pursued [42][45] Question: Utilization levels of water services assets - Management stated that labor has been a constraint, but equipment is starting to become a limiting factor due to a lack of investment since 2018 [46][48] Question: Challenges in the chemical supply chain and inflationary pressures - Management acknowledged challenges in the chemical raw material supply chain, but noted that they have been able to navigate these issues effectively [64][66]