Select Water Solutions(US:WTTR)2022-05-04 20:45Financial Data and Key Metrics Changes - The company reported a sequential revenue growth of 16% in Q1 2022, reaching $295 million, which is an increase of $40 million from Q4 2021 and $90 million from Q3 2021 [8][16] - Adjusted EBITDA increased by 22% sequentially to $32.2 million, while net income was $8 million, slightly down from $11.2 million in the previous quarter [8][17] - Gross margin improved from 7% to 8.4% [17] - Free cash flow was negative at $20.5 million due to a working capital build of $44.9 million [17] Business Line Data and Key Metrics Changes - Water Services segment revenue grew by 16% to $164 million, with gross margins advancing to over 16% [22] - Water Infrastructure revenue increased by 25% to $59 million, although gross margin slipped slightly to 24% due to integration efforts and maintenance upgrades [22] - Oilfield Chemicals segment revenue rose by 7.5%, with gross margins increasing nearly 200 basis points to 14.4% [23] Market Data and Key Metrics Changes - The company noted a meaningful double-digit percentage increase in drilling activity, although completion activity lagged [14] - The company expects continued growth in activity supported by strong commodity prices [14] Company Strategy and Development Direction - The company is focused on improving its base business, advancing technologies, and executing strategic M&A [8] - The integration of Nuverra is ongoing, with expectations of improved profitability as operational efficiencies are realized [21] - The company aims to double its recycled water volumes over the next five years, with current estimates indicating that about 15% of handled water volumes are recycled [28] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in generating positive free cash flow throughout 2022 despite challenges from working capital and integration costs [9][18] - The company anticipates substantial positive free cash flow as integration costs diminish and working capital normalizes [18] - Management highlighted the importance of sustainability initiatives and the commitment to water stewardship [10][19] Other Important Information - The company executed a $16 million open-market share buyback during the first quarter [9] - A $270 million sustainability-linked asset-backed lending facility was closed, extending the term by five years [19] Q&A Session Summary Question: What is the current mix of recycled water and the industry's recycling percentage? - The company estimates that about 15% of its handled water volumes are recycled, with a target to exceed 50 million barrels of recycled water over the next five years [28] Question: What are the main inflationary pressures and supply chain challenges for Water Services? - Fuel prices were a significant inflationary challenge, and the long-term target for gross margins is expected to be in the mid-to-high 20s [34] Question: How is working capital expected to progress throughout 2022? - Positive free cash flow is anticipated, with net working capital as a percentage of revenue expected to decrease [36] Question: What further opportunities exist for operational improvements? - The company has a backlog of projects and is focused on integrating and investing in underutilized assets [39] Question: Is there urgency among E&Ps to partner for water needs? - There is increased interest from E&Ps for water sourcing and disposal solutions, particularly in the Permian [41] Question: What is the status of share repurchase authorization? - As of March 31, the company had authorization for $25 million in share repurchases, with some room left in that authorization [42]