Select Water Solutions(US:WTTR)2024-11-06 17:27Financial Data and Key Metrics Changes - The company achieved a net income growth of 26% compared to the second quarter of 2024, with revenues growing by 40% year-over-year and gross profit before depreciation and amortization (D&A) increasing by 99% compared to Q3 2023 [9][30][43] - Consolidated adjusted EBITDA for Q3 2024 was $73 million, exceeding guidance of $66 million to $70 million, while the fourth quarter is expected to see adjusted EBITDA between $60 million to $62 million [43][44] Business Line Data and Key Metrics Changes - Water Infrastructure segment revenues grew by 20% compared to Q2 2024, with gross profit before D&A increasing by 33% [9][30] - Water Services segment revenues increased by approximately 2% despite a modest decline in overall completions activity, while margins are expected to hold steady at 20% to 21% in Q4 [38][39] - Chemical Technologies segment experienced a revenue decline due to decreased activity with legacy pressure pumping customers, but is expected to recover in Q4 with revenue growth in the mid-single digits and margins improving to 14% to 16% [40][41] Market Data and Key Metrics Changes - The company added 25,000 acres under long-term dedication in the Permian Basin and executed two new pipeline connection agreements in the Bakken, enhancing its market footprint [11][12] - The company anticipates a seasonal activity slowdown in Q4, particularly impacting the Water Services segment, while expecting revenue and margin recovery in the Chemical Technologies segment [18][39] Company Strategy and Development Direction - The company aims to continue growing its production base and long-term contracted revenue within the Water Infrastructure segment, with a focus on operational improvements and strategic acquisitions [22][36] - The company is positioned to capitalize on industry trends towards increased recycling and complex full life cycle solutions, supporting continued growth opportunities [23][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving record-setting annual adjusted EBITDA and noted that the business development backlog is increasing in size and certainty [15][14] - The company expects strong margins to continue, with a rebound in activity anticipated in Q1 2025 as new projects come online [20][37] Other Important Information - The company reduced SG&A expenses by more than 4% or $1.7 million relative to Q2 2024, maintaining a conservative balance sheet with $80 million of outstanding borrowings [42][46] - A 17% increase in the quarterly dividend payment to $0.07 per share was announced, with total capital return to shareholders expected to be about $40 million during 2024 [49][50] Q&A Session Summary Question: Future margin trajectory in Water Infrastructure - Management indicated that margins in the Water Infrastructure segment are expected to remain in the 50% to 60% range, with opportunities for further improvement through increased asset utilization and strategic contracts [58][62] Question: Impact of operational downtime on Q4 EBITDA - Management clarified that over half of the expected decline in Q4 EBITDA is attributed to planned operational downtime at specific facilities, with some seasonal impacts also expected [71][72] Question: New product wins in Chemical Technologies - Management noted that new product wins are occurring across various regions, particularly in the Permian Basin, and are expected to be repeatable going forward [74] Question: Expected outcomes for the New Mexico recycling plant transition - Management explained that the transition to an integrated system will enhance utilization across facilities, allowing for better water management and increased efficiency [78][79] Question: Long-term contracts and water balancing capability - Management confirmed that long-term contracts are being secured due to the company's water balancing capabilities, providing certainty for operators [101][102] Question: Regulatory environment impact - Management stated that the current regulatory environment is supportive of the industry, with a focus on managing produced water waste streams [110][112]