Generated consolidated revenue of $389 million during the third quarter of 2023, up 4% year-over-year as compared to the third quarter of 2022
Water Infrastructure generated revenues of $58.4 million, an 86% increase year-over-year as compared to the third quarter of 2022
Delivered $118.2 million of operating cash flows during the third quarter of 2023
Announced multiple new contracted infrastructure projects expanding upon existing systems in the Northern Delaware Basin and Haynesville Shale
HOUSTON, Oct. 31, 2023 /PRNewswire/ — Select Water Solutions, Inc. (NYSE: WTTR) (“Select” or the “Company”), a leading provider of sustainable water and chemical solutions, today announced its financial and operating results for the quarter ended September 30, 2023.
John Schmitz, Chairman of the Board, President and CEO, stated, “During the third quarter, we delivered strong operating cash flows, ending the quarter with a debt-free balance sheet once again. With a $75 million reduction in accounts receivable during the third quarter, we’ve now reduced our accounts receivable by more than $137 million since the end of the first quarter, materially outpacing our target of a $100 million reduction by year-end. Our Water Infrastructure business achieved solid sequential revenue growth and margin improvement, as we continue to bring new contracted infrastructure projects online and add additional opportunities to the backlog. While we did see some impact to consolidated revenues from a more than 10% decline in U.S. onshore completions activity according to industry data, our Water Services and Chemical Technologies segments both outperformed the activity levels overall. Based on our continued confidence in Select’s operating capabilities, cash flow generation, infrastructure growth opportunities, and the strength of our balance sheet, we’ve been able to further enhance our capital return program, implementing a 20% increase to our upcoming quarterly dividend payment as compared to the prior quarter. We increased shareholder returns while maintaining a disciplined capital structure to support the growth of our business, particularly the continued expansion of our water recycling and distribution networks and other infrastructure initiatives.
“We expect to continue to generate strong free cash flow during the fourth quarter, with our full-year targets intact, though the contributions from net working capital will abate given the outperformance to date. Our net capital expenditure forecast tightens further to $120 to $130 million, remaining within our latest guidance range. Our recent organic recycling and disposal infrastructure projects have delivered strong performance over the last few quarters, and we expect to see this momentum continue in the fourth quarter and into 2024. Even with recent commodity price and activity volatility, we continue to experience increased demand for new infrastructure development opportunities across all basins as water infrastructure constraints remain a significant challenge for our customers. I believe our latest infrastructure project announcements demonstrate the value in our asset base and the continued opportunity to create long-term value from both brownfield and greenfield investment projects across multiple basins.
“Heading into year-end, we have a very strong backlog remaining for both greenfield and brownfield infrastructure system projects, and we expect multiple additional capital projects will come under contract in the months ahead. This backlog of accretive capital projects positions the Water Infrastructure segment to see continued steady financial growth during the fourth quarter of 2023, and into 2024 and beyond. Ultimately, Select remains uniquely positioned in the competitive landscape to advance the integration of water and chemical technology solutions with high-margin, long-term contracted infrastructure.
“Finally, we are confident in our ability to continue to improve the operational performance of the business in 2024. Though we did see some modest regression in the consolidated margins during the third quarter, we reaffirm our focus on improving our operating margins, growing our free cash flow and executing on the meaningful opportunities that lie ahead to continue developing our sustainable water infrastructure and specialty chemistry solutions. This will provide ample opportunities for incremental growth, while also allowing us to advance our support of committed capital returns for our shareholders,” concluded Schmitz.
Third Quarter 2023 Consolidated Financial Information
Revenue for the third quarter of 2023 was $389.3 million as compared to $404.6 million in the second quarter of 2023 and $375.1 million in the third quarter of 2022. Net income for the third quarter of 2023 was $15.3 million as compared to $22.6 million in the second quarter of 2023 and $24.7 million in the third quarter of 2022.
For the third quarter of 2023, gross profit was $56.3 million, as compared to $61.2 million in the second quarter of 2023 and $58.8 million in the third quarter of 2022. Total gross margin was 14.5% in the third quarter of 2023 as compared to 15.1% in the second quarter of 2023 and 15.7% in the third quarter of 2022. Gross margin before depreciation and amortization (“D&A”) for the third quarter of 2023 was 23.4% as compared to 23.8% for the second quarter of 2023 and 22.8% for the third quarter of 2022.
Selling, General & Administrative expenses (“SG&A”) during the third quarter of 2023 was $39.0 million as compared to $34.3 million during the second quarter of 2023 and $29.8 million during the third quarter of 2022. SG&A during the third and second quarters of 2023 and the third quarter of 2022 was impacted by non-recurring transaction costs of $4.7 million, $2.0 million and $0.7 million, respectively, which includes rebranding costs of $4.3 million and $1.6 million during the third quarter and second quarter of 2023, respectively.
Adjusted EBITDA was $63.0 million in the third quarter of 2023 as compared to $69.8 million in the second quarter of 2023 and $62.8 million in the third quarter of 2022. Adjusted EBITDA during the third quarter of 2023 was adjusted for $4.7 million of non-recurring transaction costs, $0.6 million of non-cash losses on asset sales, and $1.0 million in other non-recurring adjustments. Non-cash compensation expense accounted for an additional $5.0 million adjustment during the third quarter of 2023. Please refer to the end of this release for reconciliations of gross profit before D&A (non-GAAP measure) to gross profit and of Adjusted EBITDA (non-GAAP measure) to net income.
Business Segment Information
The Water Services segment generated revenues of $251.9 million in the third quarter of 2023 as compared to $264.6 million in the second quarter of 2023 and $264.3 million in the third quarter of 2022. Gross margin before D&A for Water Services was 20.5% in the third quarter of 2023 as compared to 21.9% in the second quarter of 2023 and 22.6% in the third quarter of 2022. Water Services segment revenues decreased 4.8% sequentially, resulting from declines in completions activity combined with the continued consolidation and elimination of certain non-core and underperforming operations. For the fourth quarter of 2023, the Company expects to see revenues impacted by year-end seasonality with segment revenues down mid-single-digit percentages. The Company expects gross margins before D&A to stay relatively steady during the fourth quarter of 2023 before improving in 2024.
The Water Infrastructure segment generated revenues of $58.4 million in the third quarter of 2023 as compared to $55.3 million in the second quarter of 2023 and $31.4 million in the third quarter of 2022. Gross margin before D&A for Water Infrastructure was 40.1% in the third quarter of 2023 as compared to 37.8% in the second quarter of 2023 and 35.0% in the third quarter of 2022. Water Infrastructure revenues increased 5.6% sequentially relative to the second quarter of 2023, as increased system utilization and new project contributions led to an 11.6% increase in pipeline volumes and a 5.0% increase in recycling volumes. Additionally, gross margins before D&A improved by 227 basis points sequentially during the third quarter of 2023, driven primarily by strong incremental margins on additional system utilization across the asset base. The Company anticipates Water Infrastructure revenues increasing by mid-single digit percentages during the fourth quarter of 2023, with gross margins before D&A improving 200-300 basis points, supported by the accretive margin contributions of new organic projects commencing operations during the quarter.
The Chemical Technologies segment generated revenues of $79.0 million in the third quarter of 2023 as compared to $84.8 million in the second quarter of 2023 and $79.4 million in the third quarter of 2022. Gross margin before D&A for Chemical Technologies was 20.3% in the third quarter of 2023 as compared to 20.6% in the second quarter of 2023 and 18.8% in the third quarter of 2022. While revenues declined by 6.8% during the third quarter, the decline was less than the more than 10% decline in overall U.S. onshore completions activity and gross profit before D&A held relatively steady. For the fourth quarter of 2023, the Company anticipates seasonal impacts to revenues and margins, with revenues down low- to mid-single-digit percentages with 19% – 20% gross margins before D&A.
Cash Flow and Capital Expenditures
Cash flow from operations for the third quarter of 2023 was $118.2 million as compared to $102.0 million in the second quarter of 2023 and $5.4 million in the third quarter of 2022. Cash flow from operations during the third quarter of 2023 significantly benefited from a $60.4 million decrease in net working capital, including $74.1 million of inflows from reduced accounts receivable balances, as substantial progress was made in reducing the billing backlog resulting from the systems integration of recent acquisitions.
Net capital expenditures for the third quarter of 2023 were $33.6 million, comprised of $35.2 million of capital expenditures partially offset by $1.6 million of cash proceeds from asset sales, including the divestment of underutilized equipment and real estate from recently acquired businesses. Cash flow from operations less net capital expenditures was $84.6 million during the third quarter of 2023.
Cash flows from financing activities during the third quarter of 2023 included $70.1 million of net outflows consisting of $65.0 million of repayments on our sustainability-linked credit facility and $5.8 million of quarterly dividends and distributions paid, partially offset by $1.0 million of cash contributed from noncontrolling interests.
Balance Sheet and Capital Structure
Total cash and cash equivalents were $25.0 million as of September 30, 2023, as compared to $10.6 million as of June 30, 2023. The Company had no borrowings outstanding under its sustainability-linked credit facility as of September 30, 2023 and $65.0 million of borrowings outstanding as of June 30, 2023.
As of September 30, 2023 and June 30, 2023, the borrowing base under the sustainability-linked credit facility was $238.8 million and $269.7 million, respectively. The Company had available borrowing capacity under its sustainability-linked credit facility as of September 30, 2023 and June 30, 2023, of approximately $224.0 million and $182.1 million, respectively, after giving effect to $14.8 million and $22.6 million of outstanding letters of credit as September 30, 2023 and June 30, 2023, respectively.
Total liquidity was $249.0 million as of September 30, 2023, as compared to $192.7 million as of June 30, 2023. The Company had 99,777,776 weighted average shares of Class A common stock and 16,221,101 weighted average shares of Class B common stock outstanding during the third quarter of 2023.
Water Infrastructure Business Development Updates
Northern Delaware Basin Projects
During October 2023, Select contracted to build approximately 11 miles of produced water gathering lines and 9 miles of recycled produced water distribution lines tied into our previously announced Delaware Basin Recycling System, which recently commenced operations. The projects are supported by three incremental 10-year contracts with the original anchor customer and add an additional 4,400 dedicated acres to support the system, increasing the overall dedication to 22,400 acres. One contract added the new dedicated acreage and two of the contracts resulted from the right-of-first offer provision in the original contract for an additional 10,000 acres under contract to support the additional project development.
Select also signed a fourth long-term produced water gathering and distribution agreement with a new customer to tie into the Delaware Basin Recycling System. The combined capital expenditures for the projects are expected to be approximately $10 – $12 million. We expect construction to be completed and for the pipelines and tie-ins to be operational during the first quarter of 2024.
East Texas Gathering & Disposal Agreements
Select recently signed multi-year gathering and disposal agreements with a customer in the Haynesville Shale region in East Texas. The agreements provide a dedicated tie-in to Select’s existing Haynesville gathering pipeline system and 10,000 barrels per day of dedicated pipeline capacity in exchange for a minimum volume commitment of 10,000 barrels per day of produced water, once available, over a 21,000 acre dedication. The dedication will require a minimal capital investment of approximately $2 million. In addition to the produced water gathering and disposal commitment, the contracts include additional service commitments within our Water Services segment as well, driving market share gains and enhanced profitability in the region. We expect the tie-in to be completed and for the facilities to be operational during the fourth quarter of 2023.
Segment Reporting
During the quarter ended June 30, 2023, Select realigned its reportable segments to better reflect its strategy, how its businesses are managed and provide greater visibility into each business’ financial performance. As a result of these changes, Select’s legacy water sourcing and certain temporary water logistics service offerings which were previously reported in the Water Infrastructure segment are now included in the Water Services segment.
The financial information for the third quarter of 2023 in this press release is presented under the realigned segment structure, and the historical financial information for prior periods has been recast to conform to the realigned segment structure. The changes in segment reporting have no impact on the Company’s historical consolidated financial positions, results of operations or cash flows.
Third Quarter Earnings Conference Call
Select has scheduled a conference call on Wednesday, November 1, 2023 at 11:00 a.m. Eastern time / 10:00 a.m. Central time. Please dial 201-389-0872 and ask for the Select Water Solutions call at least 10 minutes prior to the start time of the call, or listen to the call live over the Internet by logging on to the website at the address https://investors.selectwater.com/events-presentations/current. A telephonic replay of the conference call will be available through November 15, 2023 and may be accessed by calling 201-612-7415 using passcode 13742241#. A webcast archive will also be available at the link above shortly after the call and will be accessible for approximately 90 days.
About Select Water Solutions, Inc.
Select is a leading provider of sustainable water and chemical solutions to the energy industry. These solutions are supported by the Company’s critical water infrastructure assets, chemical manufacturing and water treatment and recycling capabilities. As a leader in sustainable water and chemical solutions, Select places the utmost importance on safe, environmentally responsible management of water throughout the lifecycle of a well. Additionally, Select believes that responsibly managing water resources throughout its operations to help conserve and protect the environment is paramount to the Company’s continued success. For more information, please visit Select’s website, https://www.selectwater.com.
Cautionary Statement Regarding Forward-Looking Statements
All statements in this communication other than statements of historical facts are forward-looking statements which contain our current expectations about our future results. We have attempted to identify any forward-looking statements by using words such as “could,” “believe,” “anticipate,” “expect,” “intend,” “project,” “will,” “estimate” and other similar expressions. Examples of forward-looking statements include, but are not limited to, the expectations of plans, business strategies, objectives and growth and anticipated financial and operational performance. Although we believe that the expectations reflected, and the assumptions or bases underlying our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause our actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include the risks that the benefits contemplated from our recent acquisitions may not be realized, the ability of Select to successfully integrate the acquired businesses’ operations, including employees, and realize anticipated synergies and cost savings and the potential impact of the consummation of the acquisitions on relationships, including with employees, suppliers, customers, competitors and creditors. Factors that could materially impact such forward-looking statements include, but are not limited to: the global macroeconomic uncertainty related to the Russia-Ukraine war and the conflict in the Israel-Gaza region, as well as other instability in the Middle East; central bank policy actions and disruptions in the bank and capital markets, including, bank failures and associated liquidity risks and other factors; actions by the members of OPEC+ with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations; the severity and duration of world health events; the level of capital spending and access to capital markets by oil and gas companies, trends and volatility in oil and gas prices, and our ability to manage through such volatility; and other factors discussed or referenced in the “Risk Factors” section of our most recent Annual Report on Form 10-K and those set forth from time to time in our other filings with the SEC. Investors should not place undue reliance on our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
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Contacts: |
Select Water Solutions, Inc. |
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Chris George – Senior Vice President, Corporate |
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Development, Investor Relations & Sustainability |
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(713) 296-1073 |
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Dennard Lascar Investor Relations |
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Ken Dennard / Natalie Hairston |
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(713) 529-6600 |
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WTTR-ER
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SELECT WATER SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) |
|||||||||||||||||||||
|
Three months ended |
Nine months ended |
||||||||||||||||||||
|
Sept 30, 2023 |
June 30, 2023 |
Sept 30, 2022 |
Sept 30, 2023 |
Sept 30, 2022 |
|||||||||||||||||
|
Revenue |
|||||||||||||||||||||
|
Water Services |
$ |
251,870 |
$ |
264,597 |
$ |
264,271 |
$ |
791,145 |
$ |
693,393 |
|||||||||||
|
Water Infrastructure |
58,375 |
55,277 |
31,368 |
169,118 |
80,686 |
||||||||||||||||
|
Chemical Technologies |
79,028 |
84,754 |
79,433 |
250,230 |
231,665 |
||||||||||||||||
|
Total revenue |
389,273 |
404,628 |
375,072 |
1,210,493 |
1,005,744 |
||||||||||||||||
|
Costs of revenue |
|||||||||||||||||||||
|
Water Services |
200,361 |
206,576 |
204,650 |
626,878 |
558,041 |
||||||||||||||||
|
Water Infrastructure |
34,992 |
34,392 |
20,392 |
103,718 |
51,424 |
||||||||||||||||
|
Chemical Technologies |
63,005 |
67,303 |
64,519 |
200,017 |
194,670 |
||||||||||||||||
|
Other |
— |
— |
(1) |
— |
— |
||||||||||||||||
|
Depreciation and amortization |
34,650 |
35,183 |
26,672 |
102,776 |
82,425 |
||||||||||||||||
|
Total costs of revenue |
333,008 |
343,454 |
316,232 |
1,033,389 |
886,560 |
||||||||||||||||
|
Gross profit |
56,265 |
61,174 |
58,840 |
177,104 |
119,184 |
||||||||||||||||
|
Operating expenses |
|||||||||||||||||||||
|
Selling, general and administrative |
38,983 |
34,335 |
29,782 |
109,147 |
84,792 |
||||||||||||||||
|
Depreciation and amortization |
512 |
739 |
543 |
1,846 |
1,636 |
||||||||||||||||
|
Impairments and abandonments |
32 |
356 |
— |
11,554 |
— |
||||||||||||||||
|
Lease abandonment costs |
(12) |
9 |
83 |
73 |
336 |
||||||||||||||||
|
Total operating expenses |
39,515 |
35,439 |
30,408 |
122,620 |
86,764 |
||||||||||||||||
|
Income from operations |
16,750 |
25,735 |
28,432 |
54,484 |
32,420 |
||||||||||||||||
|
Other income (expense) |
|||||||||||||||||||||
|
Gain (loss) on sales of property and equipment and divestitures, net |
23 |
(1,246) |
(479) |
1,688 |
1,905 |
||||||||||||||||
|
Interest expense, net |
(765) |
(2,042) |
(616) |
(4,290) |
(1,830) |
||||||||||||||||
|
Foreign currency (loss) gain, net |
(1) |
1 |
(6) |
(4) |
(9) |
||||||||||||||||
|
Bargain purchase gain |
— |
— |
(3,273) |
— |
13,768 |
||||||||||||||||
|
Other |
768 |
872 |
1,153 |
2,486 |
2,277 |
||||||||||||||||
|
Income before income tax expense |
16,775 |
23,320 |
25,211 |
54,364 |
48,531 |
||||||||||||||||
|
Income tax expense |
(483) |
(387) |
(276) |
(1,068) |
(672) |
||||||||||||||||
|
Equity in losses of unconsolidated entities |
(978) |
(372) |
(218) |
(1,716) |
(576) |
||||||||||||||||
|
Net income |
15,314 |
22,561 |
24,717 |
51,580 |
47,283 |
||||||||||||||||
|
Less: net income attributable to noncontrolling interests |
(968) |
(2,446) |
(3,393) |
(4,772) |
(6,654) |
||||||||||||||||
|
Net income attributable to Select Water Solutions, Inc. |
$ |
14,346 |
$ |
20,115 |
$ |
21,324 |
$ |
46,808 |
$ |
40,629 |
|||||||||||
|
Net income per share attributable to common stockholders: |
|||||||||||||||||||||
|
Class A—Basic |
$ |
0.14 |
$ |
0.20 |
$ |
0.23 |
$ |
0.46 |
$ |
0.44 |
|||||||||||
|
Class B—Basic |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||||||||
|
Net income per share attributable to common stockholders: |
|||||||||||||||||||||
|
Class A—Diluted |
$ |
0.14 |
$ |
0.20 |
$ |
0.22 |
$ |
0.45 |
$ |
0.43 |
|||||||||||
|
Class B—Diluted |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||||||||
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SELECT WATER SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data) |
||||||||||||
|
Sept 30, 2023 |
June 30, 2023 |
March 31, 2023 |
December 31, 2022 |
|||||||||
|
(unaudited) |
(unaudited) |
(unaudited) |
||||||||||
|
Assets |
||||||||||||
|
Current assets |
||||||||||||
|
Cash and cash equivalents |
$ |
25,043 |
$ |
10,562 |
$ |
6,028 |
$ |
7,322 |
||||
|
Accounts receivable trade, net of allowance for credit losses |
355,532 |
430,765 |
492,613 |
429,983 |
||||||||
|
Accounts receivable, related parties |
287 |
290 |
607 |
5,087 |
||||||||
|
Inventories |
44,880 |
42,893 |
40,846 |
41,164 |
||||||||
|
Prepaid expenses and other current assets |
44,490 |
36,483 |
39,774 |
34,380 |
||||||||
|
Total current assets |
470,232 |
520,993 |
579,868 |
517,936 |
||||||||
|
Property and equipment |
1,151,654 |
1,120,626 |
1,112,899 |
1,084,005 |
||||||||
|
Accumulated depreciation |
(628,293) |
(609,392) |
(597,861) |
(584,451) |
||||||||
|
Total property and equipment, net |
523,361 |
511,234 |
515,038 |
499,554 |
||||||||
|
Right-of-use assets, net |
39,950 |
41,923 |
44,562 |
47,662 |
||||||||
|
Goodwill |
4,683 |
4,683 |
— |
— |
||||||||
|
Other intangible assets, net |
120,851 |
125,514 |
125,799 |
138,800 |
||||||||
|
Other long-term assets, net |
23,411 |
22,745 |
19,985 |
18,901 |
||||||||
|
Total assets |
$ |
1,182,488 |
$ |
1,227,092 |
$ |
1,285,252 |
$ |
1,222,853 |
||||
|
Liabilities and Equity |
||||||||||||
|
Current liabilities |
||||||||||||
|
Accounts payable |
$ |
54,500 |
$ |
47,387 |
$ |
77,585 |
$ |
61,539 |
||||
|
Accrued accounts payable |
74,302 |
75,872 |
75,625 |
67,462 |
||||||||
|
Accounts payable and accrued expenses, related parties |
3,554 |
3,057 |
4,469 |
3,305 |
||||||||
|
Accrued salaries and benefits |
20,573 |
24,613 |
15,431 |
28,686 |
||||||||
|
Accrued insurance |
20,244 |
17,714 |
23,503 |
26,180 |
||||||||
|
Sales tax payable |
3,074 |
3,655 |
4,036 |
3,056 |
||||||||
|
Accrued expenses and other current liabilities |
29,061 |
19,301 |
19,783 |
23,292 |
||||||||
|
Current operating lease liabilities |
15,274 |
16,162 |
16,898 |
17,751 |
||||||||
|
Current portion of finance lease obligations |
87 |
15 |
19 |
19 |
||||||||
|
Total current liabilities |
220,669 |
207,776 |
237,349 |
231,290 |
||||||||
|
Long-term operating lease liabilities |
38,837 |
40,712 |
43,372 |
46,388 |
||||||||
|
Long-term debt |
— |
65,000 |
75,500 |
16,000 |
||||||||
|
Other long-term liabilities |
43,983 |
49,651 |
45,696 |
45,447 |
||||||||
|
Total liabilities |
303,489 |
363,139 |
401,917 |
339,125 |
||||||||
|
Commitments and contingencies |
||||||||||||
|
Class A common stock, $0.01 par value |
1,039 |
1,038 |
1,090 |
1,094 |
||||||||
|
Class A-2 common stock, $0.01 par value |
— |
— |
— |
— |
||||||||
|
Class B common stock, $0.01 par value |
162 |
162 |
162 |
162 |
||||||||
|
Preferred stock, $0.01 par value |
— |
— |
— |
— |
||||||||
|
Additional paid-in capital |
1,022,406 |
1,023,370 |
1,063,149 |
1,075,915 |
||||||||
|
Accumulated deficit |
(264,386) |
(278,732) |
(298,847) |
(311,194) |
||||||||
|
Total stockholders’ equity |
759,221 |
745,838 |
765,554 |
765,977 |
||||||||
|
Noncontrolling interests |
119,778 |
118,115 |
117,781 |
117,751 |
||||||||
|
Total equity |
878,999 |
863,953 |
883,335 |
883,728 |
||||||||
|
Total liabilities and equity |
$ |
1,182,488 |
$ |
1,227,092 |
$ |
1,285,252 |
$ |
1,222,853 |
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|
SELECT WATER SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) |
||||||||||||||||||||||||||||||
|
Three months ended |
Nine months ended |
|||||||||||||||||||||||||||||
|
Sept 30, 2023 |
June 30, 2023 |
Sept 30, 2022 |
Sept 30, 2023 |
Sept 30, 2022 |
||||||||||||||||||||||||||
|
Cash flows from operating activities |
||||||||||||||||||||||||||||||
|
Net income |
$ |
15,314 |
$ |
22,561 |
$ |
24,717 |
$ |
51,580 |
$ |
47,283 |
||||||||||||||||||||
|
Adjustments to reconcile net income to net cash used in operating activities |
||||||||||||||||||||||||||||||
|
Depreciation and amortization |
35,162 |
35,922 |
27,215 |
104,622 |
84,061 |
|||||||||||||||||||||||||
|
(Gain) loss on disposal of property and equipment and divestitures |
(23) |
1,246 |
479 |
(1,688) |
(1,905) |
|||||||||||||||||||||||||
|
Equity in losses of unconsolidated entities |
978 |
372 |
218 |
1,716 |
576 |
|||||||||||||||||||||||||
|
Bad debt expense |
1,156 |
856 |
828 |
3,987 |
2,091 |
|||||||||||||||||||||||||
|
Amortization of debt issuance costs |
122 |
122 |
122 |
366 |
539 |
|||||||||||||||||||||||||
|
Inventory adjustments |
115 |
367 |
(801) |
557 |
(612) |
|||||||||||||||||||||||||
|
Equity-based compensation |
5,014 |
4,809 |
3,804 |
12,787 |
11,023 |
|||||||||||||||||||||||||
|
Impairments and abandonments |
32 |
356 |
— |
11,554 |
— |
|||||||||||||||||||||||||
|
Bargain purchase gain |
— |
— |
3,273 |
— |
(13,768) |
|||||||||||||||||||||||||
|
Unrealized gain on short-term investment |
— |
— |
(40) |
— |
— |
|||||||||||||||||||||||||
|
Other operating items, net |
(52) |
(462) |
(232) |
(956) |
(710) |
|||||||||||||||||||||||||
|
Changes in operating assets and liabilities |
||||||||||||||||||||||||||||||
|
Accounts receivable |
74,081 |
61,308 |
(51,815) |
70,467 |
(141,468) |
|||||||||||||||||||||||||
|
Prepaid expenses and other assets |
(11,613) |
(1,753) |
(5,820) |
(18,797) |
(200) |
|||||||||||||||||||||||||
|
Accounts payable and accrued liabilities |
(2,073) |
(23,739) |
3,413 |
(34,033) |
10,983 |
|||||||||||||||||||||||||
|
Net cash provided by (used in) operating activities |
118,213 |
101,965 |
5,361 |
202,162 |
(2,107) |
|||||||||||||||||||||||||
|
Cash flows from investing activities |
||||||||||||||||||||||||||||||
|
Purchase of property and equipment |
(35,166) |
(39,350) |
(19,839) |
(102,401) |
(50,815) |
|||||||||||||||||||||||||
|
Purchase of equity-method investments |
— |
(500) |
(2,500) |
(500) |
(6,767) |
|||||||||||||||||||||||||
|
Collection of note receivable |
— |
— |
— |
— |
184 |
|||||||||||||||||||||||||
|
Distribution from cost method investment |
— |
— |
— |
— |
60 |
|||||||||||||||||||||||||
|
Acquisitions and divestitures |
— |
(4,000) |
984 |
(13,418) |
6,412 |
|||||||||||||||||||||||||
|
Proceeds received from sales of property and equipment |
1,579 |
3,077 |
3,750 |
11,380 |
21,433 |
|||||||||||||||||||||||||
|
Net cash used in investing activities |
(33,587) |
(40,773) |
(17,605) |
(104,939) |
(29,493) |
|||||||||||||||||||||||||
|
Cash flows from financing activities |
||||||||||||||||||||||||||||||
|
Borrowings from revolving line of credit |
— |
28,500 |
52,000 |
105,250 |
82,000 |
|||||||||||||||||||||||||
|
Payments on revolving line of credit |
(65,000) |
(39,000) |
(52,000) |
(121,250) |
(82,000) |
|||||||||||||||||||||||||
|
Payments on current and long-term debt |
— |
— |
— |
— |
(18,780) |
|||||||||||||||||||||||||
|
Payments of finance lease obligations |
(45) |
(5) |
(5) |
(55) |
(108) |
|||||||||||||||||||||||||
|
Payment of debt issuance costs |
— |
— |
— |
— |
(2,144) |
|||||||||||||||||||||||||
|
Dividends and distributions paid |
(5,821) |
(5,880) |
— |
(17,907) |
— |
|||||||||||||||||||||||||
|
Proceeds from share issuance |
— |
— |
10 |
— |
35 |
|||||||||||||||||||||||||
|
Distributions to noncontrolling interests |
— |
(1,581) |
— |
(1,581) |
||||||||||||||||||||||||||
|
Contributions from noncontrolling interests |
1,000 |
— |
— |
5,950 |
— |
|||||||||||||||||||||||||
|
Repurchase of common stock |
(276) |
(38,694) |
(272) |
(49,905) |
(19,967) |
|||||||||||||||||||||||||
|
Net cash used in financing activities |
(70,142) |
(56,660) |
(267) |
(79,498) |
(40,964) |
|||||||||||||||||||||||||
|
Effect of exchange rate changes on cash |
(3) |
2 |
(9) |
(4) |
(15) |
|||||||||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents |
14,481 |
4,534 |
(12,520) |
17,721 |
(72,579) |
|||||||||||||||||||||||||
|
Cash and cash equivalents, beginning of period |
10,562 |
6,028 |
25,742 |
7,322 |
85,801 |
|||||||||||||||||||||||||
|
Cash and cash equivalents, end of period |
$ |
25,043 |
$ |
10,562 |
$ |
13,222 |
$ |
25,043 |
$ |
13,222 |
||||||||||||||||||||
Comparison of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, gross profit before depreciation and amortization (D&A) and gross margin before D&A are not financial measures presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). We define EBITDA as net income (loss), plus interest expense, income taxes and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment and abandonment charges or asset write-offs pursuant to GAAP, plus non-cash losses on the sale of assets or subsidiaries, non-recurring compensation expense, non-cash compensation expense, and non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus/(minus) losses/(gains) on unconsolidated entities less bargain purchase gains from business combinations. We define gross profit before D&A as revenue less cost of revenue, excluding cost of sales D&A expense. We define gross margin before D&A as gross profit before D&A divided by revenue. EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A are supplemental non-GAAP financial measures that we believe provide useful information to external users of our financial statements, such as industry analysts, investors, lenders and rating agencies because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and non-recurring items outside the control of our management team. We present EBITDA, Adjusted EBITDA, gross profit before D&A and gross margin before D&A because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.
Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Gross profit is the GAAP measure most directly comparable to gross profit before D&A. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or gross profit before D&A in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and gross profit before D&A may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income, which is the most directly comparable GAAP measure for the periods presented:
|
Three months ended, |
|||||||||
|
Sept 30, 2023 |
June 30, 2023 |
Sept 30, 2022 |
|||||||
|
(unaudited) |
|||||||||
|
(in thousands) |
|||||||||
|
Net income |
$ |
15,314 |
$ |
22,561 |
$ |
24,717 |
|||
|
Interest expense, net |
765 |
2,042 |
616 |
||||||
|
Income tax expense |
483 |
387 |
276 |
||||||
|
Depreciation and amortization |
35,162 |
35,922 |
27,215 |
||||||
|
EBITDA |
51,724 |
60,912 |
52,824 |
||||||
|
Impairments and abandonments |
32 |
356 |
— |
||||||
|
Bargain purchase gain |
— |
— |
3,273 |
||||||
|
Non-cash loss on sale of assets or subsidiaries |
583 |
1,426 |
1,608 |
||||||
|
Non-cash compensation expenses |
5,014 |
4,809 |
3,804 |
||||||
|
Non-recurring transaction costs |
4,669 |
1,963 |
965 |
||||||
|
Lease abandonment costs |
(12) |
9 |
83 |
||||||
|
Equity in losses of unconsolidated entities |
978 |
372 |
218 |
||||||
|
Foreign currency loss (gain), net |
1 |
(1) |
6 |
||||||
|
Adjusted EBITDA |
$ |
62,989 |
$ |
69,846 |
$ |
62,781 |
|||
The following table presents a reconciliation of gross profit before D&A to total gross profit, which is the most directly comparable GAAP measure, and a calculation of gross margin before D&A for the periods presented:
|
Three months ended, |
|||||||||||||||||
|
Sept 30, 2023 |
June 30, 2023 |
Sept 30, 2022 |
|||||||||||||||
|
(unaudited) |
|||||||||||||||||
|
(in thousands) |
|||||||||||||||||
|
Gross profit by segment |
|||||||||||||||||
|
Water services |
$ |
28,689 |
$ |
34,881 |
$ |
39,053 |
|||||||||||
|
Water infrastructure |
14,191 |
11,512 |
7,146 |
||||||||||||||
|
Chemical technologies |
13,385 |
14,782 |
12,640 |
||||||||||||||
|
Other |
— |
— |
1 |
||||||||||||||
|
As reported gross profit |
56,265 |
61,175 |
58,840 |
||||||||||||||
|
Plus depreciation and amortization |
|||||||||||||||||
|
Water services |
22,820 |
23,140 |
20,568 |
||||||||||||||
|
Water infrastructure |
9,192 |
9,373 |
3,830 |
||||||||||||||
|
Chemical technologies |
2,638 |
2,669 |
2,274 |
||||||||||||||
|
Total depreciation and amortization |
34,650 |
35,182 |
26,672 |
||||||||||||||
|
Gross profit before D&A |
$ |
90,915 |
$ |
96,357 |
$ |
85,512 |
|||||||||||
|
Gross profit before D&A by segment |
|||||||||||||||||
|
Water services |
51,509 |
58,021 |
59,621 |
||||||||||||||
|
Water infrastructure |
23,383 |
20,885 |
10,976 |
||||||||||||||
|
Chemical technologies |
16,023 |
17,451 |
14,914 |
||||||||||||||
|
Other |
— |
— |
1 |
||||||||||||||
|
Total gross profit before D&A |
$ |
90,915 |
$ |
96,357 |
$ |
85,512 |
|||||||||||
|
Gross margin before D&A by segment |
|||||||||||||||||
|
Water services |
20.5 % |
21.9 % |
22.6 % |
||||||||||||||
|
Water infrastructure |
40.1 % |
37.8 % |
35.0 % |
||||||||||||||
|
Chemical technologies |
20.3 % |
20.6 % |
18.8 % |
||||||||||||||
|
Other |
n/a |
n/a |
n/a |
||||||||||||||
|
Total gross margin before D&A |
23.4 % |
23.8 % |
22.8 % |
||||||||||||||
SOURCE Select Water Solutions
