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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 001-38066

SELECT WATER SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware

81-4561945

(State of incorporation)

(IRS Employer

Identification Number)

1233 W. Loop South, Suite 1400

Houston, TX

77027

(Address of principal executive offices)

(Zip Code)

(713) 235-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

WTTR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

Indicate by check mark whether the registrant is a shell company.   Yes      No  

As of April 29, 2024, the registrant had 102,694,571 shares of Class A common stock and 16,221,101 shares of Class B common stock outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, in this Quarterly Report and those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

global economic distress, including that resulting from the sustained Russia-Ukraine war and related economic sanctions, the conflict in the Israel-Gaza region and continued hostilities in the Middle East, including rising tensions with Iran, inflation and elevated interest rates, and potential energy insecurity in Europe, each of which may decrease demand for oil and natural gas or contribute to volatility in the prices for oil and natural gas, which may decrease demand for our services;
actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “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 announced supply limitations, which may be exacerbated by an increase in hostilities in the Middle East;
the level of capital spending and access to capital markets by oil and gas companies in response to changes in commodity prices or reduced demand;
the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources, including any delays and/or supply chain disruptions due to increased hostilities in the Middle East;
the impact of central bank policy actions, such as sustained, elevated rates of interest in response to high rates of inflation, and disruptions in the bank and capital markets;
the severity and duration of world health events and any resulting impact on commodity prices and supply and demand considerations;
the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies;
the degree to which consolidation among our customers may affect spending on U.S. drilling and completions, including the recent consolidation in the Permian Basin;
trends and volatility in oil and gas prices, and our ability to manage through such volatility;

3

the impact of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater, transferring produced water, interstate freshwater transfer, chemicals, carbon pricing, pipeline construction, taxation or emissions, leasing, permitting or drilling on federal lands and various other environmental matters;
regional impacts to our business, including our key infrastructure assets within the Bakken, the Northern Delaware and Midland Basin portions of the Permian Basin, and the Haynesville;
capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets;
regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our services, including as a result of the Inflation Reduction Act of 2022 (“IRA 2022”) or otherwise;
actions taken by the Biden Administration or state governments, such as executive orders or new or expanded regulations, that may negatively impact the future production of oil and natural gas in the U.S. or our customers’ access to federal and state lands for oil and gas development operations, thereby reducing demand for our services in the affected areas;
changes in global political or economic conditions, generally, including as a result of the fall 2024 presidential election and any resultant political uncertainty, and in the markets we serve, including the rate of inflation and potential economic recession;
growing demand for electric vehicles that may result in reduced demand for refined products deriving from crude oil such as gasoline and diesel fuel, and therefore the demand for our services;
our ability to hire and retain key management and employees, including skilled labor;
our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms, including as a result of sustained increases in cost of capital resulting from Federal Reserve policies and otherwise;
our health, safety and environmental performance;
the impact of competition on our operations;
the degree to which our exploration and production (“E&P”) customers may elect to operate their water-management services in-house rather than source these services from companies like us;
our level of indebtedness and our ability to comply with covenants contained in our Sustainability-Linked Credit Facility (as defined herein) or future debt instruments;
delays or restrictions in obtaining permits by us or our customers;
constraints in supply or availability of equipment used in our business;
the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis;

4

acts of terrorism, war or political or civil unrest in the U.S. or elsewhere, such as the Russia-Ukraine war, the conflict in the Israel-Gaza region and/or other instability and hostilities in the Middle East;
accidents, weather, natural disasters or other events affecting our business; and
the other risks identified in our most recent Annual Report on Form 10-K and under the headings “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A. Risk Factors” in this Quarterly Report.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Part I―Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “Part II―Item 1A. Risk Factors” in this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary note.

5

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

March 31, 2024

December 31, 2023

    

(unaudited)

    

Assets

Current assets

 

Cash and cash equivalents

$

12,753

$

57,083

Accounts receivable trade, net of allowance for credit losses of $5,259 and $5,318, respectively

 

323,113

 

322,611

Accounts receivable, related parties

 

330

 

171

Inventories

 

37,636

 

38,653

Prepaid expenses and other current assets

 

37,886

 

35,541

Total current assets

 

411,718

 

454,059

Property and equipment

 

1,242,133

 

1,144,989

Accumulated depreciation

 

(650,952)

 

(627,408)

Total property and equipment, net

 

591,181

 

517,581

Right-of-use assets, net

42,931

39,504

Goodwill

 

31,202

 

4,683

Other intangible assets, net

 

127,649

 

116,189

Deferred tax assets, net

60,489

 

61,617

Other long-term assets

 

26,137

 

24,557

Total assets

$

1,291,307

$

1,218,190

Liabilities and Equity

 

 

  

Current liabilities

 

 

  

Accounts payable

$

54,389

$

42,582

Accrued accounts payable

62,833

66,182

Accounts payable and accrued expenses, related parties

 

4,227

 

4,086

Accrued salaries and benefits

 

17,692

 

28,401

Accrued insurance

 

17,227

 

19,720

Sales tax payable

2,973

1,397

Current portion of tax receivable agreements liabilities

469

469

Accrued expenses and other current liabilities

 

35,800

 

33,511

Current operating lease liabilities

16,241

15,005

Current portion of finance lease obligations

 

196

 

194

Total current liabilities

 

212,047

 

211,547

Long-term tax receivable agreements liabilities

37,718

 

37,718

Long-term operating lease liabilities

 

39,667

 

37,799

Long-term debt

 

75,000

 

Other long-term liabilities

 

38,554

 

38,954

Total liabilities

 

402,986

 

326,018

Commitments and contingencies (Note 9)

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 102,705,260 shares issued and outstanding as of March 31, 2024; 350,000,000 shares authorized and 102,172,863 shares issued and outstanding as of December 31, 2023

 

1,027

 

1,022

Class B common stock, $0.01 par value; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

162

 

162

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

Additional paid-in capital

 

1,001,967

 

1,008,095

Accumulated deficit

 

(233,166)

 

(236,791)

Total stockholders’ equity

 

769,990

 

772,488

Noncontrolling interests

 

118,331

 

119,684

Total equity

 

888,321

 

892,172

Total liabilities and equity

$

1,291,307

$

1,218,190

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

6

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

Three months ended March 31, 

    

2024

    

2023

Revenue

 

  

 

  

Water Services

$

228,307

$

274,678

Water Infrastructure

63,508

55,466

Chemical Technologies

 

74,733

 

86,448

Total revenue

 

366,548

 

416,592

Costs of revenue

 

  

 

  

Water Services

181,532

219,942

Water Infrastructure

33,692

34,333

Chemical Technologies

 

61,755

69,709

Depreciation, amortization and accretion

 

36,892

32,943

Total costs of revenue

 

313,871

 

356,927

Gross profit

 

52,677

 

59,665

Operating expenses

 

  

 

  

Selling, general and administrative

 

43,980

35,829

Depreciation and amortization

 

1,258

595

Impairments and abandonments

 

45

11,166

Lease abandonment costs

 

389

76

Total operating expenses

 

45,672

 

47,666

Income from operations

 

7,005

 

11,999

Other income (expense)

 

  

 

  

Gain on sales of property and equipment and divestitures, net

325

2,911

Interest expense, net

 

(1,272)

(1,483)

Other

 

(282)

842

Income before income tax expense and equity in losses of unconsolidated entities

 

5,776

 

14,269

Income tax expense

 

(1,452)

(198)

Equity in losses of unconsolidated entities

(449)

(366)

Net income

 

3,875

 

13,705

Less: net income attributable to noncontrolling interests

 

(250)

(1,358)

Net income attributable to Select Water Solutions, Inc.

$

3,625

$

12,347

Net income per share attributable to common stockholders (Note 15):

 

Class A—Basic

$

0.04

$

0.12

Class B—Basic

$

$

Net income per share attributable to common stockholders (Note 15):

 

Class A—Diluted

$

0.04

$

0.12

Class B—Diluted

$

$

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

7

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)

Three months ended March 31, 

    

2024

    

2023

    

Net income

$

3,875

$

13,705

Comprehensive income

 

3,875

 

13,705

Less: comprehensive income attributable to noncontrolling interests

 

(250)

 

(1,358)

Comprehensive income attributable to Select Water Solutions, Inc.

$

3,625

$

12,347

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

8

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended March 31, 2024 and 2023

(unaudited)

(in thousands, except share data)

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional

Total

Common

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

   

Shares

   

Stock

   

Shares

   

Stock

   

Capital

   

Deficit

   

Equity

   

Interests

   

Total

Balance as of December 31, 2023

 

102,172,863

$

1,022

 

16,221,101

$

162

 

$

1,008,095

$

(236,791)

$

772,488

$

119,684

$

892,172

Equity-based compensation

5,490

5,490

869

6,359

Issuance of restricted shares

 

1,118,836

 

11

 

 

 

 

1,136

 

 

1,147

 

(1,147)

 

 

Repurchase of common stock

(830,337)

(8)

(6,885)

(6,893)

(103)

(6,996)

Restricted shares forfeited

(60,019)

(1)

(61)

(62)

62

Performance shares vested

303,917

3

308

311

(311)

Dividend and distribution declared:

Class A common stock ($0.06 per share)

(5,931)

(5,931)

(5,931)

Unvested restricted stock ($0.06 per share)

(185)

(185)

(185)

Class B common stock ($0.06 per share)

(973)

(973)

Net income

 

 

 

 

 

 

 

3,625

 

3,625

 

250

 

 

3,875

Balance as of March 31, 2024

 

102,705,260

$

1,027

 

16,221,101

$

162

 

$

1,001,967

$

(233,166)

$

769,990

$

118,331

$

888,321

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional

Total

Common

Common

Paid-In

Accumulated

Stockholders’

Noncontrolling

   

Shares

   

Stock

   

Shares

   

Stock

   

Capital

   

Deficit

   

Equity

   

Interests

   

Total

Balance as of December 31, 2022

 

109,389,528

$

1,094

 

16,221,101

$

162

 

$

1,075,915

$

(311,194)

$

765,977

$

117,751

$

883,728

Equity-based compensation

2,581

2,581

383

2,964

Issuance of restricted shares

1,275,859

13

1,155

1,168

(1,168)

Repurchase of common stock

(1,657,203)

(17)

(11,019)

(11,036)

101

(10,935)

Restricted shares forfeited

(26,861)

(25)

(25)

25

Contributions from noncontrolling interests

153

153

NCI income tax adjustment

11

11

(11)

Dividend and distribution declared:

Class A common stock ($0.05 per share)

(5,258)

(5,258)

(5,258)

Unvested restricted stock ($0.05 per share)

(211)

(211)

(211)

Class B common stock ($0.05 per share)

(811)

(811)

Net income

 

 

 

 

 

 

 

12,347

 

12,347

 

1,358

 

 

13,705

Balance as of March 31, 2023

 

108,981,323

$

1,090

 

16,221,101

$

162

 

$

1,063,149

$

(298,847)

$

765,554

$

117,781

$

883,335

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

9

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Three months ended March 31, 

    

2024

    

2023

Cash flows from operating activities

 

Net income

$

3,875

$

13,705

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

Depreciation, amortization and accretion

 

38,150

 

33,538

Deferred tax expense (benefit)

1,129

(6)

Gain on disposal of property and equipment and divestitures

 

(325)

 

(2,911)

Equity in losses of unconsolidated entities

449

366

Bad debt expense

 

596

 

1,975

Amortization of debt issuance costs

 

122

 

122

Inventory adjustments

(33)

75

Equity-based compensation

 

6,359

 

2,964

Impairments and abandonments

 

45

 

11,166

Other operating items, net

 

312

 

(218)

Changes in operating assets and liabilities

 

 

Accounts receivable

 

128

 

(64,922)

Prepaid expenses and other assets

 

(2,180)

 

(5,431)

Accounts payable and accrued liabilities

 

(16,498)

 

(8,439)

Net cash provided by (used in) operating activities

 

32,129

 

(18,016)

Cash flows from investing activities

 

 

Purchase of property and equipment

 

(33,763)

 

(27,885)

Acquisitions, net of cash received

 

(108,311)

 

(9,418)

Proceeds received from sales of property and equipment

 

5,166

 

6,724

Net cash used in investing activities

 

(136,908)

 

(30,579)

Cash flows from financing activities

 

 

Borrowings from revolving line of credit

90,000

76,750

Payments on revolving line of credit

 

(15,000)

 

(17,250)

Payments of finance lease obligations

(66)

(5)

Dividends and distributions paid

 

(7,487)

 

(6,206)

Contributions from noncontrolling interests

 

 

4,950

Repurchase of common stock

 

(6,996)

 

(10,935)

Net cash provided by financing activities

 

60,451

 

47,304

Effect of exchange rate changes on cash

 

(2)

 

(3)

Net decrease in cash and cash equivalents

 

(44,330)

 

(1,294)

Cash and cash equivalents, beginning of period

 

57,083

 

7,322

Cash and cash equivalents, end of period

$

12,753

$

6,028

Supplemental cash flow disclosure:

 

 

Cash paid for interest

$

954

$

1,119

Cash refunds for income taxes, net

$

(33)

$

Supplemental disclosure of noncash investing activities:

 

 

Capital expenditures included in accounts payable and accrued liabilities

$

39,046

$

31,398

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

10

SELECT WATER SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Description of the business: Select Water Solutions, Inc. (“we,” “Select Inc.,” “Select” or the “Company”), formerly Select Energy Services, Inc., was incorporated as a Delaware corporation on November 21, 2016. On May 8, 2023, Select Energy Services, Inc.’s Fifth Amended and Restated Certificate of Incorporation became effective upon filing with the Secretary of State of the State of Delaware which, among other things, changed the name of the company from Select Energy Services, Inc. to Select Water Solutions, Inc. to reflect its strategic focus as a water-focused company. We retained our stock ticker “WTTR” trading on the New York Stock Exchange. The Company is a holding company whose sole material asset consists of common units (“SES Holdings LLC Units”) in SES Holdings, LLC (“SES Holdings”).

We are a leading provider of sustainable water-management and chemical solutions to the energy industry in the United States (“U.S.”). As a leader in the water solutions industry, we place the utmost importance on safe, environmentally responsible management of oilfield water throughout the lifecycle of a well. Additionally, we believe that responsibly managing water resources through our operations to help conserve and protect the environment in the communities in which we operate is paramount to our continued success.

Class A and Class B common stock:  As of March 31, 2024, the Company had both Class A and Class B common shares issued and outstanding. Holders of shares of our Class A common stock, par value $0.01 per share (“Class A common stock”) and Class B common stock, par value $0.01 per share (“Class B common stock”) are entitled to one vote per share and vote together as a single class on all matters presented to our stockholders for their vote or approval.

Exchange rights: Under the Eighth Amended and Restated Limited Liability Company Agreement of SES Holdings (the “SES Holdings LLC Agreement”), SES Legacy Holdings LLC (“Legacy Owner Holdco”) and its permitted transferees have the right (an “Exchange Right”) to cause SES Holdings to acquire all or a portion of its SES Holdings LLC Units for, at SES Holdings’ election, (i) shares of Class A common stock at an exchange ratio of one share of Class A common stock for each SES Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value (as defined within the SES Holdings LLC Agreement) of such Class A common stock. Alternatively, upon the exercise of any Exchange Right, Select Inc. has the right (the “Call Right”) to acquire the tendered SES Holdings LLC Units from the exchanging unitholder for, at its election, (i) the number of shares of Class A common stock the exchanging unitholder would have received under the Exchange Right or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock. In connection with any exchange of SES Holdings LLC Units pursuant to an Exchange Right or Call Right, the corresponding number of shares of Class B common stock will be cancelled.

Basis of presentation: The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) and pursuant to the rules and regulations of the SEC. These unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with GAAP.

This Quarterly Report relates to the three months ended March 31, 2024 (the “Current Quarter”) and the three months ended March 31, 2023 (the “Prior Quarter”). The Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), filed with the SEC on February 21, 2024, includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been reflected. The results for the Current Quarter may not be indicative of the results to be expected for the full year.

11

The unaudited interim consolidated financial statements include the Company’s accounts and all of its majority-owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

For investments in subsidiaries that are not wholly-owned, but where the Company exercises control, the equity held by the minority owners and their portion of net income or loss are reflected as noncontrolling interests. Investments in entities in which the Company exercises significant influence over operating and financial policies are accounted for using the equity-method, and investments in entities for which the Company does not have significant control or influence are accounted for using the cost-method or other appropriate basis as applicable. As of March 31, 2024, the Company had three equity-method investments. The Company’s investments are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. When circumstances indicate that the fair value of its investment is less than its carrying value and the reduction in value is other than temporary, the reduction in value is recognized in earnings. Our investments in unconsolidated entities are summarized below and are included in the assets of our Water Services segment:

Year

As of March 31, 

As of December 31,

Type of Investment

attained

Accounting method

Balance Sheet Location

2024

 

2023

(in thousands)

20% minority interest

2020

Equity-method

Other long-term assets

$

4,253

$

4,314

39% minority interest

2021

Equity-method

Other long-term assets

3,805

4,174

47% minority interest

2021

Equity-method

Other long-term assets

3,240

3,305

Dividends: During the Current Quarter, the Company paid $5.9 million in dividends accounted for as a reduction to additional paid-in capital, $1.0 million of distributions accounted for as a reduction to noncontrolling interests and $0.6 million as a reduction to accrued expenses and other current liabilities. As of March 31, 2024, the Company had $0.4 million of dividends payable included in accrued expenses and other current liabilities in connection with unvested restricted stock awards. All future dividend payments are subject to quarterly review and approval by the board of directors.

Segment reporting: The Company has three reportable segments. Reportable segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s current reportable segments are Water Services, Water Infrastructure, and Chemical Technologies. See “Note 16—Segment Information” for additional information.

Effective June 1, 2023, our CODM began to strategically view and manage certain water sourcing and transfer operations, previously included in our Water Infrastructure segment, as part of our Water Services segment. These changes were driven by multiple factors, including the preponderance of our water sourcing business that integrates with our water transfer operations, the continued transition of completions water demand from fresh and brackish water to recycled water, and the anticipation of more efficient sharing and utilization of resources to realize potential synergies. Prior periods have been recast to include the water sourcing and transfer operations within the Water Services segment and remove the results of those operations from the Water Infrastructure segment.

Concurrently, the Company also decided to rename its Oilfield Chemicals segment as Chemical Technologies. This change was based on a number of factors, including the continued success of our chemicals business in delivering customized, specialty chemicals products developed through our own research and development efforts and the de-emphasis of certain traditional commoditized chemistry products within the oil and gas industry, as well as the continued investments in time and resources we make to manufacture and sell our specialty chemical products into non-oilfield industrial-related applications. We believe these segment changes better align the business with the current and future state of the Company’s operations and capital allocation and strategic objectives. This change was a naming convention only change that did not impact any Current Quarter or Prior Quarter numbers.

The Water Services segment consists of the Company’s services businesses, including water sourcing, water transfer, flowback and well testing, fluids hauling, water monitoring, water containment and water network automation,

12

primarily serving E&P companies. Additionally, this segment includes the operations of our accommodations and rentals business. 

The Water Infrastructure segment consists of the Company’s fixed infrastructure assets, including operations associated with our water distribution pipeline infrastructure, our water recycling solutions, and our produced water gathering systems and saltwater disposal wells (“SWDs”), as well as waste solutions facilities, primarily serving E&P companies.

The Chemical Technologies segment provides technical solutions, products and expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing and well completions for customers ranging from pressure pumpers to major integrated and independent oil and gas producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the fracturing fluid system in conjunction with the quality of water used in well completions.

Reclassifications: Certain reclassifications have been made to the Company’s prior period consolidated financial information to conform to the current year presentation. These presentation changes did not impact the Company’s consolidated net income, consolidated cash flows, total assets, total liabilities or total stockholders’ equity.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies: The Company’s significant accounting policies are disclosed in Note 2 of the consolidated financial statements for the year ended December 31, 2023, included in the 2023 Form 10-K.

Use of estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the recoverability of long-lived assets and intangibles, useful lives used in depreciation, amortization and accretion, uncollectible accounts receivable, inventory reserve, income taxes, self-insurance liabilities, share-based compensation, contingent liabilities, lease-related reasonably certain option exercise assessments, and the incremental borrowing rate for leases. The Company bases its estimates on historical and other pertinent information that are believed to be reasonable under the circumstances. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

Allowance for credit losses: The Company’s allowance for credit losses relates to trade accounts receivable. The Company treats trade accounts receivable as one portfolio and records an initial allowance calculated as a percentage of revenue recognized based on a combination of historical information and future expectations. Additionally, the Company adjusts this allowance based on specific information in connection with aged receivables. Historically, most bad debt has been incurred when a customer’s financial condition significantly deteriorates, which in some cases leads to bankruptcy. Market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods.

13

The change in the allowance for credit losses is as follows:

Three months ended March 31, 2024

(in thousands)

Balance as of December 31, 2023

$

5,318

Increase to allowance based on a percentage of revenue

 

735

Charge-offs

(836)

Recoveries

42

Balance as of March 31, 2024

$

5,259

Asset retirement obligations:  The Company’s asset retirement obligations (“ARO”) relate to disposal facilities with obligations for plugging wells, removing surface equipment, and returning land to its pre-drilling condition. The following table describes the changes to the Company’s ARO liability for the Current Quarter:

    

Three months ended March 31, 2024

 

(in thousands)

Balance as of December 31, 2023

 

$

37,262

Accretion expense

 

254

Acquired AROs

 

3,695

Revisions

200

Payments

(2,895)

Balance as of March 31, 2024

 

$

38,516

Short-term ARO liability

8,243

Long-term ARO liability

30,273

Balance as of March 31, 2024

$

38,516

We review the adequacy of our ARO liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed. The Company’s ARO liabilities are included in accrued expenses and other current liabilities and other long-term liabilities in the accompanying consolidated balance sheets.

Lessor Income: The Company is a lessor for a nominal number of owned facilities and also recognizes income related to multiple facility subleases that are accounted for as follows:

Three months ended March 31, 

    

2024

    

2023

(in thousands)

Category

Classification

Lessor income

Costs of revenue

$

33

$

77

Sublease income

Lease abandonment costs and Costs of revenue

454

384

The Company also generates short-term equipment rental revenue. See “Note 4—Revenue” for a discussion of revenue recognition for the accommodations and rentals business.

During the Current Quarter, the Company made the decision to abandon operations at two leased Water Services locations. As a result, the Company recorded $0.5 million of right-of-use asset impairment charges. 

Defined Contribution Plan: The Company sponsors a defined contribution 401(k) Profit Sharing Plan for the benefit of substantially all employees of the Company. The Company incurred $1.7 million and $1.5 million match expense in the Current Quarter and Prior Quarter, respectively.

14

Severance: During the Current Quarter, the Company incurred $0.6 million of severance in connection with the termination of the former Chief Financial Officer included in selling, general and administrative within the consolidated statements of operations and the full amount is included in accrued salaries and benefits as of March 31, 2024.

Recent accounting pronouncements: In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. ASU 2023-07 will be effective for our fiscal year ending December 31, 2024, and for interim periods starting in our first quarter of 2025. Early adoption is permitted and the amendments in this update are required to be applied on a retrospective basis. We are currently reviewing the impact that the adoption of ASU 2023-07 may have on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 will be effective for our fiscal year ending December 31, 2025, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating ASU 2023-09 to determine its impact on the Company’s disclosures.

NOTE 3—ACQUISITIONS

The following table presents key information connected with our 2024 and 2023 acquisitions (dollars in thousands):

Assets and Operations Acquired

Acquisition Date

Cash Consideration

Acquisition related costs for Asset Acquisition

Total Consideration

Segments

Buckhorn

March 1, 2024

$

17,881

$

-

$

17,881

Water Infrastructure

Iron Mountain Energy

January 8, 2024

14,000

-

14,000

Water Infrastructure

Tri-State Water Logistics

January 3, 2024

58,330

-

58,330

Water Infrastructure

Rockies produced water gathering and disposal infrastructure

January 1, 2024

18,100

-

18,100

Water Infrastructure

Four Smaller Asset Acquisitions

Multiple 2023 Dates

7,293

-

7,293

Water Infrastructure

Asset Acquisition

April 3, 2023

4,000

-

4,000

Water Services

Asset Acquisition

January 31, 2023

6,250

150

6,400

Water Infrastructure

Total

$

125,854

$

150

$

126,004

Buckhorn Acquisition

On March 1, 2024, the Company completed the acquisition of membership interests from Buckhorn Waste Services, LLC and equity interests from Buckhorn Disposal, LLC (together “Buckhorn” or the “Buckhorn Acquisition”). The Company paid initial consideration of $17.9 million at closing. The acquisition strengthened Select’s solids waste management capabilities in the Bakken region, adding additional landfills in North Dakota and in Montana to support Select’s existing landfill operations in the region.

The Buckhorn Acquisition was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments, assumptions and valuation of the property and equipment acquired, intangible assets, current assets and current liabilities are preliminary and have not been finalized as of March 31, 2024. The assets

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