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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 September 30, 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)

1820 North I-35

Gainesville, TX

76240

(Address of principal executive offices)

(Zip Code)

(940) 668-1818

(Registrant’s telephone number, including area code)

1233 W. Loop South, Suite 1400 Houston, TX

(Former name, former address and former fiscal year, if changed since last report)

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 November 4, 2024, the registrant had 103,088,670 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 related hostilities in the Middle East, including heightened tensions with Iran, Lebanon and Yemen, inflation and elevated interest rates, 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;
changes in global political or economic conditions, generally, including as a result of the fall 2024 United States presidential election and any resultant political and economic uncertainty, including the rate of inflation and potential economic recession;
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, among other things, high rates of inflation, and disruptions in the bank and capital markets;
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;
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 federal and 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;
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;
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, including with Lebanon and Yemen;

4

the severity and duration of world health events and any resulting impact on commodity prices and supply and demand considerations;
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)

September 30, 2024

December 31, 2023

    

(unaudited)

    

Assets

Current assets

 

Cash and cash equivalents

$

10,938

$

57,083

Accounts receivable trade, net of allowance for credit losses of $5,413 and $5,318, respectively

 

298,676

 

322,611

Accounts receivable, related parties

 

119

 

171

Inventories

 

35,819

 

38,653

Prepaid expenses and other current assets

 

51,130

 

35,541

Total current assets

 

396,682

 

454,059

Property and equipment

 

1,363,666

 

1,144,989

Accumulated depreciation

 

(689,978)

 

(627,408)

Total property and equipment, net

 

673,688

 

517,581

Right-of-use assets, net

39,714

39,504

Goodwill

 

30,259

 

4,683

Other intangible assets, net

 

127,930

 

116,189

Deferred tax assets, net

48,879

 

61,617

Other long-term assets

 

29,495

 

24,557

Total assets

$

1,346,647

$

1,218,190

Liabilities and Equity

 

 

  

Current liabilities

 

 

  

Accounts payable

$

41,435

$

42,582

Accrued accounts payable

66,172

66,182

Accounts payable and accrued expenses, related parties

 

5,891

 

4,086

Accrued salaries and benefits

 

21,142

 

28,401

Accrued insurance

 

29,970

 

19,720

Sales tax payable

2,668

1,397

Current portion of tax receivable agreements liabilities

469

469

Accrued expenses and other current liabilities

 

37,866

 

33,511

Current operating lease liabilities

16,781

15,005

Current portion of finance lease obligations

 

207

 

194

Total current liabilities

 

222,601

 

211,547

Long-term tax receivable agreements liabilities

37,718

 

37,718

Long-term operating lease liabilities

 

34,792

 

37,799

Long-term debt

 

80,000

 

Other long-term liabilities

 

52,110

 

38,954

Total liabilities

 

427,221

 

326,018

Commitments and contingencies (Note 9)

 

 

  

Class A common stock, $0.01 par value; 350,000,000 shares authorized and 102,797,453 shares issued and outstanding as of September 30, 2024; 350,000,000 shares authorized and 102,172,863 shares issued and outstanding as of December 31, 2023

 

1,028

 

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 September 30, 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 September 30, 2024 and December 31, 2023

 

 

Additional paid-in capital

 

999,812

 

1,008,095

Accumulated deficit

 

(204,507)

 

(236,791)

Total stockholders’ equity

 

796,495

 

772,488

Noncontrolling interests

 

122,931

 

119,684

Total equity

 

919,426

 

892,172

Total liabilities and equity

$

1,346,647

$

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 September 30, 

Nine months ended September 30, 

    

2024

    

2023

    

2024

    

2023

Revenue

 

  

 

  

Water Services

$

234,019

$

251,870

$

692,334

$

791,145

Water Infrastructure

82,017

58,375

214,089

169,118

Chemical Technologies

 

55,313

 

79,028

196,605

250,230

Total revenue

 

371,349

 

389,273

1,103,028

1,210,493

Costs of revenue

 

  

 

  

Water Services

186,041

200,361

545,881

626,878

Water Infrastructure

35,503

34,992

102,776

103,718

Chemical Technologies

 

48,450

63,005

165,846

200,017

Depreciation, amortization and accretion

 

38,906

34,650

113,243

102,776

Total costs of revenue

 

308,900

 

333,008

927,746

1,033,389

Gross profit

 

62,449

 

56,265

175,282

177,104

Operating expenses

 

  

 

  

Selling, general and administrative

 

37,268

38,983

120,229

109,147

Depreciation and amortization

 

661

512

2,667

1,846

Impairments and abandonments

 

32

91

11,554

Lease abandonment costs

 

5

(12)

411

73

Total operating expenses

 

37,934

 

39,515

123,398

122,620

Income from operations

 

24,515

 

16,750

51,884

54,484

Other income (expense)

 

  

 

  

Gain on sales of property and equipment and divestitures, net

1,624

23

2,331

1,688

Interest expense, net

 

(1,906)

(765)

(5,204)

(4,290)

Other

 

(78)

767

(318)

2,482

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

 

24,155

 

16,775

48,693

54,364

Income tax expense

 

(5,852)

(483)

(11,263)

(1,068)

Equity in gains (losses) of unconsolidated entities

507

(978)

154

(1,716)

Net income

 

18,810

 

15,314

37,584

51,580

Less: net income attributable to noncontrolling interests

 

(3,019)

(968)

(5,300)

(4,772)

Net income attributable to Select Water Solutions, Inc.

$

15,791

$

14,346

$

32,284

$

46,808

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

 

Class A—Basic

$

0.16

$

0.14

$

0.32

$

0.46

Class B—Basic

$

$

$

$

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

 

Class A—Diluted

$

0.15

$

0.14

$

0.32

$

0.45

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 September 30, 

Nine months ended September 30, 

    

2024

    

2023

    

2024

    

2023

Net income

$

18,810

$

15,314

$

37,584

$

51,580

Comprehensive income

 

18,810

 

15,314

37,584

51,580

Less: comprehensive income attributable to noncontrolling interests

 

(3,019)

 

(968)

(5,300)

(4,772)

Comprehensive income attributable to Select Water Solutions, Inc.

$

15,791

$

14,346

$

32,284

$

46,808

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 nine months ended September 30, 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

 

 

15,854

15,854

2,505

18,359

Issuance of restricted shares

 

1,239,597

12

 

 

1,258

1,270

(1,270)

Stock options exercised

 

287,686

3

 

 

(3)

Repurchase of common stock

(1,103,993)

(11)

 

 

(7,149)

(7,160)

(163)

(7,323)

Restricted shares forfeited

(102,617)

(1)

 

 

(105)

(106)

106

Performance shares vested

303,917

3

 

 

308

311

(311)

Dividend and distribution declared:

Class A common stock ($0.06 per share)

(17,948)

(17,948)

(17,948)

Unvested restricted stock ($0.06 per share)

(498)

(498)

(498)

Class B common stock ($0.06 per share)

(2,920)

(2,920)

Net income

 

 

 

32,284

32,284

5,300

37,584

Balance as of September 30, 2024

 

102,797,453

$

1,028

 

16,221,101

$

162

 

$

999,812

$

(204,507)

$

796,495

$

122,931

$

919,426

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

11,080

11,080

1,707

12,787

Issuance of restricted shares

1,633,849

16

1,449

1,465

(1,465)

Issuance of shares for acquisitions

(48,688)

(401)

(401)

(9)

(410)

Repurchase of common stock

(6,984,375)

(70)

(49,747)

(49,817)

(88)

(49,905)

Restricted shares forfeited

(72,363)

(1)

(46)

(47)

47

Distributions to noncontrolling interests

(1,581)

(1,581)

Contributions from noncontrolling interests

1,153

1,153

NCI income tax adjustment

76

76

(76)

Dividend and distribution declared:

Class A common stock ($0.05 per share)

(15,287)

(15,287)

(15,287)

Unvested restricted stock ($0.05 per share)

(633)

(633)

(633)

Class B common stock ($0.05 per share)

(2,433)

(2,433)

Net income

 

 

 

 

 

 

 

46,808

 

46,808

 

4,772

 

 

51,580

Balance as of September 30, 2023

 

103,917,951

$

1,039

 

16,221,101

$

162

 

$

1,022,406

$

(264,386)

$

759,221

$

119,778

$

878,999

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

9

SELECT WATER SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended September 30, 2024 and 2023

(unaudited)

(in thousands, except share data)

Class A

Class B

Stockholders

Stockholders

Class A

Class B

Additional