Select Water Solutions, Inc. (WTTR): Transforming the Water Management Landscape

Published on September 24, 2024 | Ticker: WTTR

Select Water Solutions, Inc. (WTTR) is a leading provider of sustainable water-management and chemical solutions to the energy industry in the United States. The company has undergone a strategic transformation, positioning itself as a water-focused company that places the utmost importance on safe and environmentally responsible management of oilfield water throughout the lifecycle of a well.

Financials

In the fiscal year 2023, Select Water Solutions reported annual revenue of $1,585,353,000 and net income of $74,403,000. The company generated annual operating cash flow of $285,355,000 and annual free cash flow of $149,489,000. These strong financial results demonstrate the company's ability to execute its strategic initiatives and deliver value to its shareholders.

During the first quarter of 2024, Select Water Solutions reported revenue of $366,548,000, a decrease of 12.0% compared to the prior-year quarter. The decrease was primarily attributable to lower customer activity levels, driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts. Net income for the quarter was $3,875,000.

Business Overview

The company's three reportable segments - Water Services, Water Infrastructure, and Chemical Technologies - each play a crucial role in the company's overall strategy. The Water Services segment, which includes water sourcing, water transfer, flowback and well testing, fluids hauling, water monitoring, water containment, and water network automation, generated $228,307,000 in revenue during the first quarter of 2024, a decrease of 16.9% compared to the prior-year quarter.

The Water Infrastructure segment, which consists of the company's fixed infrastructure assets, including water distribution pipeline infrastructure, water recycling solutions, and produced water gathering systems and saltwater disposal wells, as well as waste solutions facilities, reported revenue of $63,508,000 in the first quarter of 2024, an increase of 14.5% compared to the prior-year quarter. This segment's strong performance was driven by additional revenue from acquisitions completed during the current quarter and growth in the recycling business line, offsetting lower pipeline distribution volumes.

The Chemical Technologies segment, which provides technical solutions, products, and expertise related to chemical applications in the oil and gas industry, generated revenue of $74,733,000 in the first quarter of 2024, a decrease of 13.6% compared to the prior-year quarter. The decrease in revenues was primarily driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts.

Sustainability Focus

Select Water Solutions' commitment to sustainability is a key differentiator in the industry. The company places a strong emphasis on environmental consciousness, health and safety, human capital management, and community outreach. This focus has enabled the company to develop innovative solutions that address the needs of its customers while contributing to sustainable business practices.

Recent Developments

One of the company's strategic priorities is the expansion of its water infrastructure assets. During the first quarter of 2024, Select Water Solutions completed four acquisitions, adding strategic infrastructure assets in the Haynesville, Rockies, and Bakken regions. These acquisitions encompassed the gathering and disposal assets and operations of Tri-State Water Logistics, LLC, the fluids and solids treatment and disposal assets and operations of Iron Mountain Energy, LLC, produced water gathering and disposal infrastructure and additional permitted disposal and recycling capacity in the Rockies region, and two landfills from Buckhorn in the Bakken region.

These acquisitions have strengthened Select Water Solutions' position in key geographic regions, adding approximately 450,000 barrels per day of permitted disposal capacity across 21 saltwater disposal wells, two slurry injection wells, a solids treatment facility, and two landfills. The company's focus on integrating these assets into its existing infrastructure networks has enabled it to deliver more comprehensive and valuable solutions to its customers.

In addition to its acquisition strategy, Select Water Solutions has also been successful in executing organic growth projects. During the first quarter of 2024, the company signed four additional long-term contracts for new pipeline gathering, recycling, and disposal projects that will integrate directly into its existing infrastructure in the Haynesville and Permian regions. These projects demonstrate the company's ability to leverage its existing asset base and customer relationships to drive further growth.

Geographic Diversity

The company's geographic diversity and multi-basin approach are key competitive advantages. Select Water Solutions operates in various regions, including the Permian Basin, Rockies, Eagle Ford, Marcellus/Utica, Haynesville/East Texas, Mid-Continent, and Bakken. This diversification allows the company to capitalize on opportunities across different basins and mitigate the impact of regional fluctuations in activity levels.

Outlook

Looking ahead, Select Water Solutions is well-positioned to continue its growth trajectory. The company expects to see consolidated revenue and adjusted EBITDA growth during the second quarter of 2024 and is on track to achieve its full-year 2024 targets. This includes growing adjusted EBITDA year-over-year, with approximately 100 million of new organic infrastructure projects generating more than one-third of the company's revenues from production-related activities during 2024.

The company also expects its Water Infrastructure and Chemical Technologies segments to account for more than 50% of its total consolidated profitability for the year, supported by 30% to 40% growth in Water Infrastructure revenue and 40% to 50% growth in Water Infrastructure profitability. Additionally, Select Water Solutions anticipates pulling through more than 40% of its adjusted EBITDA into free cash flow after all maintenance and growth capital expenditures for the full year 2024.

Liquidity

The company's strong financial position and liquidity provide the flexibility to execute its strategic initiatives. As of March 31, 2024, Select Water Solutions had $12,753,000 in cash and cash equivalents and $155,800,000 of available borrowing capacity under its Sustainability-Linked Credit Facility, with $75,000,000 in outstanding borrowings.

Conclusion

In conclusion, Select Water Solutions is a well-positioned and diversified water management solutions provider that is transforming the industry through its focus on sustainability, infrastructure expansion, and innovative service offerings. The company's strong financial performance, strategic acquisitions, and organic growth projects position it for continued success in the years ahead.

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