Company Overview
Select Water Solutions, Inc. (WTTR) is a leading provider of comprehensive water management and chemical solutions to the energy industry in the United States. With a focus on sustainable practices and innovative technologies, the company has established itself as a trusted partner for E&P companies seeking efficient and environmentally responsible water management across the entire well lifecycle.
Founded in 2011, Select Water Solutions has rapidly evolved from a regional water services provider to a diversified, nationwide operator with a strong presence in key energy basins. Through a combination of organic growth and strategic acquisitions, the company has built an impressive portfolio of water infrastructure assets, including water distribution pipelines, recycling facilities, and saltwater disposal wells, positioning it as a leader in the industry's shift towards more sustainable water management practices.
Core Competencies
One of Select Water Solutions' key differentiators is its integrated service offerings, which span water sourcing, transfer, treatment, recycling, and disposal. This comprehensive approach allows the company to provide tailored solutions that optimize water usage, minimize environmental impact, and deliver cost savings for its customers. The company's Chemical Technologies segment further enhances its value proposition by developing and delivering customized chemical solutions to support well completion and stimulation activities.
Financials
Financially, Select Water Solutions has demonstrated resilience and the ability to navigate industry cycles. In fiscal year 2023, the company reported revenue of $1.59 billion and net income of $74.4 million, despite the challenges posed by the COVID-19 pandemic and volatility in oil and gas prices. The company's strong balance sheet, with a debt-to-equity ratio of 0.13 as of December 31, 2023, provides ample financial flexibility to fund continued growth and strategic initiatives.
For the most recent quarter (Q2 2024), Select Water Solutions reported revenue of $365.13 million, a 9.8% increase compared to Q2 2023. Net income for the quarter was $14.90 million. The company generated operating cash flow of $83.11 million and free cash flow of $34.00 million. The year-over-year revenue growth was primarily driven by expansion in the Water Infrastructure segment, which offset declines in the Water Services and Chemical Technologies segments due to lower customer activity levels and price reductions.
The company's liquidity position remains strong, with $16.42 million in cash and $113.40 million available under its $270 million Sustainability-Linked Credit Facility as of June 30, 2024. The current ratio stands at 1.81, while the quick ratio is 1.63, indicating a healthy short-term financial position.
Strategic Investments
A key driver of Select Water Solutions' success has been its focus on water infrastructure investments. The company has consistently allocated capital towards expanding its network of water recycling and disposal facilities, as well as building out its pipeline infrastructure. This strategy has enabled the company to capitalize on the industry's growing demand for sustainable water management solutions, particularly in basins like the Permian, Bakken, and Marcellus/Utica.
Recent Performance
In the latest quarter, Select Water Solutions reported revenues of $365.1 million and adjusted EBITDA of $69.5 million, reflecting the strength of its diversified business model. The company's water infrastructure segment continued to be a standout, with revenue growth of 8% and a significant expansion in gross margins to 51% – a testament to the success of its strategic investments and operational excellence.
The company operates through three reportable segments: Water Services, Water Infrastructure, and Chemical Technologies. In Q2 2024, the Water Services segment generated $230.01 million in revenue, a 13.10% decrease compared to the previous quarter. The Water Infrastructure segment saw a 24.00% increase in revenue to $68.56 million, while the Chemical Technologies segment experienced a 21.50% decrease to $66.56 million.
Geographically, the Permian Basin, Eagle Ford, and Rockies regions were the top three revenue-producing areas, collectively comprising 74% of segment revenue in Q2 2024. For the Water Infrastructure segment, the Permian Basin, Haynesville, and Bakken regions accounted for 82% of segment revenue, while the Permian Basin, Rockies, and Eagle Ford regions made up 88% of Chemical Technologies segment revenue.
Future Outlook
Looking ahead, Select Water Solutions remains well-positioned to capitalize on the industry's shift towards more environmentally conscious practices. The company's recent acquisitions and strategic partnerships have further strengthened its geographic footprint and technological capabilities, positioning it to deliver innovative solutions that address the evolving needs of its customer base.
For Q3 2024, Select Water Solutions expects consolidated adjusted EBITDA to be between $66-$70 million, relatively steady compared to Q2 2024. The company anticipates generating 25-35% of its adjusted EBITDA as free cash flow for the full year 2024, after accounting for maintenance and growth capital expenditures.
Select Water Solutions expects its Water Infrastructure segment to reach 50% of consolidated gross profit by the end of 2024 and continue growing well into 2025. The company provided segment-level guidance for Q3 2024, projecting mid-to-high single-digit percentage revenue growth for Water Infrastructure, a mid-to-high single-digit percentage revenue decline for Water Services, and flat to modestly down low single-digit percentage revenues for Chemical Technology.
The company has revised its full-year 2024 net capital expenditures guidance to $170-$190 million, an increase of $30 million from previous estimates. This increased investment underscores Select Water Solutions' commitment to expanding its infrastructure capabilities and capitalizing on growth opportunities in the water management sector.
Despite the challenges facing the energy industry, Select Water Solutions has consistently demonstrated its ability to adapt and thrive. With a strong track record of financial performance, a commitment to sustainability, and a proven management team, the company is poised to continue its trajectory as a leading provider of water management solutions in the years to come.
Company History
The company's history reveals additional insights into its development and strategic positioning. Originally incorporated as Select Energy Services, Inc. on November 21, 2016, the company underwent a significant private placement of 16.1 million shares of its Class A common stock in the same year. This led to the adoption of the Select Energy Services, Inc. 2016 Equity Incentive Plan, enabling the company to offer equity-based awards to its employees, consultants, and directors.
Throughout its history, Select has faced various external challenges, including the sustained Russia-Ukraine war and conflicts in the Middle East, which have impacted the demand for its services. The company's ability to navigate these challenges underscores its resilience and adaptability in a volatile market environment.
A significant milestone in the company's evolution occurred in 2023 when it changed its name from Select Energy Services, Inc. to Select Water Solutions, Inc. This rebranding effort reflects the company's strategic focus on water-centric solutions and its commitment to addressing the critical water management needs of the energy industry.
Growth Strategy
The company's growth strategy has heavily relied on acquisitions to expand its capabilities and geographic reach. While these acquisitions have strengthened Select's position in the market, they have also presented integration challenges that the company has had to address. Despite these hurdles, Select has maintained its commitment to core values of safety, environmental responsibility, and customer service.
Business Model
Select's diversified business model, comprising three reportable segments – Water Services, Water Infrastructure, and Chemical Technologies – has been crucial in helping the company weather industry fluctuations and continue to deliver value to its stakeholders. This diversification strategy, combined with the company's focus on sustainable water management solutions, positions Select Water Solutions for continued success in the evolving energy landscape.
The Water Services segment provides a range of services including water sourcing, water transfer, flowback and well testing, fluids hauling, water monitoring, water containment, and water network automation. It also includes the company's accommodations and rentals business. The Water Infrastructure segment manages fixed infrastructure assets, including water distribution pipeline infrastructure, water recycling solutions, produced water gathering systems, saltwater disposal wells, and solids management facilities. The Chemical Technologies segment offers technical solutions, products, and expertise related to chemical applications in the oil and gas industry.
Industry Trends
The oilfield services industry has experienced significant volatility in recent years due to fluctuations in oil and natural gas prices, OPEC production changes, and macroeconomic factors. However, Select Water Solutions' focus on water management, recycling, and infrastructure solutions positions it to benefit from secular trends around produced water handling and the growing demand for sustainable water management in the energy industry. The company's compound annual growth rate (CAGR) for revenue from 2020 to 2023 was approximately 38%, highlighting its ability to capitalize on these industry trends.
As the energy sector continues to evolve, with an increasing emphasis on environmental stewardship and efficiency, Select Water Solutions is well-positioned to meet the changing needs of its customers and contribute to the development of more sustainable practices in the oil and gas industry.