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Select Energy Services Reports 2017 Third Quarter Results

HOUSTON, Nov. 8, 2017 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of total water solutions to the U.S. unconventional oil and gas industry, today announced results for the third quarter ended September 30, 2017. As previously announced, Select completed its merger with Rockwater Energy Solutions, Inc. on November 1, 2017. All reported financial results for Select for the third quarter of 2017 are on a standalone basis.

Revenue for the third quarter of 2017 was $153.9 million, a 14.5% increase compared to $134.4 million in the second quarter of 2017 and a 108% increase compared to $73.9 million in the third quarter of 2016. Net income for the third quarter was $2.6 million as compared to a net loss of $10.5 million in the second quarter of 2017 and a net loss of $35.2 million in the third quarter of 2016. Adjusted EBITDA was $32.4 million in the third quarter of 2017 compared to $27.3 million in the second quarter of 2017 and $4.0 million in the third quarter of 2016. Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net loss (a GAAP measure) in this release.

John Schmitz, Select's Executive Chairman, stated, "We are extremely pleased with our third quarter operational results which benefitted from continued momentum in completion-related activity, resulting in strong revenue growth and profitability. Additionally, we are very excited to have completed our merger with Rockwater and look forward to what we can achieve as a combined company."

Holli Ladhani, President and CEO, added, "We believe that our third quarter results, including our return to net income profitability for the first time since the downturn began in 2014, demonstrate the value of our water solutions platform as well as the strength of our employees. The integration of these two leading companies is well underway and we couldn't be more excited about the opportunities ahead of us."

Conference Call

Select has scheduled a conference call on Thursday, November 9, 2017 at 10:00 a.m. eastern time. Please dial 201-389-0872 and ask for the Select Energy Services call at least 10 minutes prior to the start time, or live over the Internet by logging on to the web at the address http://investors.selectenergyservices.com/events-and-presentations. A telephonic replay of the conference call will be available through November 16, 2017 and may be accessed by calling 201-612-7415 using passcode 13672864#. 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 Energy Services, Inc.

Select is a leading provider of total water solutions to the North American unconventional oil and gas industry. Select provides for the sourcing and transfer of water, both by permanent pipeline and temporary hose, prior to its use in the drilling and completion activities associated with hydraulic fracturing, as well as complementary water-related services that support oil and gas well completion and production activities, including containment, monitoring, treatment and recycling, flowback, hauling, and disposal. Select, under its Rockwater Energy Solutions brand, also develops and manufactures a full suite of specialty chemicals used in the well completion process and production chemicals used to enhance performance over the producing life of a well. Select currently provides services to exploration and production companies and oilfield service companies operating in all the major shale and producing basins in the U.S. and Western Canada. For more information, please visit Select's website, http://www.selectenergyservices.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 "expect," "will," "estimate" and other similar expressions. 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. Factors that could materially impact such forward-looking statements include, but are not limited to, the factors discussed or referenced in the "Risk Factors" section of the prospectus we filed with the SEC on April 24, 2017, relating to our recently completed initial public offering and the "Risk Factors" section of our most recent Quarterly Report on Form 10-Q filed 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.

WTTR-ER

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share data)


















Three Months Ended September 30,


Nine Months Ended September 30,




2017


2016


2017


2016


Revenue














Water solutions


$

125,086


$

60,975


$

311,275


$

173,157


Accommodations and rentals



15,615



5,838



38,457



19,585


Wellsite completion and construction services



13,179



7,094



38,522



22,923


Total revenue



153,880



73,907



388,254



215,665


Costs of revenue














Water solutions



88,087



49,996



226,737



144,653


Accommodations and rentals



11,976



4,969



30,697



15,527


Wellsite completion and construction services



10,888



6,299



32,155



19,817


Depreciation and amortization



23,420



21,613



67,144



73,874


Total costs of revenue



134,371



82,877



356,733



253,871


Gross profit (loss)



19,509



(8,970)



31,521



(38,206)


Operating expenses














Selling, general and administrative



16,087



8,764



49,298



25,928


Depreciation and amortization



375



363



1,312



1,644


Impairment of goodwill and other intangible assets









138,666


Impairment of property and equipment









60,026


Lease abandonment costs



590



13,169



2,871



13,169


Total operating expenses



17,052



22,296



53,481



239,433


Income (loss) from operations



2,457



(31,266)



(21,960)



(277,639)


Other income (expense)














Interest expense, net



(484)



(4,343)



(1,885)



(11,792)


Other income, net



326



431



3,342



588


Income (loss) before tax expense



2,299



(35,178)



(20,503)



(288,843)


Tax benefit (expense)



294



(26)



326



(392)


Net income (loss)



2,593



(35,204)



(20,177)



(289,235)


Less: Net loss attributable to Predecessor





34,931





285,359


Less: Net (income) loss attributable to noncontrolling interests



(1,369)



273



13,013



3,876


Net income (loss) attributable to Select Energy Services, Inc.


$

1,224


$


$

(7,164)


$


Allocation of net income (loss) attributable to:














Class A-1 stockholders


$





$

(2,679)





Class A stockholders



1,224






(4,485)





Class B stockholders















$

1,224





$

(7,164)





Weighted average shares outstanding:














Class A-1—Basic








9,671,795





Class A—Basic



30,336,923






16,189,997





Class B—Basic



38,462,541






38,462,541





Net income (loss) per share attributable to common stockholders:














Class A-1—Basic


$





$

(0.28)





Class A—Basic


$

0.04





$

(0.28)





Class B—Basic


$





$





Weighted average shares outstanding:














Class A-1—Diluted








9,671,795





Class A—Diluted



30,357,572






16,189,997





Class B—Diluted



38,462,541






38,462,541





Net income (loss) per share attributable to common stockholders:














Class A-1—Diluted


$





$

(0.28)





Class A—Diluted


$

0.04





$

(0.28)





Class B—Diluted


$





$





SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)











September 30, 2017


December 31, 2016



(unaudited)




Assets







Current assets







Cash and cash equivalents


$

42,393


$

40,041

Accounts receivable trade, net of allowance for doubtful accounts of $2,867 and $2,144, respectively



148,372



75,892

Accounts receivable, related parties



433



135

Inventories



852



1,001

Prepaid expenses and other current assets



13,495



7,586

Total current assets



205,545



124,655

Property and equipment



815,002



739,386

Accumulated depreciation



(535,456)



(490,519)

Property and equipment, net



279,546



248,867

Goodwill



25,091



12,242

Other intangible assets, net



35,351



11,586

Other assets



7,216



7,716

Total assets


$

552,749


$

405,066

Liabilities and Equity







Current liabilities







Accounts payable


$

11,751


$

10,796

Accounts payable and accrued expenses, related parties



1,246



648

Accrued salaries and benefits



8,595



2,511

Accrued insurance



11,008



10,338

Accrued expenses and other current liabilities



39,713



22,091

Total current liabilities



72,313



46,384

Accrued lease obligations



18,100



15,946

Other long term liabilities



8,008



8,028

Long-term debt, net of current maturities





Total liabilities



98,421



70,358

Commitments and contingencies (Note 8)







Class A-1 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017; 16,100,000 shares issued and outstanding as of December 31, 2016





161

Class A common stock, $0.01 par value; 250,000,000 shares authorized and 30,468,249 shares issued and outstanding as of September 30, 2017; 3,802,972 shares issued and outstanding as of December 31, 2016



305



38

Class B common stock, $0.01 par value; 150,000,000 shares authorized and 38,462,541 shares issued and outstanding as of September 30, 2017 and December 31, 2016



385



385

Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016





Additional paid-in capital



206,158



113,175

Accumulated deficit



(8,207)



(1,043)

Total stockholders' equity



198,641



112,716

Noncontrolling interests



255,687



221,992

Total equity



454,328



334,708

Total liabilities and equity


$

552,749


$

405,066

SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)











Nine Months Ended September 30,




2017


2016


Cash flows from operating activities








Net loss


$

(20,177)


$

(289,235)


Adjustments to reconcile net loss to net cash provided by operating activities








Depreciation and amortization



68,456



75,518


Gain on disposal of property and equipment



(3,127)



(30)


Bad debt expense



1,098



1,679


Amortization of debt issuance costs



928



2,244


Equity-based compensation



1,781



317


Impairment of goodwill and other intangible assets





138,666


Impairment of property and equipment





60,026


Other operating items



(560)



(806)


Changes in operating assets and liabilities








Accounts receivable



(65,815)



15,339


Prepaid expenses and other assets



(6,493)



679


Accounts payable and accrued liabilities



19,660



3,681


Net cash (used in) provided by operating activities



(4,249)



8,078


Cash flows from investing activities








Acquisitions, net of cash received



(62,199)




Purchase of property and equipment



(66,013)



(28,630)


Proceeds received from sale of property and equipment



6,677



8,258


Net cash used in investing activities



(121,535)



(20,372)


Cash flows from financing activities








Proceeds from revolving line of credit



34,000



18,500


Payments on long-term debt



(34,000)



(36,334)


Payment of debt issuance costs





(2,775)


Proceeds from initial public offering



140,070




Payments incurred for initial public offering



(11,566)




Purchase of noncontrolling interests





(318)


Proceeds from noncontrolling interests



(368)



138


Member contributions





23,519


Net cash provided by financing activities



128,136



2,730


Net increase (decrease) in cash and cash equivalents



2,352



(9,564)


Cash and cash equivalents, beginning of period



40,041



16,305


Cash and cash equivalents, end of period


$

42,393


$

6,741


Supplemental cash flow disclosure:








Cash paid for interest


$

1,139


$

9,592


Cash paid for taxes


$

37


$

619


Supplemental disclosure of noncash investing activities:








Capital expenditures included in accounts payable and accrued liabilities


$

7,733


$

2,479
















Comparison of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. 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 or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA 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. For further discussion, please see "Summary—Summary Consolidated Financial Data" in our Final Prospectus.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income or net loss, which is the most directly comparable GAAP measure for the periods presented:
















Three Months Ended
September 30,


Nine Months Ended
September 30,



2017



2016


2017



2016



(In thousands)


(In thousands)

Net income (loss)


$

2,593


$

(35,204)


$

(20,177)


$

(289,235)

Interest expense



484



4,343



1,885



11,792

Depreciation and amortization



23,795



21,976



68,456



75,518

Tax (benefit) expense



(294)



26



(326)



392

EBITDA



26,578



(8,859)



49,838



(201,533)

Impairment









198,692

Lease abandonment costs



590



13,169



2,871



13,169

Non-recurring severance costs





147



122



689

Non-recurring deal costs



4,382



20



5,462



(236)

Non-cash incentive compensation



549



(1)



1,781



(488)

Non-cash loss on sale of subsidiaries and other assets



268



(491)



775



(29)

Non-recurring phantom equity and IPO-related compensation







12,537



Adjusted EBITDA


$

32,367


$

3,985


$

73,386


$

10,264

Contacts:

Select Energy Services


Gary Gillette - CFO & SVP


Chris George - Sr. Director, Finance & Investor Relations


(713) 296-1073


IR@selectenergyservices.com




Dennard Lascar Investor Relations


Ken Dennard / Lisa Elliott


713-529-6600


WTTR@dennardlascar.com

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SOURCE Select Energy Services, Inc.