Select Energy Services Reports Fourth Quarter And Full Year 2017 Results
HOUSTON, March 7, 2018 /PRNewswire/ -- Select Energy Services, Inc. (NYSE: WTTR) ("Select" or "the Company"), a leading provider of total water management and chemical solutions to the U.S. unconventional oil and gas industry, today announced results for the fourth quarter and fiscal year ended December 31, 2017. As previously announced, Select completed its merger with Rockwater Energy Solutions, Inc. ("Rockwater") on November 1, 2017. All reported financial results for Select for the fourth quarter and fiscal year ended December 31, 2017 include two months of contribution from Rockwater.
Revenue for the fourth quarter of 2017 was $304.2 million, a 98% increase compared to $153.9 million in the third quarter of 2017 and a 251% increase compared to $86.7 million in the fourth quarter of 2016. Net loss for the fourth quarter was $14.9 million as compared to net income of $2.6 million in the third quarter of 2017 and a net loss of $24.7 million in the fourth quarter of 2016. Adjusted EBITDA was $43.9 million in the fourth quarter of 2017 compared to $32.4 million in the third quarter of 2017 and $6.7 million in the fourth quarter of 2016. Additionally, given the timing of the merger close on November 1, 2017, fourth quarter results do not include Rockwater's operating results for the month of October, including approximately $70.1 million in revenue, $0.7 million in net income and $7.7 million in Adjusted EBITDA. 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, "2017 marked a momentous year for Select as we executed on a number of strategic initiatives while the industry continued to make positive strides in its recovery. The completion of our IPO in the second quarter marked a significant step towards positioning Select as the clear pure-play market leader in the water solutions industry. We are pleased to have closed the transformative merger between Select and Rockwater during the fourth quarter and have made substantial progress in executing on our integration strategy. In addition to the Rockwater merger, we executed on five other strategic acquisitions throughout the year as we focus on expanding and solidifying our leading water solutions footprint across North America. We are excited about the future of the combined company, and as we enter the first quarter of 2018, we believe our prospects for this year remain strong."
Holli Ladhani, President and CEO, added, "Looking back on 2017, it is gratifying to see what Select has been able to accomplish in such a short period of time. The fourth quarter continued to provide an active industry environment, although it did present the expected seasonal fluctuations and other challenges towards the end of the year. While we saw modest sequential consolidated revenue growth on a combined-company basis in the fourth quarter, our margins were impacted by a combination of seasonality, revenue mix and merger-related expenses. We expect all of those factors to moderate in 2018 and we are extremely focused on delivering improved margins.
"Looking to 2018, I am confident that a resilient oil price environment, coupled with a robust economic outlook, can lead to improved performance as we continue to lead the water solutions and chemicals industries. We have built a business model that we believe will allow us to generate meaningful free cash flow and we are exploring several opportunities to re-invest portions of that cash flow at attractive returns. Over the past several years, we have assembled a strong management team with the skills and experience to manage our operations and the merger-integration process, and we believe the opportunities in front of us are tremendous," concluded Ladhani.
Conference Call
Select has scheduled a conference call on Thursday, March 8, 2018 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 of the call, or listen 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 March 15, 2018 and may be accessed by calling 201-612-7415 using passcode 13676696#. 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 management and chemical 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, 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 United States 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 December 31, |
Twelve Months Ended December 31, |
|||||||||||
| 2017 |
2016 |
2017 |
2016 |
|||||||||
| Revenue |
||||||||||||
| Water solutions |
$ |
217,034 |
$ |
68,298 |
$ |
528,309 |
$ |
241,455 |
||||
| Oilfield chemicals |
41,586 |
— |
41,586 |
— |
||||||||
| Wellsite services |
45,617 |
18,436 |
122,596 |
60,944 |
||||||||
| Total revenue |
304,237 |
86,734 |
692,491 |
302,399 |
||||||||
| Costs of revenue |
||||||||||||
| Water solutions |
169,150 |
55,746 |
395,887 |
200,399 |
||||||||
| Oilfield chemicals |
37,024 |
— |
37,024 |
— |
||||||||
| Wellsite services |
37,303 |
15,764 |
100,155 |
51,108 |
||||||||
| Depreciation and amortization |
34,501 |
21,146 |
101,645 |
95,020 |
||||||||
| Total costs of revenue |
277,978 |
92,656 |
634,711 |
346,527 |
||||||||
| Gross profit (loss) |
26,259 |
(5,922) |
57,780 |
(44,128) |
||||||||
| Operating expenses |
||||||||||||
| Selling, general and administrative |
33,105 |
8,715 |
82,403 |
34,643 |
||||||||
| Depreciation and amortization |
492 |
443 |
1,804 |
2,087 |
||||||||
| Impairment of goodwill and other intangible assets |
— |
— |
— |
138,666 |
||||||||
| Impairment of property and equipment |
— |
— |
— |
60,026 |
||||||||
| Lease abandonment costs |
701 |
6,254 |
3,572 |
19,423 |
||||||||
| Total operating expenses |
34,298 |
15,412 |
87,779 |
254,845 |
||||||||
| Loss from operations |
(8,039) |
(21,334) |
(29,999) |
(298,973) |
||||||||
| Other income (expense) |
||||||||||||
| Interest expense, net |
(4,744) |
(4,336) |
(6,629) |
(16,128) |
||||||||
| Foreign currency gains, net |
281 |
— |
281 |
— |
||||||||
| Other income, net |
(2,973) |
41 |
369 |
629 |
||||||||
| Loss before tax benefit |
(15,475) |
(25,629) |
(35,978) |
(314,472) |
||||||||
| Tax benefit |
525 |
916 |
851 |
524 |
||||||||
| Net loss |
(14,950) |
(24,713) |
(35,127) |
(313,948) |
||||||||
| Less: net loss attributable to Predecessor |
— |
21,122 |
— |
306,481 |
||||||||
| Less: net loss attributable to noncontrolling interests |
5,298 |
2,548 |
18,311 |
6,424 |
||||||||
| Net loss attributable to Select Energy Services, Inc. |
$ |
(9,652) |
$ |
(1,043) |
$ |
(16,816) |
$ |
(1,043) |
||||
| Allocation of net loss attributable to: |
||||||||||||
| Class A stockholders |
$ |
(8,851) |
$ |
(199) |
$ |
(12,560) |
$ |
(199) |
||||
| Class A-1 stockholders |
— |
(844) |
(3,691) |
(844) |
||||||||
| Class A-2 stockholders |
(801) |
— |
(565) |
— |
||||||||
| Class B stockholders |
— |
— |
— |
— |
||||||||
| $ |
(9,652) |
$ |
(1,043) |
$ |
(16,816) |
$ |
(1,043) |
|||||
| Weighted average shares outstanding: |
||||||||||||
| Class A—Basic & Diluted |
49,316,923 |
3,802,972 |
24,612,853 |
3,802,972 |
||||||||
| Class A-1—Basic & Diluted |
— |
16,100,000 |
7,233,973 |
16,100,000 |
||||||||
| Class A-2—Basic & Diluted |
4,463,506 |
— |
1,106,605 |
— |
||||||||
| Class B—Basic & Diluted |
39,675,033 |
38,462,541 |
38,768,156 |
38,462,541 |
||||||||
| Net loss per share attributable to common stockholders: |
||||||||||||
| Class A—Basic & Diluted |
$ |
(0.18) |
$ |
(0.05) |
$ |
(0.51) |
$ |
(0.05) |
||||
| Class A-1—Basic & Diluted |
$ |
— |
$ |
(0.05) |
$ |
(0.51) |
$ |
(0.05) |
||||
| Class A-2—Basic & Diluted |
$ |
(0.18) |
$ |
— |
$ |
(0.51) |
$ |
— |
||||
| Class B—Basic & Diluted |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||
| SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES |
||||||
| CONSOLIDATED BALANCE SHEETS |
||||||
| (unaudited) |
||||||
| (in thousands, except share data) |
||||||
| As of December 31, |
||||||
| 2017 |
2016 |
|||||
| Assets |
||||||
| Current assets |
||||||
| Cash and cash equivalents |
$ |
2,774 |
$ |
40,041 |
||
| Accounts receivable trade, net of allowance for doubtful accounts of $2,979 and $2,144, respectively |
373,633 |
75,892 |
||||
| Accounts receivable, related parties |
7,669 |
135 |
||||
| Inventories |
44,598 |
1,001 |
||||
| Prepaid expenses and other current assets |
17,842 |
7,586 |
||||
| Total current assets |
446,516 |
124,655 |
||||
| Property and equipment |
1,034,995 |
739,386 |
||||
| Accumulated depreciation |
(560,886) |
(490,519) |
||||
| Property and equipment, net |
474,109 |
248,867 |
||||
| Goodwill |
273,421 |
12,242 |
||||
| Other intangible assets, net |
156,066 |
11,586 |
||||
| Other assets |
6,256 |
7,716 |
||||
| Total assets |
$ |
1,356,368 |
$ |
405,066 |
||
| Liabilities and Equity |
||||||
| Current liabilities |
||||||
| Accounts payable |
$ |
52,579 |
$ |
10,796 |
||
| Accounts payable and accrued expenses, related parties |
2,772 |
648 |
||||
| Accrued salaries and benefits |
21,324 |
2,511 |
||||
| Accrued insurance |
12,510 |
10,338 |
||||
| Sales tax payable |
12,931 |
66 |
||||
| Accrued expenses and other current liabilities |
81,112 |
22,025 |
||||
| Current portion of capital lease obligations |
1,965 |
— |
||||
| Total current liabilities |
185,193 |
46,384 |
||||
| Accrued lease obligations |
18,979 |
15,946 |
||||
| Other long term liabilities |
13,827 |
8,028 |
||||
| Long-term debt |
75,000 |
— |
||||
| Total liabilities |
292,999 |
70,358 |
||||
| Commitments and contingencies |
||||||
| Class A common stock, $0.01 par value; 350,000,000 shares authorized and 59,182,176 shares issued and outstanding as of December 31, 2017; 250,000,000 shares authorized and 3,802,972 shares issued and outstanding as of December 31, 2016 |
592 |
38 |
||||
| Class A-1 common stock, $0.01 par value; no shares authorized, issued or outstanding as of December 31, 2017; 40,000,000 shares authorized and 16,100,000 shares issued and outstanding as of December 31, 2016 |
— |
161 |
||||
| Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized, 6,731,845 shares issued and outstanding as of December 31, 2017; no shares authorized, issued or outstanding as of December 31, 2016 |
67 |
— |
||||
| Class B common stock, $0.01 par value; 150,000,000 shares authorized and 40,331,989 shares issued and outstanding as of December 31, 2017; 150,000,000 shares authorized and 38,462,541 shares issued and outstanding as of December 31, 2016 |
404 |
385 |
||||
| Preferred stock, $0.01 par value; 50,000,000 shares authorized and no shares issued and outstanding as of December 31, 2017 and 2016 |
— |
— |
||||
| Additional paid-in capital |
673,141 |
113,175 |
||||
| Accumulated deficit |
(17,859) |
(1,043) |
||||
| Accumulated other comprehensive income |
302 |
— |
||||
| Total stockholders' equity |
656,647 |
112,716 |
||||
| Noncontrolling interests |
406,722 |
221,992 |
||||
| Total equity |
1,063,369 |
334,708 |
||||
| Total liabilities and equity |
$ |
1,356,368 |
$ |
405,066 |
||
| SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES |
||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
| (unaudited) |
||||||
| (in thousands) |
||||||
| Year Ended December 31, |
||||||
| 2017 |
2016 |
|||||
| Cash flows from operating activities |
||||||
| Net loss |
$ |
(35,127) |
$ |
(313,948) |
||
| Adjustments to reconcile net loss to net cash provided by operating activities |
||||||
| Depreciation and amortization |
103,449 |
97,107 |
||||
| Gain on disposal of property and equipment |
(2,726) |
(97) |
||||
| Gain realized on previously held interest in Rockwater |
(1,210) |
— |
||||
| Bad debt expense |
1,542 |
2,385 |
||||
| Amortization of debt issuance costs |
4,031 |
3,435 |
||||
| Equity-based compensation |
7,691 |
317 |
||||
| Impairment of goodwill and other intangible assets |
— |
138,666 |
||||
| Impairment of property and equipment |
— |
60,026 |
||||
| Other operating items, net |
(353) |
(1,619) |
||||
| Changes in operating assets and liabilities |
||||||
| Accounts receivable |
(100,485) |
1,290 |
||||
| Prepaid expenses and other assets |
(2,177) |
1,224 |
||||
| Accounts payable and accrued liabilities |
22,466 |
16,345 |
||||
| Net cash (used in) provided by operating activities |
(2,899) |
5,131 |
||||
| Cash flows from investing activities |
||||||
| Acquisitions, net of cash received |
(65,488) |
— |
||||
| Purchase of property, equipment, and intangible assets |
(98,722) |
(36,290) |
||||
| Proceeds received from sale of property and equipment |
7,479 |
9,335 |
||||
| Net cash used in investing activities |
(156,731) |
(26,955) |
||||
| Cash flows from financing activities |
||||||
| Proceeds from 144A Offering, net of underwriter fees and expenses |
— |
297,248 |
||||
| Proceeds from revolving line of credit and issuance of long-term debt |
109,000 |
27,500 |
||||
| Payments on long-term debt |
(111,000) |
(298,000) |
||||
| Payment of debt issuance costs |
(3,442) |
(4,497) |
||||
| Proceeds from initial public offering |
140,070 |
— |
||||
| Payments incurred for initial public offering |
(11,566) |
— |
||||
| Purchase of noncontrolling interests |
— |
(348) |
||||
| (Distributions to) proceeds from noncontrolling interests |
(368) |
138 |
||||
| Purchase of treasury stock |
(297) |
— |
||||
| Member contributions |
— |
23,519 |
||||
| Net cash provided by financing activities |
122,397 |
45,560 |
||||
| Effect of exchange rate changes on cash |
(34) |
— |
||||
| Net (decrease) increase in cash and cash equivalents |
(37,267) |
23,736 |
||||
| Cash and cash equivalents, beginning of period |
40,041 |
16,305 |
||||
| Cash and cash equivalents, end of period |
$ |
2,774 |
$ |
40,041 |
||
| Supplemental cash flow disclosure: |
||||||
| Cash paid for interest |
$ |
1,999 |
$ |
12,773 |
||
| Cash refunded for taxes |
$ |
54 |
$ |
192 |
||
| Supplemental disclosure of noncash investing activities: |
||||||
| Capital expenditures included in accounts payable and accrued liabilities |
$ |
11,137 |
$ |
1,563 |
||
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.
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 |
Twelve Months Ended |
Rockwater |
|||||||||||||
| December 31, |
December 31, |
One Month Ended |
|||||||||||||
| 2017 |
2016 |
2017 |
2016 |
October 31, 2017 (1) |
|||||||||||
| (unaudited) |
|||||||||||||||
| (in thousands) |
|||||||||||||||
| Net (loss) income |
$ |
(14,950) |
$ |
(24,713) |
$ |
(35,127) |
$ |
(313,948) |
$ |
701 |
|||||
| Interest expense |
4,744 |
4,336 |
6,629 |
16,128 |
468 |
||||||||||
| Tax (benefit) expense |
(525) |
(916) |
(851) |
(524) |
121 |
||||||||||
| Depreciation and amortization |
34,993 |
21,589 |
103,449 |
97,107 |
4,806 |
||||||||||
| EBITDA |
24,262 |
296 |
74,100 |
(201,237) |
6,096 |
||||||||||
| Impairment |
— |
— |
— |
198,692 |
— |
||||||||||
| Lease abandonment costs |
701 |
6,254 |
3,572 |
19,423 |
50 |
||||||||||
| Non-recurring severance expenses (2) |
4,039 |
197 |
4,161 |
886 |
125 |
||||||||||
| Non-recurring transaction costs (3) |
4,717 |
— |
10,179 |
(236) |
627 |
||||||||||
| Non-cash compensation expenses |
5,910 |
1 |
7,691 |
(487) |
387 |
||||||||||
| Non-cash loss (gain) on sale of subsidiaries and other assets |
965 |
(68) |
1,740 |
(97) |
(3) |
||||||||||
| Non-recurring phantom equity and IPO-related compensation |
— |
— |
12,537 |
— |
— |
||||||||||
| Foreign currency (gain) loss |
(281) |
— |
(281) |
— |
404 |
||||||||||
| Other non-recurring charges (4) |
3,563 |
— |
3,563 |
— |
21 |
||||||||||
| Adjusted EBITDA |
$ |
43,876 |
$ |
6,680 |
$ |
117,262 |
$ |
16,944 |
$ |
7,707 |
|||||
| (1) |
The selected stand-alone Rockwater results for the month of October 31, 2017 are presented to provide an understanding of the combined company's fourth quarter 2017 results. This information is voluntarily provided to reflect the pre-merger historical information of Rockwater and reflects the accounting policies of Rockwater prior to the merger. Additionally, the information provided does not reflect any impacts related to the merger and does not reflect what the results are expected to be following the merger. Accordingly, it is only shown for supplemental purposes. |
| (2) |
For the three and twelve months ended December 31, 2017, these costs are associated with severance incurred in connection with the Rockwater merger. For the three and twelve months ended December 31, 2016, these costs are associated with the reduction in headcount as a result of the industry downturn. |
| (3) |
For the three and twelve months ended December 31, 2017, these costs are primarily associated with the Rockwater merger and GRR acquisition. For the twelve months ended December 31, 2016, these costs are associated with our evaluation and negotiation of various transactions that never materialized. |
| (4) |
Represents estimated sales tax liability related primarily to calendar years 2012-2015, offset by gain realized on the Company's previously held interest in Rockwater stock. |
| Contacts: |
Select Energy Services |
| Gary Gillette - CFO & SVP |
|
| Chris George - Sr. Director, Finance & Investor Relations |
|
| (713) 296-1073 |
|
| Dennard Lascar Investor Relations |
|
| Ken Dennard / Lisa Elliott |
|
| 713-529-6600 |
|
SOURCE Select Energy Services, Inc.
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