Select Energy's Investment in AV Farms: Shared Ownership and Decision-Making Risks

Select Energy Services (WTTR) has disclosed a new risk related to its investment in AV Farms due to a shared ownership structure with limited decision-making authority. This exposes the company to potential conflicts of interest, financial instability of partners, and decision-making impasses. The risk could lead to increased expenses from litigation or arbitration and divert management's attention, materially and adversely affecting Select Energy's investment in AV Farms.

Select Energy Services Inc. (WTTR) has disclosed a new risk related to its investment in AV Farms, a shared ownership structure that limits the company's decision-making authority. This exposure could lead to potential conflicts of interest, financial instability of partners, and decision-making impasses. The risk could result in increased expenses from litigation or arbitration, potentially diverting management's attention and materially and adversely affecting Select Energy's investment in AV Farms.

The risk was disclosed during the company's Q2 2025 earnings call, where executives highlighted the strategic goals and operational efficiencies achieved in the second quarter. However, the new risk in the AV Farms investment could overshadow these positive aspects. The company's stock experienced a notable decline following the earnings release, dropping 3.94% during regular trading hours and further slipping 9.74% to $8.25 in premarket trading.

Select Energy Services maintains a strong financial position with a current ratio of 2.01, indicating robust liquidity. The company's market capitalization stands at $1.06 billion, and it offers a dividend yield of 3.06%. Despite the earnings miss and subsequent market reaction, the company's management remains confident in its financial position and strategic focus.

Looking forward, Select Energy Services anticipates 20% year-over-year growth in its Water Infrastructure segment by 2026. The company has set a capital expenditure target of $225-$250 million for 2025, focusing on expanding its water infrastructure network and optimizing operations. The management expects quarterly revenues in the Water Infrastructure segment to exceed $100 million by the end of 2026, with a potential run-rate revenue of over $400 million.

However, the new risk in the AV Farms investment could pose a significant challenge for the company. Declining revenues in the Water Services and Chemical Technologies segments, increased capital expenditures, market volatility, economic uncertainties, competition, and potential regulatory changes are also factors that could impact Select Energy Services' future performance.

For detailed segment analysis and more financial metrics, investors can consider subscribing to InvestingPro, which offers comprehensive research reports for over 1,400 US stocks. However, the new risk in the AV Farms investment is a critical concern that investors should closely monitor.

References:
[1] https://za.investing.com/news/transcripts/earnings-call-transcript-select-energy-services-q2-2025-earnings-miss-forecasts-93CH-3823564