Select Energy Services (WTTR) 6 Nov 24 2024 Q3 Earnings call transcript

Select Water Solutions, a leading provider of water infrastructure and services to the energy industry, announced its financial and operational results for the third quarter of 2024, highlighting continued margin improvement and profitability gains. The company's strong performance, driven by its Water Infrastructure segment, underscores its strategic position in the market and its ability to navigate industry challenges.

Strong Operational and Financial Performance

Select Water Solutions reported a 20% increase in Water Infrastructure revenues and a 33% growth in gross profit before depreciation, amortization, and accretion (D&A) compared to the second quarter of 2024. The company's focus on operational improvements, organic projects, and strategic acquisitions has led to a 57% gross margin before D&A for its Water Infrastructure segment, indicating a strong operational base and strategic execution.

Chris George, Executive Vice President and Chief Financial Officer, emphasized the company's solid financial performance, stating, "We achieved growth in our overall profitability, generating solid free cash flow and continue to execute on our strategic objectives in our Water Infrastructure segment." The company's Water Infrastructure segment has been a key driver of its success, contributing to a record-setting quarter for revenue and gross profit.

Growth Opportunities and Challenges

Select Water Solutions also highlighted its strategic focus on expanding its water infrastructure footprint, including new contracts and pipeline connections in the Permian Basin and Bakken. These initiatives are expected to further strengthen the company's position as a market leader in produced water recycling and disposal. However, the company also faces challenges, particularly in the Water Services and Chemical Technologies segments, where activity levels have become more challenging in recent months.

John Schmitz, Founder, Chairman, President, and CEO, acknowledged these challenges while expressing confidence in the company's ability to navigate them. He stated, "Despite the lower activity expected in the fourth quarter and temporary downtime as we transition certain assets, we still expect to deliver another strong margin quarter in excess of 50%." This underscores the company's resilience and strategic focus on long-term contracted revenue and infrastructure expansion.

Looking Ahead

Select Water Solutions' outlook for the future remains positive, with a focus on continued growth in the Water Infrastructure segment and operational improvements in the Water Services and Chemical Technologies segments. The company's strategic investments in infrastructure and its ability to secure long-term contracts are expected to drive future profitability and cash flow generation.

Chris George highlighted the company's strong financial position, stating, "We remain on track towards achieving record adjusted EBITDA and adjusted EBITDA margins while handling record volumes in our growing water infrastructure business." This optimistic outlook is underpinned by the company's unique business model and its ability to capitalize on industry trends, such as consolidation and operational efficiency, to drive growth.

In conclusion, Select Water Solutions' strong performance in the third quarter of 2024 underscores its strategic position in the water infrastructure and services market. Despite challenges in certain segments, the company's operational improvements and strategic investments position it for continued growth and profitability. With a focus on long-term contracted revenue and infrastructure expansion, Select Water Solutions remains well-positioned to capitalize on the evolving needs of the energy industry.