8-K: Select Water Solutions Reports Record 2024 Results, Expands Water Infrastructure

Select Water Solutions announces strong financial results for 2024, driven by growth in its Water Infrastructure segment and strategic investments in new markets.

Summary

• Select Water Solutions reported full year 2024 revenue of $1.5 billion and fourth quarter revenue of $349 million.
• The Water Infrastructure segment saw a 26% year-over-year increase in revenue, reaching $291 million for the full year, with gross profit up 62%.
• Operating cash flow for the full year was $235 million, and free cash flow was $78 million, meeting the guided expectation of converting approximately 30% of Adjusted EBITDA into free cash flow.
• The company announced multiple new long-term contracted Water Infrastructure projects in the Permian, backed by a new 150,000+ acre dedication, with an anticipated capital deployment of $39 $41 million.
• Select Water Solutions is expanding into Colorado with a $62 million initial investment in water rights and storage, targeting municipal, industrial, and agricultural supply contracts.
• Looking ahead to 2025, the company expects U.S. Lower 48 activity levels to be modestly down year-over-year but anticipates growth in the Water Infrastructure and Chemical Technologies segments.
• For full year 2025, Select Water Solutions expects another record-setting year for Adjusted EBITDA and consolidated margins, with the Water Infrastructure segment projected to grow revenues and gross profit by 15% 25%.
• Net capital expenditures for 2025 are targeted at $170 $190 million, net of $10 $20 million of asset sales.
• The company expects first quarter 2025 consolidated Adjusted EBITDA of $60 $64 million.
• Select Water Solutions acquired approximately 2,100 acres of surface ranchland in the Northern Delaware basin to support future additional recycling facility and infrastructure development.
• Select Water Solutions acquired a 6-mile produced water gathering pipeline with 45,000 barrels of throughput capacity in Lea County, New Mexico.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook, highlighting record results and strategic growth initiatives. While there are some challenges and potential risks, the overall tone is optimistic, supported by strong financial performance and expansion into new markets.

Positives

• The Water Infrastructure segment is experiencing significant growth, with revenues up 26% year-over-year.
• The company has secured multiple new long-term contracts for Water Infrastructure projects.
• Select Water Solutions is expanding into new markets, such as municipal, industrial, and agricultural water solutions in Colorado.
• The company has a strong backlog of infrastructure projects.
• Select Water Solutions closed a new $550 million sustainability-linked credit facility, providing additional liquidity and flexibility.
• The company anticipates strong revenue growth of 10-15% in the Chemical Technologies segment for the first quarter of 2025.
• Select Water Solutions acquired approximately 2,100 acres of surface ranchland in the Northern Delaware basin to support future additional recycling facility and infrastructure development.
• Select Water Solutions acquired a 6-mile produced water gathering pipeline with 45,000 barrels of throughput capacity in Lea County, New Mexico.

Negatives

• Full year 2024 revenue was $1.5 billion as compared to $1.6 billion during full year 2023.
• Net income for full year 2024 was $35.5 million as compared to $79.2 million during full year 2023.
• Revenue for the fourth quarter of 2024 was $349.0 million as compared to $371.3 million in the third quarter of 2024 and $374.9 million in the fourth quarter of 2023.
• Net loss for the fourth quarter of 2024 was $2.1 million as compared to net income of $18.8 million in the third quarter of 2024 and $27.6 million in the fourth quarter of 2023.
• The company expects modest revenue reductions in the Water Services segment year-over-year.
• The Water Infrastructure segment revenues are expected to modestly decrease by low single digit percentages during the first quarter of 2025 before seeing sharp double-digit percentage upward growth trajectories into the second and third quarters of 2025.

Risks

• U.S. Lower 48 activity levels are expected to be modestly down year-over-year.
• The company's Water Services segment may experience modest revenue reductions year-over-year.
• The company's expansion into Colorado is a long-cycle business development opportunity with a potentially longer capital payback timing.
• The company is unable to provide a reconciliation of the forward-looking non-GAAP financial measure, Adjusted EBITDA, to its most directly comparable GAAP financial measure, net income.

Future Outlook

Select Water Solutions anticipates a record-setting year for Adjusted EBITDA and consolidated margins in 2025, driven by growth in the Water Infrastructure segment. The company expects Water Infrastructure revenues and gross profit to grow by 15% 25% year-over-year. Net capital expenditures for 2025 are targeted at $170 $190 million.

Management Comments

• John Schmitz, Chairman of the Board, President and CEO, stated, 'The fourth quarter concluded another record-setting year for Select, both operationally and financially.'
• Schmitz also noted, 'We were able to invest in and grow our business organically, execute several strategic acquisitions, and pay out record dividends.'
• Schmitz stated, 'I firmly trust in the infrastructure-oriented strategy we've undertaken and the incremental value it brings to our customers, our company and our shareholders.'

Industry Context

Select Water Solutions' focus on sustainable water and chemical solutions aligns with the increasing emphasis on environmental responsibility within the energy industry. The company's expansion into municipal, industrial, and agricultural water solutions diversifies its revenue streams and reduces its reliance on the oil and gas sector. The company's focus on water recycling and disposal is in line with industry trends to reduce freshwater usage and minimize environmental impact.

Comparison to Industry Standards

• Select Water Solutions' Water Infrastructure segment growth of 26% year-over-year is strong compared to other companies in the water management sector.
• Key competitors in the water management space include companies like Tetra Technologies and Nuverra Environmental Solutions.
• The company's focus on long-term contracts and acreage dedication is a common strategy in the water infrastructure business to ensure stable revenue streams.
• The company's expansion into Colorado's municipal, industrial, and agricultural water markets is a strategic move to diversify its business and capitalize on the growing demand for water resources.

Stakeholder Impact

• Shareholders can expect continued growth and potential returns through dividends and strategic investments.
• Employees may see new opportunities as the company expands into new markets and undertakes new projects.
• Customers will benefit from the company's expanded water and chemical solutions offerings.
• Local communities in Colorado will benefit from the company's efforts to provide sustainable water solutions.
• The company's sustainability-linked credit facility demonstrates its commitment to environmental responsibility.

Next Steps

• The company plans to continue investing in and growing its Water Infrastructure segment.
• Select Water Solutions aims to establish ultra long-term supply agreements with municipal, industrial, or agricultural customers in Colorado.
• The company will continue to evaluate its Water Services segment for potential consolidation or divestment.
• Select Water Solutions will construct a new recycling facility, adding up to 120,000 barrels per day of throughput capacity and up to two million barrels of storage capacity in the Northern Delaware Basin.
• Construction is expected to be completed and the recycling facility to be operational in the second quarter of 2025 in the Central Basin Platform area of the Permian Basin.

Key Dates