# Select Water Solutions, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Select Water Solutions, Inc.](/companies/wttr.md) (CIK 1693256)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 16:30 ET
- Period: 2023-09-30
- Accession: 0001558370-23-017246
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1693256/000155837023017246/wttr-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1693256/000155837023017246/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $389.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.21bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $333.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.03bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $56.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $177.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $39.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $109.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $16.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $54.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $765.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $4.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $483.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $14.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $46.8m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $202.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $44.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $102.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $17.9m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $49.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $25.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $470.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.18bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $220.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $303.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $759.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,373 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report, as well as the historical consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 22, 2023 (our “2022 Form 10-K”). This discussion and analysis contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors as described under “Cautionary Note Regarding Forward-Looking Statements” and other cautionary statements described under the heading “Risk Factors” included in our 2022 Form 10-K and this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements.*

This discussion relates to the three and nine months ended September 30, 2023 (the “Current Quarter” and the “Current Period”, respectively) and the three and nine months ended September 30, 2022 (the “Prior Quarter” and the “Prior Period”, respectively).

### Overview

We are a leading provider of sustainable water-management and chemical solutions to the energy industry in the U.S. As a leader in the water solutions industry, we place the utmost importance on safe, environmentally responsible management of oilfield water throughout the lifecycle of a well. Additionally, we believe that responsibly managing water resources through our operations to help conserve and protect the environment in the communities in which we operate is paramount to our continued success.

### Sustainability

Select is committed to a corporate strategy that supports the long-term viability of our business model in a manner that focuses on our people, our customers, the environment, and the communities in which we operate. We believe this focus will help us and our customers achieve their short-term and long-term environmental, social and governance (“ESG”) goals, help us attract and retain top talent, and further our efforts to generate investor returns. We believe our commitment to foster a culture of corporate responsibility is an important part of being a company with operations spanning the contiguous U.S. Further, we believe being a good corporate steward is strategic to our growth in the energy industry and will better allow us to develop solutions that both address the needs of our customers and contribute to sustainable business practices. We have identified the following four priorities as part of our comprehensive corporate responsibility initiative: Environmental Consciousness, Health and Safety, Human Capital Management and Community Outreach. As a service company, we compete with other service providers based on various factors, including safety and operational performance, pricing, technological innovation, process efficiencies and reputational awareness. We believe there is a strong link between these corporate responsibility initiatives and our ability to provide value to our stakeholders.

We are one of the few public companies whose primary focus is on the management of water and water logistics in the energy industry with a focus on driving efficient, environmentally responsible and economic solutions that lower costs throughout the lifecycle of the well. We believe water is a valuable resource and understand that the energy industry as well as other industries and the general public are competing for this resource. As a company, we continue to provide access to water as demanded by our customers and have significantly increased our focus on the recycling and reuse of produced water, as well as assessing other industrial water sources, to meet the industry’s water demand and align our operations with the goals of our customers. We have invested significantly in recent quarters in the development and acquisition of fixed and mobile recycling facilities that support the advancement of commercialized produced water reuse solutions. By doing so, we strive to reduce the amount of produced water being reinjected into salt-water disposal wells (“SWDs”) and to reduce our usage of fresh water. We view our unique position as an opportunity to strategically transform water management by leveraging our Chemical Technologies business to develop produced water management solutions that increase our customers’ ability to reuse this produced water and add value to their operations. By implementing our innovative approach to water solutions, Select has become a leader in recycling produced water to be re-used for energy production.

Our strong company culture includes commitments to all stakeholders, and we aim to create a work environment that fosters a diverse and inclusive company culture. Additionally, we prioritize safety in our operations through rigorous training, structured protocols and ongoing automation of our operations. Our prioritization of safety includes a commitment to safeguarding the communities in which we operate.

We believe that proper alignment of our management and our board of directors with our shareholders is critical to creating long-term value, including the alignment of management compensation and incentive structures and the continued leadership of an experienced, diverse and independent board of directors.

### Recent Developments

Effective June 1, 2023, our chief operating decision maker began to strategically view and manage certain water sourcing and transfer operations, previously included in our Water Infrastructure segment, as part of our Water Services segment. These changes were driven by a number of factors, including the preponderance of our water sourcing business that integrates with our water transfer operations, the continued transition of completions water demand from fresh and brackish water to recycled water, as well as the diversifying demand for these water transfer services beyond the immediate vicinity of our pipeline infrastructure. Due to these changes, we believe the Water Services segment management is best suited to manage these operations. As a result of these changes, we anticipate more efficient sharing and utilization of resources and to realize potential synergies. Prior periods have been recast to include the water sourcing and transfer operations within the Water Services segment and remove the results of those operations from the Water Infrastructure segment.

Concurrently, the Company also decided to rename its Oilfield Chemicals segment as Chemical Technologies. This change was based on a number of factors, including the continued success of our chemicals business in delivering customized, specialty chemicals products developed through our own research and development efforts and the de-emphasis of certain traditional commoditized chemistry products within the oil and gas industry, as well as the continued investments in time and resources we make to manufacture and sell our specialty chemical products into non-oilfield industrial-related applications. We believe these segment changes better align the business with the current and future state of the Company’s operations and capital allocation and strategic objectives. This change was a naming convention only change that did not impact any Current Period or Prior Period numbers.

On May 8, 2023, we announced that our stockholders approved the Company’s Fifth Amended and Restated Certificate of Incorporation which, among other things, changed the name of the Company from Select Energy Services, Inc. to Select Water Solutions, Inc. to reflect its strategic focus as a water-first company. We retained our current stock ticker “WTTR” trading on the New York Stock Exchange.

The recent completion of three business combinations, four asset acquisitions and the buyout of noncontrolling interests in a recycling system joint venture has strengthened our financial results for the Current Period, as well as our competitive positioning in the water solutions market. These acquisitions enhanced our geographic footprint and significantly expanded the capacity and reach of our sustainable recycling solutions.

In February 2022, Russia launched a large-scale invasion of Ukraine that has led to significant armed hostilities. As a result, the U.S., the United Kingdom, the member states of the European Union and other public and private actors have levied severe sanctions on Russian financial institutions, businesses and individuals. In October 2023, a militia group conducted attacks in Israel and an armed conflict has ensued between Israel and such militia group. The Russia-Ukraine conflict, and the resulting sanctions and concerns regarding global energy security, has contributed to, and the conflict in the Israel-Gaza region and any potential increase in hostilities in the Middle East may contribute to, increases and volatility in the prices for oil and natural gas. Such volatility, coupled with an increased cost of capital, may lead to a more difficult investing and planning environment for us and our customers. The ultimate geopolitical and macroeconomic consequences of these conflicts and associated sanctions cannot be predicted, and such events, or any further hostilities elsewhere, could severely impact the world economy and may adversely affect our financial condition. An end to the Russia-Ukraine conflict and an easing or elimination of the related sanctions against Russia could result in a significant fall in commodity prices as Russian hydrocarbons become more readily accessible in global markets, which could have an adverse effect on our customers, and therefore adversely affect our customers’ demand for our services.

In addition, OPEC+ countries announced production cuts of around 1.16 million barrels per day in April 2023, bringing its total volume cuts to 3.66 million barrels per day since 2021. Additionally, Saudi Arabia announced in June 2023 that it would independently cut its oil production by an additional 1.0 million barrels per day starting in July 2023 to stabilize the market on a short-term basis and in September 2023, Saudi Arabia affirmed that it would continue such production cuts through the end of 2023. The actions of OPEC+ countries with respect to oil production levels and announcements of potential changes in such levels, including agreement on and compliance with production targets, may result in volatility in the industry in which we and our customers operate. The average price of West Texas Intermediate (“WTI”) crude oil decreased in the Current Quarter versus the Prior Quarter as a result of increased production coupled with a moderate decrease in global demand. During the Current Quarter, the average spot price of WTI crude oil was $82.25 versus an average price of $93.06 for the Prior Quarter. While WTI price levels declined during the Current Quarter relative to the Prior Quarter, these WTI price levels remain supportive of our customers’ drilling and completion programs in the major shale basins. The average Henry Hub natural gas spot price during the Current Quarter was $2.59 versus an average of $7.99 for the Prior Quarter. Henry Hub natural gas price levels in the Current Quarter have declined materially relative to the Prior Quarter and have negatively impacted activity levels, resulting in incremental development activity cuts.

While the ongoing effects of the COVID-19 pandemic on our operations have largely ended, some impacts related to the COVID-19 pandemic, such as increased inflation and supply chain constraints, have resulted in rising interest rates and cost of capital, which in turn increase the risk of economic stagnation or an economic recession. The pandemic had a material negative impact on our financial results for prior periods and may affect the comparability of our results.

Many of our customers have demonstrated their resolve to manage their capital spending within budgets and cash flow from operations and increase redemptions of debt and/or returns of capital to investors. Additionally, consolidation among our customers can disrupt our market in the near-term and the resulting demand for our services. Overall however, the financial health of the oil and gas industry and many of our customers specifically, as reflected in debt metrics, recent capital raises, and equity valuations, has greatly improved over the course of the year ended December 31, 2022 and through the Current Period.

While the financial health of the broader oil and gas industry has continued to improve, the potential inability of broader banking and other financial services firms to access liquidity has resulted in significant disruptions to global markets. Central bank policy actions, bank failures and associated liquidity risks and other factors may negatively impact the value of our equity and that of our customers, and may reduce our and their ability to access liquidity in the bank and capital markets or result in capital being available on less favorable terms, which could negatively affect our financial condition and that of our customers.

From an operational standpoint, many of the recent trends still apply to ongoing unconventional oil and gas development. The continued trend towards multi-well pad development, executed within a limited time frame, combined with service price inflation has increased the overall complexity and cost of well completions, while increasing fracturing efficiency and the use of lower-cost in-basin sand has decreased total costs for our customers. However, we note the continued efficiency gains in the well completions process can limit the days we spend on the wellsite and, therefore, negatively impact the total revenue opportunity for certain of our services utilizing day-rate pricing models.

This multi-well pad development, combined with recent upstream acreage consolidation and the growing trends around the recycling and reuse applications of produced water provides a significant opportunity for companies like us that can deliver increasingly complex solutions for our E&P customers across the full completion and production lifecycle of wells. While these trends have advanced the most in the Permian Basin to date, they are emerging in other basins as well.

The increased reuse of produced water requires additional chemical treatment solutions. We have a dedicated team of specialists focused every day on developing and deploying innovative water treatment and reuse services for our customers. Our FluidMatch™ design solutions enable our customers to economically use these alternative sources to optimize their fluid systems by providing water profiling and fluid assessment services working towards real-time. This trend also supports more complex “on-the-fly” solutions that treat, proportion, and blend various streams of water and chemicals at the wellsite. This complexity favors service companies able to provide advanced technology solutions. Ultimately, we intend to play an important role in the advancement of water and chemical solutions that are designed to meet the sustainability goals of key stakeholders.

Our water logistics, treatment, and chemical application expertise, in combination with advanced technology solutions, are applicable to other industries beyond oil and gas. We are working to further commercialize our services in other businesses and industries through our industrial solutions group.

### Our Segments

Our services are offered through three reportable segments: (i) Water Services; (ii) Water Infrastructure; and (iii) Chemical Technologies.

- *Water Services.* The Water Services segment consists of the Company’s services businesses, including water sourcing, water transfer, flowback and well testing, fluids hauling, water monitoring, water containment and water network automation, primarily serving E&P companies. Additionally, this segment includes the operations of our accommodations and rentals business.
- *Water Infrastructure.* The Water Infrastructure segment consists of the Company’s fixed infrastructure assets, including operations associated with our water distribution pipeline infrastructure, our water recycling solutions, and our produced water gathering systems and SWDs, as well as solids disposal facilities, primarily serving E&P companies.
- *Chemical Technologies.* The Chemical Technologies segment provides technical solutions, products and expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing and well completions for customers ranging from pressure pumpers to major integrated and independent oil and gas producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the fracturing fluid system in conjunction with the quality of water used in well completions.

### How We Generate Revenue

We currently generate most of our revenue through our water-management services associated with well completions as well as ongoing produced water management, provided through our Water Services and Water Infrastructure segments. Most of this revenue is realized through customer agreements with fixed pricing terms and is recognized when delivery of services is provided, generally at our customers’ sites. While we have some long-term pricing arrangements, particularly in our Water Infrastructure segment, most of our water and water-related services are priced based on prevailing market conditions, giving due consideration to the specific requirements of the customer.

We also generate revenue by providing completion and specialty chemicals through our Chemical Technologies segment. We invoice the majority of our Chemical Technologies customers for services provided based on the quantity of chemicals used or pursuant to short-term contracts as customer needs arise.

### Costs of Conducting Our Business

The principal expenses involved in conducting our business are labor costs, vehicle and equipment costs (including depreciation, rental, repair and maintenance and leasing costs), raw materials and water sourcing costs and fuel costs. Our fixed costs are relatively low. Most of the costs of serving our customers are variable, i.e., they are incurred only when we provide water and water-related services, or chemicals and chemical-related services to our customers.

Labor costs associated with our employees and contract labor comprise the largest portion of our costs of doing business. We incurred labor and labor-related costs of $140.6 million, $122.7 million, $419.0 million and $338.8 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. The majority of our recurring labor costs are variable and dependent on the market environment and are incurred only while we are providing our operational services. We also incur costs to employ personnel to ensure safe operations, sell and supervise our services and perform maintenance on our assets, which is not as directly tied to our level of business activity. Additionally, we incur selling, general and administrative costs for compensation of our administrative personnel at our field sites and in our operational and corporate headquarters, as well as for third-party support, licensing and services.

We incur significant vehicle and equipment costs in connection with the services we provide, including depreciation, repairs and maintenance, rental and leasing costs. We incurred vehicle and equipment costs of $79.8 million, $69.8 million, $235.9 million and $193.4 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

We incur raw material costs in manufacturing our chemical products, as well as for water that we source for our customers. We incurred raw material costs of $80.7 million, $77.3 million, $236.6 million and $223.4 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

We incur variable transportation costs associated with our service lines, predominately fuel and freight. We incurred fuel and freight costs of $27.8 million, $31.0 million, $88.7 million and $86.9 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. Rising fuel prices impact our transportation costs, which affects the results of our operations.

### How We Evaluate Our Operations

We use a variety of operational and financial metrics to assess our performance. Among other measures, management considers each of the following:

- Revenue;
- Gross Profit;
- Gross Margins;
- EBITDA; and
- Adjusted EBITDA.

### Revenue

We analyze our revenue and assess our performance by comparing actual monthly revenue to our internal projections and across periods. We also assess incremental changes in revenue compared to incremental changes in direct operating costs, and selling, general and administrative expenses across our reportable segments to identify potential areas for improvement, as well as to determine whether segment performance is meeting management’s expectations.

### Gross Profit

To measure our financial performance, we analyze our gross profit, which we define as revenues less direct operating expenses (including depreciation and amortization expenses). We believe gross profit provides insight into profitability and the true operating performance of our assets. We also compare gross profit to prior periods and across segments to identify trends as well as underperforming segments.

### Gross Margins

Gross margins provide an important gauge of how effective we are at converting revenue into profits. This metric works in tandem with gross profit to ensure that we do not seek to increase gross profit at the expense of lower margins, nor pursue higher gross margins at the expense of declining gross profits. We track gross margins by segment and service line and compare them across prior periods and across segments and service lines to identify trends as well as underperforming segments.

### EBITDA and Adjusted EBITDA

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income/(loss), plus interest expense, income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment and abandonment charges or asset write-offs pursuant to accounting principles generally accepted in the U.S. (“GAAP”), plus non-cash losses on the sale of assets or subsidiaries, nonrecurring compensation expense, non-cash compensation expense, and nonrecurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus/(minus) losses/(gains) on unconsolidated entities less bargain purchase gains from business combinations. The adjustments to EBITDA are generally consistent with such adjustments described in our Sustainability-Linked Credit Facility. See “—Comparison of Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

### Factors Affecting the Comparability of Our Results of Operations to Our Historical Results of Operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the reasons described below and those described in “—Recent Developments” above.

### Acquisition Activity

As described above, we continuously evaluate potential investments, particularly in water infrastructure and other water-related services and technology. To the extent we consummate acquisitions, any incremental revenues or expenses from such transactions are not included in our historical results of operations.

Between January 2022 and June 2023, we completed three business combinations, four asset acquisitions and the buyout of all noncontrolling interests in a recycling system joint venture. Our historical financial statements for periods prior to the respective date each acquisition was completed do not include the results of operations of that acquisition. See “—Recent Developments” and “Note 3—Acquisitions” for a description of these transactions.

### Results of Operations

The following tables set forth our results of operations for the periods presented, including revenue by segment.

### Current Quarter Compared to the Prior Quarter

*(in thousands)*

| ​ ​ ​ ​ Revenue | ​ ​ ​ | ​ ​ Three months ended September 30, 2023 ​ ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ | ​ ​ Change Dollars ​ ​ ​ | ​ ​ | ​ ​ Percentage ​ ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Water Services | ​ | $251,870 | ​ | $264,271 | ​ | $(12,401) |  | (4.7)% | ​ |
| Water Infrastructure | ​ | ​ 58,375 | ​ | ​ 31,368 | ​ | ​ 27,007 | ​ | 86.1% | ​ |
| Chemical Technologies | ​ | ​ 79,028 | ​ | ​ 79,433 | ​ | (405) |  | (0.5)% | ​ |
| Total revenue | ​ | 389,273 | ​ | 375,072 | ​ | 14,201 |  | 3.8% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Costs of revenue | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Water Services | ​ | 200,361 | ​ | 204,650 | ​ | (4,289) |  | (2.1)% | ​ |
| Water Infrastructure | ​ | ​ 34,992 | ​ | ​ 20,392 | ​ | 14,600 |  | 71.6% | ​ |
| Chemical Technologies | ​ | ​ 63,005 | ​ | ​ 64,519 | ​ | ​ (1,514) | ​ | (2.3)% | ​ |
| Other | ​ | ​ — | ​ | ​ (1) | ​ | ​ 1 | ​ | NM ​ | ​ |
| Depreciation and amortization | ​ | 34,650 | ​ | 26,672 | ​ | 7,978 |  | 29.9% | ​ |
| Total costs of revenue | ​ | 333,008 | ​ | 316,232 | ​ | 16,776 |  | 5.3% | ​ |
| Gross profit | ​ | 56,265 | ​ | 58,840 | ​ | (2,575) |  | (4.4)% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Operating expenses | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Selling, general and administrative | ​ | 38,983 | ​ | 29,782 | ​ | 9,201 |  | 30.9% | ​ |
| Depreciation and amortization | ​ | 512 | ​ | 543 | ​ | (31) |  | (5.7)% | ​ |
| Impairments and abandonments | ​ | ​ 32 | ​ | ​ — | ​ | ​ 32 | ​ | NM ​ | ​ |
| Lease abandonment costs | ​ | (12) | ​ | 83 | ​ | (95) |  | (114.5)% | ​ |
| Total operating expenses | ​ | 39,515 | ​ | 30,408 | ​ | 9,107 |  | 29.9% | ​ |
| Income from operations | ​ | 16,750 | ​ | 28,432 | ​ | (11,682) |  | (41.1)% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Other income (expense) | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Gain (loss) on sales of property and equipment and divestitures, net | ​ | ​ 23 | ​ | ​ (479) | ​ | ​ 502 |  | (104.8)% | ​ |
| Interest expense, net | ​ | (765) | ​ | (616) | ​ | (149) |  | 24.2% | ​ |
| Foreign currency loss, net | ​ | ​ (1) | ​ | ​ (6) | ​ | ​ 5 |  | NM ​ | ​ |
| Bargain purchase gain | ​ | ​ — | ​ | ​ (3,273) | ​ | ​ 3,273 |  | NM ​ | ​ |
| Other | ​ | 768 | ​ | 1,153 | ​ | (385) |  | NM ​ | ​ |
| Income before income tax expense | ​ | 16,775 | ​ | 25,211 | ​ | (8,436) |  | (33.5)% | ​ |
| Income tax expense | ​ | (483) | ​ | (276) | ​ | (207) |  | 75.0% | ​ |
| Equity in losses of unconsolidated entities | ​ | (978) | ​ | (218) | ​ | (760) |  | NM ​ | ​ |
| Net income | ​ | $15,314 | ​ | $24,717 | ​ | $(9,403) |  | (38.0)% | ​ |

### Revenue

Our revenue increased $14.2 million, or 3.8%, to $389.3 million for the Current Quarter compared to $375.1 million for the Prior Quarter. This increase was composed of a $27.0 million increase in Water Infrastructure revenue, partially offset by a $12.4 million decrease in Water Services revenue, and a $0.4 million decrease in Chemical Technologies revenue. The net $14.2 million increase was driven by incremental revenue contributions from the Breakwater and Cypress Acquisitions as well as 2023 asset acquisitions. For the Current Quarter, our Water Services, Water Infrastructure and Chemical Technologies constituted 64.7%, 15.0% and 20.3% of our total revenue, respectively, compared to 70.4%, 8.4% and 21.2%, respectively, for the Prior Quarter. The revenue changes by reportable segment are as follows:

*Water Services*. Revenue decreased $12.4 million, or 4.7%, to $251.9 million for the Current Quarter compared to $264.3 million for the Prior Quarter. The decrease in revenues was primarily attributable to lower customer activity levels resulting from decreased oil and natural gas prices in the Current Quarter relative to the Prior Quarter, as well as the consolidation and elimination of certain operating facilities resulting from our acquisition integration activities. Additionally, the continued growth in our produced water recycling solutions within our Water Infrastructure segment led to decreased legacy fresh water sourcing volumes within Water Services. This was partially offset by increases in water transfer revenue due to the Breakwater Acquisition and increased poly and containment revenue due to an expanded asset base.

*Water Infrastructure.* Revenue increased $27.0 million, or 86.1%, to $58.4 million for the Current Quarter compared to $31.4 million for the Prior Quarter. The increase was primarily attributable to incremental revenue contributed by Breakwater, Cypress and other asset acquisitions. Revenue during the Current Period also benefitted by the ramp-up of recycling and treatment operations associated with two long-term agreements in the Rockies region and one long-term agreement in the Permian region.

*Chemical Technologies*. Revenue decreased slightly by $0.4 million, or 0.5%, to $79.0 million for the Current Quarter compared to $79.4 million for the Prior Quarter.

### Costs of Revenue

Costs of revenue increased $16.8 million, or 5.3%, to $333.0 million for the Current Quarter compared to $316.2 million for the Prior Quarter. The increase was primarily composed of a $4.3 million decrease in Water Services costs, a $14.6 million increase in Water Infrastructure costs and a $1.5 million decrease in Chemical Technologies costs due to supporting the higher revenue-producing activity discussed above.

*Water Services*. Costs of revenue decreased $4.3 million, or 2.1%, to $200.4 million for the Current Quarter compared to $204.7 million for the Prior Quarter. Cost of revenue as a percent of revenue increased from 77.4% to 79.5% due primarily to lower water sourcing and well testing margins, which were impacted by reductions in revenue-generating activity we could not fully offset with cost reductions.

*Water Infrastructure*. Costs of revenue increased $14.6 million, or 71.6%, to $35.0 million for the Current Quarter compared to $20.4 million for the Prior Quarter. Cost of revenue as a percent of revenue decreased from 65.0% to 59.9% due primarily to increased water treatment and recycling margins, which were favorably impacted by the Breakwater Acquisition and the ramp-up of three long-term treatment and recycling agreements.

*Chemical Technologies*. Costs of revenue decreased $1.5 million, or 2.3%, to $63.0 million for the Current Quarter compared to $64.5 million for the Prior Quarter. Cost of revenue as a percent of revenue decreased from 81.2% to 79.7% due primarily to picking up additional higher-margin market share within our portfolio of specialty products as well as manufacturing process efficiencies.

*Depreciation and Amortization*. Depreciation and amortization expense increased $8.0 million, or 29.9%, to $34.7 million for the Current Quarter compared to $26.7 million for the Prior Quarter, due primarily to a higher fixed asset base primarily due to the Breakwater Acquisition as well as investments made into fixed infrastructure projects.

### Gross Profit

Gross profit was $56.3 million for the Current Quarter compared to $58.8 million for the Prior Quarter due primarily to lower revenue and gross profit in our Water Services segment coupled with higher depreciation expense, partially offset by higher revenue and gross profit in our Water Infrastructure segment resulting from increased activity levels, increased pricing and contributions from the Breakwater and Cypress Acquisitions and higher Chemical Technologies gross margins. Gross profit decreased by $8.1 million in our Water Services segment and increased by $12.4 million and $1.1 million in our Water Infrastructure and Chemical Technologies segments, respectively. Also contributing to the decrease in gross profit was an $8.0 million increase in depreciation and amortization expense. Gross margin as a percent of revenue was 14.5% and 15.7% in the Current Quarter and Prior Quarter, respectively.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $9.2 million, or 30.9%, to $39.0 million for the Current Quarter compared to $29.8 million for the Prior Quarter. The increase was due primarily to $4.3 million in rebranding costs, $3.0 million higher wages, associated payroll taxes and employer 401(k) match contributions, a $1.0 million increase in incentive and equity-based compensation cost, $1.0 million in higher contract labor, $0.9 million higher legal and professional fees, $0.4 million higher information technology costs and $0.7 million from a combination of other expenses, partially offset by a $1.3 million decrease in business development costs and a $0.8 million decrease in vehicle lease costs.

### Net Interest Expense

Net interest expense increased by $0.1 million, or 24.2%, to $0.8 million for the Current Quarter compared to $0.6 million in the Prior Quarter due primarily to borrowings on our Sustainability-Linked Credit Facility prior to repaying such borrowings in the Current Quarter.

### Bargain Purchase Gain

A reduction to bargain purchase gain of $3.3 million in the Prior Quarter was comprised of adjustments related to a 2021 acquisition.

### Net Income

Net Income decreased by $9.4 million, or 38.0%, to $15.3 million for the Current Quarter compared to $24.7 million for the Prior Quarter, driven primarily by higher selling, general and administrative expenses.

### Current Period Compared to the Prior Period

*(in thousands)*

| ​ ​ ​ ​ Revenue | ​ ​ ​ | ​ ​ Nine months ended September 30, 2023 ​ ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ | ​ ​ Change Dollars ​ ​ ​ | ​ ​ | ​ ​ Percentage ​ ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | --- | ---: | --- |
| Water Services | ​ | $791,145 | ​ | $693,393 | ​ | $97,752 |  | 14.1% | ​ |
| Water Infrastructure | ​ | ​ 169,118 | ​ | ​ 80,686 | ​ | ​ 88,432 | ​ | 109.6% | ​ |
| Chemical Technologies | ​ | ​ 250,230 | ​ | ​ 231,665 | ​ | 18,565 |  | 8.0% | ​ |
| Total revenue | ​ | 1,210,493 | ​ | 1,005,744 | ​ | 204,749 |  | 20.4% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Costs of revenue | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Water Services | ​ | 626,878 | ​ | 558,041 | ​ | 68,837 |  | 12.3% | ​ |
| Water Infrastructure | ​ | ​ 103,718 | ​ | ​ 51,424 | ​ | 52,294 |  | 101.7% | ​ |
| Chemical Technologies | ​ | ​ 200,017 | ​ | ​ 194,670 | ​ | ​ 5,347 | ​ | 2.7% | ​ |
| Depreciation and amortization | ​ | 102,776 | ​ | 82,425 | ​ | 20,351 |  | 24.7% | ​ |
| Total costs of revenue | ​ | 1,033,389 | ​ | 886,560 | ​ | 146,829 |  | 16.6% | ​ |
| Gross profit | ​ | 177,104 | ​ | 119,184 | ​ | 57,920 |  | 48.6% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Operating expenses | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Selling, general and administrative | ​ | 109,147 | ​ | ​ 84,792 | ​ | 24,355 |  | 28.7% | ​ |
| Depreciation and amortization | ​ | 1,846 | ​ | ​ 1,636 | ​ | 210 |  | 12.8% | ​ |
| Impairments and abandonments | ​ | ​ 11,554 | ​ | ​ — | ​ | ​ 11,554 | ​ | NM ​ | ​ |
| Lease abandonment costs | ​ | 73 | ​ | ​ 336 | ​ | (263) |  | (78.3)% | ​ |
| Total operating expenses | ​ | 122,620 | ​ | 86,764 | ​ | 35,856 |  | 41.3% | ​ |
| Income from operations | ​ | 54,484 | ​ | 32,420 | ​ | 22,064 |  | 68.1% | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Other income (expense) | ​ |  | ​ |  | ​ | ​ |  | ​ ​ | ​ |
| Gain on sales of property and equipment and divestitures, net | ​ | ​ 1,688 | ​ | ​ 1,905 | ​ | ​ (217) |  | 11.4% | ​ |
| Interest expense, net | ​ | (4,290) | ​ | ​ (1,830) | ​ | (2,460) |  | 134.4% | ​ |
| Foreign currency loss, net | ​ | ​ (4) | ​ | ​ (9) | ​ | ​ 5 |  | NM ​ | ​ |
| Bargain purchase gain | ​ | ​ — | ​ | ​ 13,768 | ​ | ​ (13,768) |  | NM ​ | ​ |
| Other | ​ | 2,486 | ​ | ​ 2,277 | ​ | 209 |  | NM ​ | ​ |
| Income before income tax expense | ​ | 54,364 | ​ | 48,531 | ​ | 5,833 |  | 12.0% | ​ |
| Income tax expense | ​ | (1,068) | ​ | (672) | ​ | (396) |  | 58.9% | ​ |
| Equity in losses of unconsolidated entities | ​ | ​ (1,716) | ​ | (576) | ​ | (1,140) |  | NM ​ | ​ |
| Net income | ​ | $51,580 | ​ | $47,283 | ​ | $4,297 |  | 9.1% | ​ |

### Revenue

Our revenue increased $204.7 million, or 20.4%, to $1.2 billion for the Current Period compared to $1.0 billion for the Prior Period. This increase was composed of a $97.8 million increase in Water Services revenue, an $88.4 million increase in Water Infrastructure revenue and an $18.6 million increase in Chemical Technologies revenue. These increases were driven primarily by higher demand for our services coupled with increased pricing in comparison to the Prior Period. Included in the increases in Water Services and Water Infrastructure were incremental revenue contributions from Breakwater, Nuverra, Cypress and other asset acquisitions. For the Current Period, our Water Services, Water Infrastructure and Chemical Technologies constituted 65.3%, 14.0% and 20.7% of our total revenue, respectively, compared to 69.0%, 8.0% and 23.0%, respectively, for the Prior Period. The revenue changes by reportable segment are as follows:

*Water Services*. Revenue increased $97.8 million, or 14.1%, to $791.1 million for the Current Period compared to $693.4 million for the Prior Period. The increase was primarily attributable to incremental revenue contributions from the Breakwater Acquisition and higher demand for our services coupled with increased pricing in comparison to the Prior Period. The increase in demand was due to market activity increases across most of our areas of operations, market share gains in the Permian Basin in our poly and containment business line and new service offerings in our accommodations and rentals business line.

*Water Infrastructure.* Revenue increased $88.4 million, or 109.6%, to $169.1 million for the Current Period compared to $80.7 million for the Prior Period. The increase was primarily attributable to incremental revenue contributed by Breakwater, Nuverra, Cypress and other asset acquisitions. Revenue during the Current Period also benefitted by the ramp-up of recycling and treatment operations associated with two long-term agreements in the Rockies region and one long-term agreement in the Permian region.

*Chemical Technologies*. Revenue increased $18.6 million, or 8.0%, to $250.2 million for the Current Period compared to $231.7 million for the Prior Period. The increase was primarily attributable to higher demand for our services in comparison to the Prior Period and was not directly impacted by acquisition activity.

### Costs of Revenue

Costs of revenue increased $146.8 million, or 16.6%, to $1.0 billion for the Current Period compared to $886.6 million for the Prior Period. The increase was primarily composed of a $68.8 million increase in Water Services costs, a $52.3 million increase in Water Infrastructure costs, and a $5.3 million increase in Chemical Technologies costs due to supporting the higher revenue-producing activity discussed above.

*Water Services*. Costs of revenue increased $68.8 million, or 12.3%, to $626.9 million for the Current Period compared to $558.0 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 80.5% to 79.2% due primarily to higher pricing for our services and economies of scale from higher revenue activity.

*Water Infrastructure*. Costs of revenue increased $52.3 million, or 101.7%, to $103.7 million for the Current Period compared to $51.4 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 63.7% to 61.3% due primarily to increased water treatment and recycling margins, which were favorably impacted by the Breakwater Acquisition and the ramp-up of three long-term treatment and recycle agreements.

*Chemical Technologies*. Costs of revenue increased $5.3 million, or 2.7%, to $200.0 million for the Current Period compared to $194.7 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 84.0% to 79.9% due primarily to picking up additional higher-margin market share within our portfolio of products as well as manufacturing process efficiencies.

*Depreciation and Amortization*. Depreciation and amortization expense increased $20.4 million, or 24.7%, to $102.8 million for the Current Period compared to $82.4 million for the Prior Period, due primarily to a higher fixed asset base and nine full months of depreciation related to the Breakwater, Cypress, and Nuverra Acquisitions as well as investments made into fixed infrastructure projects.

### Gross Profit

Gross profit was $177.1 million for the Current Period compared to $119.2 million for the Prior Period due primarily to higher revenue in all three segments resulting from increased activity levels and pricing and contributions from the Breakwater and Cypress Acquisitions. Gross profit increased by $28.9 million, $36.1 million and $13.2 million in our Water Services, Water Infrastructure and Chemical Technologies segments, respectively. Partially offsetting the increase in gross profit was a $20.4 million increase in depreciation and amortization expense. Gross margin as a percent of revenue was 14.6% and 11.9% in the Current Period and Prior Period, respectively.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $24.4 million, or 28.7%, to $109.1 million for the Current Period compared to $84.8 million for the Prior Period. The increase was due primarily to $6.9 million higher wages, associated payroll taxes and employer 401(k) match contributions, $6.8 million in rebranding costs, a $3.1 million increase in incentive and equity-based compensation cost, a $3.0 million increase in legal and professional fees, $2.2 million in higher contract labor, a $1.9 million increase in bad debt expense, $1.5 million higher information technology costs, a $0.6 million increase in business development costs, and $1.8 million from a combination of other expenses partially offset by a $2.1 million decrease in vehicle lease costs and a $1.3 million decrease in insurance costs.

### Impairments and Abandonments

$11.1 million of trademark abandonment was recorded in the Chemical Technologies segment during the Current Period. Also, $0.4 million of abandonment was attributable to damaged property and equipment and $0.1 million of impairment was recorded in our Water Services segment to write-off the remaining value of a cost-method investment.

### Net Interest Expense

Net interest expense increased by $2.5 million, or 134.4%, to $4.3 million for the Current Period compared to $1.8 million in the Prior Period due primarily to higher average borrowings on our Sustainability-Linked Credit Facility and higher interest rates in the Current Period prior to repaying such borrowings.

### Bargain Purchase Gain

A bargain purchase gain of $13.8 million in the Prior Period was comprised of $7.1 million related to the Nuverra Acquisition and $6.7 million in adjustments to acquisitions that occurred in 2021.

### Net Income

Net Income increased by $4.3 million, or 9.1%, to $51.6 million for the Current Period compared to $47.3 million for the Prior Period, driven primarily by increased revenue, including contributions from our recent acquisitions, while also being negatively impacted in the Current Period by the trademark abandonment referenced above.

### Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income (loss), plus interest expense, income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment and abandonment charges or asset write-offs pursuant to GAAP, plus non-cash losses on the sale of assets or subsidiaries, non-recurring compensation expense, non-cash compensation expense, and non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus/(minus) losses/(gains) on unconsolidated entities less bargain purchase gains from business combinations. The adjustments to EBITDA are generally consistent with such adjustments described in our Sustainability-Linked Credit Facility. See “—Comparison of Non-GAAP Financial Measures” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Our board of directors, management and investors use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and items outside the control of our management team. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.

### Note Regarding Non-GAAP Financial Measures

### EBITDA and Adjusted EBITDA

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 the exclusion of some but not all items that affect the most directly comparable GAAP financial measures. One 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 sets forth our reconciliation of EBITDA and Adjusted EBITDA to our net income, which is the most directly comparable GAAP measure for the periods presented:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net income | ​ | $15,314 | ​ | $24,717 | ​ | $51,580 | ​ | $47,283 |
| Interest expense, net | ​ | ​ 765 | ​ | ​ 616 | ​ | ​ 4,290 | ​ | ​ 1,830 |
| Income tax expense | ​ | ​ 483 | ​ | ​ 276 | ​ | ​ 1,068 | ​ | ​ 672 |
| Depreciation and amortization | ​ | ​ 35,162 | ​ | ​ 27,215 | ​ | ​ 104,622 | ​ | ​ 84,061 |
| EBITDA | ​ | ​ 51,724 | ​ | ​ 52,824 | ​ | ​ 161,560 | ​ | ​ 133,846 |
| Non-cash compensation expenses | ​ | ​ 5,014 | ​ | ​ 3,804 | ​ | ​ 12,787 | ​ | ​ 11,023 |
| Non-cash loss on sale of assets or subsidiaries(1) | ​ | ​ 583 | ​ | ​ 1,608 | ​ | ​ 2,832 | ​ | ​ 3,141 |
| Non-recurring transaction costs(2) | ​ | ​ 4,669 | ​ | ​ 965 | ​ | ​ 9,513 | ​ | ​ 7,461 |
| Lease abandonment costs | ​ | ​ (12) | ​ | ​ 83 | ​ | ​ 73 | ​ | ​ 336 |
| Impairments and abandonments | ​ | ​ 32 | ​ | ​ — | ​ | ​ 11,554 | ​ | ​ — |
| Bargain purchase gain | ​ | ​ — | ​ | ​ 3,273 | ​ | ​ — | ​ | ​ (13,768) |
| Equity in losses of unconsolidated entities | ​ | ​ 978 | ​ | ​ 218 | ​ | ​ 1,716 | ​ | ​ 576 |
| Foreign currency loss, net | ​ | ​ 1 | ​ | ​ 6 | ​ | ​ 4 | ​ | ​ 9 |
| Adjusted EBITDA | ​ | $62,989 | ​ | $62,781 | ​ | $200,039 | ​ | $142,624 |

(1) For all periods presented, the losses were due primarily to sales of real estate and underutilized or obsolete property and equipment.

(2) For all periods presented, these costs were due primarily to legal-related due diligence costs and rebranding costs as well as costs related to certain acquired subsidiaries.

EBITDA was $51.7 million for the Current Quarter compared to $52.8 million for the Prior Quarter. The $1.1 million decrease in EBITDA was driven primarily by a $9.2 million increase in selling, general and administrative expense in the Current Quarter partially offset by an increase of $5.4 million in gross profit and a $3.3 million reduction to bargain purchase gain in the Prior Quarter. Adjusted EBITDA was $63.0 million for the Current Quarter compared to $62.8 million for the Prior Quarter.

EBITDA was $161.6 million for the Current Period compared to $133.8 million for the Prior Period. The $27.8 million increase in EBITDA was driven primarily by an increase of $78.3 million in gross profit partially offset by a $13.8 million bargain purchase gain in the Prior Period, trademark abandonment costs of $11.1 million in the Current Period and a $24.4 million increase in selling, general and administrative expense in the Current Period. Adjusted EBITDA was $200.0 million for the Current Period compared to $142.6 million for the Prior Period. The $57.4 million increase is primarily attributable to the items discussed above.

### Liquidity and Capital Resources

### Overview

Our primary sources of liquidity are cash on hand, borrowing capacity under the Sustainability-Linked Credit Facility, cash flows from operations and proceeds from the sale of excess property and equipment. As of September 30, 2023, we had no outstanding borrowings, approximately $224.0 million of available borrowing capacity under our Sustainability-Linked Credit Facility, and cash and cash equivalents of $25.0 million. Our primary uses of capital have been to fund current operations, maintain our asset base, implement technological advancements, make capital expenditures to support organic growth, fund acquisitions and minority investments, and when appropriate, repurchase shares of Class A common stock in the open market. Depending on available opportunities, market conditions and other factors, we may also issue debt and equity securities in the future, if needed.

We prioritize sustained positive free cash flow and a strong balance sheet and evaluate potential acquisitions and investments in the context of those priorities, in addition to the economics of the opportunity. We believe this approach provides us with additional flexibility to evaluate larger investments as well as improved resilience in a sustained downturn versus many of our peers.

Based on our current cash and cash equivalents balance, operating cash flow, available borrowings under our Sustainability-Linked Credit Facility and the ongoing actions discussed above, we believe that we will be able to maintain sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants through the next twelve months and beyond, prior to giving effect to any future financing that may occur.

We intend to finance most of our capital expenditures, contractual obligations and working capital needs with cash on hand, cash generated from operations and borrowings under our Sustainability-Linked Credit Facility. For a discussion of the Sustainability-Linked Credit Facility, see “—Sustainability-Linked Credit Facility” below. Although we cannot provide any assurance, we believe that our current cash balance, operating cash flow and available borrowings under our Sustainability-Linked Credit Facility will be sufficient to fund our operations for at least the next twelve months. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global markets, ESG matters and other factors, many of which are beyond our control. In this regard, the inability of banking and other financial services firms to access liquidity, which has resulted in two U.S. bank failures and ongoing uncertainty regarding the going concern of certain banks, has resulted in significant disruptions to global markets. Central bank policy actions, bank failures and associated liquidity risks and other factors may negatively impact the value of our Class A and Class B common stock and that of our customers and may reduce our and their ability to access liquidity in the bank and capital markets or result in capital being available on less favorable terms, which could negatively affect our financial condition and that of our customers.

During the fourth quarter of 2022, we initiated a quarterly dividend and distribution program of $0.05 per share and $0.05 per unit for holders of Class A common stock and SES Holdings, LLC Units (along with Class B shares), respectively. This resulted in a financing outflow of $17.9 million in the Current Period, and this quarterly dividend program is expected to continue. All future dividend payments are subject to quarterly review and approval by our board of directors.

As of September 30, 2023, cash and cash equivalents totaled $25.0 million, and we had approximately $224.0 million of available borrowing capacity under our Sustainability-Linked Credit Facility. As of September 30, 2023, the borrowing base under the Sustainability-Linked Credit Facility was $238.8 million, we had no outstanding borrowings and outstanding letters of credit totaled $14.8 million. As of October 30, 2023, we had no outstanding borrowings, the borrowing base under the Sustainability-Linked Credit Facility was $255.5 million, the outstanding letters of credit totaled $14.5 million, and the available borrowing capacity under the Sustainability-Linked Credit Facility was $241.0 million.

### Cash Flows

The following table summarizes our cash flows for the periods indicated:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ Change Dollars ​ ​ | ​ ​ | ​ ​ ​ Percentage ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Net cash provided by (used in) operating activities | ​ | $202,162 | ​ | $(2,107) | ​ | $204,269 | ​ | 9694.8% |
| Net cash used in investing activities | ​ | ​ (104,939) | ​ | ​ (29,493) | ​ | ​ (75,446) | ​ | (255.8)% |
| Net cash used in financing activities | ​ | ​ (79,498) | ​ | ​ (40,964) | ​ | ​ (38,534) | ​ | (94.1)% |
| Subtotal | ​ | ​ 17,725 | ​ | ​ (72,564) | ​ | ​ ​ | ​ | ​ ​ |
| Effect of exchange rate changes on cash and cash equivalents | ​ | ​ (4) | ​ | ​ (15) | ​ | ​ 11 | ​ | NM ​ |
| Net increase (decrease) in cash and cash equivalents | ​ | $17,721 | ​ | $(72,579) | ​ | ​ ​ | **​** | **​** **​** |

#### Analysis of Cash Flow Changes between the Nine Months Ended September 30, 2023 and 2022

*Operating Activities*. Net cash provided by operating activities was $202.2 million for the Current Period, compared to net cash used in operating activities of $2.1 million in the Prior Period. The $204.3 million improvement is comprised of an increase of $56.0 million of net income combined with non-cash adjustments and $148.3 million of decreased working capital primarily due to collecting trade receivables impacted by improvements in the billing and collection process.

*Investing Activities*. Net cash used in investing activities was $104.9 million for the Current Period, compared to $29.5 million for the Prior Period. The $75.4 million increase in net cash used in investing activities was due primarily to a $51.6 million increase in purchases of property and equipment, an increase of $19.1 million spent for acquisitions, net of cash and restricted cash received and a $10.1 million decrease in proceeds received from sales of property and equipment partially offset by a decrease of $6.0 million in investments made in non-controlled entities.

*Financing Activities*. Net cash used in financing activities was $79.5 million for the Current Period compared to net cash used in financing activities of $41.0 million for the Prior Period. The $38.5 million increase in net cash used in financing activities was due primarily to a $29.9 million increase in repurchases of shares of Class A common stock and $17.9 million in dividends paid during the Current Period partially offset by $4.4 million of cash received net of cash paid from/to noncontrolling interest holders in the Current Period, debt repayments net of borrowings decreasing $2.8 million, and $2.1 million in debt issuance costs paid in the Prior Period.

### Sustainability-Linked Credit Facility

On March 17, 2022 (the “Restatement Date”), SES Holdings, a subsidiary of the Company, and Select Water Solutions, LLC (“Select LLC”), formerly Select Energy Services, LLC and a wholly-owned subsidiary of SES Holdings, entered into a $270.0 million amended and restated senior secured sustainability-linked revolving credit facility (the “Sustainability-Linked Credit Facility”), by and among SES Holdings, as parent, Select LLC, as borrower and certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”) (which amended and restated the Prior Credit Agreement dated November 1, 2017). The Sustainability-Linked Credit Facility also has a sublimit of $40.0 million for letters of credit and a sublimit of $27.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders, Select LLC has the option to increase the maximum amount under the senior secured credit facility by $135.0 million during the first three years following the Restatement Date.

Refer to “Note 8—Debt” for further discussion of the Sustainability-Linked Credit Facility.

### Contractual Obligations

Our contractual obligations include, among other things, our Sustainability-Linked Credit Facility and operating leases. Refer to “Note 6—Leases” in our 2022 Form 10-K for operating lease obligations as of December 31, 2022 and “Note 8—Debt” in Part I, Item 1 of this Quarterly Report for an update to our Sustainability-Linked Credit Facility as of September 30, 2023.

### Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in our 2022 Form 10-K.

### Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. As the London Interbank Offered Rate ("LIBOR") will no longer be available beginning July 2023, this standard update provides practical expedients for contract modifications made as part of the transition from LIBOR to alternative reference rates. The guidance was effective upon issuance and at present can generally be applied through December 31, 2024. The Company adopted this ASU in the Current Period and it had no impact on its consolidated financial statements.

### Off-Balance-Sheet Arrangements

As of September 30, 2023, we had no material off-balance-sheet arrangements. As such, we are not exposed to any material financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

## Market risk

As filed, 2,632 characters.

The demand, pricing and terms for oilfield services provided by us are largely dependent upon the level of drilling and completion activity in the U.S. oil and gas industry. The level of drilling and completion activity is influenced by numerous factors over which we have no control, including, but not limited to: the supply of and demand for oil and gas; war, economic sanctions and other constraints to global trade and economic growth; central bank policy actions, bank failures and associated liquidity risks; announcements and actions taken by the members of OPEC+ with respect to oil production levels; the magnitude and timing of capital spending by our customers; the cost of exploring for, developing, producing and delivering oil and gas; the extent to which our E&P customers choose to drill and complete new wells to offset decline from their existing wells; the extent to which our E&P customers choose to invest to grow production; discoveries of new oil and gas reserves; available storage capacity and pipeline and other transportation capacity; weather conditions; domestic and worldwide economic conditions; instability in oil-producing countries; environmental regulations; technical advances in alternative forms of energy (e.g. wind and solar electricity, electric vehicles) that encourage substitution for or displacement of oil and gas consumption in end-use markets; global health events; the price and availability of alternative fuels; the ability of oil and gas producers to raise equity capital and debt financing; merger and acquisition activity and consolidation in our industry, and other factors.

Any combination of these factors that results in sustained low oil and gas prices and, therefore, lower capital spending and / or reduced drilling and completion activity by our customers, would likely have a material adverse effect on our business, financial condition, results of operations and cash flows.

### Interest Rate Risk

As of September 30, 2023, we had no outstanding borrowings under our Sustainability-Linked Credit Facility. As of October 30, 2023, we had no outstanding borrowings and $241.0 million of available borrowing capacity under our Sustainability-Linked Credit Facility. Interest is calculated under the terms of our Sustainability-Linked Credit Facility based on our selection, from time to time, of one of the index rates available to us plus an applicable margin that varies based on certain factors. We do not currently have or intend to enter into any derivative arrangements to protect against fluctuations in interest rates applicable to our outstanding indebtedness.

## Controls and procedures

As filed, 1,601 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 514 characters.

There are a number of risks that we believe are applicable to our business and the industry in which we operate. These risks are described elsewhere in this report or our other filings with the SEC, including the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K. If any of the risks and uncertainties described within our Annual Report on Form 10-K or this Quarterly Report actually occur, our business, financial condition or results of operations could be materially adversely affected.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-017246. Last ingested by Listed: Nov 2, 2026, 18:36 ET. No prices; not investment advice.