WTTR - Earnings call transcript Q4 2019 | Select Energy Services, Inc.

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Operator

Greetings, and welcome to Select Energy Services fourth quarter earnings conference call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris George, Vice President, Investor Relations and Treasurer. Thank you, Mr. George.

begin. now may You

Chris George

me and Senior the everyone. call Select our Officer. Officer; results. to Operator, President Ladhani, joining Chief President and and appreciate and us review Executive With quarter fourth for Energy Nick XXXX are good you, Holli We our Swyka, morning, and you webcast today Vice Thank Services Financial conference Chief

available in and items by over, a to the accurate until and will as this may as speaks I call replay Please I call earnings be only release. access have the The will few There today's therefore, no transcript turn today, XX, March our longer be A time cover. this recorded from the housekeeping webcast for replay listening included accessible note available XX, February selectenergyservices.com. website time-sensitive or call of was reading. Before of a replay XXXX. information information telephonic at XXXX, yesterday's replay the of be information also of that reported on also

views forward-looking during reflect addition, forward-looking States conference made These comments securities by this the Select of United within management the laws. the call statements may current meaning In the management. of federal contain statements

announcement we to please and yesterday measures. risks, XX-K for for of understand financial to our as as file earnings XX, Form The quarterly XX-K on cause XXXX, XX, reports this on is risks, uncertainties report from reconciliations released fourth management. year refer and uncertainties statements encouraged subsequent actual However, annual the XXXX, materially various or the on XX-Q reports to week our December Form contingencies current our our listener on to X-K the and ended our quarter Also, report well Form performance year by our non-GAAP made to contingencies. expect differ ended could read achievements results, those which those for in Form December expressed annual

I the CEO, call over our to now President Ladhani. like And would to turn Holli and

Holli Ladhani

Thanks, Chris. Good morning, everyone, and today. thanks joining us for

execute were and we strategy and XXXX, free in the quarter was strong position we on of also strengthen flow integrated very our million fourth operating year end able on as continue cash to industry quarter, free to over of to the finish while but The from $XXX back generating and for free our $XX the flow strong tough flow. solutions quarter our took cash million $XX meaningful flow. Looking more with delivering chemical to year. This for million an cash cash activity a flow cash over the market water leader differentiate another standpoint, than

team year, objectives. Over course the number across a accomplished of the of tremendous amount the key a

quarter, efforts recognize the the accomplishments. minute to I to to want for and into diving thank take Before their team a their

generate repurchases, for and costs; from shareholders and reduces and return roughly businesses cash finally, services for on balance $XX the We to during products. we share high-margin to added Specifically, system, capacity site our of pipeline about continued a to million $XX market technology water our cash our and noncore outstanding while treatment the to in invest we million all services differentiates repaid incremental our continuing well million; friction automation Baker manufacturing build business $XX Hughes our Permian XXXX, Basin; strategic sheet. debt; Mexico the in our with divested reducer targeted water of million; continue completed that remaining share acquired take continue $XX new chemicals through to

say I'd to like this, For to all of our thanks employees.

to Shifting the fourth quarter.

fourth these over in of believe challenges for exhaustion quarter. of and sharply our of levels the was largely intensity the certainly seasonal the many activity its customers the began had declined we While year Budget end nature. of challenges, the earlier course

was activity about at infrastructure activity XX%, benefiting levels full drop pronounced with our customers off more tracking by services from is have capital of to the well more WCS revenues, and Chemical which decline with pressure our completions Revenue data sensitivity most our modestly smaller our operators actually impacted was Oilfield segments. Looking and as declined activity the the water in This our top that for quarter for their acquisition. estimate in XX% on quarter's pumping The our that as quarter-over-quarter. fleet, internal programs. generally the regards contribution of XX flat down from fourth Notably, commodity less a flexibility segment remained own with XX%. increased, revenue price to third-party clearly water our

stages, early the strategically WCS we're cycle about full and capabilities. our business, the as furthers it both benefits in still the financially life excited full realizing We're water but of solutions

in forward, the undergone the flat CapEx pointing industry. segments last to to be over year-over-year to XX while quarter activity Clearly, in The part the forecast indicating I first in private and flat E&P decline the levels can't visibility early full activity generally the indicate the materially X a across the low activity up public than but say Looking down full has is year, year-over-year already relative the average modestly a decline with XXXX, industry we fourth smaller and to months we've we XXXX, percentage or year forecast improvements expect have transformation expected operators up pick for teens. all operators in major to and seen so. quarter. to larger our the seem into of cap lower

built adapt scale, and and long model believe generation. over the free towards capital E&P customers' and for priorities and from spending, the cash but models our industry business safety the this as and evolving Our it's the more our business balance culture away are deliver. technology sheet landscape resulted have healthy the we to restrained shifted flow Select efficiency, value term. in in trust This we the expertise, has growth customers discipline

could current volatile chemical recently. that and the been demand certainly water for believe cash prices to Absent number we demand coming for of fundamentals invest to in of net market capital CapEx There targeting targeting million And activity, flow in flow, $XXX years to intact. and judiciously, the secular trends at solutions supply XXXX. generate million free global growing $XX behind million cash But of the we'll forecasted we impact of that million in the and oil $XX further meaningful a continue Even activity broader remain signals remain to have XXXX. levels, levels geopolitical and levels. unknowns influences near-term of expect activity increases our $XX

on to navigate the debt $XX remain volatile we positioned the year the ended nearly market and well sheet, with Having no balance of potentially us. in ahead million cash

continue responsive opportunistic activity to capital the to We market projects, growth believe dictate. as we'll the be our invest opportunities of and cost course year we'll over manage maintain market conditions but to or capital levels and and have incremental discipline acquisitions

hand I'll performance to walk it that, quarter fourth With over through financial detail. our to Nick in more

Nicholas Swyka

Thank million. I'm everyone. the target that of fourth you, million meaningfully in Holli, to $XX to morning, our of $XX free exceeding $XX in $XXX free the year, flow pleased good and million cash quarter, cash with million generated flow announce of we

the XXXX, from continued full half our cash operating of of coming was year from only operating from QX working capital about majority our during our over for flow improvements, capital, XX% flow While came cash net with and to flow, the cash nearly of million via cash QX, With during invested CapEx we on million results. still operating $XX this returned strong buybacks million. $X increased shareholders hand by operating and $XX our in capital working

market, target. latest below $XX net CapEx spending came of of focusing full capital. and is excess our investment deliver the still Through a The dynamically could million $XXX to to modestly our we our example this cost changing million Our initial a on adjusted confident guidance return New below in year, $XXX are Mexico million a on year of good of of our well opportunities we strategy. in shareholders pipeline

CapEx maintenance X/X of EBITDA the our kept we also target. generally We below

As million free to flow to should CapEx in and Holli a solid we $XX generate in XXXX. cash million million us to believe of to mentioned, $XX cash continue to flow allow $XXX program XXXX, million of $XX expect generate free

at Looking total $XXX Select of XX% revenue a quarter-over-quarter. generated the of decrease quarter, fourth million,

during demonstrated revenue significant infrastructure challenging faced activity in our and to reduction decreasing a to Oilfield from Chemicals segments the a EBITDA the both net was our million, million. While growing was decline, during $XX the down levels $XX margins million by loss for $XX services water impacted water the due leading industry, quarter. declines Adjusted to of quarter, segment third and resilience the meaningful revenues quarter in what

decreased gross XX% felt Our million focus full With The profit quarter and pricing reductions. million in activity in margins to reflecting pressures $XX activity in quarter amortization a [indiscernible] the compared the fourth quarter XX% fourth water of gross QX million the in generated the from beginning by reductions the the before on segment real-time and $XXX decline the previous and being depreciation to $XX third, of sufficiently revenues third. $XXX to late in from levels decline million segment's revenue services QX, to of in XX%. segment impact impact sequentially cost

levels to our the segment's quickly QX action While severity than our line margins in efficiencies improved off operational kept of decremental the that of combined activity decisive XX%, the took leadership to from expected when revenue our drop with investments in modestly more with challenge XX% XX%. expected, technology QX

increase in revenues improved to activity low due in margins QX, from see percentage to improving segment this levels closer expect typical single-digit a to mid We to XX%. incrementals with

fourth by during $XX the third million infrastructure revenues XX% quarter. million decreased million third gross profit decline $XX segment to from water before from $XX saw quarter-on-quarter Gross million to and quarter. in XX% in decreased The quarter $XX quarter margin to D&A XX% before from fourth D&A the the in the

not of an the with quarter. course New is volumes. revenue in the saw logistics the material results start-up associated late we [Technical pipeline segment be GRR Mexico These during pipeline. operations immune as increase cost during quarter of we over this Mexico from and New disappointed macro in the inefficiencies overall QX should sourcing QX Difficulty] overcome in the While costs the and to the did our saw we traditional water resolved legacy volatility, the starting declines certainly are first sourcing up

should seasonal to this as by though quarter, full single-digit contribution margins Revenue quarter New Looking margins a will the high-XXs mid and in increase percentages of the recover roughly year. we the later from see QX and QX until forward, likely we in in both get pipeline Mexico expect the recover. first the not to improve revenues impacts segment

million $XX quarter Oilfield versus higher profitability, third revenue Chemicals basis margin segment quarter. up before more and improvement modest fourth $X continues $XX to XX revenues the the points quarter. million before more of a was relative revenue with primary improve integration by quarter. profit in of contribution gross margins the XXXX of its XX%, D&A gross a of and led D&A million for quarter, exceed The revenue driver than than of the combination the WCS The we million of nearly in meaningfully million to its which This and increasing contribution during to $X anticipate QX the costs run $X third And growth quarter its full the QX. business seasonality rate. WCS relocation during was impacted to and in attributed to business,

customers, addition legacy the the win and saw during continues our continued quarter. overall market our effectiveness products of outperform In with materially operations WCS, to our and logistics in-basin new favorable benefit the manufacturing proprietary the of to we

consistent we percentage to anticipate modest relatively holding QX, revenue growth with single-digit into Heading QX. in margins

We costs. tax the for Looking during about during remained a while Depreciation million corporate $X QX. SG&A million at decreased the target or our flat, $X.X meaningfully our $X.X exceeding quarter. XX% other saw relatively benefit million quarter,

able a to make further Looking savings ahead necessitate. measures we will XXXX, progress anticipate we as conditions equating relatively stay flat roughly to that X% year-over-year. QX, we market levels, That evaluate SG&A were continue into to to decline in will with the said, cost current

teens We modestly year-over-year see reduce in expect rate the to an depreciation tax effective range. and low

continue have XX. of enjoy a December million We to X $XX as position of and bank net cash debt

being to QX, is challenging quarter a trajectory during revenue quarter. still the anticipate inverts of able cash the capital free we flow QX to relative working generate solid While for as first often

We bringing $XX to share via million repurchases, and continue quarters free initiating flow our approximately to course to total roughly program. $X $XX buying shareholders over QX, of back capital over X million deploy return the worth since shares buybacks during more million last cash our XXXX than the towards buyback of

merger, X shareholder additional the review through allocation solid has consecutive part to continue through ongoing for will to services. our and potential since continue we We quarters of in an oilfield challenging free flow options capital cash The as positive strategy. our flow return generating manifested stretch Rockwater of cash that franchise itself a expect

balance pursuit to of metrics. prioritize in other safeguard all opportunistic investments, and continue cash capital we returns will financial and remaining the flow above high return on our While sheet

to Holli that, questions wraps the we'll some remarks. With concluding up your before I'll turn it and with over Operator? operator, take

Operator

[Operator Instructions].

Meakim Our first of line question with is JPMorgan. Sean from the

Sean Meakim

So versus a and how talk of XQ the Holli, filter into context infrastructure? can that segments? margins through that of a little in for get that? volumes, maybe changes little for trying business segment to sense bit expectations those your should just each leverage how about see of start, how we the you we think about services between should a XQ how as to I'm we into for flow think EBITDA the operating Maybe two about

Holli Ladhani

Yes.

managing matters working may going prepared think it going their to activity spend the essentially expect we once you're you protect in completions fairly back would typical as business we're customers QX. step were, the different. dig you and on by decrementals on quarter activity high which to it's the beyond But levels. have we if And think incrementals it it remarks, to talked we're on had odd may we and QX be seeing to what correlation overall a business, we track we that not that an about would that services is cost say with business, to the look so there. exactly on into that, it's levels I about forward that services the increased and in able -- Infrastructure, activity. But for QX I and -- levels as or our

the volatility hurt in just well. the On And We Bakken, And that in we had while that well. top the frankly, the actually didn't we and took little got I do back front, that the QX, we give underperformed and we're we'll and in -- I'm had business I QX, fixed. what think us in performance of track. They that specific issues, confident margins costs may necessarily not And the by level have. to a team, bit It on the the that -- on that with But be QX. pause some existing in expect have think them they of then and line. have drag impacted I understand solid a that would some you services more customers expect Then line getting we a our water would manage Permian. better operations. as sourcing the same of

Sean Meakim

Got it.

Okay.

helpful. think I feedback that. appreciate that is I

So given the today how Any macro this you of still of of the is attractive the terms in year. Or thesis. in always assets certain the shopping looks in the of more good generate list read spread can bid-ask the challenging, a central that been you for how current terms is given that looks a that cash amount can part has the control, Nick environment on being of of things focusing to M&A pause highlighted uses further portion America you months, XXXX. give about it, in to potentially entire Just folks a you curious that that of pursuing curious Just not buybacks how of changed in the but that cash. going some in probably you amount? be deploying capital terms think share maybe X does view in how for about any XX about think has best North environment? M&A?

Holli Ladhani

Sure.

would pretty on sort in and balance and point, good I and we can a a that's integrate organic over opportunities you a that tell positions still And spread acquisition valuations various versus acquisitions probably services side. able I is where that the multiples, relatively close at job we to think be to team several then it's has years. look have this pretty what or done we versus acquisition there getting where of to sheet us to do are good a way about the and side think others there won't. your infrastructure organically. When strength these, a last the identify

the in stay certainly of could to key we're right more on patient, or we're the types our the probably on find chemicals maybe going be on we'll valuation. I we're message of think to is can acquisitions, in opportunities. going then action if we focused front we we there. somewhere returns, think I leverage add, is frankly. than to and the organic take disciplined And have So be what And growth But very but that And that to inclined just terms going of focused offer help differentiate are be aware to between. platform, we we're

time, but we remain inquisitive, disciplined. patient So at same be I would the say, absolutely will and

Operator

question comes RBC. with Our next line Kurt Hallead of the from

Kurt Hallead

of just I into the related the were But wondered identified kind if overcome. cost I identified pipeline. context, little the could the dynamics be delve they'll able should to challenges indicated water to maybe just you management a the Mexico overcome? that you've and and has the that particularly, Holli, dynamics you we specific know think challenges you're the confident related bit most be in that that New and infrastructure to deeper what team

Holli Ladhani

I'm glad or segment in that were question just you maybe related were not and largely our they necessarily describe the brought we on. that we've The asked had Kurt. on Permian didn't issues new infrastructure business, the to sourcing our the well, in I because pipeline

across opportunities out costs on can and on little think that of the think ways those some New think us side, some sourcing when flexibility. did of help pipeline off up of moving benefits the what long-term about team our their and contracts, the that we're -- those And volumes being restructure finding potentially that water while ink around we're in down We online get still kind But we are give are that supply and On the it. the the some were returns Automation to and things improve drive of volumes sources. sort the we not customers necessarily system for tough we with providing a programs. given the the And about think are with of system, kind about sort logistics are that XXXX, us our sit building we're of get moving X And associated that outlook off of But there middlish development back is cost around QX, obviously of and we expected. that we to to Mexico people take-or-pay. laser-focused to some the system. of now contracts potential for across of good outside more in we QX. of the our of that that the year a market feel opportunities step quite one X to area

Kurt Hallead

color. just and And good that Mexico That's pipeline staying in dynamics. Okay. maybe on -- infrastructure New

a us Just excited update are number if -- you year can long-term volume mentioned that give about as of progresses, fill signing wondering really general the think could not a you how deals? given that you fact on would you customers all how potentially you the much as

Holli Ladhani

Yes.

so, again, And long-term is nice.

You do concessions long do take pricing you term. when

XXXX. in was as a is a as you'll a at if out. fair line, the the stage, probably take-or-pay scoped And XX-ish now, the half XXXX, percent capacity XXX,XXX -- is day expectation. utilization. barrels remember, And right we had So on are utilization this initially it's we XX% we're And -- -- focused of that

add able to we'll be believe that's volumes meaningful we the meaning third-party So pipeline. to do

Operator

Stephens. Our line Moll next with of the question from Tommy is

Thomas Moll

I Delaware pipeline for follow-up the wanted progression this to year. ask Northern on X

costs new the you quarter the up noise residual of cleared of margin kind business. as specifically, up on But how legacy the hit should start pipeline, much this start-up You've for of on operations XXXX, it second margin quarter? should Or maybe year about rate think contribution the the the in and terms already at there? we we're the even full run kind of as in some

Holli Ladhani

there diesel and opportunity larger the we're fourth sort times may fire, in to quarter the some as are there's the very isn't of using long get which on efficient, but lead on be pumps. even system. it that back Right of itself, electric of half as on pipeline the some On now, electrified the the we year, improve pumps to

some uplift it you XXXX, won't compare be So that start I some XXXX. but is back think would a upside, but XXXX when there impact have to on material to

Thomas Moll

shouldn't the on due we But Okay. start any big drag QX just kind the for margin expect a to specifically, up? of from pipeline

Holli Ladhani

that's correct. No,

Thomas Moll

Okay.

make could up to are? CapEx net to into in you're wanted apart then us Okay. sure understanding you a a us that following budget then growth? you two. that And clarify the And on difference just gross? initiatives range maintenance just referencing range I or gave how correctly versus break of some for we much CapEx. are net What when Is growth the CapEx, is the And those

Nicholas Swyka

Sure, Tommy.

is don't or that range, material It's expect turning of part So an normal we've just course ongoing in a of asset or equipment term. range divestitures we that sales. business, obsolete net back all CapEx lease but the used

projects as of CapEx, be couple in infrastructure that going far roughly have there. number. down As is of do We that maintenance half to breaking CapEx a the

initiatives, that that rest, million of $XX range, $XX pipeline. of other not gives of but the million of are we there. expansion within the Mexico but and Chemicals our New on smaller picture facility high is level the think million I have $XX scale same some The you Some the an Midland those to flexibility a

Thomas Moll

indeed. Yes,

Operator

Instructions]. [Operator

with the J.B. Our next question of Citi. is line from Lowe

John Lowe

to So pipe to of utilization Holli, that up the kind year? the is you that a felt clarify that think for back can half Northern Is you of on average the that just XXXX XX% you on your get later I comment think rate? XXX. run Delaware you can -- Or something the

Holli Ladhani

achieve to for you I should year, get we able average think when that. the the be

John Lowe

my easy. chemicals on side. was was question And the That other Okay. then

your introduce doing guys good just any or new have kind on have to there you well I'm introducing that of products can look been You the further? expand guys sales you really FRS. plan are been wondering, XXXX in pretty lately that

Holli Ladhani

rapidly. And friction continued even our systems have because, add new product frankly, question a line, products. It's reducer just frac evolve the to within we fluid good

dealing frankly, us produced of really a of you being that you're Just the that amount folks being especially basin. Permian, types ability when for one on has water the you the depending partner things different need a in that's varying a the In that the at better chemistry. driver of that's gains the a with, for our water that's lot in And does look that, we've water the share pumped I'll customize of to, been say, big used, seen. solutions market make

it us utilized better So from add helps we so us, highly be manufacturing to not only say, of does year. help in of a X able X our wallet cost perspective, the I'll customers a frankly, months last the but share customers. to take and larger capacity, and were it or service And

recently to and FRS, our expect Midland QX. be XX%, and of will just what capacity over in increase single-digit the approved Nick it kind early on that of will an capital capacity our we We that's describing expansion part online be it by earlier. low of But in was

in QX that, we -- we margin new to segment. in also will distraction. And chemicals essentially line, expect opportunities about the and we have is excited be obviously, deliver costs, integration to in contributed business opportunities market a And the the grow improvement continue bit do to share. top see impact. we benefit I'm a -- to other didn't add So WCS QX, the solve or integration will then But but problems expected, little that as service the with can our line a new products, business,

John Lowe

just you be great. capped you good the there hope I in end through hit? That's that you going something XX%, to that structurally target that the eventually that Last to high-XXs me of you was about more infrastructure of less. on this business Okay, longer-term something by feedback. for Is kind think, year? still kind margin of, the is it's can the was Or think think the basically kind of one or get

Holli Ladhani

that Yes, certainly to get XXs-type I still that think number. to it's possible

high-XXs As year. Nick said, this

grow with we the XX% the in team we to mark. the that system, that get on to to continue as Mexico is to the to that volumes start still again, focus high-XXs But we'll the utilization the well, end excess and in I the does sort do certainly expect of need of New we One to of as improvements of get think But to XX% the to help this things year. mind some us. of that get volumes keep has,

Operator

call. That any the I'll turn final the for call back question-and-answer management of portion concludes now the remarks. to

Holli Ladhani

Sure. and brief, going I'll have going to like is the clearly know like it's XXXX, lot the at of be positioned I the that, are with advantage frankly, to covering I'd really guys. of all end to but is you But message you season, leave more earnings the challenges present all really to both way opportunities. I the that is take Select offer. XXXX to a

to you quarter. a So thanks we'll again for joining us talk in and today,

Operator

your does and have now disconnect for Ladies conference, conclude wonderful day. a thank you. your lines, This and today's you you participation. Thank and gentlemen, may

Select Energy Services (WTTR) 25 Feb 202019 Q4 Earnings call transcript