Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Select Water Solutions Inc reported growing revenues and margins in both the water infrastructure and chemical technology segments.
- The company successfully completed several strategic acquisitions, enhancing its disposal capacity and expanding its geographic footprint.
- Select Water Solutions Inc achieved record high quarterly revenue and gross profit in the water infrastructure segment.
- The company signed four additional long-term contracts for new pipeline gathering, recycling, and disposal projects, integrating into existing infrastructure.
- Select Water Solutions Inc's recent acquisitions and projects fit the strategy to grow and expand production base and long-term contracted revenue within the Water Infrastructure segment.
Negative Points
- Overall revenues modestly declined during the first quarter of 2024.
- Integration and standardization expenses related to new acquisitions are expected to impact the financials in the short term.
- The Water Services segment experienced a revenue decline due to lower activity levels and is undergoing consolidation and elimination efforts.
- There are ongoing costs associated with transaction-related activities due to recent acquisitions.
- The company anticipates modest revenue decreases in the second quarter for water services due to operational consolidations.
Q & A Highlights
Q: What drove the 900 bps year-over-year step-up and the 360 bps sequential step-up in margins for the Water Infrastructure segment?
A: Christopher George, CFO and EVP, explained that the first quarter benefited significantly from the accretive nature of acquisitions. He noted that there is more work to do around the integration and enhancement of the assets, which might affect the second quarter as well. However, he affirmed the company's path towards continued improvement up to high 40s margins, driven by enhanced utilization of the base business and accretive projects.
Q: Can you frame the pipeline of opportunities for both green and brownfield for the Infrastructure segment compared to six months or a year ago?
A: Michael Skarke, COO and EVP, stated that the opportunity pipeline is the largest it has ever been, with high customer interest. He highlighted that the company is looking at projects across all basins and segments, including recycling, disposal, and pipeline transmission. John Schmitz, CEO, added that the systems created through acquisitions add significant value to customers, driving more inbound inquiries.
Q: What is driving the margin uptick in water infrastructure, and is it related to adding contracts to existing systems?
A: John Schmitz, CEO, clarified that the margin improvement is driven by adding contracts and new extensions to existing systems. He emphasized that the underwriting of these contracts delivers the target 50% gross margins, and the value recognized by customers is driving the backlog of opportunities.
Q: Are there opportunities for beneficial reuse in solids management, and could this enhance prospects beyond the oil and gas sector?
A: Christopher George, CFO and EVP, mentioned that expanding solids management aligns with infrastructure and could lead to opportunities in beneficial reuse. He noted the company's focus on evaluating solutions and technologies for beneficial reuse, particularly in desalinization and partial desalinization challenges.
Q: How far along are you with the rationalization and margin enhancement initiatives in water services, and when do you expect to complete these?
A: Christopher George, CFO and EVP, explained that the company has accelerated its decision-making on consolidation and elimination efforts, particularly around commoditized service offerings. He expects most decisions to be made by mid-summer, with benefits appearing in margins shortly thereafter.
Q: What percentage of Chemical Technologies' sales are generated from water infrastructure produced water-related operations, and how has this changed from a year ago?
A: Christopher George, CFO and EVP, stated that while the percentage has increased due to the growth in recycling, it remains a small portion of Chemical Technologies' revenue. However, the transition to more specialty chemical applications in recycling and reuse of produced water is underway, particularly in the Permian Basin.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
