Select Energy Services, Inc. (WTTR) Misses Q2 EPS by 19c, Revenues Miss

Select Energy Services, Inc. (NYSE: WTTR) reported Q2 EPS of ($0.52), $0.19 worse than the analyst estimate of ($0.33). Revenue for the quarter came in at $92.2 million versus the consensus estimate of $108.25 million.

Holli Ladhani, President and CEO, stated, "As we look back on the second quarter, I'd first like to thank our employees for their continued dedication during what has been one of the most challenging periods we've ever been through, both for our company and our industry as a whole. Our thoughts are with all those that have been affected by COVID-19, particularly our employees, our industry colleagues and their families and all of the professionals leading the response to this pandemic.

"Select's performance in the second quarter, while clearly challenged, reflects the team's ability to take the difficult actions necessary to protect the business and safeguard the strong balance sheet we've worked so hard to establish. While it is always challenging to manage costs downward as quickly as activity can drop, the rapid pace of the declines in the second quarter was particularly trying. However, I am confident that the cost savings measures we've taken will allow us to operate in a manner that protects our balance sheet and cash flows heading into the back half of the year. These measures should also allow us to continue providing the superior service quality that our customers expect, delivering innovative solutions to meet our customers' needs and ultimately generating long-term returns for our investors. We are taking key steps to further our leadership as the industry's premier water solutions and oilfield chemicals provider and are positioning the business to capitalize on the opportunities ahead.

"During 2019, we proved that our business model can deliver substantial free cash flow, even after making strategic investments supporting targeted growth areas like Water Infrastructure. In 2020, we're demonstrating the agility of our business model to adapt and respond to changing market conditions. Even in the face of significant revenue declines, we held decremental margins to approximately 20% at both the segment gross margin and Adjusted EBITDA levels. While we previously targeted annualized SG&A savings of approximately 30% relative to our fourth quarter 2019 run-rate, with the team's focused execution, we're well ahead of schedule and we've already achieved savings beyond this target. We currently expect savings of 40-45% relative to our fourth quarter 2019 run-rate to be fully realized in the third quarter of 2020.

"Additionally, we achieved significant cash flow from operations during the second quarter, driven primarily by collections, and were able to substantially reduce our pace of capital spending. Our capital discipline, combined with asset sales, resulted in effectively zero net capital expenditures during the quarter. This resulted in cash flow from operations less capex, net of asset sales, of $56 million during the second quarter or $97 million for the first half of the year. While we do not expect this level of free cash flow to continue over the back half of the year, we have cash on the balance sheet of $166 million and no bank debt as of June 30th, which positions us very well to both protect the business and capitalize on opportunities created by the current market dislocation.

"There will certainly be challenges in the industry for quarters to come, but I am confident Select is well positioned to meet them. We are navigating these volatile times from a position of strength as the market leader for our services, with an incredible employee base, and an enviable balance sheet with significant liquidity. Just as we've done in the past, we will continue to be disciplined and patient, but are optimistic we will identify opportunities to enhance our position in the market and create value for our shareholders in these turbulent times," concluded Ladhani.

For earnings history and earnings-related data on Select Energy Services, Inc. (WTTR) click here.

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