Select Water Solutions (WTTR) Q3 2024 earnings summary

Executive summary

• Q3 2024 revenue was $371.3 million, up 2% sequentially but down 4.6% year-over-year, with net income of $18.8 million, up 22.8% from Q3 2023 and 26% sequentially, driven by record Water Infrastructure profitability and lower SG&A.

• Water Infrastructure segment revenue grew 40.5% year-over-year and 20% sequentially, with gross margin before D&A surpassing 56%, offsetting declines in Water Services and Chemical Technologies.

• Six strategic acquisitions and multiple new long-term contracts expanded water infrastructure capabilities, including a disposal well in the Northern Delaware Basin adding 10,000 barrels/day capacity.

• Gross margin improved to 16.8% in Q3 2024 from 14.5% in Q3 2023, reflecting margin-accretive acquisitions and operational improvements.

• Quarterly base dividend increased by 17% for the upcoming November payment.

Financial highlights

• Q3 2024 net income was $18.8 million and adjusted EBITDA was $72.8 million, both up from prior periods.

• Water Infrastructure segment revenue reached $82 million, up 20% sequentially and 40.5% year-over-year; gross profit before D&A at $47 million, up 33% sequentially and 99% year-over-year.

• Gross margin before D&A for Water Infrastructure was 56.7%-57%, up 6 points from Q2 and 17 points from Q3 2023.

• Free cash flow for Q3 was $20.4 million, with operating cash flow at $51.9 million; nine months free cash flow was $61.3 million.

• Ended Q3 with $80 million in borrowings, $10.9 million in cash, and $127.8 million available under the credit facility.

Outlook and guidance

• Q4 2024 expected to see 10%-15% sequential revenue decline in Water Infrastructure and Water Services due to planned downtime and seasonality, with margins expected at 51%-54%.

• Adjusted EBITDA guidance for Q4 is $60-$62 million, with recovery expected in Q1 2025 and substantial year-over-year growth in 2025.

• Full-year recycling and disposal volumes projected to grow over 30% year-over-year.

• Water Infrastructure and Chemical Technologies expected to contribute over 50% of profitability by end of 2025.

• Free cash flow conversion expected at 25% of adjusted EBITDA for 2024; maintenance CapEx-only view yields 80%+ free cash flow.