Select Water Solutions (WTTR) Q4 2023 earnings summary

Executive summary

• FY23 set records for consolidated revenue, net income, Adjusted EBITDA and operating cash flow; all three segments posted YoY revenue and gross profit gains.

• Water Infrastructure was the standout growth engine, with FY23 revenue up 84% and gross profit up 162% YoY; Q4 gains continued as the other two segments faced activity declines.

Financial highlights

• FY23 revenue was $1.585B vs. $1.387B in FY22; net income was $79.2M vs. $54.9M, including a $61.9M deferred-tax valuation allowance release, partly offset by $38.2M of tax receivable agreement expense.

• FY23 gross profit was $231.7M vs. $160.8M; total gross margin was 14.6% vs. 11.6%, and gross margin before D&A was 23.4% vs. 19.8%.

• FY23 Adjusted EBITDA was $258.3M vs. $194.8M; Q4 was $58.3M vs. $63.0M in Q3 and $52.2M in Q4 2022.

• Q4 revenue was $374.9M vs. $389.3M in Q3 and $381.7M YoY; net income was $27.6M vs. $15.3M and $7.6M, respectively.

Outlook and guidance

• FY24 net capital expenditures targeted at $140–$160M, including $10–$20M asset sales and $50–$60M maintenance capex; remaining spend is primarily contracted Water Infrastructure growth capex.

• FY24 Water Infrastructure revenue growth targeted at 30%–40%, with segment gross profit growth of 40%–50%; Q1 revenue expected up mid-single digits, with gross margin before D&A of 39%–42%.

• Q1 2024 consolidated Adjusted EBITDA guidance is $52–$56M; FY24 Adjusted EBITDA is expected to grow YoY, with more than 40% converted to free cash flow.

• Q1 Water Services revenue is expected to decline mid-single digits, with gross margin before D&A of 19%–21%; FY24 revenue is expected to decline YoY as operations are consolidated or divested.

• Q1 Chemical Technologies revenue is expected to grow low-single digits, with gross margin before D&A recovering to 17%–18%; FY24 margins are expected to improve YoY despite revenue pressure.