Select Energy Services' Fourth Quarter 2019: A Pipeline of Surprises

Published on February 24, 2020

Overview of Financial Results

Select Energy Services, Inc. (NYSE: WTTR) has reported its fourth quarter and fiscal year 2019 earnings, and the numbers are more than just a trickle. With a generated operating cash flow of $61.7 million in Q4 and a total of $203.9 million for the year, the company has shown resilience amidst a challenging backdrop for the oil and gas sector.

Revenue Forecast and Earnings Surprise

The revenue forecast for fiscal year 2019 landed at $1.29 billion, a decline from the $1.53 billion recorded in 2018. This decline can be largely attributed to the divestment of certain non-core operations that had previously contributed significantly to the top line. In Q4 alone, revenue dipped to $276.1 million, down from $329 million in Q3 and $362.3 million in Q4 2018. An earnings surprise? Perhaps not, but it certainly speaks to the volatility of the sector.

EPS and Income Analysis

Net income for the year stood at $4.1 million, a stark contrast to the $54.3 million reported in 2018. In the fourth quarter, the company faced a net loss of $12.5 million, compared to a net income of $7.2 million in Q3. The EPS consensus was likely impacted by these results, leading to some cautious sentiment among investors.

Operational Highlights

On the operational front, Select Energy made notable strides, including initiating operations on its new Northern Delaware pipeline system late in Q4. CEO Holli Ladhani expressed optimism about the company's strategic direction, emphasizing the importance of capital allocation and the potential for future growth.

However, the reality of a declining activity forecast for 2020 looms large. Ladhani hinted at a judicious capital expenditure range of $55 million to $70 million for the year, suggesting a cautious approach as the company navigates market volatility.

Business Segment Performance

Breaking down the business segments, the Water Services division generated $152.9 million in Q4, a decrease from previous quarters, primarily due to seasonal declines. Meanwhile, the Oilfield Chemicals segment saw a revenue increase to $70.9 million, bolstered by the acquisition of Well Chemical Services, demonstrating how strategic acquisitions can drive growth even in tough times.

Looking Ahead

As we look to the future, Select Energy's financials present a mix of challenges and opportunities. While the company is debt-free and has cash on its balance sheet, the expected decline in activity levels raises questions about sustaining growth. Investors will be watching closely for signs of an earnings surprise in the upcoming quarters, especially with a capital allocation strategy that seems poised to focus on operational efficiency and strategic growth.