High-Margin Infrastructure Growth Supports Earnings & Cash Flow Visibility
Water Infrastructure segment growth supports an expanding margin profile in future periods. So far in 2024, Select has closed five infrastructure assets for an aggregate of ~$138 million. Assets added expand Select’s ability to provide comprehensive water solutions to customers in the Permian Basin, Williston Basin, and Haynesville/East Texas regions. Along with revenue growth from organic expansion projects, acquisitions are expected to contribute to growing infrastructure revenue over the course of 2024 and forward. Management expects Water Infrastructure FY24 revenue and profitability to grow 30-50% and 40-50%, respectively. Near-term growth priorities targeting production-weighted long-term fee-based contracted revenue generated by Water Infrastructure assets could extend the visibility of Select’s earnings and adjusted EBITDA power in future periods. Management is targeting a YE25 run rate of the segment contribution ~50% of gross profit before D&A. The view is supported by a robust pipeline of organic and acquisition growth opportunities. Our FY24 and FY25 adjusted EBITDA estimates are $268 million and $317 million. 1Q24 adjusted EBITDA was $59.8 million and management expects 2Q24 adjusted EBITDA in the $66-68 million range. Select’s balance sheet supports management’s goals of growing the business through organic capital projects and acquisitions. At the end of 1Q24, the leverage ratio was 0.3x, based on annualized 1Q24 adjusted EBITDA. Management expects to convert more than 40% of FY24 adjusted EBITDA to free cash flow. Free cash flow supports management’s plans to return cash to shareholders through dividends and repurchases. Since 2022, Select has returned $127.4 million including $14.5 million ($7.5 million dividends/$7.0 million repurchases). The current $0.06/quarter dividend equates to a 2.3% yield. Join us for a fireside chat with President & CEO John Schmitz and CFO Chris George on Wednesday, May 22, 2024, at 11:00 am ET. We will discuss the Water Infrastructure outlook growth and the impact a greater concentration of long-term fee-based revenue could have on Select’s earnings and cash flow power. Those interested can register for the event via a link in our full report.Select Energy Services is a provider of water-management solutions. The company's segments are: Water Services, which provides the services to support new oil and gas well completions as well as ongoing production over the life of the well, including water transfer, flowback and well testing; Water Infrastructure, which develops, builds and operates infrastructure solutions to support both new oil and gas well development; and Oilfield Chemicals, which develops, manufactures and provides a suite of completion and production chemical products, water treatment solutions and services utilized in hydraulic fracturing, stimulation, cementing and related well completion and production processes.
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