Select Water Solutions Inc

Previous wording

This discussion relates to the three months ended March 31, 2024 (the “Current Quarter”) and the three months ended March 31, 2023 (the “Prior Quarter”).

Current wording

This discussion relates to the three and six months ended June 30, 2024 (the “Current Quarter” and the “Current Period”, respectively) and the three and six months ended June 30, 2023 (the “Prior Quarter” and the “Prior Period”, respectively).

Previous wording

We are one of the few public companies whose primary focus is on the management of water and water logistics in the energy industry with a focus on driving efficient, environmentally responsible, and economic solutions that lower costs throughout the lifecycle of the well. We believe water is a valuable resource and understand that the energy industry as well as other industries and the general public are competing for this resource. As a company, we continue to provide access to water as demanded by our customers and have significantly increased our focus on the recycling and reuse of produced water, as well as assessing other industrial water sources, to meet the industry’s water demand and align our operations with the goals of our customers. We have invested significantly in the development and acquisition of fixed and mobile recycling facilities that support the advancement of commercialized produced water reuse solutions. By doing so, we strive to reduce the amount of produced water being reinjected into SWDs and to reduce our usage of fresh water as well as that of our customers. We view our rather unique position as an opportunity to strategically transform water management by leveraging our Chemical Technologies business to develop produced water management solutions that increase our customers’ ability to reuse this produced water and add value to their operations.

Current wording

We are one of the few public companies whose primary focus is on the management of water and water logistics in the energy industry with a focus on driving efficient, environmentally responsible, and economical solutions that lower costs throughout the lifecycle of the well. We believe water is a valuable resource and understand that the energy industry as well as other industries and the general public are competing for this resource. As a company, we continue to provide access to water as demanded by our customers and have significantly increased our focus on the recycling and reuse of produced water, as well as assessing other industrial water sources, to meet the industry’s water demand and align our operations with the goals of our customers. We have invested significantly in the development and acquisition of fixed and mobile recycling facilities that support the advancement of commercialized produced water reuse solutions. By doing so, we strive to reduce the amount of produced water being reinjected into SWDs and to reduce our usage of fresh water as well as that of our customers. We view our rather unique position as an opportunity to strategically transform water management by leveraging our Chemical Technologies business to develop produced water

Previous wording

By implementing our innovative approach to water solutions, Select has become a leader in recycling produced water to be reused for energy production.

Current wording

management solutions that increase our customers’ ability to reuse this produced water and add value to their operations. By implementing our innovative approach to water solutions, Select has become a leader in recycling produced water to be reused for energy production.

Previous wording

Select is prioritizing investments in water infrastructure projects, which often bring a more predictable and steady revenue stream through long-term contracts and production-related operations. These investments typically produce higher gross margins and also foster stronger partnerships with customers, as Select becomes an integral partner in ensuring well integrity for ongoing customer production over the life of a well. Our focus is on integrated solutions that enhance contracted infrastructure projects with logistics services and chemical solutions, and expanding the value we provide to our customers. Our approach, historically and during the Current Quarter, has been to streamline operations and offer a more comprehensive and valuable overall package to customers that is built around optimizing the entire water lifecycle as such integrated solutions drive revenue growth and enhance overall value to clients.

Current wording

Select is prioritizing investments in water infrastructure projects, which often bring a more predictable and steady revenue stream through long-term contracts and production-related operations. These investments typically produce higher gross margins and also foster stronger partnerships with customers, as Select becomes an integral partner in ensuring well productivity for ongoing customer production over the life of a well. Our focus is on integrated solutions that enhance contracted infrastructure projects with logistics services and chemical solutions, and expanding the value we provide to our customers. Our approach, historically and during the Current Period, has been to streamline operations and offer a more comprehensive and valuable overall package to customers that is built around optimizing the entire water lifecycle as such integrated solutions drive revenue growth and enhance overall value to clients.

Previous wording

The armed conflict between Ukraine and Russia continued into 2024, as well as the sustained conflict in Israel and elsewhere in the Middle East, including escalating tensions with Iran. As a result of the Russian invasion of the Ukraine, the U.S., the United Kingdom, the member states of the European Union and other public and private actors have sustained severe sanctions on Russian financial institutions, businesses and individuals. In October 2023, Hamas militants conducted attacks in Israel and an armed conflict has ensued between Israel and Hamas. The ensuing conflict has resulted in increased hostilities and instability in oil and gas producing regions in the Middle East as well as in key adjacent shipping lanes. In tandem with such conflict, the Houthi movement, which controls parts of Yemen, has targeted and launched numerous attacks on Israeli, American and international commercial marine vessels in the Red Sea, resulting in many shipping companies re-routing to avoid the region altogether and worsening existing supply chain issues, including delays in supplier deliveries, extended lead times and increased cost of freight, insurance and materials. On April 13, 2024, Iran launched an attack on several targets in Israel, and in response the U.S. and a number of its allies have stated an intent to impose additional sanctions on Iran. The escalating international conflict with Iran, a major oil producer, the Houthi movement in Yemen or the Hezbollah movement in Lebanon has been perceived by many to have increased due to continued increasing hostilities in the Middle East. The Russia-Ukraine conflict, and the resulting sanctions and concerns regarding global energy security, has contributed to, and the conflict in the Israel-Gaza region and any heightened hostilities in the Middle East may contribute to, increases and volatility in the prices for oil and natural gas. Such volatility, coupled with an increased cost of capital, due, in part to higher rates of inflation and interest rates, may lead to a more difficult investing and planning environment for us and our customers. The ultimate geopolitical and macroeconomic consequences of these conflicts and associated sanctions and/or international responses cannot be predicted, and such events, or any further hostilities elsewhere, could severely impact the world economy and may adversely affect our financial condition. An end to these conflicts and an easing or elimination of the related

Current wording

The armed conflict between Ukraine and Russia continued into 2024, as well as the sustained conflict in Israel and elsewhere in the Middle East, including escalating tensions with Iran. As a result of the Russian invasion of the Ukraine, the U.S., the United Kingdom, the member states of the European Union and other public and private actors have imposed severe sanctions on Russian financial institutions, businesses and individuals. In October 2023, Hamas militants conducted attacks in Israel and an armed conflict has ensued between Israel and Hamas. The ensuing conflict has resulted in increased hostilities and instability in oil and gas producing regions in the Middle East as well as in key adjacent shipping lanes. In tandem with such conflict, the Houthi movement, which controls parts of Yemen, has targeted and launched numerous attacks on Israeli, American and international commercial marine vessels in the Red Sea, resulting in many shipping companies re-routing to avoid the region altogether and worsening existing supply chain issues, including delays in supplier deliveries, extended lead times and increased cost of freight, insurance and materials. Iran has also launched an attack on several targets in Israel in connection with the conflict. The escalating international conflict with Iran, a major oil producer, the Houthi movement in Yemen or the Hezbollah movement in Lebanon has been perceived by many to have increased due to continued increasing hostilities in the Middle East. To date, ceasefire negotiations in both the Russia-Ukraine conflict as well as the Israel-Gaza conflict have failed. In addition, following the May 2024 death of Iranian president Ebrahim Raisi, subsequent elections in Iran may increase instability in the region.

Previous wording

sanctions and/or international response could result in a significant fall in commodity prices as hydrocarbons become more readily accessible in global markets, which could have an adverse effect on our customers, and therefore adversely affect our customers’ demand for our services. An intensification of that conflict could also have an adverse effect on our customers and their demand for our services.

Current wording

a more difficult investing and planning environment for us and our customers. The ultimate geopolitical and macroeconomic consequences of these conflicts and associated sanctions and/or international responses cannot be predicted, and such events, or any further hostilities elsewhere, could severely impact the world economy and may adversely affect our financial condition. An end to these conflicts and an easing or elimination of the related sanctions and/or international response could result in a significant fall in commodity prices as hydrocarbons become more readily accessible in global markets, which could have an adverse effect on our customers, and therefore adversely affect our customers’ demand for our services. An intensification of that conflict could also have an adverse effect on our customers and their demand for our services.

Previous wording

In addition, OPEC+ countries announced production cuts of around 1.16 million barrels per day in April 2023, bringing its total volume cuts to 3.66 million barrels per day since 2021. A number of other production cuts have followed, most recently, in March 2024, OPEC+ announced the extension of voluntary output cuts totaling approximately 2.2 million barrels per day through the second quarter of 2024. Although OPEC+ increased its output in December 2023 due to, among other things, the ongoing conflicts in the Middle East, OPEC+ may, at its discretion, continue to decrease, or increase, production, which will continue to impact crude oil and natural gas price volatility. The actions of OPEC+ countries with respect to oil production levels and announcements of potential changes in such levels, including agreement on and compliance with production targets, may result in volatility in the industry in which we and our customers operate. During the Current Quarter, the average spot price of WTI crude oil was $77.50 versus an average price of $75.93 for the Prior Quarter. The average Henry Hub natural gas spot price during the Current Quarter was $2.15 versus an average of $2.64 for the Prior Quarter. Henry Hub natural gas price levels in the Current Quarter have declined materially relative to the Prior Quarter and have negatively impacted activity levels in natural gas basins.

Current wording

In addition, OPEC+ countries instituted an aggregate volume cut of 3.66 million barrels per day from 2021 to April 2023, and a number of other production cuts or extensions have since followed. Most recently, in June 2024, OPEC+ announced the extension of the 3.66 million barrels per day production cut through the end of 2025, as well as the extension of voluntary output cuts totaling approximately 2.2 million barrels per day through the third quarter of 2024. Although OPEC+ increased its output in December 2023 due to, among other things, the ongoing conflicts in the Middle East, OPEC+ may, at its discretion, continue to decrease, or increase, production, which will continue to impact crude oil and natural gas price volatility. The actions of OPEC+ countries with respect to oil production levels and announcements of potential changes in such levels, including agreement on and compliance with production targets, may result in volatility in the industry in which we and our customers operate. The average price of West Texas Intermediate (“WTI”) crude oil increased in the Current Quarter versus the Prior Quarter, potentially as a result of concern over supply, geopolitical risks and the extension of the OPEC+ production cuts. During the Current Quarter, the average spot price of WTI crude oil was $81.81 versus an average price of $73.54 for the Prior Quarter. The average Henry Hub natural gas spot price during the Current Quarter was $2.07 versus an average of $2.16 for the Prior Quarter. Henry Hub natural gas price levels in the Current Quarter have declined relative to the Prior Quarter and have negatively impacted activity levels in natural gas basins.

Previous wording

Additionally, increased inflation in recent years has resulted in higher interest rates and increased cost of capital for Select and for our customers. As costs of capital has increased, many of our customers have demonstrated their resolve to manage their capital spending within budgets and cash flow from operations and increase redemptions of debt and/or returns of capital to investors. Additionally, consolidation among our customers, such as the current consolidation of E&P companies in the Permian Basin, can disrupt our market in the near term and the resulting demand for our services. Overall however, the financial health of the oil and gas industry and many of our customers specifically, as reflected in revenues and earnings, debt metrics, recent capital raises, and equity valuations, is much healthier in the first quarter of 2024 as compared to prior periods.

Current wording

Additionally, increased inflation in recent years has resulted in higher interest rates and increased cost of capital for Select and for our customers. As costs of capital has increased, many of our customers have demonstrated their resolve to manage their capital spending within budgets and cash flow from operations and increase redemptions of debt and/or returns of capital to investors. Additionally, consolidation among our customers, such as the current consolidation of E&P companies in the Permian Basin, can disrupt our market in the near term and the resulting demand for our services. Overall however, the financial health of the oil and gas industry and many of our customers specifically, as reflected in revenues and earnings, debt metrics, recent capital raises, and equity valuations, is much healthier in 2024 as compared to prior periods.

Previous wording

From an operational standpoint, many of the recent trends still apply to ongoing unconventional oil and gas development. The continued trend towards multi-well pad development and simultaneous well completions, executed within a limited time frame, combined with service price inflation and elevated interest rates, has increased the overall intensity, complexity and cost of well completions, while increasing fracturing efficiency and the use of lower-cost in-basin sand has decreased total costs for our customers. However, we note the continued efficiency gains in the well completions process can limit the days we spend on the wellsite and, therefore, negatively impact the total revenue opportunity for certain of our services utilizing day-rate pricing models.

Current wording

intensity, complexity and cost of well completions, while increasing fracturing efficiency and the use of lower-cost in-basin sand has decreased total costs for our customers. However, we note the continued efficiency gains in the well completions process can limit the days we spend on the wellsite and, therefore, negatively impact the total revenue opportunity for certain of our services utilizing day-rate pricing models.

Previous wording

opportunity for companies like us that can deliver increasingly complex solutions for our E&P customers across large swathes of acreage through our regional infrastructure networks, delivering solutions for the full completion and production lifecycle of wells. While these trends have advanced the most in the Permian Basin to date, they are emerging in other basins as well and Select has recently performed recycling projects in the Haynesville, Rockies and South Texas regions as well.

Current wording

This multi-well pad development, combined with recent upstream acreage consolidation and corporate mergers as well as the growing trends around the recycling and reuse applications of produced water provides a significant opportunity for companies like us that can deliver increasingly complex solutions for our E&P customers across large swathes of acreage through our regional infrastructure networks, delivering solutions for the full completion and production lifecycle of wells. While these trends have advanced the most in the Permian Basin to date, they are emerging in other basins as well and Select has recently performed recycling projects in the Haynesville, Rockies and South Texas regions as well.

Previous wording

Labor costs associated with our employees and contract labor comprise the largest portion of our costs of doing business. We incurred labor and labor-related costs of $138.3 million and $138.2 million for the Current Quarter and Prior Quarter, respectively. The majority of our recurring labor costs are variable and dependent on the market environment and are incurred only while we are providing our operational services. We also incur costs to employ personnel to ensure safe operations, sell and supervise our services and perform maintenance on our assets, which is not as directly tied to our level of business activity. Additionally, we incur selling, general and administrative costs for compensation of our administrative personnel at our field sites and in our operational and corporate headquarters, as well as for third-party support, licensing and services.

Current wording

Labor costs associated with our employees and contract labor comprise the largest portion of our costs of doing business. We incurred labor and labor-related costs of $126.7 million, $140.2 million, $265.0 million and $278.4 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. The majority of our recurring labor costs are variable and dependent on the market environment and are incurred only while we are providing our operational services. We also incur costs to employ personnel to ensure safe operations, sell and supervise our services and perform maintenance on our assets, which is not as directly tied to our level of business activity. Additionally, we incur selling, general and administrative costs for compensation of our administrative personnel at our field sites and in our operational and corporate headquarters, as well as for third-party support, licensing and services.

Previous wording

We incur significant vehicle and equipment costs in connection with the services we provide, including depreciation, repairs and maintenance, rental and leasing costs. We incurred vehicle and equipment costs of $79.5 million and $78.2 million for the Current Quarter and Prior Quarter, respectively.

Current wording

We incur significant vehicle and equipment costs in connection with the services we provide, including depreciation, repairs and maintenance, rental and leasing costs. We incurred vehicle and equipment costs of $79.0 million, $77.9 million, $158.5 million and $156.1 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

Previous wording

We incur raw material costs in manufacturing our chemical products, as well as for water that we source for our customers. We incurred raw material costs of $61.7 million and $83.2 million for the Current Quarter and Prior Quarter, respectively.

Current wording

We incur raw material costs in manufacturing our chemical products, as well as for water that we source for our customers. We incurred raw material costs of $63.2 million, $72.6 million, $124.9 million and $155.9 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

Previous wording

We incur variable transportation costs associated with our service lines, predominately fuel and freight. We incurred fuel and freight costs of $24.0 million and $32.6 million for the Current Quarter and Prior Quarter, respectively. Rising fuel prices impact our transportation costs, which affects the results of our operations.

Current wording

We incur variable transportation costs associated with our service lines, predominately fuel and freight. We incurred fuel and freight costs of $21.0 million, $28.3 million, $45.0 million and $60.9 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. Rising fuel prices impact our transportation costs, which affects the results of our operations.

Previous wording

We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment, plus proceeds received from sale of property and equipment. Our board of directors and executive management team use free cash flow to assess our liquidity and ability to repay maturing debt, fund operations and make additional investments. We believe free cash flow provides useful information to investors because it is an important indicator of our liquidity, including our ability to reduce net debt, make strategic investments, pay dividends and distributions and repurchase common stock. Our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Furthermore, free cash flow is not a substitute for, or more meaningful than, net cash provided by (used in) operating activities nor any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as free cash flow. Accordingly, free cash flow should not be considered a measure of the income generated by our business or discretionary cash available to it to invest in the growth of our business.

Current wording

additional investments. We believe free cash flow provides useful information to investors because it is an important indicator of our liquidity, including our ability to reduce net debt, make strategic investments, pay dividends and distributions and repurchase common stock. Our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Furthermore, free cash flow is not a substitute for, or more meaningful than, net cash provided by (used in) operating activities nor any other measure prescribed by GAAP, and there are limitations to using non-GAAP measures such as free cash flow. Accordingly, free cash flow should not be considered a measure of the income generated by our business or discretionary cash available to it to invest in the growth of our business.

Previous wording

During the Current Quarter, we completed four business combinations. Our historical financial statements for periods prior to the respective date each acquisition was completed do not include the results of operations of that acquisition. See “—Recent Developments” and “Note 3—Acquisitions” for a description of these transactions.

Current wording

During the Current Period, we completed six business combinations and three asset acquisitions. Our historical financial statements for periods prior to the respective date each acquisition was completed do not include the results of operations of that acquisition. See “—Recent Developments” and “Note 3—Acquisitions” for a description of these transactions.

Previous wording

Our revenue decreased $50.0 million, or 12.0%, to $366.5 million for the Current Quarter compared to $416.6 million for the Prior Quarter. This decrease was composed of a $46.4 million decrease in Water Services revenue and an $11.7 million decrease in Chemical Technologies revenue partially offset by an $8.0 million increase in Water Infrastructure revenue. The net $50.0 million decrease was driven primarily by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts. For the Current Quarter, our Water Services, Water Infrastructure and Chemical Technologies constituted 62.3%, 17.3% and 20.4% of our total revenue, respectively, compared to 65.9%, 13.3% and 20.8%, respectively, for the Prior Quarter. The revenue changes by reportable segment are as follows:

Current wording

Our revenue decreased $39.5 million, or 9.8%, to $365.1 million for the Current Quarter compared to $404.6 million for the Prior Quarter. This decrease was composed of a $34.6 million decrease in Water Services revenue and an $18.2 million decrease in Chemical Technologies revenue partially offset by a $13.3 million increase in Water Infrastructure revenue. The net $39.5 million decrease was driven primarily by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts. For the Current Quarter, our Water Services, Water Infrastructure and Chemical Technologies constituted 63.0%, 18.8% and 18.2% of our total revenue, respectively, compared to 65.4%, 13.7% and 20.9%, respectively, for the Prior Quarter. The revenue changes by reportable segment are as follows:

Previous wording

Water Services. Revenue decreased $46.4 million, or 16.9%, to $228.3 million for the Current Quarter compared to $274.7 million for the Prior Quarter. The decrease in revenues was primarily attributable to lower customer activity levels primarily driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts.

Current wording

Water Services. Revenue decreased $34.6 million, or 13.1%, to $230.0 million for the Current Quarter compared to $264.6 million for the Prior Quarter. The decrease in revenues was primarily attributable to lower customer activity levels primarily driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts.

Previous wording

*Water Infrastructure.*Revenue increased $8.0 million, or 14.5%, to $63.5 million for the Current Quarter compared to $55.5 million for the Prior Quarter. The increase was primarily driven by additional revenue from acquisitions completed during the Current Quarter and growth in our recycling business line, offsetting lower pipeline distribution volumes.

Current wording

*Water Infrastructure.*Revenue increased $13.3 million, or 24.0%, to $68.6 million for the Current Quarter compared to $55.3 million for the Prior Quarter. The increase was primarily driven by additional revenue from acquisitions completed during the Current Quarter and growth in our recycling business line, offsetting lower pipeline distribution volumes.

Previous wording

Chemical Technologies. Revenue decreased by $11.7 million, or 13.6%, to $74.7 million for the Current Quarter compared to $86.4 million for the Prior Quarter. The decrease in revenues was primarily driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts.

Current wording

Chemical Technologies. Revenue decreased by $18.2 million, or 21.5%, to $66.6 million for the Current Quarter compared to $84.8 million for the Prior Quarter. The decrease in revenues was primarily driven by macroeconomic factors stemming from lower frac crew deployments and associated price reductions impacted by competitor price cuts.

Previous wording

Costs of revenue decreased $43.1 million, or 12.1%, to $313.9 million for the Current Quarter compared to $356.9 million for the Prior Quarter. The decrease was primarily composed of a $38.4 million decrease in Water Services costs, a $0.6 million decrease in Water Infrastructure costs and an $8.0 million decrease in Chemical Technologies costs due to supporting the lower revenue-producing activity discussed above.

Current wording

Costs of revenue decreased $38.5 million, or 11.2%, to $305.0 million for the Current Quarter compared to $343.5 million for the Prior Quarter. The decrease was primarily composed of a $28.3 million decrease in Water Services costs, a $0.8 million decrease in Water Infrastructure costs and an $11.7 million decrease in Chemical Technologies costs primarily due to supporting the lower revenue-producing activity discussed above.

Previous wording

Water Services. Costs of revenue decreased $38.4 million, or 17.5%, to $181.5 million for the Current Quarter compared to $219.9 million for the Prior Quarter. Cost of revenue as a percent of revenue decreased from 80.1% to 79.5%. The decrease was due to higher gross margins in our Water Transfer and Well Testing business lines due to effective cost controls and higher water sourcing margins impacted by higher revenue, partially offset by lower fluids hauling margins due to price reductions.

Current wording

Water Services. Costs of revenue decreased $28.3 million, or 13.7%, to $178.3 million for the Current Quarter compared to $206.6 million for the Prior Quarter. Cost of revenue as a percentage of revenue decreased from 78.1% to 77.5%. The decrease was due to higher gross margins in our Water Transfer and Well Testing business lines due to effective cost controls and higher water sourcing margins impacted by higher revenue, partially offset by lower fluids hauling margins due to price reductions.

Previous wording

Water Infrastructure. Costs of revenue decreased $0.6 million, or 1.9%, to $33.7 million for the Current Quarter compared to $34.3 million for the Prior Quarter. Cost of revenue as a percent of revenue decreased** **from 61.9% to 53.1% due primarily to increase in disposal margin impacted by the margin accretive contributions of acquired disposal operations, improved operational throughput and execution, as well as higher skim oil sales. Additionally, growth in high-margin recycling revenue favorably impacted gross margin.

Current wording

Water Infrastructure. Costs of revenue decreased $0.8 million, or 2.4%, to $33.6 million for the Current Quarter compared to $34.4 million for the Prior Quarter. Cost of revenue as a percentage of revenue decreased** **from 62.2% to 49.0% due primarily to an increase in disposal margin impacted by the margin accretive contributions of acquired disposal operations, improved operational throughput and execution, as well as higher skim oil sales. Additionally, growth in high-margin recycling revenue favorably impacted gross margin.

Previous wording

Chemical Technologies. Costs of revenue decreased $8.0 million, or 11.4%, to $61.8 million for the Current Quarter compared to $69.7 million for the Prior Quarter. Cost of revenue as a percent of revenue increased from 80.6% to 82.6% primarily driven by higher absorption costs in our manufacturing facilities due to lower volumes as well as modest price reductions stemming from macroeconomic factors.

Current wording

Chemical Technologies. Costs of revenue decreased $11.7 million, or 17.3%, to $55.6 million for the Current Quarter compared to $67.3 million for the Prior Quarter. Cost of revenue as a percentage of revenue increased from 79.4% to 83.6% primarily driven by higher absorption costs in our manufacturing facilities due to lower volumes as well as modest price reductions stemming from macroeconomic factors.

Previous wording

Depreciation, amortization and accretion. Depreciation, amortization and accretion expense increased $3.9 million, or 12.0%, to $36.9 million for the Current Quarter compared to $32.9 million for the Prior Quarter primarily due to a higher fixed asset base resulting from recent acquisitions as well as investments made into fixed infrastructure projects.

Current wording

Depreciation, amortization and accretion. Depreciation, amortization and accretion expense increased $2.3 million, or 6.4%, to $37.4 million for the Current Quarter compared to $35.2 million for the Prior Quarter primarily due to a higher fixed asset base resulting from recent acquisitions as well as investments made into fixed infrastructure projects.

Previous wording

Gross profit was $52.7 million for the Current Quarter compared to $59.7 million for the Prior Quarter due primarily to lower revenue and gross profit in our Water Services and Chemical Technologies segments coupled with higher depreciation expense, partially offset by higher revenue and gross profit in our Water Infrastructure segment. Gross profit decreased by $8.0 million in our Water Services segment, increased by $8.7 million in our Water Infrastructure segment and decreased by $3.8 million in our Chemical Technologies segment. Also contributing to the decrease in gross profit was a $3.9 million increase in depreciation, amortization and accretion expense. Gross margin as a percent of revenue was 14.4% and 14.3% in the Current Quarter and Prior Quarter, respectively.

Current wording

Gross profit was $60.2 million for the Current Quarter compared to $61.2 million for the Prior Quarter due primarily to lower revenue and gross profit in our Water Services and Chemical Technologies segments, partially offset by higher revenue and gross profit in our Water Infrastructure segment. Gross profit decreased by $6.3 million in our Water Services segment, increased by $14.1 million in our Water Infrastructure segment and decreased by $6.5 million in our Chemical Technologies segment. Also contributing to the decrease in gross profit was a $2.3 million increase in depreciation, amortization and accretion expense. Gross margin as a percentage of revenue was 16.5% and 15.1% in the Current Quarter and Prior Quarter, respectively.

Previous wording

Selling, general and administrative expenses increased $8.2 million, or 22.7%, to $44.0 million for the Current Quarter compared to $35.8 million for the Prior Quarter. The increase was due primarily to a $4.2 million increase in incentive and equity-based compensation cost, $2.0 million in higher wages, associated payroll taxes and employer 401(k) match contributions, an increase of $2.0 million in transaction and rebranding costs, $1.1 million in higher contract labor and $0.6 million in severance expense partially offset by a $1.4 million decrease in bad debt expense and a $0.3 million decrease from a combination of other expenses.

Current wording

Selling, general and administrative expenses increased $4.6 million, or 13.5%, to $39.0 million for the Current Quarter compared to $34.3 million for the Prior Quarter. The increase was due primarily to a $1.6 million increase in incentive and equity-based compensation cost, $1.2 million in higher legal and professional fees, $0.7 million in higher wages, associated payroll taxes and employer 401(k) match contributions, an increase of $0.8 million in transaction and rebranding costs, and a $0.3 million increase from a combination of other expenses.

Previous wording

Prior Quarter impairment and abandonments were comprised of $11.1 million trademark abandonment in the Chemical Technologies segment as well as $0.1 million to impair the remaining value of a cost-method investment in our Water Services segment. Current Quarter impairments and abandonments were less than $0.1 million.

Current wording

Prior Period impairment and abandonments were comprised of an $11.1 million trademark abandonment in the Chemical Technologies segment. Also, $0.4 million of abandonment was attributable to damaged property and equipment and $0.1 million to impair the remaining value of a cost-method investment in our Water Services segment. Current Period impairments and abandonments were less than $0.1 million.

Previous wording

Net interest expense decreased by $0.2 million, or 14.2%, to $1.3 million for the Current Quarter compared to $1.5 million in the Prior Quarter due primarily to higher interest income on cash balances.

Current wording

Net interest expense decreased by $0.2 million, or 6.4%, to $3.3 million for the Current Period compared to $3.5 million in the Prior Period due primarily to higher interest income on cash balances.

Previous wording

Net income decreased by $9.8 million, or 71.7%, to $3.9 million for the Current Quarter compared to $13.7 million for the Prior Quarter, driven primarily by decreased revenues and higher selling, general and administrative expenses, including additional rebranding and transaction costs, partially offset by the trademark abandonment in the Prior Quarter.

Current wording

Net income decreased by $17.5 million, or 48.2%, to $18.8 million for the Current Period compared to $36.3 million for the Prior Period, driven primarily by decreased gross profit, higher selling, general and administrative expenses, including additional rebranding and transaction costs and higher income tax expense, partially offset by the trademark abandonment in the Prior Period.

Previous wording

EBITDA was $44.7 million for the Current Quarter compared to $48.9 million for the Prior Quarter. The $4.2 million decrease in EBITDA was driven primarily by a $3.0 million decrease in gross profit an $8.2 million increase in selling, general and administrative expense and a $2.6 million decrease in gains on asset sales partially offset by an $11.1 million decrease in impairments and abandonments. Adjusted EBITDA was $59.8 million for the Current Quarter compared to $67.2 million for the Prior Quarter.

Current wording

EBITDA was $103.8 million for the Current Period compared to $109.8 million for the Prior Period. The $6.0 million decrease in EBITDA was driven primarily by a $1.8 million decrease in gross profit, a $12.8 million increase in selling, general and administrative expense and a $1.0 million decrease in gains on asset sales partially offset by an $11.4 million decrease in impairments and abandonments. Adjusted EBITDA was $129.4 million for the Current Period compared to $137.1 million for the Prior Period.

Previous wording

During the fourth quarter of 2022, we initiated a quarterly dividend and distribution program of $0.05 per share and $0.05 per unit for holders of Class A and Class B shares, respectively. We paid quarterly dividends at the same rate through the third quarter of 2023, then the board of directors increased the quarterly dividend paid on November 17, 2023 to $0.06 per share and $0.06 per unit for holders of Class A and Class B shares, respectively. This resulted in a financing outflow of $7.5 million in the Current Quarter, and this quarterly dividend program is expected to continue. All future dividend payments are subject to quarterly review and approval by our board of directors.

Current wording

During the fourth quarter of 2022, we initiated a quarterly dividend and distribution program of $0.05 per share and $0.05 per unit for holders of Class A and Class B shares, respectively. We paid quarterly dividends at the same rate through the third quarter of 2023, then the board of directors increased the quarterly dividend paid on November 17, 2023 to $0.06 per share and $0.06 per unit for holders of Class A and Class B shares, respectively. This resulted in a financing outflow of $14.5 million in the Current Period, and this quarterly dividend program is expected to continue. All future dividend payments are subject to quarterly review and approval by our board of directors.

Previous wording

As of March 31, 2024 cash and cash equivalents totaled $12.8 million, and we had approximately $155.8 million of available borrowing capacity under our Sustainability-Linked Credit Facility. As of March 31, 2024, the borrowing base under the Sustainability-Linked Credit Facility was $247.9 million, we had $75.0 million in outstanding borrowings and outstanding letters of credit totaled $17.1 million. As of April 29, 2024, we have $100.0 million in outstanding borrowings, the borrowing base under the Sustainability-Linked Credit Facility was $248.2 million, the outstanding letters of credit totaled $17.0 million, and the available borrowing capacity under the Sustainability-Linked Credit Facility was $131.2 million.

Current wording

As of June 30, 2024 cash and cash equivalents totaled $16.4 million, and we had approximately $113.4 million of available borrowing capacity under our Sustainability-Linked Credit Facility. As of June 30, 2024, the borrowing base under the Sustainability-Linked Credit Facility was $220.4 million, we had $90.0 million in outstanding borrowings and outstanding letters of credit totaling $17.0 million. As of July 29, 2024, we had $90.0 million in outstanding borrowings, the borrowing base under the Sustainability-Linked Credit Facility was $227.4 million, the outstanding letters of credit totaled $21.7 million, and the available borrowing capacity under the Sustainability-Linked Credit Facility was $115.7 million.

Previous wording

Analysis of Cash Flow Changes between the three months ended March 31, 2024 and 2023

Current wording

Analysis of Cash Flow Changes between the six months ended June 30, 2024 and 2023

Previous wording

Operating Activities. Net cash provided by operating activities was $32.1 million for the Current Quarter, compared to net cash used in operating activities of $18.0 million for the Prior Quarter. The $50.1 million improvement is comprised of $60.2 million of decreased working capital primarily due to collecting trade receivables impacted by improvements in the billing and collection process offset by a decrease of $10.1 million of net income combined with non-cash adjustments.

Current wording

Operating Activities. Net cash provided by operating activities was $115.2 million for the Current Period, compared to $83.9 million for the Prior Period. The $31.3 million improvement is comprised of $43.8 million of decreased working capital primarily due to collecting trade receivables impacted by improvements in the billing and collection process offset by a decrease of $12.5 million of net income combined with non-cash adjustments.

Previous wording

Investing Activities. Net cash used in investing activities was $136.9 million for the Current Quarter, compared to $30.6 million for the Prior Quarter. The $106.3 million increase in net cash used in investing activities was due primarily to an increase of $98.9 million spent for acquisitions net of cash received, a $5.9 million increase in purchases of property and equipment, and a $1.6 million decrease in proceeds received from sales of property and equipment.

Current wording

Investing Activities. Net cash used in investing activities was $224.1 million for the Current Period, compared to $71.4 million for the Prior Period. The $152.8 million increase in net cash used in investing activities was due primarily to an increase of $136.4 million spent for acquisitions net of cash received, a $15.6 million increase in purchases of property and equipment, and a $1.3 million decrease in proceeds received from sales of property and equipment.

Previous wording

Financing Activities. Net cash provided by financing activities was $60.5 million for the Current Quarter, compared to $47.3 million for the Prior Quarter. The $13.1 million increase in net cash provided by financing activities was due primarily to borrowings net of debt repayments increasing $15.5 million and a $3.9 million decrease in repurchases of shares of Class A common stock partially offset by $5.0 million of cash received from noncontrolling interest holders in the Prior Quarter and a $1.3 million increase in dividends paid.

Current wording

Financing Activities. Net cash provided by financing activities was $68.2 million for the Current Period, compared to net cash used in financing activities of $9.4 million for the Prior Period. The $77.6 million increase in net cash provided by financing activities was due primarily to a $42.5 million decrease in repurchases of shares of Class A common stock and borrowings net of debt repayments increasing $41.0 million partially offset by $3.4 million of cash received from noncontrolling interest holders net of payments in the Prior Period and a $2.4 million increase in dividends and distributions paid.

Previous wording

amended and restated senior secured sustainability-linked revolving credit facility (the “Sustainability-Linked Credit Facility”), by and among SES Holdings, as parent, Select LLC, as borrower and certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”) (which amended and restated the Prior Credit Agreement dated November 1, 2017). The Sustainability-Linked Credit Facility also has a sublimit of $40.0 million for letters of credit and a sublimit of $27.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders, Select LLC has the option to increase the maximum amount under the senior secured credit facility by $135.0 million during the first three years following the Restatement Date.

Current wording

On March 17, 2022 (the “Restatement Date”), SES Holdings and Select Water Solutions, LLC (“Select LLC”), formerly Select Energy Services, LLC and a wholly-owned subsidiary of SES Holdings, entered into a $270.0 million amended and restated senior secured sustainability-linked revolving credit facility (the “Sustainability-Linked Credit Facility”), by and among SES Holdings, as parent, Select LLC, as borrower and certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”) (which amended and restated the Prior Credit Agreement dated November 1, 2017). The Sustainability-Linked Credit Facility also has a sublimit of $40.0 million for letters of credit and a sublimit of $27.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders, Select LLC has the option to increase the maximum amount under the senior secured credit facility by $135.0 million during the first three years following the Restatement Date.