Select Water Solutions Inc

Previous 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).

Current wording

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

Previous wording

In the first half of 2024, Select executed six strategic business combinations totaling $145.8 million, and three asset acquisitions totaling $4.6 million, enhancing current and future water infrastructure capabilities. The Trinity Acquisition added strategic saltwater disposal wells and pipelines in the Permian Basin. The Bobcat Acquisition enhanced disposal operations and provided comprehensive produced water solutions in the Marcellus/Utica region. The Buckhorn Acquisition expanded solids management services by adding landfills in North Dakota and Montana. The additions of Iron Mountain Energy and Tri-State Water Logistics strengthened fluids and solids treatment and disposal assets in the Haynesville region. Finally, the Rockies infrastructure acquisition improved water disposal operations in that region. These strategic acquisitions collectively position Select for future growth and operational efficiency in the water infrastructure segment.

Current wording

In the first nine months of 2024, Select executed six strategic business combinations totaling $148.1 million, and six asset acquisitions totaling $11.8 million, enhancing current and future water infrastructure capabilities. The Trinity Acquisition added strategic saltwater disposal wells and pipelines in the Permian Basin. The Bobcat Acquisition enhanced disposal operations and provided comprehensive produced water solutions in the Marcellus/Utica region. The Buckhorn Acquisition expanded solids management services by adding landfills in North Dakota and Montana. The additions of Iron Mountain Energy and Tri-State Water Logistics strengthened fluids and solids treatment and disposal assets in the Haynesville region. Finally, the Rockies infrastructure acquisition improved water disposal operations in that region. These strategic acquisitions collectively position Select for future growth and operational efficiency in the water infrastructure segment.

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 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.

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, Lebanon and Yemen. 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 and supply chains, including attacks on Israel by, and elevated tensions with, Iran, a major oil producer.

Previous 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.

Current wording

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 and political changes or instabilities 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 elevated 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 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

Previous 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.

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. For example, OPEC+ has announced the extension of the 3.66 million barrels per day production cut through the end of 2025. In addition, on September 5, 2024, OPEC+ announced the extension of voluntary output cuts totaling approximately 2.2 million barrels per day through December 1, 2024. Although OPEC+ has previously increased its output in December 2023, 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 decreased in the Current Quarter versus the Prior Quarter primarily due to concerns about weakening global demand coupled with expectation of oversupply, including growing production from countries that operate outside of OPEC quotas, such as Libya. During the Current Quarter, the average spot price of WTI crude oil was $76.43 versus an average price of $82.25 for the Prior Quarter. The average Henry Hub natural gas spot price during the Current Quarter was $2.11 versus an average of $2.59 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 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 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, even though commodity prices have moderated recently, the financial health of the oil and gas industry is in a generally healthy position overall, including many of our customers specifically, as reflected in revenues and earnings, debt metrics, recent capital raises, and equity valuations.

Previous wording

While the financial health of the broader oil and gas industry has shown improvement as compared to prior periods, central bank policy actions, bank failures and associated liquidity risks and other factors may negatively impact the value of our equity and that of our customers, and may reduce our and their ability to access liquidity in the bank and capital markets or result in capital being available on less favorable terms, which could negatively affect our financial condition and that of our customers.

Current wording

While the financial health of the broader oil and gas industry has shown improvement as compared to prior periods, central bank policy actions and associated liquidity risks and other factors may negatively impact the value of our equity and that of our customers, and may reduce our and their ability to access liquidity in the bank and capital markets or result in capital being available on less favorable terms, which could negatively affect our financial condition and that of our customers.

Previous 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.

Current 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.

Previous 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.

Current wording

This multi-well pad development, combined with 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 $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.

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 $134.2 million, $140.6 million, $399.2 million and $419.0 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 $79.0 million, $77.9 million, $158.5 million and $156.1 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, 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 $80.0 million, $79.8 million, $238.5 million and $235.9 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 $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.

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 $54.8 million, $80.7 million, $179.7 million and $236.6 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 $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.

Current wording

We incur variable transportation costs associated with our service lines, predominately fuel and freight. We incurred fuel and freight costs of $19.7 million, $27.8 million, $64.7 million and $88.7 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

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

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.

Previous 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.

Current wording

During the Current Period, we completed six business combinations and six 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 $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:

Current wording

Our revenue decreased $17.9 million, or 4.6%, to $371.3 million for the Current Quarter compared to $389.3 million for the Prior Quarter. This decrease was composed of a $17.9 million decrease in Water Services revenue and a $23.7 million decrease in Chemical Technologies revenue partially offset by a $23.6 million increase in Water Infrastructure revenue. The net $17.9 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%, 22.1% and 14.9% of our total revenue, respectively, compared to 64.7%, 15.0% and 20.3%, respectively, for the Prior Quarter. The revenue changes by reportable segment are as follows:

Previous 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.

Current wording

Water Services. Revenue decreased $17.9 million, or 7.1%, to $234.0 million for the Current Quarter compared to $251.9 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 $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.

Current wording

*Water Infrastructure.*Revenue increased $23.6 million, or 40.5%, to $82.0 million for the Current Quarter compared to $58.4 million for the Prior Quarter. The increase was primarily driven by additional revenue from acquisitions completed during the Current Period and growth in our recycling business line, offsetting lower pipeline distribution volumes.

Previous 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.

Current wording

Chemical Technologies. Revenue decreased by $23.7 million, or 30.0%, to $55.3 million for the Current Quarter compared to $79.0 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 $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.

Current wording

Costs of revenue decreased $24.1 million, or 7.2%, to $308.9 million for the Current Quarter compared to $333.0 million for the Prior Quarter. The decrease was primarily composed of a $14.3 million decrease in Water Services costs and a $14.6 million decrease in Chemical Technologies costs primarily due to supporting the lower revenue-producing activity discussed above. Water Infrastructure costs increased slightly by $0.5 million and depreciation, amortization and accretion increased by $4.3 million.

Previous 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.

Current wording

Water Services. Costs of revenue decreased $14.3 million, or 7.1%, to $186.0 million for the Current Quarter compared to $200.4 million for the Prior Quarter. Cost of revenue as a percentage of revenue remained relatively steady at 79.5% as improved gross margins in our Water Transfer and Well Testing business lines, supported by effective cost controls and higher water sourcing margins, were partially offset by lower margins in fluids hauling due to price reductions, as well as reduced poly and containment margins, both of which were impacted by declining revenue stemming from broader macro-economic conditions.

Previous 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.

Current wording

Water Infrastructure. Costs of revenue increased $0.5 million, or 1.5%, to $35.5 million for the Current Quarter compared to $35.0 million for the Prior Quarter. Cost of revenue as a percentage of revenue decreased** **from 59.9% to 43.3% 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, which was partially offset by a decline in high-margin pipeline revenue.

Previous 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.

Current wording

Chemical Technologies. Costs of revenue decreased $14.6 million, or 23.1%, to $48.5 million for the Current Quarter compared to $63.0 million for the Prior Quarter. Cost of revenue as a percentage of revenue increased from 79.7% to 87.6% 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 $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.

Current wording

Depreciation, amortization and accretion. Depreciation, amortization and accretion expense increased $4.3 million, or 12.3%, to $38.9 million for the Current Quarter compared to $34.7 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 $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.

Current wording

Gross profit was $62.4 million for the Current Quarter compared to $56.3 million for the Prior Quarter primarily driven by a $23.1 million increase in gross profit from our Water Infrastructure segment, partially offset by a $3.5 million decline in our Water Services segment, a $9.2 million decline in our Chemical Technologies segment and a $4.3 million increase in depreciation, amortization and accretion expense. Gross margin as a percentage of revenue was 16.8% and 14.5% in the Current Quarter and Prior Quarter, respectively.

Previous 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.

Current wording

Selling, general and administrative expenses decreased $1.7 million, or 4.4%, to $37.3 million for the Current Quarter compared to $39.0 million for the Prior Quarter. The decrease was due primarily to a decrease of $4.1 million in transaction and rebranding costs, a $1.6 million decrease in bad debt expense and a $1.2 million decrease from a combination of other expenses partially offset by a $2.1 million increase in incentive and equity-based compensation cost, $1.2 million in higher research and development costs, $1.0 million in higher wages, associated payroll taxes and employer 401(k) match contributions and $0.9 million in higher legal and professional fees.

Previous wording

Income tax expense increased by $3.6 million, or 923.0%, to $4.0 million for the Current Quarter compared to $0.4 million in the Prior Quarter due to a release of a portion of the valuation allowance on our deferred tax assets at the end of 2023.

Current wording

Income tax expense increased by $5.4 million, or 1,111.6%, to $5.9 million for the Current Quarter compared to $0.5 million in the Prior Quarter due to a release of a portion of the valuation allowance on our deferred tax assets at the end of 2023.

Previous wording

Our revenue decreased $89.5 million, or 10.9%, to $731.7 million for the Current Period compared to $821.2 million for the Prior Period. This decrease was composed of an $81.0 million decrease in Water Services revenue and a $29.9 million decrease in Chemical Technologies revenue partially offset by a $21.3 million increase in Water Infrastructure revenue. The net $89.5 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 Period, our Water Services, Water Infrastructure and Chemical Technologies constituted 62.6%, 18.1% and 19.3% of our total revenue, respectively, compared to 65.7%, 13.5% and 20.8%, respectively, for the Prior Period. The revenue changes by reportable segment are as follows:

Current wording

Our revenue decreased $107.5 million, or 8.9%, to $1.1 billion for the Current Period compared to $1.2 billion for the Prior Period. This decrease was composed of a $98.8 million decrease in Water Services revenue and a $53.6 million decrease in Chemical Technologies revenue partially offset by a $45.0 million increase in Water Infrastructure revenue. The net $107.5 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 Period, our Water Services, Water Infrastructure and Chemical Technologies constituted 62.8%, 19.4% and 17.8% of our total revenue, respectively, compared to 65.3%, 14.0% and 20.7%, respectively, for the Prior Period. The revenue changes by reportable segment are as follows:

Previous wording

Water Services. Revenue decreased $81.0 million, or 15.0%, to $458.3 million for the Current Period compared to $539.3 million for the Prior Period. 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 $98.8 million, or 12.5%, to $692.3 million for the Current Period compared to $791.1 million for the Prior Period. 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 $21.3 million, or 19.3%, to $132.1 million for the Current Period compared to $110.7 million for the Prior Period. The increase was primarily driven by additional revenue from acquisitions completed during the Current Period and growth in our recycling business line, offsetting lower pipeline distribution volumes.

Current wording

*Water Infrastructure.*Revenue increased $45.0 million, or 26.6%, to $214.1 million for the Current Period compared to $169.1 million for the Prior Period. The increase was primarily driven by additional revenue from acquisitions completed during the Current Period and growth in our recycling business line, offsetting lower pipeline distribution volumes.

Previous wording

Chemical Technologies. Revenue decreased by $29.9 million, or 17.5%, to $141.3 million for the Current Period compared to $171.2 million for the Prior Period. 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 $53.6 million, or 21.4%, to $196.6 million for the Current Period compared to $250.2 million for the Prior Period. 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 $81.5 million, or 11.6%, to $618.8 million for the Current Period compared to $700.4 million for the Prior Period. The decrease was primarily composed of a $66.7 million decrease in Water Services costs, a $1.5 million decrease in Water Infrastructure costs and a $19.6 million decrease in Chemical Technologies costs primarily due to supporting the lower revenue-producing activity discussed above.

Current wording

Costs of revenue decreased $105.6 million, or 10.2%, to $927.7 million for the Current Period compared to $1.0 billion for the Prior Period. The decrease was primarily composed of a $81.0 million decrease in Water Services costs, a $0.9 million decrease in Water Infrastructure costs and a $34.2 million decrease in Chemical Technologies costs primarily due to supporting the lower revenue-producing activity discussed above, partially offset by an increase of $10.5 million in depreciation, amortization and accretion.

Previous wording

Water Services. Costs of revenue decreased $66.7 million, or 15.6%, to $359.8 million for the Current Period compared to $426.5 million for the Prior Period. Cost of revenue as a percentage of revenue decreased from 79.1% to 78.5%. 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 $81.0 million, or 12.9%, to $545.9 million for the Current Period compared to $626.9 million for the Prior Period. Cost of revenue as a percentage of revenue decreased from 79.2% to 78.8% primarily driven by 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, as well as lower poly and containment margins impacted by reduced revenue due to macro-economic conditions.

Previous wording

Water Infrastructure. Costs of revenue decreased $1.5 million, or 2.1%, to $67.3 million for the Current Period compared to $68.7 million for the Prior Period. Cost of revenue as a percentage of revenue decreased** **from 62.1% to 50.9% 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.

Current wording

Water Infrastructure. Costs of revenue decreased $0.9 million, or 0.9%, to $102.8 million for the Current Period compared to $103.7 million for the Prior Period. Cost of revenue as a percentage of revenue decreased** **from 61.3% to 48.0% 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, which was partially offset by a decline in high-margin pipeline revenue.

Previous wording

Chemical Technologies. Costs of revenue decreased $19.6 million, or 14.3%, to $117.4 million for the Current Period compared to $137.0 million for the Prior Period. Cost of revenue as a percentage of revenue increased from 80.0% to 83.1% 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 $34.2 million, or 17.1%, to $165.8 million for the Current Period compared to $200.0 million for the Prior Period. Cost of revenue as a percentage of revenue increased from 79.9% to 84.4% 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 $6.2 million, or 9.1%, to $74.3 million for the Current Period compared to $68.1 million for the Prior Period 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 $10.5 million, or 10.2%, to $113.2 million for the Current Period compared to $102.8 million for the Prior Period 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 $112.8 million for the Current Period compared to $120.8 million for the Prior Period 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 $14.3 million in our Water Services segment, increased by $22.8 million in our Water Infrastructure segment and decreased by $10.3 million in our Chemical Technologies segment. Also contributing to the decrease in gross profit was a $6.2 million increase in depreciation, amortization and accretion expense. Gross margin as a percentage of revenue was 15.4% and 14.7% in the Current Period and Prior Period, respectively.

Current wording

Gross profit was $175.3 million for the Current Period compared to $177.1 million for the Prior Period 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 $17.8 million in our Water Services segment, increased by $45.9 million in our Water Infrastructure segment and decreased by $19.5 million in our Chemical Technologies segment. Also contributing to the decrease in gross profit was a $10.5 million increase in depreciation, amortization and accretion expense. Gross margin as a percentage of revenue was 15.9% and 14.6% in the Current Period and Prior Period, respectively.

Previous wording

Selling, general and administrative expenses increased $12.8 million, or 18.2%, to $83.0 million for the Current Period compared to $70.2 million for the Prior Period. The increase was due primarily to a $5.8 million increase in incentive and equity-based compensation cost, $2.9 million in higher wages, associated payroll taxes and employer 401(k) match contributions, an increase of $2.9 million in transaction and rebranding costs, $1.4 million in higher legal

Current wording

Selling, general and administrative expenses increased $11.1 million, or 10.2%, to $120.2 million for the Current Period compared to $109.1 million for the Prior Period. The increase was due primarily to a $7.9 million increase in incentive and equity-based compensation cost, $3.9 million in higher wages, associated payroll taxes and employer 401(k) match contributions, $2.3 million in higher legal and professional fees, $0.8 million in higher research and development costs, $0.7 million in higher contract labor and $0.6 million in severance expense partially offset by a $3.1 million decrease in bad debt expense, $1.0 million in lower transaction and rebranding costs, $0.7 million in lower vehicle lease costs and $0.3 million from a combination of other expenses.

Previous 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.

Current wording

Net interest expense increased by $0.9 million, or 21.3%, to $5.2 million for the Current Period compared to $4.3 million in the Prior Period due primarily to higher average borrowing on our Sustainability-Linked Credit Facility partially offset by interest income on cash balances.

Previous wording

Income tax expense increased by $4.8 million, or 825.0%, to $5.4 million for the Current Period compared to $0.6 million in the Prior Period due to a release of a portion of the valuation allowance on our deferred tax assets at the end of 2023.

Current wording

Income tax expense increased by $10.2 million, or 954.6%, to $11.3 million for the Current Period compared to $1.1 million in the Prior Period due to a release of a portion of the valuation allowance on our deferred tax assets at the end of 2023.