●

constraints in supply or availability of equipment used in our business;

●

the ~~impacts~~impact of ~~advancements~~advances or changes in ~~drilling and well service technologies;~~

well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis;

●

changes in global political or economic conditions, generally, and in the markets we serve;

●

the ability to source certain raw materials globally from economically advantaged sources;

●

accidents, weather, seasonality or other events affecting our business; and

●

the other risks ~~described under “Risk Factors”~~identified in ~~the Final Prospectus~~our most recent Annual Report on Form 10-K, and under the ~~heading “Item~~headings “Part I―Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II―Item 1A. Risk Factors” in this Quarterly Report.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described under ~~“Risk~~the heading “Part I―Item 1A. Risk Factors” in ~~the Final Prospectus~~our most recent Annual Report on Form 10-K and under the heading ~~“Item~~“Part II―Item 1A. Risk Factors” in this Quarterly ~~Report.~~Report on Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary ~~statement.~~note.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SELECT ENERGY SERVICES, INC. ~~AND SUBSIDIARIES~~

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30, 2017

December 31, 2016

(unaudited)


Assets

Current assets




Cash and cash equivalents

$
42,393

$
40,041
Accounts receivable trade, net of allowance for doubtful accounts of $2,867 and $2,144, respectively

148,372

75,892
Accounts receivable, related parties

433

135
Inventories

852

1,001
Prepaid expenses and other current assets

13,495

7,586
Total current assets

205,545

124,655
Property and equipment

815,002

739,386
Accumulated depreciation

(535,456)

(490,519)
Property and equipment, net

279,546

248,867
Goodwill

25,091

12,242
Other intangible assets, net

35,351

11,586
Other assets

7,216

7,716
Total assets

$
552,749

$
405,066
Liabilities and Equity




Current liabilities




Accounts payable

$
11,751

$
10,796
Accounts payable and accrued expenses, related parties

1,246

648
Accrued salaries and benefits

8,595

2,511
Accrued insurance

11,008

10,338
Accrued expenses and other current liabilities

39,713

22,091
Total current liabilities

72,313

46,384
Accrued lease obligations

18,100

15,946
Other long term liabilities

8,008

8,028
Long-term debt, net of current maturities

—

—
Total liabilities

98,421

70,358
Commitments and contingencies (Note 8)




Class A-1 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017; 16,100,000 shares issued and outstanding as of December 31, 2016

—

161
Class A common stock, $0.01 par value; 250,000,000 shares authorized and 30,468,249 shares issued and outstanding as of September 30, 2017; 3,802,972 shares issued and outstanding as of December 31, 2016

305

38
Class B common stock, $0.01 par value; 150,000,000 shares authorized and 38,462,541 shares issued and outstanding as of September 30, 2017 and December 31, 2016

385

385
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016

—

—
Additional paid-in capital

206,158

113,175
Accumulated deficit

(8,207)

(1,043)
Total stockholders’ equity

198,641

112,716
Noncontrolling interests

255,687

221,992
Total equity

454,328

334,708
Total liabilities and equity

$
552,749

$
405,066


	March 31, 2020		December 31, 2019
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	114,142	$	79,268
Accounts receivable trade, net of allowance for credit losses of $7,136 and $5,773, respectively		232,255		267,628
Accounts receivable, related parties		2,673		4,677
Inventories		38,502		37,542
Prepaid expenses and other current assets		20,268		26,486
Total current assets		407,840		415,601
Property and equipment		986,790		1,015,379
Accumulated depreciation		(560,340)		(562,986)
Property and equipment held-for-sale, net		—		885
Total property and equipment, net		426,450		453,278
Right-of-use assets, net		65,234		70,635
Goodwill		—		266,934
Other intangible assets, net		124,878		136,952
Other assets, net		2,506		4,220
Total assets	$	1,026,908	$	1,347,620
Liabilities and Equity
Current liabilities
Accounts payable	$	26,518	$	35,686
Accrued accounts payable		39,692		47,547
Accounts payable and accrued expenses, related parties		2,345		2,789
Accrued salaries and benefits		21,304		20,079
Accrued insurance		8,012		8,843
Sales tax payable		1,688		2,119
Accrued expenses and other current liabilities		14,894		15,375
Current operating lease liabilities		17,002		19,315
Current portion of finance lease obligations		84		128
Total current liabilities		131,539		151,881
Long-term operating lease liabilities		69,110		72,143
Other long-term liabilities		10,702		10,784
Total liabilities		211,351		234,808
Commitments and contingencies (Note 10)
Class A common stock, $0.01 par value; 350,000,000 shares authorized and 87,991,839 shares issued and outstanding as of March 31, 2020; 350,000,000 shares authorized and 87,893,525 shares issued and outstanding as of December 31, 2019		880		879
Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized; 0 shares issued or outstanding as of March 31, 2020 and December 31, 2019		—		—
Class B common stock, $0.01 par value; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of March 31, 2020; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of December 31, 2019		162		162
Preferred stock, $0.01 par value; 50,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019		—		—
Additional paid-in capital		909,812		914,699
Accumulated (deficit) retained earnings		(224,425)		21,437
Total stockholders’ equity		686,429		937,177
Noncontrolling interests		129,128		175,635
Total equity		815,557		1,112,812
Total liabilities and equity	$	1,026,908	$	1,347,620

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

Table of Contents

SELECT ENERGY SERVICES, INC. ~~AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,


2017

2016

2017

2016

Revenue









Water solutions

$
125,086

$
60,975

$
311,275

$
173,157

Accommodations and rentals

15,615

5,838

38,457

19,585

Wellsite completion and construction services

13,179

7,094

38,522

22,923

Total revenue

153,880

73,907

388,254

215,665

Costs of revenue









Water solutions

88,087

49,996

226,737

144,653

Accommodations and rentals

11,976

4,969

30,697

15,527

Wellsite completion and construction services

10,888

6,299

32,155

19,817

Depreciation and amortization

23,420

21,613

67,144

73,874

Total costs of revenue

134,371

82,877

356,733

253,871

Gross profit (loss)

19,509

(8,970)

31,521

(38,206)

Operating expenses









Selling, general and administrative

16,087

8,764

49,298

25,928

Depreciation and amortization

375

363

1,312

1,644

Impairment of goodwill and other intangible assets

—

—

—

138,666

Impairment of property and equipment

—

—

—

60,026

Lease abandonment costs

590

13,169

2,871

13,169

Total operating expenses

17,052

22,296

53,481

239,433

Income (loss) from operations

2,457

(31,266)

(21,960)

(277,639)

Other income (expense)









Interest expense, net

(484)

(4,343)

(1,885)

(11,792)

Other income, net

326

431

3,342

588

Income (loss) before tax expense

2,299

(35,178)

(20,503)

(288,843)

Tax benefit (expense)

294

(26)

326

(392)

Net income (loss)

2,593

(35,204)

(20,177)

(289,235)

Less: Net loss attributable to Predecessor

—

34,931

—

285,359

Less: Net (income) loss attributable to noncontrolling interests

(1,369)

273

13,013

3,876

Net income (loss) attributable to Select Energy Services, Inc.

$
1,224

$
—

$
(7,164)

$
—

Allocation of net income (loss) attributable to:









Class A-1 stockholders

$
—



$
(2,679)

Class A stockholders

1,224



(4,485)

Class B stockholders

—



$
1,224



$
(7,164)

Weighted average shares outstanding:







Class A-1—Basic

—



9,671,795

Class A—Basic

30,336,923



16,189,997

Class B—Basic

38,462,541



38,462,541

Net income (loss) per share attributable to common stockholders:







Class A-1—Basic

$
—



$
(0.28)

Class A—Basic

$
0.04



$
(0.28)

Class B—Basic

$
—



$
—

Weighted average shares outstanding:







Class A-1—Diluted

—



9,671,795

Class A—Diluted

30,357,572



16,189,997

Class B—Diluted

38,462,541



38,462,541

Net income (loss) per share attributable to common stockholders:







Class A-1—Diluted

$
—



$
(0.28)

Class A—Diluted

$
0.04



$
(0.28)

Class B—Diluted

$
—



$
—


	Three Months Ended March 31,
	2020		2019
Revenue
Water Services	$	149,511	$	220,595
Water Infrastructure		57,762		53,616
Oilfield Chemicals		71,012		66,829
Other		—		21,606
Total revenue		278,285		362,646
Costs of revenue
Water Services		129,114		163,121
Water Infrastructure		47,813		41,430
Oilfield Chemicals		59,876		59,527
Other		4		21,053
Depreciation and amortization		26,182		31,518
Total costs of revenue		262,989		316,649
Gross profit		15,296		45,997
Operating expenses
Selling, general and administrative		25,289		32,376
Depreciation and amortization		685		1,000
Impairment of goodwill and trademark		276,016		4,396
Impairment of property and equipment		3,184		519
Lease abandonment costs		953		1,073
Total operating expenses		306,127		39,364
(Loss) income from operations		(290,831)		6,633
Other expense
Losses on sales of property, equipment and divestitures, net		(435)		(4,491)
Interest expense, net		(331)		(1,093)
Foreign currency (loss) gain, net		(46)		260
Other income, net		259		269
(Loss) income before income tax benefit (expense)		(291,384)		1,578
Income tax benefit (expense)		164		(178)
Net (loss) income		(291,220)		1,400
Less: net loss (income) attributable to noncontrolling interests		45,358		(265)
Net (loss) income attributable to Select Energy Services, Inc.	$	(245,862)	$	1,135

Net (loss) income per share attributable to common stockholders (Note 16):
Class A—Basic	$	(2.86)	$	0.01
Class B—Basic	$	—	$	—

Net (loss) income per share attributable to common stockholders (Note 16):
Class A—Diluted	$	(2.86)	$	0.01
Class B—Diluted	$	—	$	—

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

Table of Contents

SELECT ENERGY SERVICES, INC. ~~AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(unaudited)

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,


2017

2016

2017

2016

Net income (loss)

$
2,593

$
(35,204)

$
(20,177)

$
(289,235)

Other comprehensive income (loss)









Interest rate derivatives designated as cash flow hedges









Unrealized holding loss arising during period

—

—

—

(106)

Net amount reclassified to earnings

—

—

—

113

Net change in unrealized gain

—

—

—

7

Comprehensive income (loss)

2,593

(35,204)

(20,177)

(289,228)

Less: Comprehensive loss attributable to Predecessor

—

34,931

—

285,352

Less: Comprehensive (income) loss attributable to noncontrolling interests

(1,369)

273

13,013

3,876

Comprehensive income (loss) attributable to Select Energy Services, Inc.

$
1,224

$
—

$
(7,164)

$
—


	Three Months Ended March 31,
	2020		2019
Net (loss) income	$	(291,220)	$	1,400
Other comprehensive (loss) income
Foreign currency translation adjustment, net of tax of $0		—		54
Net change in unrealized gain		—		54
Comprehensive (loss) income		(291,220)		1,454
Less: comprehensive loss (income) attributable to noncontrolling interests		45,358		(275)
Comprehensive (loss) income attributable to Select Energy Services, Inc.	$	(245,862)	$	1,179

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

Table of Contents

SELECT ENERGY SERVICES, INC. ~~AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

~~(unaudited)~~For the three months ended March 31, 2020 and 2019

(unaudited)

(in thousands, except share data)

Class A-1

Class A

Class B

Preferred

Stockholders

Stockholders

Stockholders

Stockholders

Class A-1

Class A

Class B

Additional

Total

Common

Common

Common

Preferred

Paid-In

Accumulated

Stockholders’

Noncontrolling


Shares

Stock

Shares

Stock

Shares

Stock

Shares

Stock

Capital

Deficit

Equity

Interests

Total
Balance as of December 31, 2016

16,100,000

$
161

3,802,972

$
38

38,462,541

$
385

—

$
—

$
113,175

$
(1,043)

$
112,716

$
221,992

$
334,708
Conversion of Class A-1 to Class A

(16,100,000)

(161)

16,100,000

161

—

—

—

—

—

—

—

—

—
Issuance of shares for acquisitions

—

—

560,277

6

—

—

—

—

4,360

—

4,366

5,514

9,880
Issuance of shares for initial public offering

—

—

10,005,000

100

—

—

—

—

87,835

—

87,935

40,569

128,504
Equity-based compensation

—

—

—

—

—

—

—

—

788

—

788

993

1,781
Noncontrolling interest in subsidiary

—

—

—

—

—

—

—

—

—

—

—

(368)

(368)
Net loss

—

—

—

—

—

—

—

—

—

(7,164)

(7,164)

(13,013)

(20,177)
Balance as of September 30, 2017

—

$
—

30,468,249

$
305

38,462,541

$
385

—

$
—

$
206,158

$
(8,207)

$
198,641

$
255,687

$
454,328


	Class A			Class B
	Stockholders			Stockholders					Accumulated		Accumulated
		Class A			Class B		Additional		(Deficit)		Other		Total
		Common			Common		Paid-In		Retained		Comprehensive		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Earnings		Income		Equity		Interests		Total
Balance as of December 31, 2019	87,893,525	$	879	16,221,101	$	162	$	914,699	$	21,437	$	—	$	937,177	$	175,635	$	1,112,812
ESPP shares issued	4,443		—	—		—		30		—		—		30		(3)		27
Equity-based compensation	—		—	—		—		483		—		—		483		91		574
Issuance of restricted shares	1,271,706		13	—		—		2,158		—		—		2,171		(2,171)		—
Exercise of restricted stock units	625		—	—		—		1		—		—		1		(1)		—
Repurchase of common stock	(979,391)		(10)	—		—		(7,229)		—		—		(7,239)		603		(6,636)
Restricted shares forfeited	(199,069)		(2)	—		—		(338)		—		—		(340)		340		—
NCI income tax adjustment	—		—	—		—		8		—		—		8		(8)		—
Net loss	—		—	—		—		—		(245,862)		—		(245,862)		(45,358)		(291,220)
Balance as of March 31, 2020	87,991,839	$	880	16,221,101	$	162	$	909,812	$	(224,425)	$	—	$	686,429	$	129,128	$	815,557


	Class A			Class B
	Stockholders			Stockholders							Accumulated
		Class A			Class B		Additional				Other		Total
		Common			Common		Paid-In		Retained		Comprehensive		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Earnings		Loss		Equity		Interests		Total
Balance as of December 31, 2018	78,956,555	$	790	26,026,843	$	260	$	813,599	$	18,653	$	(368)	$	832,934	$	277,839	$	1,110,773
ESPP shares issued	2,810		—	—		—		29		—		—		29		(2)		27
Equity-based compensation	—		—	—		—		3,154		—		—		3,154		1,025		4,179
Issuance of restricted shares	1,169,777		11	—		—		3,025		—		—		3,036		(3,036)		—
Exercise of restricted stock units	625		—	—		—		2		—		—		2		(2)		—
Repurchase of common stock	(125,786)		(1)	—		—		(1,244)		—		—		(1,245)		29		(1,216)
Restricted shares forfeited	(5,689)		—	—		—		(15)		—		—		(15)		15		—
Distributions to noncontrolling interests, net	—		—	—		—		—		—		—		—		(121)		(121)
NCI income tax adjustment	—		—	—		—		6		—		—		6		(6)		—
Foreign currency translation adjustment	—		—	—		—		—		—		54		54		17		71
Net income	—		—	—		—		—		1,135		—		1,135		265		1,400
Balance as of March 31, 2019	79,998,292	$	800	26,026,843	$	260	$	818,556	$	19,788	$	(314)	$	839,090	$	276,023	$	1,115,113

The accompanying notes to consolidated financial statements are an integral part of these financial statements

Table of Contents

SELECT ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Three months ended March 31,
	2020		2019
Cash flows from operating activities
Net (loss) income	$	(291,220)	$	1,400
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation and amortization		26,867		32,518
Net loss (gain) on disposal of property and equipment		435		(223)
Bad debt expense		2,385		732
Amortization of debt issuance costs		172		172
Inventory write-downs		48		75
Equity-based compensation		574		4,179
Impairment of goodwill and trademark		276,016		4,396
Impairment of property and equipment		3,184		519
Loss on divestitures		—		4,714
Other operating items, net		(47)		(270)
Changes in operating assets and liabilities
Accounts receivable		34,992		(17,390)
Prepaid expenses and other assets		6,633		1,706
Accounts payable and accrued liabilities		(13,328)		4,059
Net cash provided by operating activities		46,711		36,587
Cash flows from investing activities
Working capital settlement		—		691
Proceeds received from divestitures		85		15,957
Purchase of property and equipment		(11,338)		(36,510)
Proceeds received from sales of property and equipment		5,768		3,209
Net cash used in investing activities		(5,485)		(16,653)
Cash flows from financing activities
Borrowings from revolving line of credit		—		5,000
Payments on long-term debt		—		(25,000)
Payments of finance lease obligations		(65)		(285)
Proceeds from share issuance		27		27
Contributions from (distributions to) noncontrolling interests		383		(121)
Repurchase of common stock		(6,636)		(1,216)
Net cash used in financing activities		(6,291)		(21,595)
Effect of exchange rate changes on cash		(61)		107
Net increase (decrease) in cash and cash equivalents		34,874		(1,554)
Cash and cash equivalents, beginning of period		79,268		17,237
Cash and cash equivalents, end of period	$	114,142	$	15,683
Supplemental cash flow disclosure:
Cash paid for interest	$	386	$	1,283
Cash refunds received for income taxes, net	$	(156)	$	(365)
Supplemental disclosure of noncash investing activities:
Capital expenditures included in accounts payable and accrued liabilities	$	6,184	$	13,044

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

~~Table of Contents~~

~~SELECT ENERGY SERVICES, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~

~~(in thousands)~~

Nine Months Ended September 30,


2017

2016
Cash flows from operating activities




Net loss

$
(20,177)

$
(289,235)
Adjustments to reconcile net loss to net cash provided by operating activities




Depreciation and amortization

68,456

75,518
Gain on disposal of property and equipment

(3,127)

(30)
Bad debt expense

1,098

1,679
Amortization of debt issuance costs

928

2,244
Equity-based compensation

1,781

317
Impairment of goodwill and other intangible assets

—

138,666
Impairment of property and equipment

—

60,026
Other operating items

(560)

(806)
Changes in operating assets and liabilities

Accounts receivable

(65,815)

15,339
Prepaid expenses and other assets

(6,493)

679
Accounts payable and accrued liabilities

19,660

3,681
Net cash (used in) provided by operating activities

(4,249)

8,078
Cash flows from investing activities




Acquisitions, net of cash received

(62,199)

—
Purchase of property and equipment

(66,013)

(28,630)
Proceeds received from sale of property and equipment

6,677

8,258
Net cash used in investing activities

(121,535)

(20,372)
Cash flows from financing activities




Proceeds from revolving line of credit

34,000

18,500
Payments on long-term debt

(34,000)

(36,334)
Payment of debt issuance costs

—

(2,775)
Proceeds from initial public offering

140,070

—
Payments incurred for initial public offering

(11,566)

—
Purchase of noncontrolling interests

—

(318)
Proceeds from (distributions to) noncontrolling interests

(368)

138
Member contributions

—

23,519
Net cash provided by financing activities

128,136

2,730
Net increase (decrease) in cash and cash equivalents

2,352

(9,564)
Cash and cash equivalents, beginning of period

40,041

16,305
Cash and cash equivalents, end of period

$
42,393

$
6,741
Supplemental cash flow disclosure:




Cash paid for interest

$
1,139

$
9,592
Cash paid for taxes

$
37

$
619
Supplemental disclosure of noncash investing activities:




Capital expenditures included in accounts payable and accrued liabilities

$
7,733

$
2,479

~~The accompanying notes to consolidated financial statements are an integral part of these financial statements.~~

Table of Contents

SELECT ENERGY SERVICES, INC.~~AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Description of the business: Select Energy Services, Inc. (“~~Select Energy Services”~~we,” “Select Inc.” or ~~“the Company”~~the “Company”) was incorporated as a Delaware corporation on November 21, 2016. The Company is a holding company whose sole material asset consists of ~~a membership interest~~common units (“SES Holdings LLC Units”) in SES Holdings, LLC (“SES Holdings” ~~or the “Predecessor”~~). Unless otherwise stated or the context otherwise indicates, all references to the “Company” or similar expressions for time periods prior to the reorganization and 144A Offering transactions refer to SES Holdings and its subsidiaries. For time periods subsequent to the reorganization and 144A Offering transactions, these terms refer to Select Energy Services and its subsidiaries.

~~SES Holdings was formed in July 2008 and, in October 2008, members~~We are a leading provider of Select Energy Services, LLC (“Select LLC”), formerly known as Peak Oilfield Services, LLC (“Peak”), a Delaware limited liability company formed in December 2006, transferred all interests in Select LLC to SES Holdings in exchange for membership interests in SES Holdings and Select LLC became a wholly owned subsidiary of SES Holdings.

~~Select Energy Services is an oilfield services company that provides total water~~comprehensive water-management solutions to the ~~U.S. conventional~~ oil and ~~natural~~ gas ~~industry. The Company offers water‑related services that support~~industry in the United States (“U.S.”). We also develop, manufacture and deliver a full suite of chemical solutions for use in oil and gas well completion and production ~~activities including sourcing, transfer, containment, monitoring, treatment, flowback, hauling~~operations. Through a combination of organic growth and ~~disposal~~acquisitions over the last decade, we have developed a leading position in the ~~U.S. shale basins. These~~relatively new water solutions industry. We believe we are the only company in the oilfield services ~~establish~~industry that combines comprehensive water-management services with related chemical products. Furthermore, we believe we are one of the few large oilfield services companies whose primary focus is on the management and ~~maintain~~treatment of water and water resources in the ~~flow of~~ oil and ~~natural~~ gas ~~throughout~~production industry. Accordingly, the ~~productive life~~importance of ~~a horizontal well.~~responsibly managing water resources through our operations to help conserve fresh water and protect the environment is paramount to our continued success.

~~The Company also operates a wellsite services group to complement its total water solutions offering. These services include equipment rental, accommodations, crane~~Select 144A Offering and logistics services, wellsite and pipeline construction, and field services. The Company conducts its wellsite services activities on a third‑party contractual basis unrelated to its water‑related services.

~~Reorganization~~:Initial Public Offering. On December 20, 2016, Select ~~Energy Services~~Inc. completed a private placement (the ~~“144A~~“Select 144A Offering”) of 16,100,000 shares of Select Inc. Class ~~A‑1~~A-1 common stock, par value $0.01 per share, ~~(“Select~~which were converted into shares of Class ~~A-1~~A common stock, par value $0.01 per share (“Class A Common Stock”) ~~at an~~following the Company’s initial public offering price of $20.00 per share. In conjunction with the 144A Offering, SES Holdings’ then existing Class A and Class B units were converted into a single class of common units (the “SES Holdings LLC Units”(“IPO”) ~~and SES Holdings effected a 10.3583 for 1 unit split. In exchange for the contribution of all net proceeds from the 144A Offering to SES Holdings,~~. SES Holdings issued 16,100,000 SES Holdings LLC Units to Select ~~Energy Services,~~Inc., and Select ~~Energy Services~~Inc. became the sole managing member of SES Holdings. Select ~~Energy Services~~Inc. issued 38,462,541 shares of its Class B common stock, par value $0.01 per share (“~~Select~~ Class B Common Stock”), to the other member of SES Holdings, SES Legacy Holdings, LLC (“Legacy Owner Holdco”), or ~~one~~1 share for each SES Holdings LLC Unit held by Legacy Owner Holdco. ~~The~~On April 26, 2017, the Company ~~also acquired 3,802,972 SES Holdings LLC Units from certain legacy owners (the “Contributing Legacy Owners”) in exchange for the issuance~~completed its IPO of ~~3,802,972~~8,700,000 shares of Class A ~~common stock, par value $0.01 per share (“Select Class A~~ Common ~~Stock”).~~Stock. Shareholders of ~~Select Class A‑1 Common Stock, Select~~ Class A Common Stock and ~~Select~~ Class B Common Stock vote together as a single class on all matters, subject to certain exceptions in the Company’s amended and restated certificate of incorporation. Holders of ~~Select~~ Class B Common Stock have voting rights only and are not entitled to an economic interest in Select ~~Energy Services~~Inc. based on their ownership of ~~Select~~ Class B Common Stock. ~~The reorganization transactions were treated as a combination of entities under common control~~

Tax Receivable Agreements: In connection with ~~assets~~the Company’s restructuring at the Select 144A Offering, Select Inc. entered into 2 tax receivable agreements (the “Tax Receivable Agreements”) with Legacy Owner Holdco and ~~liabilities transferred at their carrying amounts in a manner similar to a pooling of interests.~~

~~Initial Public Offering:~~ ~~On April 26, 2017, the Company completed its initial public offering (“IPO”) of 8,700,000 shares of Select Class A Common Stock at a price of $14.00 per share. On May 10, 2017, the underwriters~~certain other affiliates of the ~~IPO exercised their over-allotment option to purchase an additional 1,305,000 shares~~then-holders of ~~Select Class A Common Stock at the IPO price of $14.00 per share. After deducting underwriting discounts and commissions and estimated~~

~~Table of Contents~~

offering expenses payable by it, the Company received approximately $128.5 million of the aggregate net proceeds from the IPO (including the over-allotment option). The Company contributed all of the net proceeds received by it to SES Holdings in exchange for SES Holdings LLC ~~Units. SES Holdings used~~Units (each such person and any permitted transferee thereof, a “TRA Holder,” and together, the ~~net proceeds in the following manner: (i) $34.0 million was used to repay borrowings incurred under~~“TRA Holders”). On July 18, 2017, the Company’s ~~Credit Facility~~board of directors approved amendments to ~~fund the cash portion~~each of the purchase price of the GRR Acquisition, as defined below, (ii) $7.8 million was used for the cash settlement of outstanding phantom unit awards and (iii) the remaining net proceeds are intended to be used for general corporate purposes, including funding our 2017 budgeted capital expenditures.

~~Credit Facility~~: Concurrent with the closing of the 144A Offering, the Company repaid all of its outstanding indebtedness and amended its Credit Facility to reduce the total commitment of its revolving line of credit to $100.0 million.Tax Receivable Agreements. See Note ~~7—Debt~~13—Related Party Transactions for further discussion.

Exchange ~~rights~~:rights: Under the Eighth Amended and Restated Limited Liability Company Agreement of SES Holdings (the “SES Holdings LLC Agreement”), Legacy Owner Holdco ~~has~~and its permitted transferees have the right (an “Exchange Right”) to cause SES Holdings to acquire all or a portion of its SES Holdings LLC Units for, at SES Holdings’ election, (i) shares of ~~Select~~ Class A Common Stock at an exchange ratio of one share of ~~Select~~ Class A Common Stock for each SES Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value (as defined within the SES Holdings LLC Agreement) of such ~~Select~~ Class A Common Stock. Alternatively, upon the exercise of any Exchange Right, ~~the Company~~Select Inc. has the right (the “Call Right”) to acquire the tendered SES Holdings LLC Units from the exchanging unitholder for, at its election, (i) the number of shares of ~~Select~~ Class A Common Stock the exchanging unitholder would have received under the Exchange Right or (ii) cash in an amount equal to the Cash Election Value of such ~~Select~~ Class A Common Stock. In connection with any exchange of SES Holdings LLC Units pursuant to an Exchange Right or Call Right, the corresponding number of shares of ~~Select~~ Class B Common Stock will be cancelled.

~~Registration rights: In~~ During the year ended December ~~2016, in connection with the closing~~31, 2019, a total of ~~the 144A Offering, Select Energy Services entered into a registration rights agreement with FBR Capital Markets & Co.~~9,805,742 SES Holdings LLC Units were exchanged for the benefit of the investors in the 144A Offering. Under this registration rights agreement, the Company agreed, at its expense, to file with the SEC, in no event later than April 30, 2017, a shelf registration statement registering for resale the 16,100,000 shares of Select Class A Common Stock issuable upon conversion of the Select Class A‑1 Common Stock sold in the 144A Offering plus any additional9,805,742 shares of Class A‑1 common stock issued in respect thereof whether by stock dividend, stock distribution, stock split, or otherwise, and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as practicable but in any event within 60 days after the closingA

Table of the IPO. The Company filed this registration statement with the SEC on April 28, and this registration statement was declared effective by the SEC on June 13, 2017. Accordingly, each share of Select Class A‑1 Contents

Common Stock, ~~outstanding automatically converted into a share~~and 9,805,742 shares of ~~Select~~ Class AB Common Stock ~~on a one‑for‑one basis at that time. In addition, Legacy Owner Holdco has~~were cancelled. There were 0 exchanges during the ~~right, under certain circumstances, to cause the Company to register the shares of Select Class A Common Stock obtained pursuant to the Exchange Right.~~Current Quarter (as defined below).

~~Tax receivable agreements~~: Concurrent with the closing of the 144A Offering, the Company entered into two tax receivable agreements with Legacy Owner Holdco and certain legacy owners of SES Holdings. On July 18, 2017, the Company’s board of directors approved amendments to each of the Tax Receivable Agreements. See Note 12—Related Party Transactions for further discussion.

Basis of presentation: The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the ~~United States~~U.S. (“GAAP”) and pursuant to the rules and regulations of the ~~SEC.~~Securities and Exchange Commission (the “SEC”). These unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with GAAP. ~~Accordingly,~~

This Form 10-Q relates to the ~~accompanying unaudited interim consolidated financial statements~~three months ended March 31, 2020 (the “Current Quarter”) and ~~related notes~~the three months ended March 31, 2019 (the “Prior Quarter”). The Company’s annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) filed with the SEC on February 25, 2020 includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. All material adjustments (consisting solely of normal recurring adjustments) which, in the ~~Company’s consolidated financial statements~~opinion of management, are necessary for a fair statement of the results for the ~~years ended December 31, 2016 and 2015 included~~interim periods have been reflected. The results for the Current Quarter are not indicative of the results to be expected for the full year, in part due to the ~~Final Prospectus.~~ recent coronavirus (“COVID-19”) outbreak.

The unaudited interim consolidated financial statements include the accounts of ~~Select Energy Services~~the Company and all of its ~~majority‑owned~~majority-owned or controlled subsidiaries. All ~~significant~~ intercompany accounts and transactions have been eliminated in consolidation.

~~Table of Contents~~

In the opinion of management, all adjustments which are of a normal recurring nature and considered necessary for a fair presentation of our interim financial statements have been included in these unaudited interim consolidated financial statements. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.

The Company’s historical financial statements prior to the 144A Offering and reorganization transactions are prepared using SES Holdings’ historical basis in the assets and liabilities, and include all revenues, costs, assets and liabilities attributed to SES Holdings.

For investments in subsidiaries that are not wholly owned, but where the Company exercises control, the equity held by the minority owners and their portion of net income or loss are reflected as noncontrolling interests. Investments in entities ~~in which Select Energy Services exercises significant influence over operating and financial policies are accounted for using the equity method, and investments in entities~~ for which the Company does not have significant control or influence are accounted for using the cost method. As of March 31, 2020, the Company had 1 cost-method investee. The Company’s investments are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. When circumstances indicate that the fair value of its investment is less than its carrying value and the reduction in value is other than temporary, the reduction in value is recognized in earnings.

Segment reporting: The Company has 3 reportable segments. Reportable segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s current reportable segments are Water Services, Water Infrastructure, and Oilfield Chemicals.

The Water Services segment consists of the Company’s services businesses including water transfer, flowback and well testing, fluids hauling, water containment and water network automation, primarily serving E&P companies. Additionally, this segment includes the operations of our accommodations and rentals business.

The Water Infrastructure segment consists of the Company’s infrastructure assets and ongoing infrastructure development projects, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions and infrastructure, and our produced water gathering systems and salt water disposal wells, primarily serving E&P companies.

The Oilfield Chemicals segment develops, manufactures and provides a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, and well completion and production services, including polymer slurries, crosslinkers, friction reducers, biocides, dry and liquid scale inhibitors, corrosion inhibitors, buffers, breakers and other chemical technologies. This segment also provides chemicals needed by our customers to increase oil and gas production and lower production costs over the life of a well. Our Oilfield Chemicals customers are primarily pressure pumpers, but also include major integrated and independent oil and gas producers.

The results of service lines divested during 2019, including the operations of our Affirm Oilfield Services, LLC subsidiary (“Affirm”), our sand hauling operations and our Canadian operations, are combined in the “Other” category.

Table of Contents

Reclassifications: Certain reclassifications have been made to the Company’s prior period consolidated financial information in order to conform to the current period presentation. These presentation changes did not impact the Company’s consolidated net income, consolidated cash flows, total assets, total liabilities or total stockholders’ equity.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies: ~~Our~~The Company’s significant accounting policies are disclosed in Note 2 of the consolidated financial statements for the ~~years~~year ended December 31, ~~2016 and 2015~~2019, included in the ~~Final Prospectus. There have been no changes in such policies or the application of such policies during the quarter ended September 30, 2017.~~Company’s most recent Annual Report on Form 10-K.

Use of estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the recoverability of ~~long‑lived~~long-lived assets and intangibles, useful lives used in depreciation and amortization, uncollectible accounts receivable, inventory, income taxes, ~~self‑insurance~~self-insurance liabilities, ~~share‑based~~share-based compensation, contingent liabilities and ~~contingent liabilities.~~the incremental borrowing rate for leases. The Company bases its estimates on historical and other pertinent information that are believed to be reasonable under the circumstances. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

~~Emerging Growth~~Allowance for credit losses: The Company’s allowance for credit losses relate to trade accounts receivable. The Company ~~status:~~ ~~Under~~treats trade accounts receivable as one portfolio and records an initial allowance calculated as a percentage of revenue recognized based on a combination of historical information and future expectations. Additionally, the ~~Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we are an “emerging growth company,” or an “EGC,”~~Company adjusts this allowance based on specific information in connection with aged receivables. Historically, most bad debt incurred has been with cases where a customer’s financial condition significantly deteriorates, which ~~allows us~~in some cases leads to ~~have an extended transition period for complying with new or revised accounting standards pursuant~~bankruptcy.

The following table presents the changes to ~~Section 107(b) of~~ the ~~JOBS Act. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase‑in periods~~allowance for the ~~adoption of new or revised financial accounting standards under Section 107 of~~Current Quarter:


	Three months ended March 31, 2020
	(in thousands)
Balance at beginning of year	$	5,773
Increase to allowance based on a percent of Current Quarter revenue		556
Adjustment based on aged receivable analysis		1,829
Charge-offs		(1,022)
Balance at March 31, 2020	$	7,136

Asset retirement obligations: The Company’s asset retirement obligations (“ARO”) relate to disposal facilities with obligations for plugging wells, removing surface equipment, and returning land to its pre-drilling condition. The following table describes the ~~JOBS Act until we are no longer an emerging growth company. Our election~~changes to ~~use~~ the phase‑in periods permitted by this election may make it difficult to compare our financial statements to those of non‑emerging growth companies and other emerging growth companies that have opted out ofCompany’s ARO liability for the longer phase‑in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. If we were to subsequently elect instead to comply immediately with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.Current Quarter:

~~Recent accounting pronouncements: In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, outlining a comprehensive new revenue recognition standard that will supersede ASC 605, Revenue Recognition. The new accounting guidance creates a framework under which an entity will allocate the transaction price to separate performance obligations and recognize revenue when each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a

Table of Contents

~~contract, estimating~~


	Three months ended March 31, 2020
	(in thousands)
Balance at beginning of year	$	1,527
Accretion expense, included in depreciation and amortization expense		31
Disposals		(219)
Payments		(64)
Balance at March 31, 2020	$	1,275

We review the ~~amount~~adequacy of ~~variable consideration to include~~our ARO liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed. The Company’s ARO liabilities are included in accrued expenses and other current liabilities and other long-term liabilities in the transaction price, allocating the transaction price to each separate performance obligation, and determining when an entity satisfies its performance obligations. The standard allows for either “full retrospective” adoption, meaning that the standard is applied to allaccompanying consolidated balance sheets.

Lessor Income: As of the periods presented with a cumulative catch‑up as of the earliest period presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch‑up as of the current period. In August 2015, the FASB decided to defer the original effective date by one year. As long asMarch 31, 2020, the Company ~~is an EGC~~had 3 facility leases and ~~able to utilize the extended transition period~~13 facility subleases that are accounted for new accounting pronouncements, this guidance will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. as follows:


		Three Months Ended March 31,
		2020		2019
		(in thousands)
Category	Classification
Lessor income	Cost of sales	$	116	$	111
Sublease income	Lease abandonment costs and Cost of sales		401		373

The Company ~~is still evaluating~~also generates short-term equipment rental revenue. See Note 5—Revenue for a discussion of revenue recognition for the ~~impact that~~accommodations and rentals business.

Defined Contribution Plan: During the ~~new~~Current Quarter, due to worsening economic conditions, the Company suspended the match of its defined contribution 401(k) Plan and incurred no match expense. During the Prior Quarter, the Company incurred $1.3 million of match expense.

Recent accounting ~~guidance will have on its consolidated financial statements and related disclosures and has not yet determined the method by which it will adopt the standard.~~

pronouncements: In ~~November 2015,~~ June 2016, the FASB issued ASU ~~2015-17,~~ ~~Balance Sheet Classification~~2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of ~~Deferred Taxes~~Credit Losses on Financial Instruments, which amends ~~existing guidance~~GAAP by introducing a new impairment model for financial instruments that is based on ~~income taxes~~expected credit losses rather than incurred credit losses. The new impairment model applies to ~~require the classification of all deferred tax~~most financial assets, ~~and liabilities as noncurrent on the balance sheet. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is~~including trade accounts receivable. The amendments are effective for ~~annual reporting periods beginning after December 15, 2017,~~interim and interim periods within annual periods beginning after December 15, 2018, and may be applied either prospectively or retrospectively. The Company prospectively adopted this guidance during the nine months ended September 30, 2017. Prior periods were not retrospectively adjusted. As the Company’s deferred tax assets and liabilities are all noncurrent, the adoption did not result in a change to the consolidated financial statements and related disclosures.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~, which introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB’s new revenue recognition standard. However, the ASU eliminates the use of bright‑line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2019 and requires a modified retrospective transition approach. After reviewing the new standard and reexamining current and prior year bad debt expense from trade receivables, as well as updating future expectations, the adoption of the new standard in the first quarter of 2020 did not have a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2020, using a modified retrospective approach.~~2020. Early adoption ~~is permitted. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting, that provides a new requirement to record all~~ of the tax effects related to share‑based payments at settlement (or expiration) through the income statement. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments,~~ ~~which addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. The~~ amendments provide guidance in the presentation and classification of certain cash receipts and cash payments in the statement of cash flows including debt prepayment or debt extinguishment costs, settlement of zero‑coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate‑owned life insurance policies, and distributions received from equity method investees. As an EGC utilizing the extended transition period for new accounting pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The amendments in this ASU should be applied using a retrospective approach. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business~~, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. As an EGC utilizing the extended transition period for new accounting

~~Table of Contents~~

pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The amendments in this ASU should be applied prospectively. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~. This pronouncement removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This pronouncement is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2019. The amendments in this ASU should be applied prospectively. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Scope of Modification Accounting~~. This pronouncement provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim ~~period. The pronouncement should~~period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied ~~prospectively to an award~~on the retrospective, modified onretrospective or ~~after the adoption date.~~prospective basis. The Company is ~~still evaluating~~currently reviewing the ~~impact that the~~provisions of this new ~~accounting guidance will have on its consolidated financial statements and related disclosures.~~pronouncement.

Table of Contents

NOTE 3— ~~ACQUISITIONS~~IMPAIRMENTS AND OTHER COSTS

~~Business combinations~~

~~On September 15, 2017,~~Significant challenges that emerged during the ~~Company completed its acquisition (the “Resource Water Acquisition”)~~Current Quarter, and which are expected to continue into the foreseeable future, have had and will continue to have a negative impact on our results of Resource Water Transfer Services, L.P. and certain other affiliated assets (collectively, “Resource Water”). Resource Water provides water transfer services to exploration and production (“E&P”) operatorsoperations. The COVID-19 outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in ~~West Texas and East Texas. Resource Water’s assets include 24 miles of layflat hose~~global oil demand as well as ~~numerous pumps~~international and ~~ancillary equipment required~~U.S. economies and financial markets. Additionally, the failure of Saudi Arabia and Russia to ~~support water transfer operations. Resource Water has longstanding customer relationships across its operating regions~~reach a decision to cut production of oil and gas along with the Organization of the Petroleum Exporting Countries (“OPEC”), and Saudi Arabia’s subsequent decision to reduce the prices at which ~~are viewed as strategic~~it sells oil and increase production, combined with the continued outbreak of COVID-19, contributed to a sharp drop in prices for oil in the ~~Company’s water solutions business.~~ Current Quarter. While an agreement to cut production was reached in April 2020, oil prices have remained low, with storage capacity rapidly being reached, and global oil demand is expected to remain challenged at least until the COVID-19 outbreak can be contained. As a result of these market disruptions, oil prices have declined significantly and our Current Quarter results have been negatively impacted. With the significant recent drop in oil prices, the activity levels of our customers and the demand for our services will certainly decrease materially in the near-term; however, at this time, we believe it is too soon to determine the depth or magnitude of the declines.

We believe the ongoing effects of COVID-19 on our operations have had, and will continue to have, a material negative impact on our financial results, and such negative impact may continue well beyond the containment of such outbreak until oil demand and prices, recover. We cannot assure you that our assumptions used to estimate our future financial results will be correct given the unpredictable nature of the current market environment after the rapid decline in the demand for oil and demand for our services. As a consequence, our ability to accurately forecast our activity and profitability is uncertain.

The ~~total consideration for the Resource Water Acquisition was $9.1 million, with $6.7 million paid in cash~~magnitude and ~~$2.4 million paid in shares of Select Class A Common Stock valued at $15.17 per share, subject to customary post‑closing adjustments. The Company funded the cash portion~~duration of the ~~consideration~~COVID-19 pandemic is also uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but at this time, we expect a net loss for the Resource Water Acquisition with $6.7 million of cash on hand. For the nine months ended September 30, 2017, the Company expensed less than $0.1 million of related transaction-related costs. The Resource Water Acquisition is being accounted for as a business combination under the acquisition method of accounting. The preliminary allocation of the consideration transferred is based on management’s estimates, judgments2020. We are taking further actions to maintain our liquidity, including decreasing operating expenses by reducing headcount, reducing salaries, closing yard locations, reducing third party expenses and assumptions. When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments, and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Working capital estimates are based on provisional amounts. Management estimated that total consideration paid exceeded the fair value of the net assets acquired by $1.8 million, which excess was recognized as goodwill. The goodwill recognized was attributable to Resource Water’s assembled workforcestreamlining operations, as well as ~~synergies~~reducing capital expenditures. We are also deferring employer payroll tax payments for the remainder of 2020, in accordance with the provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and may take advantage of future legislation passed by the United States Congress in response to COVID-19.

As a result of the above mentioned economic conditions, we recorded impairment expenses in the first quarter related to goodwill, property and equipment and other intangible assets and there is no assurance that we will not have additional impairments in subsequent quarters.

A summary of impairment, severance, yard closure and lease abandonment costs for the Current Quarter and Prior Quarter were as follows:


	Three Months Ended March 31,
	2020		2019
	(in thousands)

Impairment of goodwill and trademark
Water Services	$	186,468	$	—
Water Infrastructure		80,466		—
Oilfield Chemicals		9,082		—
Other		—		4,396
Total impairment of goodwill and trademark	$	276,016	$	4,396

For a discussion of the impairments to goodwill and trademark, See Note 8—Goodwill and Other Intangible Assets.

Table of Contents


	Three Months Ended March 31,
	2020		2019
	(in thousands)

Impairment of property and equipment
Water Services	$	2,498	$	—
Water Infrastructure		686		—
Other		—		519
Total impairment of property and equipment	$	3,184	$	519

During the Current Quarter, the Company determined that certain equipment was obsolete, and recorded a $3.2 million impairment of property and equipment. During the Prior Quarter, the Company recorded an impairment of $0.5 million of Canadian property and equipment to write down the carrying value based on the expected future sale proceeds at that time.


	Three Months Ended March 31,
	2020		2019
	(in thousands)

Severance
Water Services	$	1,823	$	—
Water Infrastructure		288		—
Oilfield Chemicals		120		—
Other		1,271		1,680
Total severance expense	$	3,502	$	1,680

Yard closure costs
Water Services	$	1,950	$	—
Total yard closure costs	$	1,950	$	—

Lease abandonment costs
Water Services	$	935	$	229
Water Infrastructure		51		—
Other		(33)		844
Total lease abandonment costs	$	953	$	1,073

During the Current Quarter, the Company recorded exit-disposal costs including $3.5 million of severance costs, with $2.9 million of accrued severance at March 31, 2020, $2.0 million in accrued yard closure costs, recognized within costs of revenue on the accompanying consolidated statements of operations, and $1.0 million of lease abandonment costs. Severance costs of $1.8 million and $1.7 million are recognized within costs of revenue and selling, general and administrative expenses, respectively, on the accompanying consolidated statements of operations. During the Prior Quarter, the Company recorded exit-disposal costs including $1.7 million of severance, recognized within selling, general and administrative expenses on the accompanying consolidated statements of operations, and $1.1 million of lease abandonment costs, both of which related to the Company’s comprehensive water solutions strategy. The goodwill was included in the assets of the Company’s Water Solutions segment. The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition:divested service lines.

1415

Table of Contents

Preliminary purchase price allocation

Amount
Consideration  transferred

(in thousand)
Cash paid

$
6,692
Class A common stock issued

2,380
Total consideration transferred

9,072
Less: identified assets


Working capital

1,396
Fixed assets

3,485
Customer relationship intangible assets

1,912
Other intangible assets

466
Total identified assets

7,259
Goodwill

$
1,813

NOTE 4—Acquisitions

Business combinations

Well Chemical Services Acquisition

On ~~March 10, 2017,~~September 30, 2019, the Company ~~completed its acquisition (the “GRR Acquisition”~~acquired a well chemical services business (“WCS”), formerly a division of Gregory Rockhouse Ranch, Inc. and certain other affiliated entities and assets (collectively, the “GRR Entities”). The GRR Entities provide water and water‑related services to E&P companies in the Permian Basin and own and have rights to a vast array of fresh, brackish and effluent water sourcesBaker Hughes Company, for $10.0 million, funded with access to significant volumes of water annually and water transport infrastructure, including over 900 miles of temporary and permanent pipeline infrastructure and related storage facilities and pumps, all located in the northern Delaware Basin portion of the Permian Basin.

The total consideration for the GRR Acquisition was $56.8 million, with $51.3 million paid in cash and $5.5 million paid in shares of Select Class A Common Stock valued at $20.00 per share, subject to customary post‑closing adjustments. The Company funded the cash portion of the consideration for the GRR Acquisition with $17.3 million of cash on hand (the “WCS Acquisition”). WCS provides advanced water treatment solutions, specialized stimulation flow assurance and ~~$34.0 million of borrowings under~~integrity additives and post-treatment monitoring service in the U.S. This acquisition expands the Company’s ~~Credit Facility. For~~service offerings in oilfield water treatment across the ~~nine months ended September 30, 2017, the Company expensed $1.0 million~~full life-cycle of ~~transaction-related costs.~~ water, from pre-fracturing treatment through reuse and recycling.

The ~~GRR~~WCS Acquisition ~~is being~~was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. ~~Management estimated that consideration paid exceeded the fair value~~These estimates, judgments and assumptions and valuation of the ~~net assets acquired. Therefore, goodwill~~inventory and property and equipment acquired, customer relationships, and current liabilities were finalized as of $11.0 million was recorded. The goodwill recognized is primarily attributable to synergies related to the Company’s comprehensive water solutions strategy that are expected to arise from the GRR Acquisition and is attributable to the Company’s Water Solutions segment.December 31, 2019. The assets acquired and liabilities assumed ~~and the results of operations of the acquired business~~ are included in the Company’s ~~Water Solutions~~Oilfield Chemicals segment. The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition:

Preliminary purchase price allocation

Amount
Consideration  transferred

(in thousand)
Cash paid

$
51,303
Class A common stock issued

5,500
Total consideration transferred

56,803
Less: identified assets


Working capital

6,000
Fixed assets

13,225
Customer relationship intangible assets

21,392
Other intangible assets

5,150
Total identified assets

45,767
Goodwill

$
11,036

~~Resource Water Acquisition contributed~~


Purchase price allocation	Amount
Consideration transferred	(in thousands)
Cash paid	$	10,000
Total consideration transferred		10,000
Less: identifiable assets acquired and liabilities assumed
Inventory		5,221
Property and equipment		4,473
Customer relationships		476
Current liabilities		(170)
Total identifiable net assets acquired		10,000
Fair value allocated to net assets acquired	$	10,000

Table of Contents

NOTE 5—REVENUE

The Company follows ASU 2014-09, Revenue from Contracts with Customers (Topic 606), for most revenue ~~and net income~~recognition, which provides a five-step model for determining revenue recognition for arrangements that are within the scope of ~~$0.2 million and less than $0.1 million, respectively,~~the standard: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the ~~results~~performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that we will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customer. The accommodations and rentals revenue is guided by ASC 842 – Leases.

The following factors are applicable to all 3 of the ~~Company from~~Company’s segments for the ~~date~~first three months of ~~acquisition through September 30, 2017. The GRR Acquisition contributed revenue~~2020 and ~~net income of $21.5 million~~2019, respectively:

●

The vast majority of customer agreements are short-term, lasting less than one year.

●

Contracts are seldom combined together as virtually all of our customer agreements constitute separate performance obligations. Each job is typically distinct, thereby not interdependent or interrelated with other customer agreements.

●

Most contracts allow either party to terminate at any time without substantive penalties. If the customer terminates the contract, the Company is unconditionally entitled to the payments for the products delivered to date.

●

Contract terminations before the end of the agreement are rare.

●

Sales returns are rare and no sales return assets have been recognized on the balance sheet.

●

There are minimal volume discounts.

●

There are no service-type warranties.

●

There is no long-term customer financing.

In the Water Services and ~~$1.9 million, respectively,~~Water Infrastructure segments, performance obligations arise in connection with services provided to ~~the consolidated results of~~customers in accordance with contractual terms, in an amount the Company ~~from the date of acquisition through September 30, 2017. The following unaudited consolidated~~

~~Table of Contents~~

~~pro forma information~~expects to collect. Services are generally sold based upon customer orders or contracts with customers that include fixed or determinable prices. Revenues are generated by services rendered and measured based on output generated, which is ~~presented as if the GRR Acquisition~~usually simultaneously received and ~~Resource Water Acquisition had occurred on January 1, 2016:~~

Pro Forma

Pro Forma

Three Months Ended September 30,

Nine Months Ended September 30,


2017

2016

2017

2016

(unaudited)

(unaudited)

(in thousands)

(in thousands)
Revenue

$
156,045

$
82,824

$
400,948

$
237,644

Net income (loss)

$
3,195

$
(34,344)

$
(17,951)

$
(289,130)
Less: net (income) loss attributable to noncontrolling interests 1

(1,706)

19,284

11,682

163,044
Net income (loss) attributable to Select Energy Services, Inc. 1

$
1,489

$
(15,060)

$
(6,269)

$
(126,086)

1 The allocation of net loss attributable to noncontrolling interests and Select Energy Services gives effect to the equity structure as of September 30, 2017 as though the 144A Offering, the IPO, the Resource Water Acquisition, the GRR Acquisition and other equity transactions occurred as of January 1, 2016. However, the calculation of pro forma net loss does not give effect to any other pro forma adjustmentsconsumed by customers at their job sites. As a multi-job site organization, contract terms, including pricing for the ~~144A Offering~~Company’s services, are negotiated on a job site level on a per-job basis. Most jobs are completed in a short period of time, usually between one day and one month. Revenue is recognized as performance obligations are completed on a daily, hourly or ~~the subsequent IPO.~~

~~The unaudited pro forma amounts above have been calculated after applying the Company’s accounting policies and adjusting the GRR Acquisition and Resource Water Acquisition results~~per unit basis with unconditional rights to reflect the increase to depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016 and other related pro forma adjustments. The pro forma amounts do not include any potential synergies, cost savings or other expected benefitsconsideration for services rendered reflected as accounts receivable trade, net of ~~the GRR Acquisition or Resource Water Acquisition, and are presented~~allowance for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the GRR Acquisition and Resource Water Acquisition had occurred as of January 1, 2016 or of future operating performance.

~~Asset acquisitions~~

~~On June 21, 2017~~credit losses. In cases where a prepayment is received before the Company ~~completed the acquisition of fixed assets from Tex-Star Water Services, LLC (the “TEX Acquisition”) for $4.2 million in cash, funded entirely with cash on hand.~~

On May 30, 2017 the Company completed the acquisition of automated manifold intellectual property and related assets from Data Automated Water Systems, LLC (the “DAWS Acquisition”) for $4.0 million. This acquisition was paid with $2.0 million of cash and 128,370 shares of Select Class A Common Stock valued at approximately $2.0 million. The DAWS Acquisition resulted in fixed assets of $1.8 million, patents of $1.9 million and software of $0.3 million.

~~NOTE 4—EXIT AND DISPOSAL ACTIVITIES~~

~~Due to~~satisfies its performance obligations, a reduction in industry activity from 2014, the Company made the decision during the year ended December 31, 2016 to close 15 facilities and consolidate operations for the purpose of improving operating efficiencies. The Companycontract liability is recorded $2.9 million of charges related to exit and disposal activities and reclassified $0.2 million of deferred rent related to accrued lease obligations related to exited facilities during the nine months ended September 30, 2017. The Company had a remaining balance of $20.0 million, inclusive of a short‑term balance of $1.9 million in accrued expenses and other current ~~liabilities,~~liabilities. Final billings generally occur once all of the proper approvals are obtained. No revenue is associated with mobilization or demobilization of personnel and equipment. Rather, mobilization and demobilization are factored into pricing for services. Billings and costs related to mobilization and demobilization is not material for customer agreements that start in one period and end in another. As of March 31, 2020, the Company had five contracts in place for these segments lasting over a year.

In the Oilfield Chemicals segment, the typical performance obligation is to provide a specific quantity of chemicals to customers in accordance with the customer agreement in an amount the Company expects to collect.

Table of Contents

Products and services are generally sold based upon customer orders or contracts with customers that include fixed or determinable prices. Revenue is recognized as the customer takes title to chemical products in accordance with the agreement. Products may be provided to customers in packaging or delivered to the customers’ containers through a hose. In some cases, the customer takes title to the chemicals upon consumption from storage containers on their property, where the chemicals are considered inventory until customer usage. In cases where the Company delivers products and recognizes revenue before collecting payment, the Company usually has an unconditional right to payment reflected in accounts receivable trade, net of allowance for credit losses. Customer returns are rare and immaterial and there were no in-process customer agreements for this segment as of ~~September 30, 2017 related~~March 31, 2020, lasting greater than one year.

The Company accounts for accommodations and rentals agreements as an operating lease. The Company recognizes revenue from renting equipment on a straight-line basis. Accommodations and rental contract periods are generally daily, weekly or monthly. The average lease term is less than three months and as of March 31, 2020, no rental agreements lasted more than a year.

The following table sets forth certain financial information with respect to ~~accrued lease obligations~~the Company’s disaggregation of revenues by geographic location:


	Three months ended March 31,
	2020		2019

Geographic Region
Permian Basin	$	137,998	$	162,665
Eagle Ford		35,664		38,726
MidCon		24,873		58,463
Bakken		22,560		25,782
Marcellus/Utica		19,839		30,159
Haynesville/E. Texas		19,015		17,282
Rockies		18,869		22,442
All other/eliminations		(533)		7,127
Total	$	278,285	$	362,646

In the Water Services segment, the top 3 revenue producing regions are the Permian Basin, Eagle Ford and ~~terminations~~Marcellus/Utica, which collectively comprised 74% and 71% of segment revenue for the Current Quarter and Prior Quarter, respectively. In the Water Infrastructure segment, the top 2 revenue producing regions are the Permian Basin and Bakken, which collectively comprised 87% and 82% of segment revenue for the Current Quarter and Prior Quarter, respectively. In the Oilfield Chemicals segment, the top 2 revenue producing regions are the Permian Basin and MidCon, which collectively comprised 70% and 76% of segment revenue for the Current Quarter and Prior Quarter, respectively.

Table of Contents

NOTE 6—INVENTORIES

Inventories, which are comprised of chemicals and materials available for resale and parts and consumables used in operations, are valued at ~~exited facilities within its Water Solutions segment. As~~the lower of ~~September 30, 2017,~~cost and net realizable value, with cost determined under the weighted-average method. The significant components of inventory are as follows:



	March 31, 2020		December 31, 2019
	(in thousands)
Raw materials	$	14,070	$	12,365
Finished goods		23,988		24,724
Materials and supplies		444		453
	$	38,502	$	37,542

During the Current Quarter and Prior Quarter, the Company ~~has completed~~recorded charges to the reserve for excess and obsolete inventory for immaterial amounts of $0.1 million or less, respectively, which were recognized within costs of revenue on the accompanying consolidated statements of operations. The Company’s inventory reserve was $3.9 million and $4.1 million as of March 31, 2020 and December 31, 2019, respectively. The reserve for excess and obsolete inventories is determined based on the Company’s historical usage of inventory on hand, as well as future expectations and the amount necessary to reduce the cost of the inventory to its ~~exit from underperforming facilities but will continue to make non‑cancelable lease payments for related~~estimated net realizable value.

1619

Table of Contents

~~facilities through the year ended 2027. The Company’s abandonment of these facilities is not a part of a formalized exit plan.~~

Provision during  the

Usage during the

Balance as of

nine months ended

nine months ended

Balance as of

December 31, 2016

September 30, 2017

September 30, 2017

September 30, 2017

(in thousands)
Lease obligations and terminations

$
18,000

$
2,871

$
2,153

$
18,718
Reclassification of deferred rent

1,069





1,254
Total

$
19,069





$
19,972

NOTE 5—7—PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:



	March 31, 2020		December 31, 2019
	(in thousands)
Land	$	14,213	$	16,030
Buildings and leasehold improvements		98,815		97,426
Vehicles and equipment		47,809		53,819
Vehicles and equipment - finance lease		1,120		1,291
Machinery and equipment		643,551		659,835
Machinery and equipment - finance lease		162		162
Pipelines		71,821		69,327
Computer equipment and software		5,960		8,051
Computer equipment and software - finance lease		356		356
Office furniture and equipment		1,139		1,157
Disposal wells		60,960		64,149
Other		497		497
Construction in progress		40,387		43,279
		986,790		1,015,379
Less accumulated depreciation⁽¹⁾		(560,340)		(562,986)
Property and equipment held-for-sale, net		—		885
Total property and equipment, net	$	426,450	$	453,278

September 30, 2017

December 31, 2016

(in thousands)
Land

$
7,106

$
8,593
Buildings and leasehold improvements

83,328

83,352
Vehicles and equipment

38,547

24,114
Machinery and equipment

564,741

534,303
Computer equipment and software

11,438

11,102
Office furniture and equipment

3,709

4,275
Disposal wells

67,778

67,566
Helicopters

497

497
Construction in progress

37,858

5,584

815,002

739,386
Less accumulated depreciation and impairment

(535,456)

(490,519)
Total property and equipment, net

$
279,546

$
248,867

(1)

Includes $1.5 million and $1.6 million of accumulated depreciation related to finance leases as of March 31, 2020 and December 31, 2019, respectively.

Total depreciation and amortization expense related to property and equipment and finance leases presented in the table above, as well as amortization of intangible assets presented in Note 8 is as follows:

~~Long‑lived~~


	Three Months Ended March 31,
	2020		2019
	(in thousands)
Category
Depreciation expense from property and equipment	$	23,985	$	29,307
Amortization expense from finance leases		77		214
Amortization expense from intangible assets		2,993		2,969
Accretion expense from asset retirement obligations		(188)		28
Total depreciation and amortization	$	26,867	$	32,518

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 3 for impairment of property and equipment during the Current Quarter and Prior Quarter.

~~The~~During the Current Quarter, the Company ~~had no capital lease obligations~~sold the remaining Canadian assets that were previously designated as held for sale at a loss of ~~September 30, 2017~~$0.1 million recognized within losses on sales of property, equipment and ~~December 31, 2016.~~divestitures, net on the accompanying consolidated statements of operations.

Table of Contents

NOTE 6—8—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is evaluated for impairment on at least an annual basis, ~~as of December 31,~~ or more frequently if indicators of impairment exist. The annual impairment tests are based on Level 3 ~~inputs.~~inputs (see Note 12). During the Current Quarter, the Company had triggering events in connection with the resulting significant adverse change to the demand for the Company’s services in connection with a significant decline in the price of oil and the related global economic impacts resulting from the OPEC+ disputes with increasing oil supply as well as the COVID-19 pandemic. This included uncertainty regarding oil prices and the length of the recovery following the significant market disruption in the oil and gas industry. As a result, the Company performed quantitative tests for reporting units in both the Water Services and Water Infrastructure segments using the income and market approaches, resulting in a full impairment to goodwill in both segments. The changes in the carrying

~~Table of Contents~~

amounts of goodwill by reportable segment ~~for the nine months ended September 30, 2017~~as of March 31, 2020 and ~~the year ended~~ December 31, ~~2016~~2019 are as follows:


	Water		Water
	Services		Infrastructure		Total

Balance as of December 31, 2019		186,468		80,466		266,934
Impairment		(186,468)		(80,466)		(266,934)
Balance as of March 31, 2020	$	—	$	—	$	—

Wellsite Completion




Water

and Construction

Accommodations

Solutions

Services

and Rentals

Total

(in thousands)
Balance as of December 31, 2015

$
137,534

$
12,242

$
995

$
150,771
Impairment

(137,534)

—

(995)

(138,529)
Balance as of December 31, 2016

—

12,242

—

12,242
Additions

12,849

—

—

12,849
Balance as of September 30, 2017

$
12,849

$
12,242

$
—

$
25,091

The components of other intangible assets, net as of March 31, 2020 and December 31, 2019 are as follows:

September 30, 2017


Gross

Accumulated

Net

Value

Amortization

Value

(in thousands)
Customer relationships

$
80,131

$
54,987

$
25,144
Other

13,222

3,015

10,207
Total other intangible assets

$
93,353

$
58,002

$
35,351


	December 31, 2016
	Gross		Accumulated		Net
	Value		Amortization		Value
	(in thousands)

							As of March 31, 2020								As of December 31, 2019
							Gross				Accumulated		Net		Gross		Accumulated		Net
							Value		Impairment		Amortization		Value		Value		Amortization		Value
							(in thousands)								(in thousands)
Definite-lived
Customer relationships	$	56,826	$	48,236	$	8,590	$	116,554	$	—	$	(22,499)	$	94,055	$	116,554	$	(20,233)	$	96,321
Patents								10,110		—		(2,670)		7,440		10,110		(2,420)		7,690
Other		5,491		2,495		2,996		7,234		—		(5,242)		1,992		7,234		(4,766)		2,468
Total other intangible assets	$	62,317	$	50,731	$	11,586
Total definite-lived								133,898		—		(30,411)		103,487		133,898		(27,419)		106,479
Indefinite-lived
Water rights								7,031		—		—		7,031		7,031		—		7,031
Trademarks								23,442		(9,082)		—		14,360		23,442		—		23,442
Total indefinite-lived								30,473		(9,082)		—		21,391		30,473		—		30,473

Total other intangible assets, net							$	164,371	$	(9,082)	$	(30,411)	$	124,878	$	164,371	$	(27,419)	$	136,952

~~Intangibles obtained through acquisitions~~Due to the triggering events discussed above, the Company tested all intangible assets for impairment, which resulted in $9.1 million of impairment to trademarks using the relief from royalty method. The impairment was recorded in the Oilfield Chemicals segment.

The weighted average amortization period for customer relationships, patents, and other definite lived assets was 10.4 years, 7.5 years, and 2.2 years, respectively, as of March 31, 2020. See Note 7 for the amortization expense during the Current Quarter and Prior Quarter, respectively. The indefinite lived water rights and trademarks are ~~initially recorded at estimated fair value based on preliminary information that is~~generally subject to ~~change until final valuations are obtained. Customer relationships and non‑compete agreements are being amortized over estimated useful lives ranging from~~ renewal every five to ~~seven~~ten years at immaterial renewal costs. Annual amortization of intangible assets for the next five years and three to five years, respectively. Other intangible assets primarily relate to certain water rights that are amortized over estimated useful lives ranging from three to eight years. Intangible assets obtained in the GRR Acquisition consisted of customer relationships and non-compete agreements that will be amortized over estimated useful lives of thirteen and five years, respectively, with a weighted-average estimated useful life of 12.5 years. As a result of the GRR Acquisition, the Company also obtained water rights totaling $3.7 million that have indefinite lives and will be evaluated periodically for impairment. Intangible assets obtained in the Resource Water Acquisition consisted of customer relationships and non-compete agreements that will be amortized over estimated useful lives of ten and three years, respectively, with a weighted-average estimated useful life of 8.6 years. The Company acquired patents of $1.9 millionbeyond is as ~~part of the DAWS Acquisition, which are being amortized over the estimated useful lives of ten years. See Note 3 – Acquisitions for further discussion.~~follows:

Amortization expense was $2.6 million and $2.1 million for the three months ended September 30, 2017 and 2016, respectively, and $7.3 million and $6.7 million for the nine months ended September 30, 2017 and 2016, respectively.


		Amount
		(in thousands)

1821

Table of Contents

Remainder of 2020	$	8,685
Year ending December 31, 2021		10,494
Year ending December 31, 2022		10,280
Year ending December 31, 2023		10,209
Year ending December 31, 2024		10,139
Thereafter		53,680
	$	103,487

Table of Contents

NOTE 7—9—DEBT

Credit ~~Facility term loans~~facility and revolving line of credit

On November 1, 2017, SES Holdings and Select ~~Energy Services’~~LLC entered into a $300.0 million senior secured revolving credit facility (the “Credit Agreement”), 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”). The Credit ~~Facility, originally executed in May 2011,~~Agreement also has ~~been amended over time. Effective December 20, 2016,~~a sublimit of $40.0 million for letters of credit and a sublimit of $30.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders, the Company ~~amended its~~has the option to increase the maximum amount under the Credit ~~Facility to extend~~Agreement by $150.0 million during the first three years following the closing. The maturity date ~~from February 28, 2018~~of the Credit Agreement is the earlier of (a) November 1, 2022, and (b) the earlier termination in whole of the Commitments pursuant to ~~February 28, 2020 and reduce~~Section 2.1(b) of Article VII of the ~~revolving line~~Credit Agreement.

The Credit Agreement permits extensions of credit up to ~~$100.0 million. The agreement also amended certain financial covenants~~the lesser of $300.0 million and ~~restrictions and outlined~~ a ~~new pricing grid~~borrowing base that is ~~effective after receipt~~determined by calculating the amount equal to the sum of (i) 85% of the third quarter 2017 compliance certificate. Accrued interest is payable at the end of each quarter. The Credit Facility has a variable interest rate that ranges from either (i) the London interbank rate (“LIBOR”) plus a margin for Eurodollar advances or (ii) the applicable base rate plus a margin for base rate advances based on the Company’s Leverage RatioEligible Billed Receivables (as defined in the Credit ~~Facility) falling between 2.00%~~Agreement), plus (ii) 75% of Eligible Unbilled Receivables (as defined in the Credit Agreement), provided that this amount will not equal more than 35% of the borrowing base, plus (iii) the lesser of (A) the product of 70% multiplied by the value of Eligible Inventory (as defined in the Credit Agreement) at such time and ~~4.00% as outlined below. In addition,~~(B) the product of 85% multiplied by the Net Recovery Percentage (as defined in the Credit Agreement) identified in the most recent Acceptable Appraisal of Inventory (as defined in the Credit Agreement), multiplied by the value of Eligible Inventory at such time, provided that this amount will not equal more than 30% of the borrowing base, minus (iv) the aggregate amount of Reserves (as defined in the Credit Agreement), if any, established by the Administrative Agent from time to time, including, if any, the amount of the Dilution Reserve (as defined in the Credit Agreement). The borrowing base is calculated on a ~~commitment fee related~~monthly basis pursuant to a borrowing base certificate delivered by Select LLC to the ~~revolving line of credit is payable at the end of each calendar quarter based on a rate of 0.500% per annum on any unused portion of the commitment~~Administrative Agent.

Borrowings under the Credit ~~Facility. Effective June 13, 2017,~~Agreement bear interest, at Select LLC’s election, at either the ~~Company amended its~~(a) one-, two-, three- or six-month LIBOR (“Eurocurrency Rate”) or (b) the greatest of (i) the federal funds rate plus 0.5%, (ii) the one-month Eurocurrency Rate plus 1% and (iii) the Administrative Agent’s prime rate (the ”Base Rate”), in each case plus an applicable margin. Interest is payable monthly in arrears. The applicable margin for Eurocurrency Rate loans ranges from 1.50% to 2.00% and the applicable margin for Base Rate loans ranges from 0.50% to 1.00%, in each case, depending on Select LLC’s average excess availability under the Credit ~~Facility to permanently waive~~Agreement. During the continuance of a bankruptcy event of default, ~~associated with~~automatically and during the ~~DAWS Acquisition. This waiver is specifically for such acquisition and does not remedy~~continuance of any other ~~present~~default, upon the Administrative Agent’s or ~~future defaults associated with~~the required lenders’ election, all outstanding amounts under the Credit ~~Facility.~~

Leverage Ratio Before Receipt of Fourth Quarter 2017

Eurodollar

Base Rate

Compliance Certificate

Advances

Advances

< 4.00

4.00
%
3.00
%
≥ 4.00

4.50
%
3.50
%

Leverage Ratio After Receipt of Fouth Quarter 2017

Eurodollar

Base Rate

Compliance Certificate

Advances

Advances

< 2.00

3.00
%
2.00
%
≥ 2.00 < 2.50

3.25
%
2.25
%
≥ 2.50 < 3.00

3.50
%
2.50
%
≥ 3.00 < 3.50

3.75
%
2.75
%
≥ 3.50 < 4.00

4.00
%
3.00
%
≥ 4.00

4.50
%
3.50
%

Agreement will bear interest at 2.00% plus the otherwise applicable interest rate.


Level	Average Excess Availability	Base Rate Margin	Eurocurrency Rate Margin

I	< 33% of the commitments	1.00%	2.00%
II	< 66.67% of the commitments and ≥ 33.33% of the commitments	0.75%	1.75%
III	≥ 66.67% of the commitments	0.50%	1.50%


Level	Average Revolver Usage	Unused Line Fee Percentage

I	≥ 50% of the commitments	0.250%
II	< 50% of the commitments	0.375%

The obligations under the Credit Agreement are guaranteed by SES Holdings and certain subsidiaries of SES Holdings and Select ~~Energy Services had no debt~~LLC and secured by a security interest in substantially all of the personal property assets of SES Holdings, Select LLC and their domestic subsidiaries.

Table of Contents

The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the ~~revolving line~~Credit Agreement to be immediately due and payable.

In addition, the Credit Agreement restricts SES Holdings’ and Select LLC’s ability to make distributions on, or redeem or repurchase, its equity interests, except for certain distributions, including distributions of ~~credit~~cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under the Credit Agreement and either (a) excess availability at all times during the preceding 30 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 25% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $37.5 million or (b) if SES Holdings’ fixed charge coverage ratio is at least 1.0 to 1.0 on a pro forma basis, and excess availability at all times during the preceding 30 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 20% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $30.0 million. Additionally, the Credit Agreement generally permits Select LLC to make distributions to allow Select Inc. to make payments required under the existing Tax Receivable Agreements. See “Note 13—Related Party Transactions” for further discussion of the Tax Receivable Agreements.

The Credit Agreement also requires SES Holdings to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 at any time availability under the Credit Agreement is less than the greater of (i) 10% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million and continuing through and including the first day after such time that availability under the Credit Agreement has equaled or exceeded the greater of (i) 10% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million for 60 consecutive calendar days.

Certain lenders party to the Credit Agreement and their respective affiliates have from time to time performed, and may in the future perform, various financial advisory, commercial banking and investment banking services for the Company and its affiliates in the ordinary course of business for which they have received and would receive customary compensation. In addition, in the ordinary course of their various business activities, such parties and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investments and securities activities may involve the Company’s securities and/or instruments.

The Company had 0 borrowings outstanding under the Credit Agreement as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~2019. As of March 31, 2020 and December 31, 2019, the borrowing base under the Credit Agreement was $200.6 million and $214.6 million, respectively. The borrowing capacity under the ~~revolving line of credit~~Credit Agreement was reduced by outstanding letters of credit of ~~$14.1~~$19.8 million and $19.9 million as of ~~September 30, 2017.~~March 31, 2020 and December 31, 2019, respectively. The Company’s letters of credit have a variable interest rate between ~~3.00%~~1.50% and ~~4.50%~~2.00% based on the Company’s ~~Leverage Ratio~~average excess availability as outlined above. The unused portion of the available borrowings under the ~~revolving line~~Credit Agreement was $180.8 million as of ~~credit was $85.9 million at September 30, 2017.~~March 31, 2020.

Debt issuance costs are amortized to interest expense over the life of the debt to which they pertain. Total unamortized debt issuance costs as of ~~September 30, 2017~~March 31, 2020 and December 31, 2019 were ~~$3.0 million.~~$1.8 million and $2.0 million, respectively. As these debt issuance costs relate to a revolving line of credit, they are presented as a deferred charge within other assets on the consolidated balance ~~sheet.~~sheets. Amortization expense related to debt issuance costs was $0.2 million for both the Current Quarter and Prior Quarter.

The Company’s obligations under its Credit Facility are secured by substantially all of its assets. The Credit Facility contains customary events of default and covenants and limits its ability to incur additional indebtedness, pay dividends or make other distributions, create liens and sell assets. The Company was in compliance with all debt covenants as of ~~September 30, 2017.~~March 31, 2020.

1924

Table of Contents

NOTE 8—10—COMMITMENTS AND CONTINGENCIES

Litigation

The Company is ~~named from time~~subject to ~~time in various legal proceedings~~a number of lawsuits and claims arising out of the normal conduct of its business. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. Based on a consideration of all relevant facts and circumstances, including applicable insurance coverage, it is not expected that the ultimate outcome of any currently pending lawsuits or claims against the Company will have a material adverse effect on its consolidated financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters.

As previously disclosed, certain subsidiaries acquired in the ~~ordinary course~~Rockwater merger are under investigation by the U.S. Attorney's Office for the Middle District of ~~business.~~Pennsylvania and the U.S. Environmental Protection Agency. It is alleged that certain employees at some of the facilities altered emissions controls systems on less than 5% of the vehicles in the fleet in violation of the Clean Air Act. The ~~legal proceedings are at different stages; however,~~Company is continuing to cooperate with the relevant authorities to resolve the matter including locating any pertinent information to determine if such violations occurred and what, if any, the applicable fine would be related to any such potential violations. At this time no administrative, civil or criminal charges have been brought against the Company. Additionally, while the Company ~~does~~cannot currently estimate an amount of possible fines or penalties, we do not believe ~~the resolution of any of these proceedings would~~that such amounts will be material to ~~its financial position or results of operations.~~

~~General Business Risk~~

~~As discussed in Note 1, the substantial majority of~~ the Company’s ~~customers~~financial statements.

Self-Insured Reserves

We are ~~in the oil~~self-insured up to certain retention limits with respect to workers’ compensation, general liability and ~~gas industry. The oil~~vehicle liability matters. We maintain accruals for self-insurance retentions that we estimate using third-party data and ~~gas industry is currently facing unique challenges due to the continued volatility and depressed state~~claims history.

Table of ~~oil and gas prices.~~Contents

NOTE ~~9—EQUITY‑BASED~~11—EQUITY-BASED COMPENSATION

The SES Holdings 2011 Equity Incentive Plan, (“2011 Plan”) was approved by the ~~Predecessor’s~~ board of managers of SES Holdings in April 2011. In conjunction with the Select 144A Offering, the Company adopted the Select Energy Services, Inc. 2016 Equity Incentive Plan (as amended, ~~from time to time,~~ the “2016 Plan”) for employees, consultants and directors of the Company and its affiliates. Options that were outstanding under the 2011 Plan immediately prior to the Select 144A Offering were cancelled in exchange for new options granted under the 2016 Plan.

On July 18, 2017, the Select ~~Energy Services~~Inc. board of directors approved the First Amendment to the 2016 Plan (the “Equity Plan Amendment”), which clarifies the treatment of substitute awards under the 2016 Plan (including substitute awards that may be granted in connection with the ~~Merger (as defined in Note 17 below))~~Rockwater merger which occurred on November 1, 2017) and ~~allows~~allowed for the assumption by the Company of shares eligible under any pre-existing stockholder-approved plan of an entity acquired by the Company or its affiliate (including the Rockwater Energy Solutions Inc. Amended and Restated 2017 Long Term Incentive Plan (the “Rockwater Equity Plan”)), in each case subject to the listing rules of the stock exchange on which ~~Select~~the Company’s Class A Common Stock is listed. The effectiveness of the Equity Plan Amendment was subject to approval by the Company's stockholders and the consummation of the transactions contemplated by the Merger Agreement ~~(as defined in Note 17 below).~~for the Rockwater merger. The Company’s consenting stockholders, who ~~hold~~held a majority of the outstanding common stock of ~~Select Energy Services,~~the Company, approved the Equity Plan Amendment on July 18, 2017. The Equity Plan Amendment became effective on November 1, 2017 upon the consummation of the ~~Merger.~~

~~The~~Rockwater merger. Currently, the maximum number of shares ~~initially~~ reserved for issuance under the 2016 Plan, ~~was 5,400,400 shares of Select Class A Common Stock, subject to adjustment in~~taking into account the event of recapitalization or reorganization, or related to forfeitures or the expiration of awards. Stock options are granted with terms not to exceed ten years. After giving effect to the Equity Plan Amendment, the maximum number of shares of Select Class A Common Stock reserved for issuance under the 2016 Plan is equal to (i) 5,400,400 shares plus (ii) 1,011,087 shares that became available on account of the assumptionimpact of the Rockwater ~~Equity Plan, subject to adjustment in~~merger, is approximately 9.3 million shares. For all share-based compensation award types, the ~~event of recapitalization or reorganization, or related to~~Company accounts for forfeitures or the expiration of awards. The maximum number of shares described in the preceding sentence does not take into account 2,887,048 shares of Select Class A Common Stock related to substitute awards that were granted under the 2016 Plan following the conversion of outstanding equity awards originally granted under the Rockwater Equity Plan in accordance with the Merger Agreement. For additional information on such substitute awards, please see Note 17 below.as they occur.

Phantom unit awards granted under the 2011 Plan, upon vesting, entitled each participant with the right to receive an amount of cash based in part on the fair market value of a share of Select Class A Common Stock on the date of the IPO. Based on the fair market value of a share of Select Class A Common Stock of $14.00 on the date of the IPO, each participant received a cash payment equal to $5.53 for each phantom unit on May 5, 2017. Refer to “Phantom Unit Awards” for details related to the payments made in respect of outstanding phantom units in connection with the IPO.

~~Table of Contents~~

Stock option awards

Stock options were granted with an exercise price equal to or greater than the fair market value of a share of ~~Select~~ Class A Common Stock as of the date of grant. The Company historically valued Select Class A Common Stock on a quarterly basis using a market approach that includes a comparison to publicly traded peer companies using earnings multiples based on their market values and a discount for lack of marketability. The fair value measurement relies on Level 3 inputs. The estimated fair value of its stock options is expensed over their vesting period, which is generally three years from the applicable date of grant. However, certainCertain awards ~~that were~~ granted during the years ended December 31, 2017 and 2016 in exchange for cancelled awards were immediately vested and fully exercisable on the date of grant because they were either granted in exchange for the cancellation of outstanding options granted under the 2011 Plan or the Rockwater Equity Plan, as applicable, that were fully vested and exercisable prior to such cancellation.

The Company ~~utilizes~~utilized the ~~Black‑Scholes~~Monte Carlo option pricing model to determine fair value of the options granted during 2018, which incorporates assumptions to value ~~equity‑based~~equity-based awards. The ~~risk‑free~~risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. At the time of grant, there was no public market for the Company’s equity. Therefore, the Company considered the historic volatility of publicly traded peer companies when determining the volatility factor. The expected life of the options was based on ~~a formula considering~~ the vesting period and term of the options awarded, which is ~~generally seven to~~ ten years. NaN stock options were granted in 2019 or in the Current Quarter.

A summary of the Company’s stock option activity and related information as of and for the ~~nine months ended September 30, 2017~~Current Quarter is as follows:


	For the three months ended March 31, 2020
				Weighted-average
		Weighted-average		Grant Date Value	Aggregate Intrinsic
	Stock Options	Exercise Price		Term (Years)	Value (in thousands) ^(a)
Beginning balance, outstanding	3,797,319	$	15.95	4.2	$	509
Forfeited	(20,091)		14.68
Ending balance, outstanding	3,777,228	$	15.96	4.0	$	—
Ending balance, exercisable	3,764,205	$	15.94	4.0	$	—
Nonvested at end of period	13,023	$	20.58

For the nine months ended September 30, 2017

Weighted-average

Equity Options

Exercise Price
Beginning balance

620,721

$
16.50
Granted

455,130

20.00
Forfeited

(98,499)

20.00
Ending balance

977,352

$
17.78

Table of Contents

~~The weighted‑average grant date fair~~^(a)Aggregate intrinsic value ~~of stock options granted during the nine months ended September 30, 2017 was $7.85. The relevant assumptions~~ for stock options ~~granted during~~is based on the ~~period are~~difference between the exercise price of the stock options and the quoted closing Class A Common Stock price of $3.23 and $9.28 as ~~follows:~~

$20.00 Strike

Underlying Equity

$
20.00

Strike Price

$
20.00

Dividend Yield (%)

0.0
%
Risk free rate (%)

1.68 - 2.00
%
Volatility (%)

46.6 - 46.8
%
Expected Term (Years)

4-6

of March 31, 2020 and December 31, 2019, respectively.

~~There was no vested stock option activity, or exercise~~The Company recognized $0.2 million and $1.3 million of ~~vested~~compensation expense related to stock options during the ~~nine months ended September 30, 2017.~~Current Quarter and Prior Quarter, respectively. As of March 31, 2020, there was a nominal amount of unrecognized equity-based compensation expense remaining related to nonvested stock options.

Restricted Stock Awards and Restricted Stock Units

The value of the restricted stock awards and restricted stock units issued was established by the market price of the Class A Common Stock on the date of grant and is recorded as compensation expense ratably over the vesting term, which is generally one to three years from the applicable date of grant. The Company recognized compensation expense of $1.9 million and $1.8 million related to the restricted stock awards and restricted stock units for the Current Quarter and Prior Quarter, respectively. As of March 31, 2020, there was $13.3 million of unrecognized compensation expense with a weighted-average remaining life of 1.7 years related to unvested restricted stock awards and restricted stock units.

A summary of the Company’s restricted stock awards activity and related information for the Current Quarter is as follows:


	For the three months ended March 31, 2020
		Weighted-average
	Restricted Stock Awards	Grant Date Fair Value
Nonvested at December 31, 2019	1,518,193	$	10.08
Granted	1,271,706		5.89
Vested	(406,289)		12.54
Forfeited	(199,069)		7.52
Nonvested at March 31, 2020	2,184,541	$	7.42

A summary of the Company’s restricted stock unit activity and related information for the ~~nine months ended September 30, 2017~~Current Quarter is as follows:

For the nine months ended September 30, 2017

Weighted-average

Restricted Stock

Grant Date Fair Value

Beginning balance

—

$
—

Granted

41,117

19.91

Forfeited

(10,757)

20.00

Ending balance

30,360

$
19.88


	For the three months ended March 31, 2020
		Weighted-average
	Restricted Stock Units	Grant Date Fair Value
Nonvested at December 31, 2019	1,250	$	19.00
Vested	(625)		20.00
Forfeited	(625)		18.00
Nonvested at March 31, 2020	—	$	—

Performance Share Units (PSUs)

~~Table~~During 2018 and 2019, the Company approved grants of ~~Contents~~

performance share units (“PSUs”) that are subject to both performance-based and service-based vesting provisions. The ~~Company recognized approximately $0.6 million and $0.0 million~~number of ~~compensation expense related to stock options and restricted stock unit awards during the three months ended September 30, 2017 and 2016, respectively. The Company recognized approximately $1.~~8 ~~million and $0.3 million~~shares of ~~compensation expense related to stock options and restricted stock unit awards during the nine months ended September 30, 2017 and 2016, respectively.~~

~~Phantom unit awards~~

The Company’s phantom unit awards were cash settled awards that were contingent upon meeting certain equity returns and a liquidation event. The settlement amount was based on the fair market value of a share of Select Class A Common Stock ~~on the date of completion~~issued to a recipient upon vesting of the ~~IPO, which constituted a liquidation event with respect to such phantom unit awards. As a result of the cash‑settlement feature of these awards, the Company considered these awards to~~PSU will be ~~liability awards, which are measured at fair value at each reporting date and the pro rata vested portion of the award is recognized as a liability~~calculated based on performance against certain metrics that relate to the ~~extent that~~Company’s return on asset performance over the January 1, 2018 through December 31, 2020 and January 1, 2019 through December 31, 2021 performance ~~condition is deemed probable. On May 5, 2017, the Company settled its outstanding phantom unit awards for an aggregate amount equal to $7.8 million as a result~~periods, respectively.

The target number of ~~the completion~~shares of ~~its IPO, which constituted a liquidity event with respect to such phantom unit awards. Based on the fair market value of a share of Select~~ Class A Common Stock subject to each PSU granted in 2018 and 2019 is 1; however, based on the achievement of performance criteria, the number of shares of Class A Common Stock that may be received in settlement of each PSU can range from 0 to 1.75 times the target number. The PSUs become earned at the end of the performance period after the attainment of the performance level has been certified by the compensation

Table of Contents

committee, which will be no later than June 30, 2021 for the 2018 PSU grants, and June 30, 2022 for the 2019 PSU grants, assuming the minimum performance metrics are achieved. The target PSUs that become earned PSUs during the performance period will be determined in accordance with the following table:


Return on Assets at Performance Period End Date		Percentage of Target PSUs Earned
Less than 9.6%		0%
9.6%		50%
12%		100%
14.4%		175%

During 2020, the Company approved grants of PSUs that are subject to both performance-based and service-based vesting provisions related to (i) return on asset performance (“ROA”) in comparison to thirteen peer companies and (ii) Adjusted Free Cash Flow (“FCF”) performance percentage. The number of shares of Class A Common Stock issued to a recipient upon vesting of the PSUs will be calculated based on ROA and FCF performance over the period from January 1, 2020 through December 31, 2022.

The target number of shares of Class A Common Stock subject to each PSU granted in 2020 is one; however, based on the achievement of performance criteria, the number of shares of Class A Common Stock that may be received in settlement of each PSU can range from 0 to 1.75 times the target number. The PSUs become earned at the end of the performance period after the attainment of the performance level has been certified by the compensation committee, which will be no later than June 30, 2023 for the 2020 PSU grants, assuming the minimum performance metrics are achieved.

The target PSUs that become earned connected with the ROA in comparison to other companies will be determined based on the Company’s Average Return on Assets (as defined in the applicable PSU agreement) relative to the Average Return on Assets of the peer companies (as defined in the applicable PSU agreement) in accordance with the following table:


Ranking Among Peer Group		Percentage of Target Amount Earned
Outside of Top 10		0%
Top 10		50%
Top 7		100%
Top 3		175%

The target PSUs that become earned in connection with the adjusted FCF performance percentage will be determined (as defined in the applicable PSU agreement) in accordance with the following table:


Adjusted FCF Performance Percentage		Percentage of Target Amount Earned
Less than 70%		0%
70%		50%
100%		100%
130%		175%

The fair value on the date the PSUs were issued during 2020, 2019 and 2018 was $4.4 million, $7.0 million and $5.9 million, respectively. Compensation expense related to the PSUs is determined by multiplying the number of shares of Class A Common Stock underlying such awards that, based on the ~~IPO~~Company’s estimate, are probable to vest, by the measurement-date (i.e., the last day of ~~$14.00,~~each reporting period date) fair value and recognized using the ~~cash payment with respect to each phantom unit was approximately $5.53, before employer taxes.~~accelerated attribution method. The Company recognized a credit to compensation expense of ~~$7.8~~$1.4 million ~~during the nine months ended September 30, 2017~~and compensation expense of $0.9 million related to the PSUs for the Current Quarter and Prior Quarter, respectively.

Table of Contents

As of March 31, 2020, the unrecognized compensation cost related to our unvested PSUs is estimated to be $3.6 million and is expected to be recognized over a weighted-average period of 1.7 years as of March 31, 2020. However, this compensation cost will be adjusted as appropriate throughout the applicable performance periods.

The following table summarizes the information about the performance share units outstanding as of March 31, 2020:


		Performance Share Units
Nonvested as of December 31, 2019		1,014,990
Target shares granted		753,378
Target shares outstanding as of March 31, 2020		1,768,368

Stock-Settled Incentive Awards

Effective May 17, 2018, the Company approved grants of stock-settled incentive awards to certain key employees under the 2016 Equity Incentive Plan that are subject to both market-based and service-based vesting provisions. These awards will vest after a two-year service period and, if earned, settled in shares of Class A Common Stock. The ultimate amount earned is based on the achievement of the market metrics, which is based on the stock price of the Class A Common Stock at the vesting date, for which payout could range from 0% to 200%. Any award not earned on the vesting date is forfeited. The target amount that becomes earned during the performance period will be determined in accordance with the following table:


Stock Price at Vesting Date⁽¹⁾		Percentage of Target Amount Earned
Less than $20.00		0%
At least $20.00, but less than $25.00		100%
$25.00 or greater		200%

(1)

The stock price at vesting date equals the greater of (i) the fair market value of a share of the Class A Common Stock on the vesting date, or (ii) the volume weighted average closing price of a share of the Class A Common Stock, as reported on the New York Stock Exchange, for the 30 trading days preceding the vesting date.

The target amount of stock-settled incentive awards granted was $3.9 million. However, the ultimate settlement of ~~its phantom unit awards. As~~the awards will be in shares of ~~September 30, 2017 there are no phantom units outstanding.~~

~~NOTE 10—DERIVATIVE FINANCIAL INSTRUMENTS~~

~~The Company had variable rate debt outstanding~~Class A Common Stock with a fair market value equal to the earned amount, which ~~was subject~~could range from 0% to interest rate risk based on volatility in underlying interest rates. In April 2013, the Company entered into a pay fixed, receive variable interest rate swap, with an aggregate notional amount of $125.0 million, which the Company designated as a cash flow hedge. The derivative contract matured in April 2016. The change in value and amounts reclassified to interest expense during the nine months ended September 30, 2016 were nominal. There was no activity during the nine months ended September 30, 2017.

~~Changes in the fair values~~200% of the ~~Company’s derivative instruments are presented~~target amount depending on ~~a net basis in~~ the ~~accompanying consolidated statements of operations. Changes in~~stock price at vesting date.

Compensation expense associated with the stock-settled incentive awards is recognized ratably over the corresponding requisite service period. The fair value of the ~~Company’s~~stock-settled incentive awards was determined using a Monte Carlo option pricing model, similar to the Black-Scholes-Merton model, and adjusted for the specific characteristics of the awards. The key assumptions in the model included price, the expected volatility of our stock, risk-free interest rate ~~swap derivative instruments~~based on U.S. Treasury yield curve, cross-correlations between us and our self-determined peer companies’ asset, equity and debt-to-equity volatility.

The Company recognized a nominal credit during the Current Quarter and $0.1 million of expense in the Prior Quarter, respectively, related to stock-settled incentive awards. The unrecognized compensation cost related to our unvested stock-settled incentive awards is $0.1 million and is expected to be fully recognized in the second quarter of 2020.

The following table summarizes the information about the stock-settled incentive awards outstanding as of March 31, 2020:

Table of Contents


			Award Value
	Value at Target		Being Recognized
Nonvested as of December 31, 2019	$	2,937	$	1,122
Forfeited during 2020		(409)		(157)
Nonvested as of March 31, 2020	$	2,528	$	965

Employee Stock Purchase Plan (ESPP)

We have an Employee Stock Purchase Plan (“ESPP”) under which employees that have been continuously employed for at least one year may purchase shares of Class A Common Stock at a discount. The plan provides for four offering periods for purchases: December 1 through February 28, March 1 through May 31, June 1 through August 31 and September 1 through November 30. At the end of each offering period, enrolled employees purchase shares of Class A Common Stock at a price equal to 95% of the market value of the stock on the last day of such offering period. The purchases are made at the end of an offering period with funds accumulated through payroll deductions over the course of the offering period. Subject to limitations set forth in the plan and under IRS regulations, eligible employees may elect to contribute a maximum of $15,000 to the plan in a single calendar year. The plan is deemed to be noncompensatory.

The following table summarizes ESPP activity (in thousands, except shares):


	For the three months ended
	March 31, 2020
Cash received for shares issued	$	27
Shares issued		4,443

Share Repurchases

During the Current Quarter, the Company repurchased 849,711 shares of Class A Common Stock in the open market and repurchased 129,680 shares of Class A Common Stock in connection with employee minimum tax withholding requirements for units vested under the 2016 Plan. All repurchased shares were retired. During the Current Quarter, the repurchases were accounted for as ~~follows:~~


	~~For the Nine Months Ended~~
~~Derivatives designated as cash flow hedges~~	~~September 30, 2016~~
	~~(in thousands)~~
~~Beginning fair value of interest rate swap derivative instruments~~	$	~~(7)~~
~~Amount of unrealized losses recognized in OCI~~		~~(106)~~
~~Amount of gains reclassified from AOCI to earnings (effective portion)~~		~~113~~
~~Net change in fair value of interest rate swap derivative instruments~~		7
~~Ending fair value of interest rate swap derivative instruments~~	$	—

a decrease to paid-in-capital of $6.6 million and a decrease to Class A Common Stock of approximately $10,000. In the Prior Quarter, the Company repurchased 82,092 shares in the open market and repurchased 43,694 shares in connection with employee minimum tax withholding requirements.

Table of Contents

NOTE ~~11—~~12—FAIR VALUE MEASUREMENT

The Company utilizes fair value measurements to measure assets and liabilities in a business combination or assess impairment of property and equipment, intangible assets and goodwill. Fair value is defined as the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in an orderly transaction between market participants at the measurement date. Further, ASC 820, Fair Value Measurements, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and includes certain disclosure requirements. Fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk.

~~Table of Contents~~

ASC 820 establishes a ~~three‑level~~three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

Level 1—Unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2—Quoted prices for similar assets or liabilities in ~~non‑active~~non-active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Inputs that are unobservable and significant to the fair value measurement (including the Company’s own assumptions in determining fair value).

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no0 transfers into, or out of, the three levels of the fair value hierarchy for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 or the year ended December 31, ~~2016.~~2019. The following table presents information about the Company’s assets measured at fair value on a non-recurring basis as of March 31, 2020.


	Fair Value
	Measurements Using						Carrying
	Level 1		Level 2		Level 3		Value⁽¹⁾		Impairment
	(in thousands)

Quarter Ended March 31, 2020
Goodwill	$	—	$	—	$	—	$	266,934	$	266,934
Trademark		—		—		14,360		23,442		9,082
Property and equipment		—		—		176		3,360		3,184

(1)

Amount represents carrying value at the date of assessment.

Other fair value considerations

The carrying values of the Company’s current financial instruments, which include cash and cash equivalents, accounts receivable trade and accounts payable, approximate their fair value ~~at September 30, 2017~~as of March 31, 2020 and December 31, ~~2016~~2019, due to the ~~short‑term~~short-term maturity of these instruments. The Company ~~had no outstanding~~did not have any debt as of ~~September 30, 2017 and~~March 31, 2020 or December 31, ~~2016.~~2019. The estimated fair values of the Company’s financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange. ~~The consideration transferred and the purchase price allocation~~

Table of identified assets acquired and liabilities assumed related to the GRR Acquisition and Resource Water Acquisition are based on the Company’s estimate of fair value utilizing Level 3 inputs at the date of acquisition. Refer to Note 3 – Acquisitions for further discussion.Contents

NOTE ~~12—RELATED PARTY~~13—RELATED-PARTY TRANSACTIONS

The Company considers its related parties to be those stockholders who are beneficial owners of more than 5.0% of its common stock, executive officers, members of its board of directors or immediate family members of any of the foregoing ~~persons.~~persons and an unconsolidated joint venture. The Company has entered into a ~~significant~~ number of transactions with related parties. ~~The~~In accordance with the Company’s related persons transactions policy, the audit committee of the Company’s board of directors regularly reviews these ~~transactions; however,~~transactions. However, the Company’s results of operations may have been different if these transactions were conducted with ~~non‑~~non-related parties. For more information regarding the Company’s policies and procedures for review of related ~~parties.~~party transactions, see the Company’s Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders filed with the SEC on March 27, 2020.

During the ~~three months ended September 30, 2017,~~Current Quarter, sales to related parties were ~~$0.4~~$2.4 million and purchases from ~~related party~~related-party vendors were ~~$2.1~~$4.2 million. These purchases ~~comprised $0.7~~consisted of $3.7 million relating to ~~purchases of property and equipment, less than $0.1 million relating to inventory and consumables, $0.8 million relating to rent~~the rental of certain equipment or other services used in operations, ~~and $0.5 million relating to management, consulting and other services. During the three months ended September 30, 2016, sales to related parties were~~ $0.2 million and purchases from related party vendors were $0.9 million. These purchases comprised $0.4 million relating to purchases of property and equipment, less than $0.1 million relating to inventory and consumables, less than $0.1 million relating to rent of certain equipment or other services used in operations, and $0.4 million relating to management, consulting and other services.

~~During the nine months ended September 30, 2017, sales to related parties were $1.5 million and purchases from related party vendors were $5.0 million. These purchases comprised $1.4~~ million relating to purchases of property and equipment, $0.2 million relating to management, consulting and other services and $0.1 million related to inventory and ~~consumables, $1.7~~consumables.

During the Prior Quarter, sales to related parties were $6.3 million and purchases from related-party vendors were $6.0 million. These purchases consisted of $1.5 million relating to ~~rent~~purchases of property and equipment, $3.9 million relating to the rental of certain equipment or other services used in operations and $1.7 million relating to management, consulting and other services. During the nine months ended September 30, 2016, sales to related parties were $0.8 million and purchases from related party vendors were $2.6 million. These purchases comprised $0.6 ~~million relating to purchases of property and equipment,~~

~~Table of Contents~~

~~$0.1 million relating to inventory and consumables, $0.4 million relating to rent of certain equipment or other services used in operations, and $1.5~~ million relating to management, consulting and other services.

Tax ~~receivable agreements~~Receivable Agreements

In connection with the Select 144A Offering, the Company entered into ~~two tax receivable agreements (the “Tax~~the Tax Receivable ~~Agreements”)~~Agreements with ~~Legacy Owner Holdco, Crestview Partners II GP, L.P. (“Crestview GP”), and certain affiliates of Predecessor unitholders (collectively,~~ the ~~“TRA Holders”).~~TRA Holders.

The first of the Tax Receivable Agreements, which the Company entered into with Legacy Owner Holdco and Crestview Partners II GP, L.P. (“Crestview GP”), generally provides for the payment by the Company to such TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that the Company actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the Select 144A Offering as a result of, as applicable to each such TRA Holder, (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s SES Holdings LLC Units in connection with the Select 144A Offering or pursuant to the exercise of the Exchange Right or the Company’s Call Right and (ii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under such Tax Receivable Agreement.

The second of the Tax Receivable Agreements, which the Company entered into with an affiliate of the Contributing Legacy Owners and Crestview GP, generally provides for the payment by the Company to such TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that the Company actually realizes (computed using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the Select 144A Offering as a result of, as applicable to each such TRA Holder, (i) any net operating losses available to the Company as a result of certain reorganization transactions entered into in connection with the Select 144A Offering and (ii) imputed interest deemed to be paid by the Company as a result of any payments the Company makes under such Tax Receivable Agreement.

On July 18, 2017, the Company’s board of directors approved amendments to each of the Tax Receivable Agreements revising the definition of a “change of control” for purposes of the Tax Receivable Agreements and acknowledging that the ~~Merger~~Rockwater merger would not result in such a change of control.

Table of Contents

NOTE ~~13—~~14—INCOME TAXES

The Company is subject to U.S. federal and state income taxes as a corporation. SES Holdings and its subsidiaries, with the exception of certain corporate subsidiaries, are treated as flow‑through entities for U.S. federalCompany’s income tax ~~purposes, and as such, are generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to their taxable income~~information is passed through to their members or partners. Accordingly, prior to our reorganization in connection with the 144A Offering, the Predecessor only recorded a provision for Texas franchise tax and U.S. federal and state provisions for certain corporate subsidiaries as the Predecessor’s taxable income or loss was includablepresented in the income tax returns of the individual partners and members. However, for periods following our reorganization in connection with the 144A Offering, Select Energy Services recognizes a tax liability on its allocable share of SES Holdings’ taxable income.

The Company’s effective tax rates for the three months ended September 30, 2017 and 2016 were (12.8)% and 0.1%, respectively. The Company’s effective tax rates for the nine months ended September 30, 2017 and 2016 were (1.6)% and 0.1%, respectively.table below. The effective tax ~~rates for~~rate is different than the ~~three and nine months ended September 30, 2017 differ from the statutory~~21% standard Federal rate ~~of 35%~~ due to net income allocated to noncontrolling interests, state income taxes ~~other permanent differences between book and tax accounting,~~ and valuation allowances.


	Three Months Ended March 31,
	2020		2019
	(in thousands)
Current income tax (benefit) expense	$	(72)	$	178
Deferred income tax (benefit) expense		(92)		-
Total income tax (benefit) expense	$	(164)	$	178
Effective Tax Rate		0.1%		11.3%

~~Table of Contents~~

On March 27, 2020, the CARES Act was enacted. The CARES Act includes, among other things, certain income tax provisions for businesses. The Company ~~recorded~~recognized an income tax ~~expense (benefit)~~benefit of ~~$(0.3) million and less than $0.1 million for~~ ~~the three months ended September 30, 2017 and 2016, respectively. The Company recorded income tax expense (benefit) of $(0.3) million and~~ $0.4 million ~~for~~during the ~~nine months~~quarter ended ~~September 30, 2017 and 2016, respectively.~~

~~The tax benefits of deferred tax assets are recorded~~March 31, 2020, as an asset to the extent that management assesses the utilization of such assets to be more likely than not. When the future utilization of some portion of deferred tax assets is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded tax benefits from such assets. As of September 30, 2017, management’s assessment as to the realizability of certain deferred tax assets has resulted in the recording of a valuation allowance to reduce deferred tax assets to the amounts that are considered more likely than not to be realized. Management believes there will be sufficient future taxable income based on the reversal of temporary differences to enable utilization or sustainability of those deferred tax assets that do not have a valuation allowance recorded against them.

Separate federal and state income tax returns are filed for Select Energy Services, SES Holdings, and certain consolidated affiliates. The tax years 2013 through 2016 remain open to examination by the major taxing jurisdictions to which the Company is subject to income tax. Select Energy Services and SES Holdings are not currently under any income tax audits.

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2017 and December 31, 2016, there was no material liability or expense for the periods then ended recorded for payments of interest and penalties associated with uncertain tax positions or material unrecognized tax positions and the Company’s unrecognized tax benefits were not material.

~~NOTE 14—NONCONTROLLING INTERESTS~~

The Company has ownership interests in multiple subsidiaries that are consolidated within the Company’s financial statements but are not wholly owned. During the nine months ended September 30, 2017 and 2016, the Company entered into transactions that impacted its ownership interest in certain of these subsidiaries while maintaining control over such subsidiaries. As a result of the net operating loss carryback and interest expense limitation provisions of the CARES Act.

Table of Contents

NOTE 15—NONCONTROLLING INTERESTS

The Company’s ~~change in~~noncontrolling interests fall into two categories as follows:

●

Noncontrolling interests attributable to joint ventures formed for water-related services.

●

Noncontrolling interests attributable to holders of Class B Common Stock.


	As of		As of
	March 31, 2020		December 31, 2019
	(in thousands)
Noncontrolling interests attributable to joint ventures formed for water-related services	$	2,584	$	2,674
Noncontrolling interests attributable to holders of Class B Common Stock		126,544		172,961
Total noncontrolling interests	$	129,128	$	175,635

For all periods presented, there were no changes to Select’s ownership interest in ~~these subsidiaries,~~joint ventures formed for water-related services. However, during the ~~Company reduced its noncontrolling interests~~Current Quarter and ~~recognized an increase~~Prior Quarter, there were changes in equity related to transactions with holders of noncontrolling interests. The Company reports a noncontrolling interest representing the common units of SES Holdings held by Legacy Owner Holdco. Changes in Select Energy Services’Select’s ownership interest in SES Holdings ~~while it retains its controlling~~LLC. The effects of the changes in Select’s ownership interest ~~are accounted for~~in SES Holdings LLC is as ~~equity transactions.~~follows:


	For the three months ended March 31,
	2020		2019
	(in thousands)
Net (loss) income attributable to Select Energy Services, Inc.	$	(245,862)	$	1,135
Transfers (to) from noncontrolling interests:
Increase in additional paid-in capital as a result of restricted stock issuance, net of forfeitures		1,831		3,021
Increase in additional paid-in capital as a result of issuance of common stock due to vesting of restricted stock units		1		2
Decrease in additional paid-in capital as a result of the repurchase of SES Holdings LLC Units		(603)		(29)
Increase in additional paid-in capital as a result of the Employee Stock Purchase Plan shares issued		3		2
Change to equity from net (loss) income attributable to Select Energy Services, Inc. and transfers from noncontrolling interests	$	(244,630)	$	4,131

2534

Table of Contents

~~The following table summarizes the effects of changes in noncontrolling interests on equity for the nine months ended September 30, 2017:~~

For the nine months ended September 30,


2017

2016

(in thousands)
Net loss attributable to Select Energy Services, Inc. and its Predecessor

$
(7,164)

$
(285,359)
Transfers from noncontrolling interests:




Increase in additional paid-in capital as a result of the contribution of proceeds from the IPO to SEC Holdings, LLC in exchange for common units

87,835


—
Increase in additional paid-in capital as a result of the contribution of assets acquired to SES Holdings, LLC in exchange for common units

4,360


—
Increase in contributed capital due to purchase of noncontrolling interest

—


135
Change to equity from net loss attributable to Select Energy Services, Inc. and its Predecessor and transfers from noncontrolling interests

$
85,031

$
(285,224)

NOTE ~~15—~~16—(LOSS) EARNINGS PER SHARE

~~Earnings~~(Loss) earnings per share are based on the amount of (loss) income allocated to the shareholders and the ~~weighted‑average~~weighted-average number of shares outstanding during the period for each class of common stock. Outstanding options to purchase ~~597,749~~3,777,228 and ~~977,352~~2,980,567 shares are not included in the calculation of diluted weighted-average shares outstanding for the ~~three~~Current Quarter and ~~nine months ended September 30, 2017~~Prior Quarter, respectively, as the effect is antidilutive.

~~Table of Contents~~

~~Earnings related to periods prior to the reorganization and 144A Offering are attributable to the Predecessor.~~ The following ~~table presents~~tables present the Company’s calculation of basic and diluted (loss) earnings per share for the ~~three~~Current and ~~nine months ended September 30, 2017 and 2016~~Prior Quarter (dollars in thousands, except share and per share amounts):

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

Net income (loss)

$
2,593

$
(35,204)

$
(20,177)

$
(289,235)

Net loss attributable to Predecessor

—

34,931

—

285,359

Net (income) loss attributable to noncontrolling interests

(1,369)

273

13,013

3,876

Net income (loss) attributable to Select Energy Services, Inc.

$
1,224

$
—

$
(7,164)

$
—

Allocation of net income (loss) attributable to:









Class A-1 stockholders

$
—



$
(2,679)



Class A stockholders

1,224



(4,485)



Class B stockholders

—



—



$
1,224



$
(7,164)



Weighted average shares outstanding:









Class A-1-Basic

—



9,671,795



Class A-Basic

30,336,923



16,189,997



Class B-Basic

38,462,541



38,462,541



Net income (loss) per share attributable to common stockholders:









Class A-1-Basic

$
—



$
(0.28)



Class A-Basic

$
0.04



$
(0.28)



Class B-Basic

$
—



$
—



Weighted average shares outstanding:









Class A-1-Diluted

—



9,671,795



Class A-Diluted

30,357,572



16,189,997



Class B-Diluted

38,462,541



38,462,541



Net income (loss) per share attributable to common stockholders:









Class A-1-Diluted

$
—



$
(0.28)



Class A-Diluted

$
0.04



$
(0.28)



Class B-Diluted

$
—



$
—


	Three months ended March 31, 2020						Three months ended March 31, 2019
	Select Energy						Select Energy
	Services, Inc.		Class A		Class B		Services, Inc.		Class A		Class B
Numerator:
Net (loss) income	$	(291,220)					$	1,400
Net loss (income) attributable to noncontrolling interests		45,358						(265)
Net (loss) income attributable to Select Energy Services, Inc. — basic		(245,862)	$	(245,862)	$	—		1,135	$	1,135	$	—
Add: Reallocation of net income attributable to noncontrolling interests for the dilutive effect of restricted stock		—		—		—		1		1		—
Net (loss) income attributable to Select Energy Services, Inc. — diluted	$	(245,862)	$	(245,862)	$	—	$	1,136	$	1,136	$	—
Denominator:
Weighted-average shares of common stock outstanding — basic				86,104,925	��	16,221,101				78,523,768		26,026,843
Dilutive effect of restricted stock				—		—				209,811		—
Dilutive effect of stock options				—		—				34,488		—
Dilutive effect of ESPP				—		—				94		—
Weighted-average shares of common stock outstanding — diluted				86,104,925		16,221,101				78,768,161		26,026,843
Earnings per share:
Basic			$	(2.86)	$	—			$	0.01	$	—
Diluted			$	(2.86)	$	—			$	0.01	$	—

Table of Contents

NOTE ~~16—~~17—SEGMENT INFORMATION

Select ~~Energy Services~~Inc. is ~~an oilfield services company that provides~~a leading provider of comprehensive water-management solutions to the ~~North American onshore~~ oil and ~~natural~~ gas ~~industry.~~industry in the U.S. The Company’s services are offered through ~~three operating~~3 reportable segments. ~~Operating~~Reportable segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the ~~chief operating decision maker (“CODM”)~~CODM in deciding how to allocate resources and assess performance. The Company’s ~~chief operating decision maker~~CODM assesses performance and allocates resources on the basis of the ~~three~~3 reportable segments. Corporate and other expenses that do not individually meet the criteria for segment reporting are reported separately as ~~Corporate.~~Corporate or Other. Each ~~operating segment reflects a~~ reportable segment is led by a separate ~~managers~~manager that ~~report~~

~~Table of Contents~~

reports directly to the Company’s CODM.

The Company’s CODM assesses performance and allocates resources on the basis of the following three reportable segments:

Water ~~Solutions~~Services —The Water ~~Solutions~~Services segment consists of the Company’s services businesses including water transfer, flowback and well testing, fluids hauling, water containment and water network automation, primarily serving E&P companies. Additionally, this segment includes the operations of our accommodations and rentals business.

Water Infrastructure — The Water Infrastructure segment consists of the Company’s infrastructure assets and ongoing infrastructure development projects, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions and infrastructure, and our produced water gathering systems and salt water disposal wells, primarily serving E&P companies.

Oilfield Chemicals — The Oilfield Chemicals segment develops, manufactures and provides ~~water‑related~~a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, and well completion and production services, including polymer slurries, crosslinkers, friction reducers, biocides, dry and liquid scale inhibitors, corrosion inhibitors, buffers, breakers and other chemical technologies. This segment also provides chemicals needed by our customers to increase oil and gas production and lower production costs over the life of a well. Our Oilfield Chemicals customers ~~that~~are primarily pressure pumpers, but also include major integrated ~~oil companies~~ and independent oil and ~~natural~~ gas producers. ~~These services include:~~

The results of our service lines divested during 2019, including the ~~sourcing~~operations of ~~water;~~our Affirm subsidiary, our sand hauling operations and our Canadian operations, are combined in the transfer of the water to the wellsite through permanent pipeline infrastructure and temporary pipe; the containment of fluids off‑ and on‑location; measuring and monitoring of water; the filtering and treatment of fluids, well testing and handling of flowback and produced formation water; and the transportation and recycling or disposal of drilling, completion and production fluids.“Other” category.

~~Accommodations and Rentals~~—The Accommodations and Rentals segment provides workforce accommodations and surface rental equipment supporting drilling, completion and production operations to the U.S. onshore oil and gas industry.

~~Wellsite Completion and Construction Services~~—The Wellsite Completion and Construction Services segment provides oil and natural gas operators with a variety of services, including crane and logistics services, wellsite and pipeline construction and field services. These services are performed to establish, maintain and improve production throughout the productive life of an oil or gas well, or to otherwise facilitate other services performed on a well.

Financial information by segment for the Current and Prior Quarter is as follows:


	For the three months ended March 31, 2020
			(Loss) Income		Depreciation and		Capital
	Revenue		before taxes		Amortization		Expenditures
	(in thousands)
Water Services	$	150,152	$	(195,900)	$	17,156	$	1,267
Water Infrastructure		57,884		(82,077)		7,028		2,568
Oilfield Chemicals		71,028		(2,896)		1,998		2,890
Other		—		25		—		325
Eliminations		(779)		—		—		—
Loss from operations				(280,848)
Corporate		—		(9,983)		685		—
Interest expense, net		—		(331)		—		—
Other income, net		—		(222)		—		—
	$	278,285	$	(291,384)	$	26,867	$	7,050

For the three months ended March 31, 2019

Income (loss)

Depreciation and

Capital

Table of Contents

	Revenue		before taxes		Amortization		Expenditures
	(in thousands)
Water Services	$	220,880	$	23,660	$	21,262	$	13,126
Water Infrastructure		53,616		3,801		6,089		17,238
Oilfield Chemicals		67,119		2,013		2,453		1,220
Other		23,670		(6,523)		1,714		61
Eliminations		(2,639)		—		—		—
Income from operations				22,951
Corporate		—		(16,318)		1,000		—
Interest expense, net		—		(1,093)		—		—
Other income, net		—		(3,962)		—		—
	$	362,646	$	1,578	$	32,518	$	31,645

Total assets by segment as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016 and for the three and nine months ended September 30, 2017 and 2016, by segment,~~2019 is as follows:

For the three months ended September 30, 2017




Income (loss) before

Depreciation and

Capital

Revenue

taxes

Amortization

Expenditures

(in thousands)
Water Solutions

$
125,142

$
9,844

$
19,433

$
22,260
Accommodations and Rentals

15,974

(304)

2,908

3,541
Wellsite Completion and Construction Services

13,301

(2)

1,079

1,303
Elimination

(537)

—

—

—
Income from operations



9,538




Corporate

—

(7,081)

375

—
Interest expense, net

—

(484)

—

—
Other income, net

—

326

—

—

$
153,880

$
2,299

$
23,795

$
27,104


	As of		As of
	March 31, 2020		December 31, 2019
	(in thousands)
Water Services	$	600,200	$	831,123
Water Infrastructure		230,899		314,026
Oilfield Chemicals		188,472		192,224
Other		7,337		10,247
	$	1,026,908	$	1,347,620

For the three months ended September 30, 2016




Income (loss) before

Depreciation and

Capital

Revenue

taxes

Amortization

Expenditures

(in thousands)
Water Solutions

$
61,082

$
(28,278)

$
17,690

$
4,668
Accommodations and Rentals

5,881

(2,786)

2,644

268
Wellsite Completion and Construction Services

7,156

(1,325)

1,279

95
Elimination

(212)

—

—

—
Loss from operations



(32,389)




Corporate

—

1,123

363

—
Interest expense, net

—

(4,343)

—

—
Other income, net

—

431

—

—

$
73,907

$
(35,178)

$
21,976

$
5,031

2837

Table of Contents

For the nine months ended September 30, 2017




Income (loss) before

Depreciation and

Capital

Revenue

taxes

Amortization

Expenditures

(in thousands)
Water Solutions

$
311,645

$
5,652

$
55,623

$
57,273
Accommodations and Rentals

39,056

(3,813)

8,367

8,311
Wellsite Completion and Construction Services

38,951

56

3,154

6,598
Elimination

(1,398)

—

—

—
Loss from operations



1,895




Corporate

—

(23,855)

1,312

—
Interest expense, net

—

(1,885)

—

—
Other income, net

—

3,342

—

—

$
388,254

$
(20,503)

$
68,456

$
72,182

For the nine months ended September 30, 2016




Income (loss) before

Depreciation and

Capital

Revenue

taxes

Amortization

Expenditures

(in thousands)
Water Solutions

$
173,294

$
(264,416)

$
61,574

$
28,533
Accommodations and Rentals

19,750

(8,303)

8,197

834
Wellsite Completion and Construction Services

23,098

(3,820)

4,103

215
Elimination

(477)

—

—

—
Loss from operations



(276,539)




Corporate

—

(1,100)

1,644

—
Interest expense, net

—

(11,792)

—

—
Other income, net

—

588

—

—

$
215,665

$
(288,843)

$
75,518

$
29,582

Total Assets

As of

As of

September 30, 2017

December 31, 2016

(in thousands)
Water Solutions

$
448,585

$
324,171
Accommodations and Rentals

50,057

38,874
Wellsite Completion and Construction Services

38,827

29,994
Corporate

15,280

12,027

$
552,749

$
405,066

NOTE ~~17—~~18—SUBSEQUENT EVENTS

~~Completion~~The Company is closely monitoring the impact of the ~~Merger~~

~~On November 1, 2017,~~COVID-19 pandemic on all aspects of its business and geographies, including how it may impact our customers, employees, vendors and contractors. While the Company ~~completed~~did not incur significant disruptions during the ~~transactions contemplated by~~three months ended March 31, 2020 from COVID-19, we are unable to predict the ~~Agreement~~impact that the COVID-19 pandemic will have on our financial position, operating results and ~~Plan of Merger, dated as of July 18, 2017 (the “Merger Agreement”), by~~ability to obtain future financing due to numerous uncertainties.

The magnitude and among the Company, SES Holdings, Raptor Merger Sub, Inc. (“Corporate Merger Sub”), Raptor Merger Sub, LLC (“LLC Merger Sub”), Rockwater Energy Solutions, Inc. (“Rockwater”) and Rockwater Energy Solutions, LLC (“RES Holdings”). Pursuant to the Merger Agreement, Corporate Merger Sub merged with and into Rockwater, with Rockwater continuing as the surviving entity as a wholly owned subsidiaryduration of the ~~Company (the “Corporate Merger”),~~COVID-19 pandemic is also uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but at this time, we expect a net loss for 2020. We are taking further actions to maintain our liquidity, including decreasing operating expenses by reducing headcount, reducing salaries, closing yard locations, reducing third party expenses and ~~LLC Merger Sub merged with and into RES Holdings, with RES Holdings continuing~~streamlining operations, as well as reducing capital expenditures. We are also deferring employer payroll tax payments for the ~~surviving entity as an indirect wholly owned subsidiary~~remainder of ~~SES Holdings (the “LLC Merger”).~~

~~Table of Contents~~

At the effective time of the Corporate Merger (the “Corporate Merger Effective Time”), subject to certain exceptions, (x) each share of Rockwater’s Class A common stock, $0.01 par value per share (“Rockwater Class A Common Stock”), then outstanding was converted into the right to receive a number of shares of Select Class A Common Stock equal to 0.7652 per each such share (the “Exchange Ratio”), (y) each share of Rockwater’s Class A-1 common stock, $0.01 par value per share, then outstanding was converted into the right to receive a number of shares of the Company’s Class A-2 common stock, par value $0.01 per share (“Select Class A-2 Common Stock”), equal to the Exchange Ratio, and (z) each share of Rockwater’s Class B common stock, $0.01 par value per share, then outstanding was converted into the right to receive a number of shares of Select Class B Common Stock equal to the Exchange Ratio. At the effective time of the LLC Merger (the “LLC Merger Effective Time”), subject to certain exceptions, each unit of RES Holdings (each, an “RES Holdings Unit”) then outstanding (including RES Holdings Units held by Rockwater) was converted into the right to receive a number of units in SES Holdings equal to the Exchange Ratio. The original exchange ratio of 0.7777 set forth in the Merger Agreement was adjusted downwards to 0.76522020, in accordance with the ~~terms~~provisions of the ~~Merger Agreement.~~

~~Shares~~CARES Act, and may take advantage of the Company’s common stock outstanding immediately prior to the Corporate Merger Effective Time remain outstanding and have not been exchanged, converted or otherwise changed in the Corporate Merger. Based on the number of shares of Rockwater common stock issued and outstanding immediately prior to the Corporate Merger Effective Time, a total of approximately 25.9 million shares of Select Class A Common Stock, 6.7 million shares of Select Class A-2 Common Stock and 4.4 million shares of Select Class B Common Stock (excluding the issuance of equity awards, which are described in the following paragraph), were issued to the former holders of Rockwater common stock pursuant to the Merger Agreement. In the aggregate (including the issuance of equity awards), the Company issued approximately 37.3 million shares of common stock. Units in SES Holdings outstanding immediately prior to the LLC Merger Effective Time remain outstanding and have not been exchanged, converted or otherwise changed in the LLC Merger. Based on the number of RES Holdings Units issued and outstanding immediately prior to the LLC Merger Effective Time, a total of approximately 37.3 million units in SES Holdings were issued to the former holders of RES Holdings Units pursuant to the Merger Agreement.

At the Corporate Merger Effective Time, each outstanding option to purchase shares of Rockwater Class A Common Stock (each, a “Rockwater Stock Option”) was converted into an option to acquire, on the same terms and conditions as were applicable to such Rockwater Stock Option immediately prior to the Corporate Merger Effective Time, the number of shares of Select Class A Common Stock determined by multiplying the number of shares of Rockwater Class A Common Stock subject to such Rockwater Stock Option as of immediately prior to the Corporate Merger Effective Timefuture legislation passed by the ~~Exchange Ratio, at an exercise price per share~~United States Congress in response to COVID-19. In this environment, the duration of Select Class A Common Stock equal to the exercise price per share of Rockwater Class A Common Stock under such Rockwater Stock Option divided by the Exchange Ratio (such conversions, collectively, the “Option Conversion”). Additionally, at the Corporate Merger Effective Time, each share of restricted Rockwater Class A Common Stock (each, a “Rockwater Restricted Stock Award”) that was outstanding immediately prior to the Corporate Merger Effective Time ceased to represent Rockwater Class A Common Stock and was converted into a new award of restricted shares, subject to the same terms and conditions as were applicable to such Rockwater Restricted Stock Award prior to the Corporate Merger Effective Time, equal to the number of shares of Select Class A Common Stock determined by multiplying the number of shares of Rockwater Class A Common Stock subject to such Rockwater Restricted Stock Award as of immediately prior to the Corporate Merger Effective Time by the Exchange Ratio (such conversions, collectively, the “Restricted Stock Conversion”). Subject to certain New York Stock Exchange (“NYSE”) restrictions, the shares available under the Rockwater Equity Plan as of the Corporate Merger Effective Time (as appropriately adjusted to reflect the Exchange Ratio) may be used for post-transaction grants under the 2016 Plan. The Option Conversion, Restricted Stock Conversion and assumption of shares available under the Rockwater Equity Plan described in the preceding sentences are collectively referred to as the “Equity Award Actions.” The Equity Plan Amendment, which ~~was previously adopted to effectuate the Equity Award Actions, became effective on November 1, 2017 at the Corporate Merger Effective Time.~~

~~New Credit Agreement~~

On November 1, 2017, in connection with the closing of the transactions contemplated by the Merger Agreement (the “Closing”), SES Holdings and Select LLC (the “Borrower”) entered into a $300.0 million senior secured revolving credit facility (the “New Credit Agreement”), by and among SES Holdings, as parent, the Borrower, certain of

~~Table of Contents~~

SES Holdings’s 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”). The New Credit Agreement also has a sublimit of $40.0 million for letters of credit and a sublimit of $30.0 million for swingline loans. Subject to obtaining commitments from existing or new lenders,remains uncertain, the Company has ~~the option to increase the maximum amount under the senior secured credit facility by $150.0 million during the first three years following the Closing.~~

~~The New Credit Agreement permits extensions~~planned for a range of ~~credit up to the lesser~~scenarios and has taken a number of ~~$300.0 million and a borrowing base that is determined by calculating the amount equal to the sum of (i) 85% of the Eligible Billed Receivables (as defined~~actions. To protect our workforce in the ~~New Credit Agreement), plus (ii) 75%~~wake of ~~Eligible Unbilled Receivables (as defined in the New Credit Agreement), provided~~COVID-19, we have taken steps to keep our people safe by supporting those affected, mandating that ~~this amount will not equal more than 35%~~as many employees and contractors as possible work from home, and monitoring and consistently communicating with those who cannot do so and are required to be at work.

Based on our current cash position, lack of ~~the borrowing base, plus (iii) the lesser of (A) the product of 70% multiplied by the value of Eligible Inventory (as defined in the New Credit Agreement) at such time~~bank debt and (B) the product of 85% multiplied by the Net Recovery Percentage (as defined in the New Credit Agreement) identified in the most recent Acceptable Appraisal of Inventory (as defined in the New Credit Agreement), multiplied by the value of Eligible Inventory at such time, providedthese ongoing actions, we believe that this amount will not equal more than 30% of the borrowing base, minus (iv) the aggregate amount of Reserves (as defined in the New Credit Agreement), if any, established by the Administrative Agent from time to time, including, if any, the amount of the Dilution Reserve (as defined in the New Credit Agreement). The borrowing base is calculated on a monthly basis pursuant to a borrowing base certificate delivered by the Borrower to the Administrative Agent.

Borrowings under the New Credit Agreement bear interest, at the Borrower’s election, at either the (a) one-, two-, three- or six-month LIBOR (“Eurocurrency Rate”) or (b) the greatest of (i) the federal funds rate plus ½%, (ii) the one-month Eurocurrency Rate plus 1% and (iii) the Administrative Agent’s prime rate (the “Base Rate”), in each case plus an applicable margin, and interest shall be payable monthly in arrears. The applicable margin for Eurocurrency Rate loans ranges from 1.50% to 2.00% and the applicable margin for Base Rate loans ranges from 0.50% to 1.00%, in each case, depending on the Borrower’s average excess availability under the New Credit Agreement. The applicable margin for Eurocurrency Rate loanswe will be ~~1.75%~~able to maintain sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the applicable margin for Base Rate loans will be 0.75% until June 30, 2018. During the continuance of a bankruptcy event of default, automatically and during the continuance of any other default, upon the Administrative Agent’s or the required lenders’ election, all outstanding amounts under the New Credit Agreement will bear interest at 2.00% plus the otherwise applicable interest rate. The New Credit Agreement is schedulednext twelve months, prior to ~~mature on the fifth anniversary of the Closing.~~

The obligations under the New Credit Agreement are guaranteed by SES Holdings and certain of the subsidiaries of SES Holdings and the Borrower and secured by a security interest in substantially all of the personal property assets of SES Holdings, the Borrower and their domestic subsidiaries.

The New Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the New Credit Agreement to be immediately due and payable.

In addition, the New Credit Agreement restricts SES Holdings’s and the Borrower’s ability to make distributions on, or redeem or repurchase, its equity interests, except for certain distributions, including distributions of cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under the New Credit Agreement and either (a) excess availability at all times during the preceding 30 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 25% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $37.5 million or (b) if SES Holdings’s fixed charge coverage ratio is at least 1.0 to 1.0 on a pro forma basis, and excess availability at all times during the preceding 30 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 20% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $30.0 million. Additionally, the New Credit Agreement generally permits the Borrower to make distributions required under its existing tax receivable agreements.any financing that may occur.

The New Credit Agreement also requires SES Holdings to maintain a fixed charge coverage ratio of at least 1.0 to [1.0] at any time availability under the New Credit Agreement is less than the greater of (i) 10% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million and continuing through

3138

Table of Contents

and including the first day after such time that availability under the New Credit Agreement has equaled or exceeded the greater of (i) 10% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million for 60 consecutive calendar days.

Certain lenders party to the New Credit Agreement and their respective affiliates have from time to time performed, and may in the future perform, various financial advisory, commercial banking and investment banking services for the Company and its affiliates in the ordinary course of business for which they have received and would receive customary compensation. In addition, in the ordinary course of their various business activities, such parties and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investments and securities activities may involve the Company’s securities and/or instruments.

~~Termination of Credit Facility~~

~~In connection with the entry into the New Credit Agreement, the obligations of SES Holdings and the Borrower under the Credit Facility were repaid in full and the Credit Facility was terminated.~~

Certain lenders party to the Credit Facility and their respective affiliates have from time to time performed, and may in the future perform, various financial advisory, commercial banking and investment banking services for the Company and its affiliates in the ordinary course of business for which they have received and would receive customary compensation. In addition, in the ordinary course of their various business activities, such parties and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investments and securities activities may involve the Company’s securities and/or instruments.

~~In addition, certain lenders party to the Credit Facility are lenders under the New Credit Agreement.~~

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with ~~the~~our consolidated financial statements and related notes included elsewhere in this report, as well as the historical consolidated financial statements and notes thereto included in ~~the Final Prospectus.~~our 2019 Form 10-K. This discussion and analysis contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors as described under “Cautionary Note Regarding Forward-Looking Statements.” We assume no obligation to update any of these forward-looking statements.

This discussion relates to the three months ended March 31, 2020 (the “Current Quarter”) and the three months ended March 31, 2019 (the “Prior Quarter”).

Overview

We are a leading provider of ~~total water~~comprehensive water-management solutions to the ~~U.S. unconventional~~ oil and gas ~~industry. Within the major shale plays~~industry in the United States ~~we source~~(“U.S.”). We also develop, manufacture and ~~transfer water (both by permanent pipeline and temporary pipe) prior to its~~deliver a full suite of chemical products for use in drilling and completion activities associated with hydraulic fracturing or “fracking,” which we collectively refer to as “pre-frac water services.” In most of our areas of operations, we provide complementary water-related services that support oil and gas well completion and production ~~activities including containment, monitoring, treatment, flowback, hauling~~operations. Through a combination of organic growth and ~~disposal. Our~~acquisitions over the last decade, we have developed a leading position in the relatively new water solutions industry. We believe we are the only company in the oilfield services industry that combines comprehensive water-management services with related chemical products. Furthermore, we are ~~necessary~~one of the few large oilfield services companies whose primary focus is on the management of water and water logistics in the oil and gas development industry. Accordingly, as an industry leader in the water solutions industry, we place the utmost importance on safe, environmentally responsible management of oilfield water throughout the lifecycle of a well. Additionally, we believe that responsibly managing water resources through our operations to ~~establish~~help conserve and ~~maintain~~protect the environment in the communities in which we operate is paramount to our continued success.

In many regions of the country, there has been growing concern about the volumes of water required for new oil and gas well completions. Working with our customers and local communities, we strive to be an industry leader in the development of cost-effective alternatives to fresh water. Specifically, we offer services that enable our E&P customers to treat and reuse produced water, thereby reducing the demand for fresh water while also reducing the volumes of saltwater that must be disposed by injection. In many areas, we have also acquired sources of non-potable water such as brackish water or municipal or industrial effluent. We work with our customers to optimize their fluid systems to economically enable the use of these alternative sources. We also work with our E&P customers to reduce the environmental footprint of their operations through the use of temporary hose and permanent pipeline systems. These solutions reduce the demand for trucking operations, thereby reducing diesel emissions, increasing safety and decreasing traffic congestion in nearby communities.

Industry Overview

Significant challenges that emerged during the Current Quarter, and which are expected to continue into the foreseeable future, have had and will continue to have a negative impact on our results of operations. The novel coronavirus (“COVID-19”) outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in global oil demand as well as international and U.S. economies and financial markets. Additionally, the failure of Saudi Arabia and Russia to reach a decision to cut production of oil and gas ~~over~~along with the ~~productive life~~Organization of the Petroleum Exporting Countries (“OPEC”), and Saudi Arabia’s subsequent decision to reduce the prices at which it sells oil and increase production, combined with the continued outbreak of COVID-19, contributed to a horizontal well. Water and related services are increasingly important as E&P companies have increased the complexity and completion intensity of horizontal wells (including the use of longer horizontal wellbore laterals, tighter spacing of frac stagessharp drop in prices for oil in the ~~laterals~~Current Quarter. While an agreement to cut production was reached in April 2020, oil prices have remained low, and ~~increased water~~global oil demand is expected to remain challenged at least until the COVID-19 outbreak can be contained. As a result of these market disruptions, oil prices have declined significantly and ~~proppant use per foot~~our Current Quarter results have been negatively impacted. With the significant recent drop in oil prices, the activity

Table of ~~lateral) in order to improve production and recovery of hydrocarbons. Historically, we have generated a substantial majority~~Contents

levels of our ~~revenues through providing total water solutions to our customers. We provide~~customers and the demand for our services will certainly decrease materially in the near-term; however, at this time, we believe it is too soon to ~~major integrated~~determine the depth or magnitude of the declines.

We believe the ongoing effects of COVID-19 on our operations have had, and ~~large E&P companies, who typically represent~~will continue to have, a material negative impact on our financial results, and such negative impact may continue well beyond the ~~largest producers~~containment of such outbreak until oil demand and prices, recover. We cannot assure you that our assumptions used to estimate our future financial results will be correct given the unpredictable nature of the current market environment after the rapid decline in ~~each~~the demand for oil and demand for our services. As a consequence, our ability to accurately forecast our activity and profitability is uncertain.

The magnitude and duration of the COVID-19 pandemic is also uncertain. As a consequence, we cannot estimate the impact on our ~~areas of~~business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but at this time, we expect a net loss for 2020. We are taking further actions to maintain our liquidity, including decreasing operating expenses by reducing headcount, reducing salaries, closing yard locations, reducing third party expenses and streamlining operations, as well as reducing capital expenditures. We are also deferring employer payroll tax payments for the remainder of 2020, in accordance with the provisions of the CARES Act, and may take advantage of future legislation passed by the United States Congress in response to COVID-19. In this environment, the duration of which remains uncertain, the Company has planned for a range of scenarios and has taken a number of actions. To protect our workforce in the wake of COVID-19, we have taken steps to keep our people safe by supporting those affected, mandating that as many employees and contractors as possible work from home, and monitoring and consistently communicating with those who cannot do so and are required to be at work.

Based on our current cash position, lack of bank debt and these ongoing actions, we believe that we will be able to maintain sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months, prior to giving effect to any financing that may occur.

During the Current Quarter, the average spot price of West Texas Intermediate (“WTI”) (Cushing) crude oil was $45.34 versus an average price of $54.82 for the Prior Quarter. The WTI price closed at $20.51 on March 31, 2020, which was nearly 55% lower than the average price for the Current Quarter, illustrating the significant decline and volatility of the price of oil and gas prices in the Current Quarter. The average Henry Hub natural gas spot price during the Current Quarter was $1.91 versus an average of $2.92 for the Prior Quarter. The significant decline in oil and gas prices in the Current Quarter relative to the Prior Quarter, as well as the more recent oil pricing volatility driven by market dislocation, has been driven largely by increased supply from OPEC+ and decreased demand due to the COVID-19 pandemic, as well as increased utilization of existing storage capacity, which may result in our E&P customers being forced to shut-in production.

Additionally, both debt and equity capital markets, and in particular the IPO market, do not appear favorably disposed towards investing in the oil and gas industry at this time. In light of these factors, combined with the downward revisions made to many of our customers’ respective annual capital budgets and financial outlooks, we do not anticipate large incremental sums of capital entering the market to create higher demand for our services for the remainder of 2020, which will likely lead to decreased activity for us. Additionally, this lack of available capital in the current market environment will make it challenging for distressed oil and gas companies to resolve their debt covenant and liquidity challenges in the near-term, potentially resulting in a number of restructuring activities, including bankruptcies, in the industry.

Outside of the macroeconomic challenges, from an operational standpoint, many of the recent trends still apply to ongoing unconventional oil and gas development. For example, while we believe leading-edge lateral lengths and proppant use are plateauing, the average operator continues to catch up to this leading edge and many smaller operators with less robust completion designs may be challenged in this environment. The continued trend towards multi-well pad development, executed within a limited time frame, has increased the overall complexity of well completions, while increasing frac efficiency and the use of lower cost in-basin sand, all of which has decreased total costs for our customers.

Table of Contents

This multi-well pad development, combined with recent upstream acreage consolidation and the emerging trends around the reuse applications of produced water, particularly in the Permian Basin, provides significant opportunity for companies like us that can deliver increasingly complex solutions for our E&P customers across the full completion and production life of wells over the long-term. 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.

The trend of increased use of produced water may require additional chemical treatment solutions, which we are well positioned to provide given our water treatment capabilities, our recent WCS acquisition and our knowledge base within our Oilfield Chemicals segment. Additionally, this trend supports more complex “on the fly” solutions that treat, proportion, and blend various streams of water and chemicals at the wellsite. This complexity favors service companies able to provide advanced technology solutions that are able to economically compete with alternative historical solutions.

Regardless of these operational trends, the current environment is one of the most challenging in decades for the oilfield services industry due to the large imbalance between oil supply and demand. Many operators may prioritize decreasing their activity levels or pursuing near-term cost savings rather than long-term efficiencies, which could negatively impact the demand and pricing for our services. While we enjoy an advantaged position relative to many other ~~independent~~oilfield services companies ~~operating in these regions.~~due to our cash position and absence of debt on the balance sheet at the end of the Current Quarter, our full year 2020 financial results are likely to be materially worse than those of recent years.

Our Segments

Our services are offered through three ~~operating~~reportable segments: (i) Water ~~Solutions, Accommodations~~Services; (ii) Water Infrastructure; and ~~Rentals, and Wellsite Completion and Construction Services.~~(iii) Oilfield Chemicals.

●

Water ~~Solutions~~~~. Our~~Services. The Water ~~Solutions~~Services segment is operated primarily under our subsidiary Select LLC, and provides water-related services to customers that include major integrated oil companies and independent oil and natural gas producers. These services include: the sourcing of water; the transferconsists of the Company’s services businesses including water totransfer, flowback and well testing, fluids hauling, water containment and water network automation, primarily serving E&P companies. Additionally, this segment includes the ~~wellsite through permanent~~operations of our accommodations and rentals business.

●

Water Infrastructure. The Water Infrastructure segment consists of the Company’s infrastructure assets and ongoing infrastructure development projects, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions and ~~temporary pipe; the containment of fluids off-and on-location; measuring~~infrastructure, and ~~monitoring of water; the filtering~~our produced water gathering systems and ~~treatment of fluids, well testing and handling of flowback and produced formation water; and the transportation and recycling or~~salt water disposal ~~of drilling, completion and production fluids.~~

wells, primarily serving E&P companies.


·		~~Accommodations~~ ● Oilfield Chemicals. The Oilfield Chemicals segment, provides technical solutions and ~~Rentals~~. Our Accommodations and Rentals segment is operated under our subsidiary Peak Oilfield Services, LLC, and provides workforce accommodations and surface rental equipment supporting drilling, completion and production operationsexpertise related to chemical applications in the ~~U.S. onshore~~ oil and gas industry.

~~Wellsite Completion~~ We also have significant capabilities in supplying logistics for chemical applications. We develop, manufacture and ~~Construction Services. Our Wellsite Completion~~provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, production, pipelines and ~~Construction Services segment is operated under~~well completions, including polymer slurries, crosslinkers, friction reducers, biocides, scale inhibitors corrosion inhibitors, buffers, breakers and other chemical technologies. With the range of chemicals and application expertise our ~~subsidiary Affirm Oilfield Services, LLC,~~customers range from pressure pumpers to major integrated and ~~provides~~independent U.S. and international oil and ~~natural~~ gas ~~operators~~producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to maximize the effectiveness of and optimize the efficiencies of the fracturing fluid system in conjunction with ~~a variety~~the quality of services, including crane and logistics services, wellsite and pipeline construction and field services. These services are performed to establish, maintain and improve production throughout the productive life of an oil or gaswater used in well ~~or to otherwise facilitate other services performed on a well.~~

completions.

How We Generate Revenue

We currently generate ~~a significant majority~~most of our revenue through our ~~Water Solutions segment, specifically through the sourcing and transfer of water used in drilling and completion activities~~water-management services associated with hydraulic ~~fracturing.~~fracturing, provided through our Water Services and Water Infrastructure segments. We generate the majority of our revenue through customer agreements with fixed pricing terms ~~but no guaranteed throughput amounts.~~and earn revenue when delivery of services is provided,

3341

Table of Contents

generally at our customers’ sites. While we have some long-term pricing arrangements, particularly in our Water Infrastructure segment, most of our water and water-related services are priced based on prevailing market conditions, giving due consideration to the specific requirements of the customer.

We also generate revenue by providing completion, specialty chemicals and production chemicals through our Accommodations and Rentals and Wellsite Completion and Construction Services segments which provide workforce accommodations, related rentals and a variety of wellsite completion and construction services, including wellsite construction, pipeline construction, field services and well services.Oilfield Chemicals segment. We invoice the majority of our ~~clients~~Oilfield Chemicals customers for ~~these~~ services provided based on ~~a per job basis~~the quantity of chemicals used or pursuant to short-term contracts as the ~~customer’s~~customers’ needs arise.

Costs of Conducting Our Business

The principal expenses involved in conducting our business are labor costs, equipment costs (including depreciation, repair, rental and maintenance and leasing costs), ~~fuel~~raw materials and water sourcing costs and ~~water sourcing~~fuel costs. Our fixed costs are relatively ~~low and a large portion~~low. Most of the costs ~~we incur in~~of serving our ~~business~~customers are variable, i.e., they are only incurred when we provide water and water-related services, or chemicals and chemical-related services to our customers.

Labor costs associated with our employees and contract labor represent the most significant costs of our business. We incurred labor and labor-related costs of ~~$54.8~~$101.6 million and ~~$34.4~~$138.8 million for the ~~three months ended September 30, 2017~~Current Quarter and ~~2016,~~Prior Quarter, respectively. We incurred labor costs of $155.5 million and $104.0 million for the nine months ended September 30, 2017 and 2016, respectively. Our labor costs for the nine months ended September 30, 2017 included $12.5 million of non-recurring costs related to a payout on our phantom equity units and IPO success bonuses. The majority of our recurring labor costs are variable and are incurred only while we are providing ~~water and water-related~~our operational services. We also incur costs to employ personnel to sell and supervise our services and perform maintenance on our assets, which ~~are~~is not directly tied to our level of business activity. ~~We also~~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. In light of the challenging activity and pricing trends, management has taken direct action during the Current Quarter to reduce operating and equipment costs, as well as selling, general and administrative costs, in order to proactively manage these expenses as a percentage of revenue. We expect to continue pursuing meaningful direct actions to reduce our labor costs in the coming quarters.

We incur significant equipment costs in connection with the operation of our business, including depreciation, repair and maintenance, rental and leasing costs. We incurred equipment costs of ~~$36.0~~$47.3 million and ~~$26.2~~$66.1 million for the ~~three months ended September 30, 2017~~Current Quarter and ~~2016,~~Prior Quarter, respectively.

We incur significant transportation costs associated with our service lines, including fuel and freight. We incurred ~~equipment~~fuel and freight costs of ~~$98.4~~$18.1 million and ~~$84.5~~$22.3 million for the ~~nine months ended September 30, 2017~~Current Quarter and 2016, respectively. Our depreciation costs are expected to decline over the next few years as a result of recent impairments as well as the decline in our capital expenditures over the last three years, which will be partially offset by any future capital expenditures on depreciable assets.

Fuel costs associated with water transportation are a significant operating cost. We incurred fuel costs of $8.2 million and $4.6 million for the three months ended September 30, 2017 and 2016, respectively. We incurred fuel costs of $21.4 million and $12.1 million for the nine months ended September 30, 2017 and 2016,Prior Quarter, respectively. Fuel prices impact our transportation costs, which affect the pricing and demand offor our services and have an impact on our results of operations.

We incur ~~water sourcing~~raw material costs in ~~connection with obtaining strategic and reliable~~manufacturing our chemical products, as well as for water ~~sources to provide repeatable water volumes to~~that we source for our customers. We incurred ~~water sourcing~~raw material costs of ~~$9.7~~$70.1 million and ~~$5.8~~$70.4 million for the ~~three months ended September 30, 2017~~Current Quarter and ~~2016,~~Prior Quarter, respectively. ~~We incurred water sourcing costs of $23.8 million and $14.1 million for~~ ~~the nine months ended September 30, 2017 and 2016~~ ~~respectively.~~

~~Public Company Expenses~~

General and administrative expenses related to being a publicly traded company include: Exchange Act reporting expenses; expenses associated with compliance with the Sarbanes‑Oxley Act of 2002; expenses associated with maintaining our listing on the NYSE; incremental independent auditor fees; incremental legal fees; investor relations expenses; registrar and transfer agent fees; incremental director and officer liability insurance costs; and director compensation. We expect that general and administrative expenses related to being a publicly traded company will increase in future periods. Costs incurred by us for corporate and other overhead expenses will be reimbursed by SES Holdings pursuant to the SES Holdings LLC Agreement.

~~Table of Contents~~

How We Evaluate Our Operations

We use a variety of operational and financial metrics to assess our performance. Among other measures, management considers each of the following:

●

Revenue;

●

Gross Profit;

●

Gross Margins;

●

EBITDA; and

●

Adjusted EBITDA.

Table of Contents

Revenue

We analyze our revenue and assess our performance by comparing actual monthly revenue to our internal ~~projections.~~projections and across periods. We also assess incremental changes in revenue compared to incremental changes in direct operating costs, and selling, general and administrative expenses across our ~~operating~~reportable segments to identify potential areas for improvement, as well as to determine whether segments are meeting management’s expectations.

Gross Profit

To measure our financial performance, we analyze our gross profit, which we define as revenues less direct operating expenses (including depreciation ~~expense)~~and amortization expenses). We believe gross profit ~~is a meaningful metric because it~~ provides insight oninto profitability and true operating performance ~~based on the historical cost basis~~ of our assets. We also compare gross profit to prior periods and across ~~locations~~segments to identify trends as well as underperforming ~~locations.~~segments.

Gross Margins

Gross margins provide an important gauge of how effective we are at converting revenue into profits. This metric works in tandem with gross profit to ensure that we do not increase gross profit at the expense of lower margins, nor pursue higher gross margins exclusively at the expense of declining gross profits. We track gross margins by segment and service line and compare them across prior periods and across segments and service lines to identify trends as well as underperforming segments.

EBITDA and Adjusted EBITDA

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net ~~income,~~income/(loss), plus ~~taxes,~~ interest expense, income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment charges or asset write-offs pursuant to ~~GAAP, plus/(minus)~~accounting principles generally accepted in the U.S. (“GAAP”), plus non-cash ~~losses/(gains)~~losses on the sale of assets or subsidiaries, non-recurring compensation expense, non-cash compensation expense, ~~non-recurring compensation expense~~ and ~~nonrecurring~~non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or ~~facilities related~~facilities-related exit and ~~disposal related expenditures.~~disposal-related expenditures, plus/(minus) foreign currency losses/(gains) and plus any inventory write-downs. The adjustments to EBITDA are generally consistent with such adjustments described in our Credit Facility. See “—~~Comparison of Non-GAAP Financial Measures” and “Note~~Note Regarding Non-GAAP Financial ~~Measures”~~Measures—EBITDA and Adjusted EBITDA” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Factors Affecting the Comparability of Our Results of Operations to Our Historical Results of Operations

Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the reasons described below and those described in “—Industry Overview” above.

Acquisition and Divestiture Activity

As described above, we are continuously evaluating potential investments, particularly in water infrastructure and other water-related services and technology. To the extent we consummate acquisitions, any incremental revenues or expenses from such transactions are not included in our historical results of operations.

Well Chemical Services Acquisition

On September 30, 2019, we completed our acquisition of WCS. Our historical financial statements for periods prior to September 30, 2019 do not include the results of operations of WCS.

3543

Table of Contents

Affirm Divestitures

We sold the Affirm crane and field services businesses on February 26, 2019 and June 28, 2019, respectively. Affirm accounted for $21.8 million of revenue during 2019. Following the two divestitures, the divested operations were not included in the consolidated results of operations.

Canadian Operations Divestitures

On March 19, 2019, we sold over half of our Canadian operationsand on April 1, 2019, we sold and wound down the rest of the Canadian operations. Canadian operations accounted for $8.6 million of annual revenue during 2019. Following the divestitures, the divested Canadian operations were not included in the consolidated results of operations.

Sand Hauling Wind Down

During 2019, we wound down our sand hauling operations and sold certain of our sand hauling property and equipment. Sand hauling accounted for $3.3 million of annual revenue during 2019.

Proceeds received from Divestitures and Wind Down

During 2019, we received $30.1 million from divestitures and fixed asset sale activity in connection with the sale and wind down of our Affirm subsidiary and the sand hauling and Canadian operations.

Table of Contents

Results of Operations

The following tables set forth ~~selected financial and operating data~~our results of operations for the periods ~~indicated (all values are net to our interest unless indicated otherwise):~~presented, including revenue by segment.

~~Three Months Ended September 30, 2017~~Current Quarter Compared to the ~~Three Months Ended September 30, 2016~~Prior Quarter


	Three months ended March 31,				Change
	2020		2019		Dollars		Percentage
	(in thousands)
Revenue
Water Services	$	149,511	$	220,595	$	(71,084)	(32.2)	%
Water Infrastructure		57,762		53,616		4,146	7.7	%
Oilfield Chemicals		71,012		66,829		4,183	6.3	%
Other		—		21,606		(21,606)	(100.0)	%
Total revenue		278,285		362,646		(84,361)	(23.3)	%

Costs of revenue
Water Services		129,114		163,121		(34,007)	(20.8)	%
Water Infrastructure		47,813		41,430		6,383	15.4	%
Oilfield Chemicals		59,876		59,527		349	0.6	%
Other		4		21,053		(21,049)	(100.0)	%
Depreciation and amortization		26,182		31,518		(5,336)	(16.9)	%
Total costs of revenue		262,989		316,649		(53,660)	(16.9)	%
Gross profit		15,296		45,997		(30,701)	(66.7)	%

Operating expenses
Selling, general and administrative		25,289		32,376		(7,087)	(21.9)	%
Depreciation and amortization		685		1,000		(315)	(31.5)	%
Impairment of goodwill and trademark		276,016		4,396		271,620	NM
Impairment of property and equipment		3,184		519		2,665	NM
Lease abandonment costs		953		1,073		(120)	(11.2)	%
Total operating expenses		306,127		39,364		266,763	NM
(Loss) income from operations		(290,831)		6,633		(297,464)	NM

Other expense
Losses on sales of property and equipment and divestitures, net		(435)		(4,491)		4,056	NM
Interest expense, net		(331)		(1,093)		762	(69.7)	%
Foreign currency (loss) gain, net		(46)		260		(306)	NM
Other income, net		259		269		(10)	NM
(Loss) income before income tax benefit (expense)		(291,384)		1,578		(292,962)	NM
Income tax benefit (expense)		164		(178)		342	NM
Net (loss) income	$	(291,220)	$	1,400	$	(292,620)	NM

Three months ended September 30,

Change


2017


2016

Dollars

Percentage

(in thousands)

Revenue









Water solutions

$
125,086

$
60,975

$
64,111

105.1
%
Accommodations and rentals

15,615

5,838

9,777

167.5
%
Wellsite completion and construction services

13,179

7,094

6,085

85.8
%
Total revenue

153,880

73,907

79,973

108.2
%

Costs of revenue





Water solutions

88,087

49,996

38,091

76.2
%
Accommodations and rentals

11,976

4,969

7,007

141.0
%
Wellsite completion and construction services

10,888

6,299

4,589

72.9
%
Depreciation and amortization

23,420

21,613

1,807

8.4
%
Total costs of revenue

134,371

82,877

51,494

62.1
%
Gross profit (loss)

19,509

(8,970)

28,479

NM

Operating expenses





Selling, general and administrative

16,087

8,764

7,323

83.6
%
Depreciation and amortization

375

363

12

3.3
%
Lease abandonment costs

590

13,169

(12,579)

(95.5)
%
Total operating expenses

17,052

22,296

(5,244)

(23.5)
%
Income (loss) from operations

2,457

(31,266)

33,723

NM

Other income (expense)





Interest expense, net

(484)

(4,343)

3,859

(88.9)
%
Other income, net

326

431

(105)

(24.4)
%
Income (loss) before tax expense

2,299

(35,178)

37,477

NM

Tax benefit (expense)

294

(26)

320

NM

Net income (loss)

$
2,593

$
(35,204)

$
37,797

NM

Table of Contents

Revenue

Our revenue ~~increased $80.0~~decreased $84.4 million, or ~~108.2%~~23.3%, to ~~$153.9~~$278.3 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$73.9~~$362.6 million for the ~~three months ended September 30, 2016.~~Prior Quarter. The ~~increase~~decrease was ~~primarily attributable to an~~driven by a $71.1 million decline in Water Services revenue, $21.6 million lower revenue from the combination of our Affirm subsidiary, sand hauling operations and Canadian operations, all of which were fully divested and wound down during 2019, partially offset by a $4.2 million increase in Oilfield Chemicals revenue and a $4.1 million increase in Water Infrastructure revenue as discussed below. For the Current Quarter, our Water ~~Solutions segment revenues of $64.1 million. For the three months ended September 30, 2017, our~~Services, Water ~~Solutions, Accommodations~~Infrastructure, Oilfield Chemicals and ~~Rentals, and Wellsite Completion and Construction Services~~Other segments constituted ~~81.3%~~53.7%, ~~10.1%~~20.8%, 25.5% and ~~8.6%~~0.0% of our total revenue, respectively, compared to ~~82.5%~~60.8%, ~~7.9%~~14.8%, 18.4%, and ~~9.6%~~6.0%, respectively, for the ~~three months ended September 30, 2016.~~Prior Quarter. The revenue ~~increase~~changes by ~~operating~~reportable segment ~~was~~are as follows:

Water ~~Solutions~~Services. Revenue ~~increased $64.1~~decreased $71.1 million, or ~~105.1%~~32.2%, to ~~$125.1~~$149.5 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$61.0~~$220.6 million for the ~~three months ended September 30, 2016.~~Prior Quarter. The ~~increase~~decrease was primarily attributable to ~~an increase in the demand~~reduced pricing for our services ~~as a result of a rise~~coupled with reduced drilling and completions activity due to decreases in ~~completion activities~~oil prices late in the quarter due to OPEC supply and ~~an increase in average quarterly rig count of 97.4% during~~ the ~~third quarter of 2017~~COVID-19 pandemic.

Water Infrastructure. Revenue increased by $4.1 million, or 7.7%, to $57.8 million for the Current Quarter compared to ~~the third quarter of 2016. Additionally, the GRR Acquisition, which closed March 10, 2017, contributed $10.4~~$53.6 million ~~of revenue~~ for the ~~three months ended September 30, 2017.~~Prior Quarter, primarily due to increased water sales in the Permian and the initiation of our Northern Delaware pipeline system in New Mexico, partially offset by declines in water sourcing volumes in the MidCon.

~~Table of Contents~~

~~Accommodations and Rentals~~Oilfield Chemicals. Revenue increased ~~$9.8~~$4.2 million, or ~~167.5%~~6.3%, to ~~$15.6~~$71.0 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$5.8~~$66.8 million for the ~~three months ended September 30, 2016.~~Prior Quarter, due to the incremental revenue from the WCS acquisition, partially offset by lower completions revenue.

Other. Other revenue was zero for the Current Quarter compared to $21.6 million in the Prior Quarter as our Affirm subsidiary, sand hauling operations and Canadian operations were divested and wound down during 2019.

Costs of Revenue

Costs of revenue decreased $53.7 million, or 16.9%, to $263.0 million for the Current Quarter compared to $316.6 million for the Prior Quarter. The ~~revenue increase~~decrease was primarily ~~attributable~~due to a ~~rise~~$34.0 million decline in ~~completion activities~~Water Services costs and an$21.0 million lower combined costs from our Affirm subsidiary, sand hauling operations and Canadian operations, all of which were divested and wound down during 2019. Also contributing to the decline was a $5.3 million decrease in depreciation costs, partially offset by a $6.4 million increase in ~~our customers’ quarterly rig count, which led~~Water Infrastructure costs and a $0.3 million increase in Oilfield Chemicals costs as further discussed below.

Water Services. Cost of revenue decreased $34.1 million, or 20.8% to ~~higher demand~~$129.1 million for ~~equipment rentals~~the Current Quarter compared to $163.1 million for the Prior Quarter. Cost of revenue decreased due to reduced customer drilling and completions activity levels in the Current Quarter. Costs as a percent of revenue increased from 73.9% to 86.4% due to reductions in revenue generating activity we could not fully offset with cost reductions as well as ~~an increase in pricing for such rentals and other related services.~~

~~Wellsite Completion and Construction Services~~. Revenue increased $6.1 million, or 85.8%, to $13.2 million for the three months ended September 30, 2017 compared to $7.1 million for the three months ended September 30, 2016. The increase was primarily attributable to an increase in field services revenues of $5.1 million in our Rockies and Permian regions and increases in crane services revenues of $1.9 million, offset by $0.9 million due to theyard closure ~~of our South Texas field services at the end of 2016. These increases were driven by the addition of the Permian region in 2017 and by increased demand for these services~~costs resulting from ~~several new customers resuming completion activities during 2017.~~current market conditions.

~~Costs of Revenue~~

Cost of revenue increased $51.5 million, or 62.1%, to $134.4 million for the three months ended September 30, 2017 compared to $82.9 million for the three months ended September 30, 2016. The increase was largely attributable to higher salaries and wages due to an increase in employee headcount, and increased outside services, rentals and materials expense as a result of increased demand for our services resulting from the overall increase in drilling, completion and production activities, particularly in our Water ~~Solutions segment. The cost of revenue increase by operating segment was as follows:~~

~~Water Solutions~~Infrastructure. Cost of revenue increased ~~$38.1~~$6.4 million, or ~~76.2%~~15.4%, to ~~$88.1~~$47.8 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$50.0~~$41.4 million for the three months ended September 30, 2016. The increase was partly attributable to an increase in salaries and wages of $14.7 million resulting from a 48% increase in average headcount during the three months ended September 30, 2017 as compared to the prior year period. The increase in cost of revenue was also attributable to an increase in contract labor expense of $7.6 million, materials and supplies expense of $6.8 million, equipment rental and maintenance expense of $4.7 million, bulk and retail fuel expense of $2.9 million and allocated insurance costs of $0.4 million, offset by a decrease in allocated facility costs of $0.4 million. The increase in fuel and maintenance related expenses were largely attributable to a 28.1% increase in the average number of trucks and tractors in our fleet.

~~Accommodations and Rentals~~.Prior Quarter. Cost of revenue as a percent of revenue increased ~~$7.0~~from 77.3% to 82.8% primarily due to decreased pricing on non-pipeline water sources as well as the acceleration of certain prepaid expenses relating to water rights secured for a customer, due to the bankruptcy of such customer.

Oilfield Chemicals. Costs of revenue increased $0.3 million, or ~~141.0%~~0.6%, to ~~$12.0~~$59.9 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$5.0~~$59.5 million for the three months ended September 30, 2016. The increase was partially attributable to an increase in salaries and wages of $1.9 million resulting from an 85% increase in average headcount during the three months ended September 30, 2017 as compared to the prior year period. This increase in labor workforce also resulted in a $1.1 million increase of certain labor support costs including fuel and repair and maintenance expenses. The cost of revenue increase was also partly attributable to increases in outside services, equipment rentals and variable supplies expense totaling $3.7 million resulting from increased demand for services.

~~Wellsite Completion and Construction Services~~.Prior Quarter. Cost of revenue as a percent of revenue decreased from 89.1% to 84.3% due primarily to increased ~~$4.6 million, or 72.9%,~~sales of higher-margin friction reducer products as well as incremental gross profits resulting from the WCS acquisition.

Other. Other costs decreased to ~~$10.9~~less than $0.1 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$6.3~~$21.1 million ~~for~~in the ~~three months ended September 30, 2016. The increase was~~Prior Quarter, primarily ~~attributable~~due to ~~increased direct labor costs~~the divestitures discussed above.

Table of ~~$1.7 million, contract labor expense of $2.2 million and rental expense of $0.7 million.~~Contents

Depreciation and Amortization. Depreciation and amortization expense ~~increased $1.8~~decreased $5.3 million, or ~~8.4%~~16.9%, to ~~$23.4~~$26.2 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$21.6~~$31.5 million for the ~~three months ended September 30, 2016. The increase was~~Prior Quarter, primarily ~~attributable~~due to a $4.1 million decrease in our Water Services segment and a $1.7 million decrease related to the ~~depreciation recognized in the three months ended September 30, 2017 related to recently acquired assets from the GRR Acquisition, the DAWS Acquisition and the TEX Acquisition.~~

~~Table of Contents~~

divestitures discussed above.

Gross Profit ~~(Loss)~~

Gross profit ~~(loss) improved~~decreased by ~~$28.5~~$30.7 million, or 66.7%, to a gross profit of ~~$19.5~~$15.3 million for the ~~three months ended September 30, 2017~~Current Quarter compared to a gross ~~loss~~profit of ~~$9.0~~$46.0 million for the ~~three months ended September 30, 2016~~Prior Quarter primarily due to a $37.1 million decrease in Water Services gross profit stemming from lower revenue, $2.2 million decrease to Water Infrastructure gross profit due to decreased pricing and certain non-recurring costs and $0.6 million lower gross profit from our Affirm subsidiary, sand hauling operations and Canadian operations, all of which were divested and wound down during 2019. This was partially offset by a $3.8 million increase in Oilfield Chemicals gross profit and $5.3 million decrease in depreciation expense. Gross margin as a ~~result~~percent of ~~factors described above.~~revenue was 5.5% and 12.7% in the Current Quarter and Prior Quarter, respectively.

Selling, General and Administrative Expenses

~~The increase in selling,~~Selling, general and administrative expenses ~~of $7.3~~decreased $7.1 million, or ~~83.6%~~21.9%, to ~~$16.1~~$25.3 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$8.8~~ $32.4 million for the ~~three months ended September 30, 2016~~Prior Quarter. This was ~~primarily~~comprised of $3.6 million lower equity-based compensation costs, $2.3 million lower incentive compensation costs, $1.3 million lower professional fees, and $1.6 million of other expense reductions from cost cutting measures in response to lower oil prices partially offset by a $1.7 million increase in bad debt expense.

Impairment

Goodwill and trademark impairment costs were $276.0 million and $4.4 million in the Current Quarter and Prior Quarter, respectively. During the Current Quarter, all of our goodwill was impaired due to ~~an increase~~the dramatic decline in ~~administrative labor~~oil prices and the uncertainty associated with the future recovery. We also recorded a $9.1 million partial impairment of our Rockwater trademark. During the Prior Quarter, we incurred $4.4 million of goodwill impairment in connection with divesting Affirm.

Impairment of property and equipment costs ~~of $1.5~~were $3.2 million ~~primarily related to our new status as a public company~~ and ~~an increase~~$0.5 million in ~~legal~~the Current Quarter and professional fees of $4.9 million during the three months ended September 30, 2017 as compared to the prior year period, largely related to the Merger, offset by lower corporate office rent of less than $0.1 million.Prior Quarter, respectively.

Lease Abandonment Costs

~~Due to depressed industry conditions~~Lease abandonment costs were $1.0 million and ~~a resulting reduction~~$1.1 million in the ~~need for facilities primarily in 2016, during~~Current Quarter and Prior Quarter, respectively. During the ~~three months ended September 30, 2017, we recorded $0.6 million of~~Current Quarter, lease abandonment costs primarily related to ~~certain facilities that~~newly abandoned properties associated with realignment and combining activity on fewer leased properties. The Prior Quarter costs were ~~no longer~~primarily due to early lease terminations in ~~use. During~~connection with the ~~three months ended September 30, 2016, we~~ ~~recorded $13.2 million~~wind-down and divestiture of ~~lease abandonment costs related to certain facilities that were no longer in use~~.Canadian operations.

Net Interest Expense

~~The decrease in~~Net interest expense ~~of $3.9~~decreased by $0.8 million, or ~~88.9%~~69.7%, to $0.3 million during the ~~three months ended September 30, 2017~~Current Quarter compared to $1.1 million in the ~~three months ended September 30, 2016 was~~Prior Quarter primarily due to ~~the completion of the 144A Offering on December 20, 2016 and the completion of the IPO on April 26, 2017. We used a portion of the net proceeds~~lower average borrowings resulting from the ~~144A Offering to repay~~repayment of all ~~outstanding~~remaining borrowings ~~and a portion of~~on our credit facility since the ~~net proceeds from the IPO to repay all of our subsequent outstanding indebtedness related to the GRR Acquisition.~~Prior Quarter.

Net ~~Loss~~(Loss) Income

Net (loss) income ~~(loss) improved~~decreased by ~~$37.8~~$292.6 million, ~~to a net income of $2.6 million for the three months ended September 30, 2017 compared~~ to a net loss of ~~$35.2~~$291.2 million for the ~~three months ended September 30, 2016 as a result~~Current Quarter compared to net income of ~~the factors described above.~~

~~Table of Contents~~

~~Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016~~

Nine months ended September 30,

Change


2017


2016

Dollars

Percentage

(in thousands)

Revenue









Water solutions

$
311,275

$
173,157

$
138,118

79.8
%
Accommodations and rentals

38,457

19,585

18,872

96.4
%
Wellsite completion and construction services

38,522

22,923

15,599

68.0
%
Total revenue

388,254

215,665

172,589

80.0
%

Costs of revenue





Water solutions

226,737

144,653

82,084

56.7
%
Accommodations and rentals

30,697

15,527

15,170

97.7
%
Wellsite completion and construction services

32,155

19,817

12,338

62.3
%
Depreciation and amortization

67,144

73,874

(6,730)

(9.1)
%
Total costs of revenue

356,733

253,871

102,862

40.5
%
Gross profit (loss)

31,521

(38,206)

69,727

NM

Operating expenses





Selling, general and administrative

49,298

25,928

23,370

90.1
%
Depreciation and amortization

1,312

1,644

(332)

(20.2)
%
Impairment of goodwill and other intangible assets

—

138,666

(138,666)

(100.0)
%
Impairment of property and equipment

—

60,026

(60,026)

(100.0)
%
Lease abandonment costs

2,871

13,169

(10,298)

(78.2)
%
Total operating expenses

53,481

239,433

(185,952)

(77.7)
%
Loss from operations

(21,960)

(277,639)

255,679

(92.1)
%

Other income (expense)





Interest expense, net

(1,885)

(11,792)

9,907

(84.0)
%
Other income, net

3,342

588

2,754

468.4
%
Loss before tax expense

(20,503)

(288,843)

268,340

(92.9)
%
Tax benefit (expense)

326

(392)

718

NM

Net loss

$
(20,177)

$
(289,235)

$
269,058

(93.0)
%

~~Revenue~~

~~Our revenue increased $172.6 million, or 80.0%, to $388.3~~$1.4 million for the ~~nine months ended September 30, 2017 compared~~Prior Quarter primarily due to ~~$215.7 million for the nine months ended September 30, 2016. The increase~~goodwill, trademark and fixed asset impairments and lower Water Services gross profit. This was primarily attributable to an increase in our Water Solutions segment revenues of $138.1 million. For the nine months ended September 30, 2017, our Water Solutions, Accommodations and Rentals, and Wellsite Completion and Construction Services segments constituted 80.2%, 9.9% and 9.9% of our total revenue, respectively, compared to 80.3%, 9.1%, and 10.6%, respectively, for the nine months ended September 30, 2016. The revenue increase by operating segment was as follows:

~~Water Solutions~~. Revenue increased $138.1 million, or 79.8%, to $311.3 million for the nine months ended September 30, 2017 compared to $173.2 million for the nine months ended September 30, 2016. The increase was primarily attributable to an increase in the demand for our services as a result of a rise in completion activities and an increase in average quarterly rig count of 77.2% during the nine months ended September 30, 2017 compared to nine months ended September 30, 2016. Additionally, the GRR Acquisition, which closed on March 10, 2017, contributed $21.5 million of revenue for the nine months ended September 30, 2017.

~~Table of Contents~~

~~Accommodations and Rentals~~. Revenue increased $18.9 million, or 96.4%, to $38.5 million for the nine months ended September 30, 2017 compared to $19.6 million for the nine months ended September 30, 2016. The revenue increase was primarily attributable to a rise in completion activities and an increase in our customers’ quarterly rig count, which led to higher demand for equipment rentals.

~~Wellsite Completion and Construction Services~~. Revenue increased $15.6 million, or 68.0%, to $38.5 million for the nine months ended September 30, 2017 compared to $22.9 million for the nine months ended September 30, 2016. The increase was primarily attributable to an increase in field services revenues of $12.9 million in our Rockies and Permian regions, increases in construction services revenue of $2.3 million in our South Texas region and increases in crane services revenues of $3.8 million,partially offset by $3.1 million due to the closure of our South Texas field services at the end of 2016. These increases were driven by the addition of the Permian region in 2017 and by the increased demand for these services resulting from several new customers resuming completion activities during 2017.

~~Costs of Revenue~~

Cost of revenue increased $102.9 million, or 40.5%, to $356.7 million for the nine months ended September 30, 2017 compared to $253.9 million for the nine months ended September 30, 2016. The increase was largely attributable to higher salaries and wages due to an increase in employee headcount, and increased outside services, rentals and materials as a result of increased demand for ours services resulting from the overall increase in drilling, completion and production activities, particularly in our Water Solutions segment. The cost of revenue increase by operating segment was as follows:

~~Water Solutions~~. Cost of revenue increased $82.1 million, or 56.7%, to $226.7 million for the nine months ended September 30, 2017 compared to $144.7 million for the nine months ended September 30, 2016. The increase was partly attributable to an increase in salaries and wages of $28.0 million as a result of a 28% increase in average headcount during the nine months ended September 30, 2017 as compared to the prior year period. The increase was also attributable to an increase in materials and supplies expense of $17.0 million, contract labor expense of $16.1 million, equipment rental and maintenance expense of $11.3 million and bulk and retail fuel expense of $7.3 million, offset by a decrease in allocated facility costs of $3.3 million.

~~Accommodations and Rentals~~. Cost of revenue increased $15.2 million, or 97.7%, to $30.7 million for the nine months ended September 30, 2017 compared to $15.5 million for the nine months ended September 30, 2016. The increase was partially attributable to an increase in salaries and wages of $3.8 million resulting from a 45% increase in average headcount during the nine months ended September 30, 2017 as compared to the prior year period. This increase in labor workforce also resulted in a $2.8 million increase of certain labor support costs including fuel and repair and maintenance expenses. The cost of revenue increase was also partly attributable to increases in outside services, equipment rentals and variable supplies expense totaling $8.1 million resulting from increased demand for services.

~~Wellsite Completion and Construction Services~~. Cost of revenue increased $12.3 million, or 62.3%, to $32.2 million for the nine months ended September 30, 2017 compared to $19.8 million for the nine months ended September 30, 2016. The increase was primarily attributable to expansion into the Permian region in 2017 and new customer wins which led to higher direct and contract labor expenses of $8.0 million. To support this increased labor expense, increases in fuel and repair and maintenance costs of $1.2 million were incurred. This cost of revenue increase was also partially attributable to increases in equipment rental costs of $2.2 million and supplies and materials expense of $0.9 million needed to support customer demand.

~~Depreciation and Amortization~~. Depreciation and amortization expense decreased $6.7 million, or 9.1%, to $67.1 million for the nine months ended September 30, 2017 compared to $73.9 million for the nine months ended September 30, 2016. The decrease was primarily attributable to assets becoming fully depreciated or being impaired during the first half of 2016.

~~Table of Contents~~

~~Gross Profit (Loss)~~

Gross profit (loss) improved by $69.7 million, to a gross profit of $31.5 million for the nine months ended September 30, 2017 compared to gross loss of $38.2 million for the nine months ended September 30, 2016 as a result of factors described above.

~~Selling, General and Administrative Expenses~~

~~The increase in~~lower selling, general and administrative ~~expenses~~costs, lower depreciation costs, lower losses on sales of $23.4 million, or 90.1%, to $49.3 million for the nine months ended September 30, 2017 compared to $25.9 million for the nine months ended September 30, 2016 was primarily due to a payout on our phantom equity unitsproperty and ~~IPO success bonuses~~equipment and lower interest expense.

Table of $12.5 million, including associated taxes, an increase in administrative labor costs of $2.7 million, primarily related to our new status as a public company, and an increase in legal and professional fees of $6.4 million, primarily related to the Merger, GRR Acquisition and other deal costs, during the nine months ended September 30, 2017 as compared to the prior year period offset by lower corporate office rent of $0.6 million.Contents

~~Impairment~~

There were no impairment losses recorded during the nine months ended September 30, 2017. Due to significant reductions in oil and gas prices and rig counts during early 2016, we determined there were triggering events requiring an assessment of the recoverability of goodwill. This assessment resulted in our recognition in our consolidated statements of operations for the nine months ended September 30, 2016 of an impairment loss of $137.6 million related to goodwill and $60.0 million related to long-lived assets in our Water Solutions segment, $1.0 million related to goodwill and less than $0.1 million related to other intangible assets in our Accommodations and Rentals segment.

~~Lease Abandonment Costs~~

Due to depressed industry conditions and a resulting reduction in the need for facilities, we decided to close certain facilities beginning in the third quarter of 2016. As a result of continuing costs related to certain facilities that are no longer in use, we recorded $2.9 million of lease abandonment costs during the nine months ended September 30, 2017. We recorded $13.2 million of lease abandonment costs during the nine months ended September 30, 2016.

~~Interest Expense~~

The decrease in interest expense of $9.9 million, or 84.0%, during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was due to the completion of the 144A Offering on December 20, 2016 and the completion of the IPO on April 26, 2017. We used a portion of the net proceeds from the 144A Offering to repay all outstanding borrowings and a portion of the net proceeds from the IPO to repay all of our subsequent outstanding indebtedness related to GRR Acquisition.

~~Net Loss~~

Net loss decreased by $269.1 million, or 93.0%, to $20.2 million for the nine months ended September 30, 2017 compared to $289.2 million for the nine months ended September 30, 2016 largely as a result of the impairment losses and other factors described above.

Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income (loss), plus ~~taxes,~~ interest expense, income taxes, and depreciation and amortization. We define Adjusted EBITDA as EBITDA plus/(minus) loss/(income) from discontinued operations, plus any impairment charges or asset write-offs pursuant to GAAP, ~~plus/(minus)~~plus non-cash ~~losses/(gains)~~losses on the sale of assets or subsidiaries, non-recurring compensation expense,

~~Table of Contents~~

non-cash compensation expense, and non-recurring or unusual expenses or charges, including severance expenses, transaction costs, or facilities-related exit and disposal-related ~~expenditures.~~expenditures, plus/(minus) foreign currency losses/(gains) and plus any inventory write-downs. The adjustments to EBITDA are generally consistent with such adjustments described in our Credit Facility. See “—Note Regarding Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Our board of directors, management and many investors use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and items outside the control of our management team. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.

Table of Contents

Note Regarding Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. ~~You~~One should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. For further discussion, please see ~~“Summary—Summary Consolidated~~“Item 6. Selected Financial Data” in our ~~Final Prospectus.~~2019 Form 10-K.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net ~~loss,~~(loss) income, which is the most directly comparable GAAP measure for the periods presented:


	Three months ended March 31,
	2020		2019
	(in thousands)
Net (loss) income	$	(291,220)	$	1,400
Interest expense, net		331		1,093
Income tax (benefit) expense		(164)		178
Depreciation and amortization		26,867		32,518
EBITDA		(264,186)		35,189
Impairment of goodwill and trademark⁽¹⁾		276,016		4,396
Non-recurring severance expenses⁽¹⁾		3,502		1,680
Impairment of property and equipment⁽¹⁾		3,184		519
Yard closure costs related to consolidating operations⁽¹⁾		1,950		—
Non-cash loss on sale of assets or subsidiaries⁽³⁾		1,627		5,906
Lease abandonment costs⁽¹⁾		953		1,073
Non-cash compensation expenses		574		4,179
Foreign currency loss (gain), net		46		(260)
Non-recurring transaction costs⁽²⁾		12		662
Inventory write-down		—		75
Adjusted EBITDA	$	23,678	$	53,419

Three Months Ended September 30,

Nine Months Ended September 30,


2017


2016

2017


2016

(In thousands)

(In thousands)
Net income (loss)

$
2,593

$
(35,204)

$
(20,177)

$
(289,235)
Interest expense

484

4,343

1,885

11,792
Depreciation and amortization

23,795

21,976

68,456

75,518
Tax (benefit) expense

(294)

26

(326)

392
EBITDA

26,578

(8,859)

49,838

(201,533)
Impairment

—

—

—

198,692
Lease abandonment costs

590

13,169

2,871

13,169
Non-recurring severance costs

—

147

122

689
Non-recurring deal costs

4,382

20

5,462

(236)
Non-cash incentive compensation

549

(1)

1,781

(488)
Non-cash loss on sale of subsidiaries and other assets

268

(491)

775

(29)
Non-recurring phantom equity and IPO-related compensation

—

—

12,537

—
Adjusted EBITDA

$
32,367

$
3,985

$
73,386

$
10,264

(1)	For the Current Quarter, these costs were due to the significant adverse change to the demand for the Company’s services in connection with a significant decline in the price of oil. For the Prior Quarter, these costs were due to the dissolution of our divested service lines.

(2)	For the Prior Quarter, these costs primarily related to the rebranding of our Fluids Hauling business.

(3)	For the Prior Quarter, these costs primarily related to losses on divestitures and related sales of property and equipment in connection with the wind down of former service lines.

EBITDA was ($264.2) million for the Current Quarter compared to $35.2 million for the Prior Quarter. The $299.4 million decrease in EBITDA was primarily driven by a $271.6 million increase in goodwill and trademark impairment costs, a decrease of $37.1 million in Water Services gross profit offset by a $7.1 million decrease in selling, general and administrative costs and a $4.1 million decrease in loss on sale of property and equipment. Adjusted EBITDA was $23.7 million for the Current Quarter compared to $53.4 million for the Prior Quarter. The $29.7 million decrease is primarily attributable to the items discussed above.

Table of Contents

Liquidity and Capital Resources

Overview

The impact of the COVID-19 pandemic and OPEC+ disputes on oil prices and production levels, as well as the uncertainty about the timing of a future recovery is expected to have a negative impact on financial results in the coming quarters. We are taking actions to manage costs and cash, including but not limited to significantly reducing headcount, cutting salaries, closing operational yards, reducing forecasted capital expenditures, streamlining operational and back office functions, selling excess equipment, deferring payroll tax payments for the rest of 2020 in accordance with the CARES Act and deferring applicable lease payments.

Our primary sources of liquidity ~~to date have been capital contributions from our members, the net proceeds from the 144A Offering, the net proceeds from the IPO, borrowings~~are cash on hand, borrowing capacity under our current Credit ~~Facility~~Agreement and cash flows from

~~Table of Contents~~

operations. Our primary uses of capital have been to maintain our asset base, implement technological advancements, make capital expenditures to support organic growth, fund acquisitions, and ~~fund acquisitions.~~when appropriate, repurchase shares of Class A common stock in the open market. Depending ~~upon~~on market conditions and other factors, we may also issue debt and equity securities if needed.

As of March 31, 2020, we had no outstanding bank debt and a positive net cash position. We prioritize sustained positive free cash flow and a strong balance sheet, and evaluate potential acquisitions and investments in the context of those priorities, in addition to the economics of the opportunity. We believe this approach provides us with additional flexibility to evaluate larger investments as well as improved resilience in a sustained downturn versus many of our peers.

We intend to finance most of our capital expenditures, contractual obligations and working capital needs with cash generated from operations and borrowings ~~from~~under our Credit ~~Facility.~~Agreement. For a discussion of the Credit ~~Facility,~~Agreement, see “—Credit ~~Facility”~~Agreement” below. WeAlthough we cannot provide any assurance, we believe that our current cash balance, operating cash flow and available borrowings under our Credit ~~Facility~~Agreement will be sufficient to fund our operations for at least the next twelve months.

~~On April 26, 2017, we completed the IPO for net proceeds~~As of approximately $111.4 million, net of underwriting discounts and commissions and estimated offering expenses. We contributed all of these net proceeds to SES Holdings in exchange for SES Holdings LLC Units. SES Holdings used the net proceeds to repay borrowings incurred under our Credit Facility to fund the cash portion of the purchase price of the GRR Acquisition, for the cash settlement of outstanding phantom unit awards at SES Holdings and for 2017 budgeted capital expenditures.On May 10, 2017, we received approximately $17.1 million, net of underwriting discounts and commissions and estimated offering expenses, from the exercise in full by the underwriters of our IPO of their option to purchase additional shares of our Select Class A Common Stock. We used the net proceeds from the underwriters’ option exercise for general corporate purposes, including funding 2017 budgeted capital expenditures.

~~At September 30, 2017,~~March 31, 2020, cash and cash equivalents totaled ~~$42.4 million. In addition to cash~~$114.1 million and ~~cash equivalents,~~ we had approximately ~~$85.9~~$180.8 million of available borrowing capacity under our Credit ~~Facility as~~Agreement. As of ~~September 30, 2017.~~March 31, 2020, the borrowing base under the Credit Agreement was $200.6 million, we had no outstanding borrowings and the outstanding letters of credit totaled $19.8 million. As of May 4, 2020, we had no outstanding borrowings, the borrowing base under the Credit Agreement was $192.2 million, the outstanding letters of credit totaled$15.6 million, and the available borrowing capacity under the Credit Agreement was $176.6 million.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Nine months ended September 30,

Change


2017

2016


(In thousands)

Net cash (used in) provided by operating activities

$
(4,249)

$
8,078

$
(12,327)
Net cash used in investing activities

(121,535)

(20,372)

(101,163)
Net cash provided by financing activities

128,136

2,730

125,406
Net increase (decrease) in cash

$
2,352

$
(9,564)


	Three months ended March 31,				Change
	2020		2019		Dollars		Percentage
	(in thousands)
Net cash provided by operating activities	$	46,711	$	36,587	$	10,124	27.7	%
Net cash used in investing activities		(5,485)		(16,653)		11,168	(67.1)	%
Net cash used in financing activities		(6,291)		(21,595)		15,304	(70.9)	%
Subtotal		34,935		(1,661)
Effect of exchange rate changes on cash and cash equivalents		(61)		107		(168)	NM
Net increase (decrease) in cash and cash equivalents	$	34,874	$	(1,554)

Analysis of Cash Flow Changes ~~Between~~between the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019

Operating Activities. Net ~~cash used in operating activities was $4.2 million for the nine months ended September 30, 2017, compared to net~~ cash provided by operating activities ~~of $8.1~~was $46.7 million for the ~~nine months ended September 30, 2016.~~Current Quarter, compared to $36.6 million for the Prior Quarter. The ~~$12.3~~$10.1 million ~~decrease~~increase in net cash provided by operating activities ~~was~~

Table of Contents

related primarily ~~attributable~~ to ~~increases~~improved working capital management, including reductions in accounts receivable and ~~working capital during the nine months ended September 30, 2017 in response to growth in revenues driven by recovering demand for our services as compared to the prior year period.~~other current assets.

Investing Activities. Net cash used in investing activities was ~~$121.5~~$5.5 million for the ~~nine months ended September 30, 2017,~~Current Quarter, compared to ~~$20.4~~$16.7 million for the ~~nine months ended September 30, 2016.~~Prior Quarter. The ~~$101.2~~$11.2 million ~~increase~~decrease in net cash used in investing activities was primarily due to ~~net cash used for acquisitions~~a $25.2 million reduction in purchases of ~~$62.2~~property and equipment and a $2.6 million increase in proceeds received from sales of property and equipment partially offset by ~~higher capital expenditures during the nine months ended September 30, 2017~~a $15.9 million decrease of ~~$37.4 million as compared~~proceeds primarily related to the ~~nine months ended September 30, 2016.~~divestiture and wind down of our Affirm subsidiary and the sand hauling and Canadian operations as well as a $0.7 million working capital settlement in the Prior Quarter.

Financing Activities. Net cash ~~provided by~~used in financing activities was ~~$128.1~~$6.3 million for the ~~nine months ended September 30, 2017,~~Current Quarter compared to ~~cash provided by financing activities of $2.7~~$21.6 million for the ~~nine months ended September 30, 2016.~~Prior Quarter. The ~~$125.4 million increase~~decrease in ~~net~~ cash ~~provided by~~used in financing activities was primarily due to ~~$128.5~~$20.0 million of net debt repayments in ~~net proceeds received from~~ the ~~issuance~~Prior Quarter compared to zero in the Current Quarter, partially offset by a $5.4 million increase in repurchases of shares of Class A Common Stock during the Current Quarter.

Credit Agreement

On November 1, 2017, in connection with the ~~IPO, including exercise~~closing of the ~~over-allotment option.~~

~~Table of Contents~~

~~Credit Facility~~

~~On May 3, 2011, we~~Rockwater merger (the “Closing”), SES Holdings and Select LLC entered into ~~our~~a $300.0 million senior secured revolving credit facility (the “Credit Agreement”), by and among SES Holdings, as parent, Select LLC, as borrower, 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”). The Credit Facility, which was amended most recently on June 13, 2017. As of September 30, 2017, the total commitment under our Credit Facility was $100.0 million in the form of a revolver. As of September 30, 2017, we had no drawn borrowings under this bank facility. However, our available borrowings are reduced by letters of credit of $14.1 million. The revolver alsoAgreement has a sublimit of ~~$20.0~~$40.0 million for letters of credit and a sublimit of ~~$5.0~~$30.0 million for ~~swing-line~~swingline loans. ~~The most recent amendment of our Credit Facility was~~Subject to ~~remove~~obtaining commitments from existing or new lenders, we have the ~~requirement that businesses or assets acquired by us meet a positive EBITDA test (the “Positive EBITDA Test”) in order~~option to ~~be a Permitted Acquisition (as defined in and~~increase the maximum amount under the Credit ~~Facility), as well as~~Agreement by $150.0 million during the first three years following the Closing.

The maturity date of the Credit Agreement is the earlier of (a) November 1, 2022, and (b) the termination in whole of the Commitments pursuant to ~~waive any defaults resulting from~~Section 2.1(b) of Article VII of the ~~DAWS Acquisition not being in compliance with~~Credit Agreement.

The Credit Agreement permits extensions of credit up to the ~~Positive EBITDA Test.~~

~~Our Credit Facility contains certain financial covenants, including~~lesser of $300.0 million and a borrowing base that is determined by calculating the amount equal to the sum of (i) 85.0% of the ~~maintenance of an Interest Coverage Ratio~~Eligible Billed Receivables (as defined in the Credit ~~Facility)~~Agreement), plus (ii) 75.0% of Eligible Unbilled Receivables (as defined in the Credit Agreement), provided that this amount will not ~~less~~equal more than 35.0% of the borrowing base, plus (iii) the lesser of (A) the product of 70.0% multiplied by the value of Eligible Inventory (as defined in the Credit Agreement) at such time and (B) the product of 85.0% multiplied by the Net Recovery Percentage (as defined in the Credit Agreement) identified in the most recent Acceptable Appraisal of Inventory (as defined in the Credit Agreement), multiplied by the value of Eligible Inventory at such time, provided that this amount will not equal more than 30.0% of the borrowing base, minus (iv) the aggregate amount of Reserves (as defined in the Credit Agreement), if any, established by the Administrative Agent from time to time, including, if any, the amount of the Dilution Reserve (as defined in the Credit Agreement). The borrowing base is calculated on a monthly basis pursuant to a borrowing base certificate delivered by Select LLC to the Administrative Agent.

Borrowings under the Credit Agreement bear interest, at Select LLC’s election, at either the (a) ~~1.25 to 1.0 for~~one-, two-, three- or six-month LIBOR (“Eurocurrency Rate”) or (b) the ~~quarter ending on March 31, 2017, (b) 1.50 to 1.0 for~~greatest of (i) the ~~quarter ending on June 30, 2017, (c) 2.50 to 1.0 for the quarter ending on September 30, 2017 and (d) 3.00 to 1.0 for each fiscal quarter ending on or after December 31, 2017 and~~federal funds rate plus 0.5%, (ii) the ~~maintenance of a Leverage Ratio of not greater than (a) 4.00 to 1.0 for~~one-month Eurocurrency Rate plus 1.0% and (iii) the quarter ending on September 30, 2017, (b) 3.50 to 1.0 for the quarter ending on December 31, 2017, (c) 3.25 to 1.0 for the quarters ending on March 31, 2018, June 30, 2018 and September 30, 2018, (d) 3.00 to 1.0 for the quarter ending December 31, 2018 and (e) 2.75 to 1.0 forAdministrative Agent’s prime rate (the “Base Rate”), in each ~~fiscal quarter ending on or after March 31, 2019.~~

~~Our scheduled maturity date is February 28, 2020 and the per annum interest rate on our loans is LIBOR~~case plus an applicable margin, ~~that~~and interest shall be payable monthly in arrears. The applicable margin for Eurocurrency Rate loans ranges ~~between 3.00%~~from 1.50% to 2.00% and ~~4.50%~~the applicable margin for Base Rate loans ranges from 0.50% to 1.00%, ~~based~~in each case, depending on ~~our Leverage Ratio. Our capacity~~Select LLC’s average excess availability under the Credit Agreement. During the continuance of a bankruptcy event of default, automatically and during the continuance of any other default, upon the Administrative Agent’s or the required lenders’ election, all outstanding amounts under the Credit Agreement will bear interest at 2.00% plus the otherwise applicable interest rate.

Table of Contents

The obligations under the Credit Agreement are guaranteed by SES Holdings and certain subsidiaries of SES Holdings and Select LLC and secured by a security interest in substantially all of the personal property assets of SES Holdings, Select LLC and their domestic subsidiaries.

The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Credit Agreement to be immediately due and payable.

In addition, the Credit Agreement restricts SES Holdings’ and Select LLC’s ability to make ~~capital expenditures is $35 million~~distributions on, or redeem or repurchase, its equity interests, except for certain distributions, including distributions of cash so long as, both at the fiscal year ending December 31, 2017 and for each year thereafter is the greater of (i) $35 million or (ii) 50% of our EBITDA for the prior twelve months; but this restriction is not applicable for any quarter if our Leverage Ratio astime of the ~~end of~~distribution and after giving effect to the distribution, no default exists under the Credit Agreement and either (a) excess availability at all times during the preceding ~~fiscal quarter was less than 3.00 to 1.0. Our Leverage Ratio was less than 3.00 to 1.0 as of September~~ 30 ~~2017. In addition, our Credit Facility contains an anti-cash hoarding provision that restricts us from making any borrowing, if~~consecutive days, on a pro forma basis and after giving effect to such ~~borrowing, we would have in excess~~distribution, is not less than the greater of ~~$20 million in cash and cash equivalents at the end~~(1) 25.0% of the ~~week~~lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $37.5 million or (b) if SES Holdings’ fixed charge coverage ratio is at least 1.0 to 1.0 on a pro forma basis, and excess availability at all times during the preceding 30 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 20.0% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $30.0 million. Additionally, the Credit Agreement generally permits Select LLC to make distributions to allow Select Inc. to make payments required under the existing Tax Receivable Agreements.

The Credit Agreement also requires SES Holdings to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 at any time availability under the Credit Agreement is ~~made.~~less than the greater of (i) 10.0% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million and continuing through and including the first day after such time that availability under the Credit Agreement has equaled or exceeded the greater of (i) 10.0% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (ii) $15.0 million for 60 consecutive calendar days.

~~As of September 30, 2017, we~~We were in compliance with all ~~restrictive~~debt covenants ~~under our Credit Facility.~~as of March 31, 2020.

Contractual Obligations

Our contractual obligations include, among other things, our Credit ~~Facility~~Agreement and operating leases. Refer to Note 7—5—Leases in our 2019 Form 10-K filed on February 25, 2020 for operating lease obligations as of December 31, 2019 and Note 9—Debt in Part I, Item 1 of this Quarterly Report for an update to our contractual obligations as of ~~September 30, 2017.~~March 31, 2020.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in our ~~Final Prospectus~~2019 Form 10-K filed on ~~April 24, 2017.~~February 25, 2020.

Recent Accounting Pronouncements

For information regarding new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements, please refer to Note ~~2 -~~ 2—Significant Accounting Policies in Part I, Item 1 of this Quarterly ~~Report, which is incorporated herein by reference.~~Report.

~~Off Balance Sheet~~Off-Balance-Sheet Arrangements

~~Currently,~~As of March 31, 2020, we ~~have~~had no material ~~off balance sheet arrangements, except for operating leases.~~off-balance-sheet arrangements. As such, we are not ~~materially~~ exposed to any material financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

4452

Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The demand, pricing and terms for oilfield services provided by us are largely dependent upon the level of activity for the U.S. oil and gas industry. Industry conditions are influenced by numerous factors over which we have no control, including, but not limited to: global epidemics or pandemics, including COVID-19; the supply of and demand for oil and gas; ~~the level of~~current prices ~~and~~as well as expectations about future prices of oil and gas; the cost of exploring for, developing, producing and delivering oil and gas; the expected decline in rates of ~~declining~~ current production; the discovery rates of new oil and gas reserves; available storage capacity and pipeline and other transportation capacity; weather conditions; domestic and worldwide economic conditions; political instability in oil-producing countries; environmental regulations; technical advances affecting energy consumption; the price and availability of alternative fuels; the ability of oil and gas producers to raise equity capital and debt financing; and merger and divestiture activity among oil and gas producers.

The level of activity in the U.S. oil and gas industry is historically volatile. Expected trends in oil and gas production activities may not continue and demand for our services may not reflect the level of activity in the industry. ~~Any prolonged substantial reduction in~~Sustained low oil and gas prices have affected, and would likely continue to affect, oil and gas ~~production levels~~drilling and completion activity and therefore affect demand for our services. ~~A material decline in~~Sustained low oil and gas prices or U.S. activity levels could have a material adverse effect on our business, financial condition, results of operations and cash ~~flows.~~flows, and we have begun to experience the significant negative effects of the severe disruption in the oil and gas industry from the COVID-19 pandemic and other factors.

Interest Rate Risk

~~At September 30, 2017,~~As of March 31, 2020, we had no outstanding ~~debt~~borrowings under our Credit ~~Facility.~~Agreement. As of May 4, 2020, we had no outstanding borrowings and approximately $176.6 million of available borrowing capacity under our Credit Agreement. Interest is calculated under the terms of our Credit ~~Facility~~Agreement based on our selection, from time to time, of one of the index rates available to us plus an applicable margin that varies based on certain factors. Assuming our indebtedness remained constant throughout the period, there would not be an impact on interest expense as a result of a 1% increase or decrease in the interest rate on this amount of debt for the nine months ended September 30, 2017. We do not currently have or intend to enter into any derivative arrangements to protect against fluctuations in interest rates applicable to our outstanding indebtedness.

Foreign Currency Exchange Risk

We have been exposed to fluctuations between the U.S. dollar and the Canadian dollar with regard to the activities of our former Canadian subsidiary, which had designated the Canadian dollar as its functional currency. With the recent divestitures of our Canadian operations, we anticipate minimal future exposure to foreign currency exchange risk.

Table of Contents

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule ~~13a‑15(b)~~13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and ~~15d‑15(e)~~15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10‑Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.Report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~September 30, 2017.~~March 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2017~~March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4554

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any legal proceedings that, if determined adversely against us, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flows. We are, however, named defendants in certain lawsuits, investigations and claims arising in the ordinary course of conducting our business, including certain environmental claims and employee-related matters, and we expect that we will be named defendants in similar lawsuits, investigations and claims in the future. While the outcome of these lawsuits, investigations and claims cannot be predicted with certainty, we do not expect these matters to have a material adverse impact on our business, results of operations, cash flows or financial condition. We have not assumed any liabilities arising out of these existing lawsuits, investigations and claims.

In December 2016, Rockwater was notified by the U.S. Attorney’s Office for the Middle District of Pennsylvania that it is being investigated for altering emissions control systems on several of its vehicles. We are cooperating with the investigation and have determined that mechanics servicing our vehicle fleet may have installed software on certain vehicles and modified a few other vehicles to deactivate or bypass the factory-installed emissions control systems. At present, it appears that 31 vehicles in Pennsylvania were modified in this manner, apparently to improve vehicle performance and reliability. As a result of a company-wide investigation undertaken voluntarily and in cooperation with the U.S. Department of Justice, we have determined that approximately 30 additional company vehicles outside of Pennsylvania may have been altered. As of the date of the initiation of the investigation, we operated approximately 1,400 vehicles in the U.S., and the modified vehicles constituted less than 5% of our fleet at such time. We are unable to predict at this time whether any administrative, civil or criminal charges will be brought against us, although we have learned that we may be the target of a criminal investigation, and it is possible that other individuals could become targets. We are cooperating with the U.S. Department of Justice in all aspects of the investigation and have instituted procedures to ensure that our mechanics do not tamper with or bypass any emissions control systems when they are performing vehicle maintenance, and we have also reached an agreement with the U.S. Department of Justice providing for either the restoration or removal from service of those vehicles that were modified. In December 2018, we met with the U.S. Attorney’s Office for the Middle District of Pennsylvania to begin discussions regarding a resolution of this matter and these discussions continued in 2019 and are ongoing. Although we are unable to predict the timing or outcome of this investigation, we note that in similar circumstances, the EPA has imposed fines of approximately $7,200 per altered vehicle and has also required the responsible party to disgorge any financial benefit that it may have derived.

Item 1A. Risk Factors

~~The following risk factors update~~Other than the risk factors ~~described under “Risk Factors” in the Final Prospectus. Except as~~ set forth below, there have been no material changes tofrom the ~~Risk Factors~~risk factors disclosed in ~~the Final Prospectus.~~

~~The Merger~~“Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K. We may experience additional risks and uncertainties not ~~be beneficial~~currently known to us.

~~The consummation~~ Furthermore, as a result of developments occurring in the ~~Merger involves potential~~future, conditions that we currently deem to be immaterial may also materially and adversely affect us. Any such risks, ~~including, without limitation, the failure~~in addition to ~~realize expected profitability, growth or accretion; the incurrence of liabilities or other compliance costs related to environmental or regulatory matters, including potential liabilities that~~those described below and in our 2019 Form 10-K, may ~~be imposed without regard to fault or the legality of conduct;~~materially and the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate. If these risks or other unanticipated liabilities were to materialize, any desired benefits of the Merger may not be fully realized, if at all, andadversely affect our ~~future~~business, financial ~~performance~~condition, cash flows and results of operations.

Our business depends on capital spending by the oil and gas industry in the U.S. and reductions in capital spending could have a material adverse effect on our liquidity, results of operations and financial condition. We expect capital spending by our customers to decrease for the remainder of 2020 due to the impacts of COVID-19 on demand for oil and reduced prices resulting from the current oversupply of oil.

Demand for our services is directly affected by current and anticipated oil and natural gas prices and related capital spending by our customers to explore for, develop and produce oil and gas in the U.S.Prices for oil and gas historically have been extremely volatile and are expected to continue to be volatile, particularly in light of the impacts of COVID-19. During the first quarter ended March 31, 2020, the average WTI spot price was $45.34, versus an average price of $54.82 for first quarter ended March 31, 2019. In March 2020, Saudi Arabia and Russia failed to reach a decision to cut production of oil and gas along with OPEC. Subsequently, Saudi Arabia significantly reduced the prices

Table of Contents

at which it sells oil and announced plans to increase production. These events, combined with the continued outbreak of COVID-19, contributed to a sharp drop in prices for oil in the first quarter of 2020. The WTI price closed at $20.51 on March 31, 2020. In April 2020, OPEC (which includes Saudi Arabia), Russia (together with OPEC and other allied producing countries, “OPEC+”) and the United States agreed to curtail hydrocarbon production by approximately 10 million barrels per day, but the impact of these cuts on the market price for oil and natural gas remains uncertain. Oil prices have fallen further in recent weeks in light of widespread reduced demand as a result of COVID-19 as well as oversupply of oil and significant storage constraints.

If oil and gas prices remain at current levels or continue to decline, our customers may reduce their exploration, development and production activities and demand lower rates for our services or delay, modify, or terminate their use of our services. Volatility or weakness in oil prices or natural gas prices (or the perception that oil prices or natural gas prices will decrease) affects the spending patterns of our customers and may result in the drilling or completion of fewer new wells or lower production spending on existing wells. This, in turn, could ~~be negatively impacted.~~

~~Failure~~lead to ~~successfully combine~~lower demand for our services and may cause lower rates and lower utilization of our assets. For example several leading international and national oil companies have announced their intention to reduce capital expenditures in 2020, and most of our customers have reduced their capital expenditures budget. Even in an environment of stronger oil and gas prices, reduced completion rates of new oil and gas production in our market areas as a result of decreased capital spending may have a negative long-term impact on our business ~~with~~to the ~~business from Rockwater may~~extent the reduced number of wells for us to service more than offsets increasing completion activity and intensity. Any of these conditions or events could adversely affect our ~~future~~operating results. If a recovery does not materialize and our customers fail to increase their capital spending, it could have a material adverse effect on our liquidity, results of operations and financial condition.

Industry conditions are influenced by numerous factors over which we have no control, including:

●

the severity and duration of world health events, including the recent COVID-19 outbreak, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business;

●

domestic and foreign economic conditions and supply of and demand for oil and gas;

●

the level of prices, and expectations regarding future prices, of oil and gas;

●

the level of global oil and gas exploration and production and storage capacity;

●

operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges resulting from limited worksite access, remote work arrangements, performance of contracts and supply chain disruption;

●

recommendations of, or restrictions imposed by, government and health authorities, including travel bans, quarantines, and shelter-in-place orders to address the COVID-19 outbreak;

●

actions by the members of OPEC+ with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations;

●

governmental regulations, including the policies of governments regarding the exploration for and production and development of their oil and gas reserves;

●

taxation and royalty charges;

●

political and economic conditions in oil and gas producing countries;

●

global weather conditions, pandemics and natural disasters;

●

worldwide political, military and economic conditions;

●

the cost of producing and delivering oil and gas;

●

the discovery rates of new oil and gas reserves;

●

activities by non-governmental organizations to limit certain sources of funding for the energy sector or restrict the exploration, development and production of oil and gas;

●

the ability of oil and gas producers to access capital;

●

technical advances affecting production efficiencies and overall energy consumption; and

●

the potential acceleration of the development of alternative fuels.

Table of Contents

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as COVID-19, could adversely affect our business, results of operations and financial condition.

The ~~consummation~~global or national outbreak of an illness or any other communicable disease, or any other public health crisis, such as COVID-19, may cause disruptions to our business and operational plans, which may include (i) shortages of employees, (ii) unavailability of contractors and subcontractors, (iii) interruption of supplies from third parties upon which we rely, (iv) recommendations of, or restrictions imposed by, government and health authorities, including quarantines, to address the COVID-19 outbreak and (v) restrictions that we and our contractors and subcontractors impose, including facility shutdowns or access restrictions, to ensure the safety of employees and (vi) reductions, delays or cancellations of planned operations by our customers. Additionally, these disruptions could negatively impact our financial results. For example, in response to COVID-19, we have temporarily closed our corporate offices and restricted all non-critical personnel to work remotely, reduced headcount and employee salaries both temporarily and permanently, closed certain yard locations, reduced third party expenses, streamlined operations, reduced capital expenditures and recorded impairment expenses.

Further, the effects of COVID-19 and concerns regarding its global spread have negatively impacted the global economy, reduced global oil demand, disrupted global supply chains and created significant volatility and disruption of financial and commodities markets, which could lead to our customers curtailing existing production due to lack of downstream demand or storage capacity as well as reducing or eliminating the number of wells completed in the near to medium term.

The extent of the ~~Merger involves potential risks, including:~~

~~the failure to realize expected profitability, growth or accretion;~~

~~environmental or regulatory compliance matters or liabilities;~~

~~diversion of management's attention from our existing businesses; and~~

~~the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate.~~

~~If these risks or other anticipated or unanticipated liabilities were~~impact of COVID-19 on our operational and financial performance, including our ability to ~~materialize, any desired benefits~~execute our business strategies and initiatives, will depend on future developments, including the duration and spread of COVID-19 and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption, as well as significantly decreased demand for oil and gas, could materially affect our business, results of operations, access to sources of liquidity and financial condition, and we have begun to experience the ~~Merger may not be fully realized, if at all, and our future business operations and our cash available for distribution could be negatively impacted.~~negative impacts of such disruption.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Unregistered Sales of Equity Securities~~

On September 15, 2017, we issued 156,909 shares of Select Class A Common Stock, valued at $15.17 per share, to Resource Water Transfer, L.P. as partial consideration for the Resource Water Acquisition. This issuance of Select Class A Common Stock did not involve any underwriters, underwriting discounts or commissions or a public offering, and such issuance was exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act.

~~Table of Contents~~

Issuer Purchases of Equity Securities

~~Neither~~During the Current Quarter, we ~~nor any affiliated purchaser~~ repurchased ~~any~~the shares of Class A Common Stock as shown in the table below, which included 849,711 shares purchased in the open market pursuant to a repurchase plan, and 129,680 shares purchased to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our ~~equity securities during the period covered by this Quarterly Report on Form 10‑Q.~~employees:


	Total Number of	Weighted Average Price
Period	Shares Purchased	Paid Per Share
January 1, 2020 to January 31, 2020	486,366	$	7.64
February 1, 2020 to February 29, 2020	351,710	$	7.06
March 1, 2020 to March 31, 2020	141,315	$	3.10
Total	979,391	$	6.78

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Table of Contents

Item 5. Other Information.

None.

Item 6. Exhibits

The following exhibits ~~listed on the accompanying Exhibit Index~~ are filed, furnished or incorporated by reference, as applicable, as part of this ~~report, and such Exhibit Index is incorporated herein by reference.~~report.

4758

Table of Contents

~~EXHIBIT INDEX~~

HIDDEN_ROW
Exhibit Number		Description

~~2.1~~3.1		~~Agreement~~Fourth Amended and ~~Plan~~Restated Certificate of ~~Merger, dated as~~Incorporation of ~~July 18, 2017, by and among~~ Select Energy Services, Inc.~~, SES Holdings, LLC, Raptor Merger Sub, Inc., Raptor Merger Sub, LLC, Rockwater Energy Solutions, Inc. and Rockwater Energy Solutions, LLC~~ dated as of May 10, 2019 (incorporated by reference herein to Exhibit ~~2.1~~3.1 to Select Energy Services, Inc.’s Current Report on Form 8-K, filed ~~on July 19, 2017)~~May 15, 2019).

~~3.1~~		Third Amended and Restated Certificate of Incorporation of Select Energy Services, Inc. (incorporated by reference herein to Exhibit 4.1 to Select Energy Services, Inc.’s Registration Statement on Form S-8, filed on November 2, 2017 (Registration No. 333-221282)).

3.2		Second Amended and Restated Bylaws of Select Energy Services, Inc. dated as of May 10, 2019 (incorporated by reference herein to Exhibit 3.2 to Select Energy Services, Inc.’s ~~Registration Statement on Form S‑1, filed on March 2, 2017 (Registration No. 333‑ 216404)).~~

~~4.1~~		Form of Stock Certificate (incorporated by reference herein to Exhibit 4.1 to Select Energy Services, Inc.’s Registration Statement on Form S‑1, filed on March 2, 2017 (Registration No. 333‑216404)).

~~4.2~~		Amended and Restated Registration Rights Agreement, dated as of July 18, 2017, by and among Select Energy Services, Inc., SES Legacy Holdings, LLC, Crestview Partners II SES Investment B, LLC, SCF-VI, L.P., SCF-VII, L.P., SCF-VII(A), L.P. and WDC Aggregate LLC (incorporated by reference herein to Exhibit 4.1 to Select Energy Services, Inc.’s Current Report on Form 8-K, filed ~~on July 19, 2017)~~May 15, 2019).

10.1		~~Waiver~~Global Amendment to Performance Share Unit Grant Notices and ~~Amendment No. 16 to Amended and Restated Revolving Credit Agreement, dated June 13, 2017~~Agreements (incorporated by reference herein to Exhibit 10.1 to Select Energy Services, Inc.’s Current Report on Form 8-K, filed ~~on June 16, 2017)~~January 24, 2020).

*10.2		~~Credit Agreement. dated November 1, 2017, by~~Form of Performance Share Unit Grant Notice and ~~among Select Energy Services, LLC, SES Holdings, LLC, Wells Fargo Bank, N.A., as administrative agent, and~~Performance Share Unit Agreement – Adjusted Free Cash Flow – under the ~~lenders named therein (incorporated by reference herein to Exhibit 10.1 to Select Energy Services, Inc.’s Current Report on Form 8-K, filed November 2, 2017).~~

~~10.3~~		~~First Amendment to~~ Select Energy Services, Inc. 2016 Equity Incentive ~~Plan (incorporated by reference herein to Exhibit 10.2 to~~Plan.

*10.3		Form of Performance Share Unit Grant Notice and Performance Share Unit Agreement – Return on Assets – under the Select Energy Services, Inc.~~’s Quarterly Report on Form 10-Q, filed August 11, 2017).~~ 2016 Equity Incentive Plan.

~~10.4~~*31.1		Amendment No. 1 to Tax Receivable Agreement, dated July 18, 2017, by and among Select Energy Services, Inc., SES Legacy Holdings, LLC and Crestview Partners II GP,��L.P. (incorporated by reference herein to Exhibit 10.3 to Select Energy Services, Inc.’s Quarterly Report on Form 10-Q, filed August 11, 2017).

~~10.5~~		Amendment No. 1 to Tax Receivable Agreement, dated July 18, 2017, by and among Select Energy Services, Inc., Crestview Partners II SES Investment B, LLC and Crestview Partners II GP, L.P. (incorporated by reference herein to Exhibit 10.4 to Select Energy Services, Inc.’s Quarterly Report on Form 10-Q, filed August 11, 2017).

~~10.6~~		Letter Agreement, dated as of September 19, 2017, by and among Select Energy Services, Inc., SES Holdings, LLC, Raptor Merger Sub, Inc., Raptor Merger Sub, LLC, Rockwater Energy Solutions, Inc. and Rockwater Energy Solutions, LLC (incorporated by reference herein to Exhibit 10.1 to Select Energy Services, Inc.’s Current Report on Form 8-K, filed on September 20, 2017).

~~Table of Contents~~

~~31.1~~		Certification of Chief Executive Officer required by Rules ~~13a‑14~~13a-14 and ~~15d‑14~~15d-14 under the Securities Exchange Act of 1934.

*31.2		Certification of Chief Financial Officer required by Rules ~~13a‑14~~13a-14 and ~~15d‑14~~15d-14 under the Securities Exchange Act of 1934.

**32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101		Interactive Data Files

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith

**Furnished herewith

4959

Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SELECT ENERGY SERVICES, INC.

Date: ~~November 13, 2017~~May 6, 2020	By:	/s/ Holli Ladhani
		Holli Ladhani
		President and Chief Executive Officer
~~(Principal Executive Officer)~~


Date: ~~November 13, 2017~~May 6, 2020	By:	/s/ ~~Gary Gillette~~Nick Swyka
		~~Gary Gillette~~Nick Swyka
		Senior Vice President and Chief Financial Officer ~~and Senior Vice President~~ ~~(Principal Financial Officer and Principal Accounting Officer)~~

5060


Delaware	81-4561945
~~Delaware~~	~~81‑4561945~~
(State of incorporation)	(IRS Employer Identification Number)

~~1400 Post Oak Boulevard,~~1233 W. Loop South, Suite ~~400~~1400 Houston, TX	~~77056~~77027
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	WTTR	New York Stock Exchange


Large accelerated filer ☐☑	Accelerated filer ☐	Non-accelerated filer ☑☐	Smaller reporting company ☐
		~~(Do not check if a smaller reporting company)~~	Emerging growth company ☑☐


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33 39

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45 53

Item 4.	Controls and Procedures	45 54

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	46 55

Item 1A.	Risk Factors	46 55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46 57

Item 3.	Defaults upon Senior Securities	47 57

Item 4.	Mine Safety Disclosures	47 57

Item 5.	Other Information	47 58

Item 6.	Exhibits	47 58


	September 30, 2017		December 31, 2016
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	42,393	$	40,041
Accounts receivable trade, net of allowance for doubtful accounts of $2,867 and $2,144, respectively		148,372		75,892
Accounts receivable, related parties		433		135
Inventories		852		1,001
Prepaid expenses and other current assets		13,495		7,586
Total current assets		205,545		124,655
Property and equipment		815,002		739,386
Accumulated depreciation		(535,456)		(490,519)
Property and equipment, net		279,546		248,867
Goodwill		25,091		12,242
Other intangible assets, net		35,351		11,586
Other assets		7,216		7,716
Total assets	$	552,749	$	405,066
Liabilities and Equity
Current liabilities
Accounts payable	$	11,751	$	10,796
Accounts payable and accrued expenses, related parties		1,246		648
Accrued salaries and benefits		8,595		2,511
Accrued insurance		11,008		10,338
Accrued expenses and other current liabilities		39,713		22,091
Total current liabilities		72,313		46,384
Accrued lease obligations		18,100		15,946
Other long term liabilities		8,008		8,028
Long-term debt, net of current maturities		—		—
Total liabilities		98,421		70,358
Commitments and contingencies (Note 8)
Class A-1 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017; 16,100,000 shares issued and outstanding as of December 31, 2016		—		161
Class A common stock, $0.01 par value; 250,000,000 shares authorized and 30,468,249 shares issued and outstanding as of September 30, 2017; 3,802,972 shares issued and outstanding as of December 31, 2016		305		38
Class B common stock, $0.01 par value; 150,000,000 shares authorized and 38,462,541 shares issued and outstanding as of September 30, 2017 and December 31, 2016		385		385
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016		—		—
Additional paid-in capital		206,158		113,175
Accumulated deficit		(8,207)		(1,043)
Total stockholders’ equity		198,641		112,716
Noncontrolling interests		255,687		221,992
Total equity		454,328		334,708
Total liabilities and equity	$	552,749	$	405,066


	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenue
Water solutions	$	125,086	$	60,975	$	311,275	$	173,157
Accommodations and rentals		15,615		5,838		38,457		19,585
Wellsite completion and construction services		13,179		7,094		38,522		22,923
Total revenue		153,880		73,907		388,254		215,665
Costs of revenue
Water solutions		88,087		49,996		226,737		144,653
Accommodations and rentals		11,976		4,969		30,697		15,527
Wellsite completion and construction services		10,888		6,299		32,155		19,817
Depreciation and amortization		23,420		21,613		67,144		73,874
Total costs of revenue		134,371		82,877		356,733		253,871
Gross profit (loss)		19,509		(8,970)		31,521		(38,206)
Operating expenses
Selling, general and administrative		16,087		8,764		49,298		25,928
Depreciation and amortization		375		363		1,312		1,644
Impairment of goodwill and other intangible assets		—		—		—		138,666
Impairment of property and equipment		—		—		—		60,026
Lease abandonment costs		590		13,169		2,871		13,169
Total operating expenses		17,052		22,296		53,481		239,433
Income (loss) from operations		2,457		(31,266)		(21,960)		(277,639)
Other income (expense)
Interest expense, net		(484)		(4,343)		(1,885)		(11,792)
Other income, net		326		431		3,342		588
Income (loss) before tax expense		2,299		(35,178)		(20,503)		(288,843)
Tax benefit (expense)		294		(26)		326		(392)
Net income (loss)		2,593		(35,204)		(20,177)		(289,235)
Less: Net loss attributable to Predecessor		—		34,931		—		285,359
Less: Net (income) loss attributable to noncontrolling interests		(1,369)		273		13,013		3,876
Net income (loss) attributable to Select Energy Services, Inc.	$	1,224	$	—	$	(7,164)	$	—
Allocation of net income (loss) attributable to:
Class A-1 stockholders	$	—			$	(2,679)
Class A stockholders		1,224				(4,485)
Class B stockholders		—
	$	1,224			$	(7,164)
Weighted average shares outstanding:
Class A-1—Basic		—				9,671,795
Class A—Basic		30,336,923				16,189,997
Class B—Basic		38,462,541				38,462,541
Net income (loss) per share attributable to common stockholders:
Class A-1—Basic	$	—			$	(0.28)
Class A—Basic	$	0.04			$	(0.28)
Class B—Basic	$	—			$	—
Weighted average shares outstanding:
Class A-1—Diluted		—				9,671,795
Class A—Diluted		30,357,572				16,189,997
Class B—Diluted		38,462,541				38,462,541
Net income (loss) per share attributable to common stockholders:
Class A-1—Diluted	$	—			$	(0.28)
Class A—Diluted	$	0.04			$	(0.28)
Class B—Diluted	$	—			$	—


	Class A-1			Class A			Class B			Preferred
	Stockholders			Stockholders			Stockholders			Stockholders
		Class A-1			Class A			Class B					Additional				Total
		Common			Common			Common			Preferred		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of December 31, 2016	16,100,000	$	161	3,802,972	$	38	38,462,541	$	385	—	$	—	$	113,175	$	(1,043)	$	112,716	$	221,992	$	334,708
Conversion of Class A-1 to Class A	(16,100,000)		(161)	16,100,000		161	—		—	—		—		—		—		—		—		—
Issuance of shares for acquisitions	—		—	560,277		6	—		—	—		—		4,360		—		4,366		5,514		9,880
Issuance of shares for initial public offering	—		—	10,005,000		100	—		—	—		—		87,835		—		87,935		40,569		128,504
Equity-based compensation	—		—	—		—	—		—	—		—		788		—		788		993		1,781
Noncontrolling interest in subsidiary	—		—	—		—	—		—	—		—		—		—		—		(368)		(368)
Net loss	—		—	—		—	—		—	—		—		—		(7,164)		(7,164)		(13,013)		(20,177)
Balance as of September 30, 2017	—	$	—	30,468,249	$	305	38,462,541	$	385	—	$	—	$	206,158	$	(8,207)	$	198,641	$	255,687	$	454,328


Preliminary purchase price allocation	Amount
Consideration transferred	(in thousand)
Cash paid	$	6,692
Class A common stock issued		2,380
Total consideration transferred		9,072
Less: identified assets
Working capital		1,396
Fixed assets		3,485
Customer relationship intangible assets		1,912
Other intangible assets		466
Total identified assets		7,259
Goodwill	$	1,813


	Pro Forma				Pro Forma
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(unaudited)				(unaudited)
	(in thousands)				(in thousands)
Revenue	$	156,045	$	82,824	$	400,948	$	237,644

Net income (loss)	$	3,195	$	(34,344)	$	(17,951)	$	(289,130)
Less: net (income) loss attributable to noncontrolling interests 1		(1,706)		19,284		11,682		163,044
Net income (loss) attributable to Select Energy Services, Inc. 1	$	1,489	$	(15,060)	$	(6,269)	$	(126,086)


			Provision during the		Usage during the
	Balance as of		nine months ended		nine months ended		Balance as of
	December 31, 2016		September 30, 2017		September 30, 2017		September 30, 2017
	(in thousands)
Lease obligations and terminations	$	18,000	$	2,871	$	2,153	$	18,718
Reclassification of deferred rent		1,069						1,254
Total	$	19,069					$	19,972


			Wellsite Completion
	Water		and Construction		Accommodations
	Solutions		Services		and Rentals		Total
	(in thousands)
Balance as of December 31, 2015	$	137,534	$	12,242	$	995	$	150,771
Impairment		(137,534)		—		(995)		(138,529)
Balance as of December 31, 2016		—		12,242		—		12,242
Additions		12,849		—		—		12,849
Balance as of September 30, 2017	$	12,849	$	12,242	$	—	$	25,091


Leverage Ratio Before Receipt of Fourth Quarter 2017	Eurodollar		Base Rate
Compliance Certificate	Advances		Advances
< 4.00	4.00	%	3.00	%
≥ 4.00	4.50	%	3.50	%


	For the nine months ended September 30, 2017
		Weighted-average
	Equity Options	Exercise Price
Beginning balance	620,721	$	16.50
Granted	455,130		20.00
Forfeited	(98,499)		20.00
Ending balance	977,352	$	17.78


	$20.00 Strike
Underlying Equity	$	20.00
Strike Price	$	20.00
Dividend Yield (%)		0.0	%
Risk free rate (%)		1.68 - 2.00	%
Volatility (%)		46.6 - 46.8	%
Expected Term (Years)		4-6


	For the nine months ended September 30, 2017
		Weighted-average
	Restricted Stock	Grant Date Fair Value
Beginning balance	—	$	—
Granted	41,117		19.91
Forfeited	(10,757)		20.00
Ending balance	30,360	$	19.88


	For the nine months ended September 30,
	2017		2016
	(in thousands)
Net loss attributable to Select Energy Services, Inc. and its Predecessor	$	(7,164)	$	(285,359)
Transfers from noncontrolling interests:
Increase in additional paid-in capital as a result of the contribution of proceeds from the IPO to SEC Holdings, LLC in exchange for common units		87,835		—
Increase in additional paid-in capital as a result of the contribution of assets acquired to SES Holdings, LLC in exchange for common units		4,360		—
Increase in contributed capital due to purchase of noncontrolling interest		—		135
Change to equity from net loss attributable to Select Energy Services, Inc. and its Predecessor and transfers from noncontrolling interests	$	85,031	$	(285,224)


	For the three months ended September 30, 2017
			Income (loss) before		Depreciation and		Capital
	Revenue		taxes		Amortization		Expenditures
	(in thousands)
Water Solutions	$	125,142	$	9,844	$	19,433	$	22,260
Accommodations and Rentals		15,974		(304)		2,908		3,541
Wellsite Completion and Construction Services		13,301		(2)		1,079		1,303
Elimination		(537)		—		—		—
Income from operations				9,538
Corporate		—		(7,081)		375		—
Interest expense, net		—		(484)		—		—
Other income, net		—		326		—		—
	$	153,880	$	2,299	$	23,795	$	27,104


	Total Assets
	As of		As of
	September 30, 2017		December 31, 2016
	(in thousands)
Water Solutions	$	448,585	$	324,171
Accommodations and Rentals		50,057		38,874
Wellsite Completion and Construction Services		38,827		29,994
Corporate		15,280		12,027
	$	552,749	$	405,066


	Three months ended September 30,				Change
	2017			2016	Dollars		Percentage
		(in thousands)
Revenue
Water solutions	$	125,086	$	60,975	$	64,111	105.1	%
Accommodations and rentals		15,615		5,838		9,777	167.5	%
Wellsite completion and construction services		13,179		7,094		6,085	85.8	%
Total revenue		153,880		73,907		79,973	108.2	%

Costs of revenue
Water solutions		88,087		49,996		38,091	76.2	%
Accommodations and rentals		11,976		4,969		7,007	141.0	%
Wellsite completion and construction services		10,888		6,299		4,589	72.9	%
Depreciation and amortization		23,420		21,613		1,807	8.4	%
Total costs of revenue		134,371		82,877		51,494	62.1	%
Gross profit (loss)		19,509		(8,970)		28,479	NM

Operating expenses
Selling, general and administrative		16,087		8,764		7,323	83.6	%
Depreciation and amortization		375		363		12	3.3	%
Lease abandonment costs		590		13,169		(12,579)	(95.5)	%
Total operating expenses		17,052		22,296		(5,244)	(23.5)	%
Income (loss) from operations		2,457		(31,266)		33,723	NM

Other income (expense)
Interest expense, net		(484)		(4,343)		3,859	(88.9)	%
Other income, net		326		431		(105)	(24.4)	%
Income (loss) before tax expense		2,299		(35,178)		37,477	NM
Tax benefit (expense)		294		(26)		320	NM
Net income (loss)	$	2,593	$	(35,204)	$	37,797	NM