UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form ~~10‑Q~~10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☑~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended September 30, ~~2017~~2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from _______________ to ________________

Commission File Number ~~001‑38066~~001-38066

SELECT ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)


Delaware	~~81‑4561945~~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)

~~(940) 668‑0259~~(713) 235-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule ~~12b‑2~~12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company. Yes ☐ No ☑

As of ~~November 8, 2017,~~October 31, 2022, the registrant had ~~59,201,393~~98,102,383 shares of Class A common stock ~~6,731,845 shares of Class A-2 common stock~~ and ~~40,331,989~~16,221,101 shares of Class B common stock outstanding.

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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form ~~10‑Q~~10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our ~~final prospectus dated April 20, 2017~~most recent Annual Report on Form 10-K, in our subsequently filed Quarterly Reports on Form 10-Q, under the heading “Part II—Item 1A. Risk Factors” in this Quarterly Report and ~~filed~~those set forth from time to time in our other filings with the Securities and Exchange Commission ~~(“SEC”) pursuant to Rule 424(b) under the Securities Act, on April 24, 2017~~ (the ~~“Final Prospectus”~~“SEC”) ~~and under the heading “Item 1A. Risk Factors” in this Quarterly Report.~~. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

●

the severity and duration of world health events, including the novel coronavirus (“COVID-19”) pandemic and its variants, and associated repercussions to supply and demand for oil and natural gas and the economy generally;

●

global economic distress resulting from sustained Russia-Ukraine war and related economic sanctions, rising interest rates, and potential energy shortages in Europe which may decrease demand for oil and demand for our services or contribute to volatility in the prices for oil and natural gas;

●

actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “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 announced supply limitations;

●

actions taken by the Biden Administration or state governments, such as executive orders or new or expanded regulations, that may negatively impact the future production of oil and natural gas in the United States (“U.S.”) or our customers’ access to federal and state lands for oil and gas development operations, thereby reducing demand for our services in the affected areas;

●

the level of capital spending and access to capital markets by ~~domestic~~ oil and gas ~~companies;~~

companies in response to changes in commodity prices or reduced demand;

●

the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources;

●

operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, measures taken to protect the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;

●

any new or additional measures required by national, state or local governments to combat COVID-19, such as a COVID-19 vaccine mandate, which if enacted, could reduce labor availability or add additional operational costs as we may experience constraints on our workforce and the workforce of our supply chain, which could have a negative impact on our operations;

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●

the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies;

●

the degree to which consolidation among our customers may affect spending on U.S. drilling and completions;

●

trends and volatility in oil and gas ~~prices;~~

prices, and our ability to manage through such volatility;

●

~~demand for our services;~~

the impact of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater, transferring produced water, interstate freshwater transfer, chemicals, carbon pricing, pipeline construction, taxation or emissions, leasing, permitting or drilling on federal lands and various other environmental matters;

●

regional impacts to our business, including our key infrastructure assets within the ~~Bakken;~~

Bakken, the Northern Delaware portion of the Permian Basin, and the Haynesville;

●

capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets;

●

regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our ~~level of indebtedness~~services;

●

growing demand for electric vehicles that may result in reduced demand for gasoline and therefore the demand for our services;

●

our ability to ~~comply with covenants contained in our~~ ~~Amended~~hire and ~~Restated Credit Agreement with Wells Fargo Bank, National Association, as administrative agent,~~retain key management and ~~various lenders, entered into on May 3, 2011 and amended most recently on June 13, 2017 (as amended, our “Credit Facility”),~~ ~~or future debt instruments;~~

employees, including skilled labor;

●

our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms;

●

our health, safety and environmental performance;

●

the impact ~~of current and future laws, rulings and governmental regulations, including those related to hydraulic fracturing, accessing water, disposing of wastewater and various environmental matters;~~

~~our ability to retain key management and employees;~~

~~the impacts~~ of competition on our operations;

●

the degree to which our exploration and production (“E&P”) customers may elect to operate their water-management services in-house rather than source these services from companies like us;

●

our level of indebtedness and our ability to ~~hire and retain skilled labor;~~

comply with covenants contained in our Sustainability-Linked Credit Facility (as defined herein) or future debt instruments;

●

~~the impacts of the recently completed merger (the “Merger”) with Rockwater Energy Solutions, Inc. (“Rockwater”);~~

delays or restrictions in obtaining permits by us or our customers;

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●

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;~~

serve, including the rate of inflation and potential economic recession;

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●

acts of terrorism, war or political or civil unrest in the U.S. or elsewhere;

●

accidents, weather, ~~seasonality~~natural disasters 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 our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, and this Quarterly Report. 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.

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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


	September 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	13,222	$	85,801
Accounts receivable trade, net of allowance for credit losses of $4,891 and $4,401, respectively		388,797		232,824
Accounts receivable, related parties		303		219
Inventories		40,314		44,456
Prepaid expenses and other current assets		37,334		31,486
Total current assets		479,970		394,786
Property and equipment		1,018,402		943,515
Accumulated depreciation		(591,340)		(551,727)
Total property and equipment, net		427,062		391,788
Right-of-use assets, net		48,275		47,732
Other intangible assets, net		100,455		108,472
Other long-term assets, net		16,639		7,414
Total assets	$	1,072,401	$	950,192
Liabilities and Equity
Current liabilities
Accounts payable	$	55,844	$	36,049
Accrued accounts payable		64,861		52,051
Accounts payable and accrued expenses, related parties		3,775		1,939
Accrued salaries and benefits		21,704		22,233
Accrued insurance		21,520		13,408
Sales tax payable		2,863		2,706
Accrued expenses and other current liabilities		21,957		19,544
Current operating lease liabilities		16,957		13,997
Current portion of finance lease obligations		19		113
Total current liabilities		209,500		162,040
Long-term operating lease liabilities		48,552		53,198
Other long-term liabilities		44,947		39,780
Total liabilities		302,999		255,018
Commitments and contingencies (Note 9)
Class A common stock, $0.01 par value; 350,000,000 shares authorized and 98,097,930 shares issued and outstanding as of September 30, 2022; 350,000,000 shares authorized and 94,172,920 shares issued and outstanding as of December 31, 2021		981		942
Class A-2 common stock, $0.01 par value; 40,000,000 shares authorized; no shares issued or outstanding as of September 30, 2022 and December 31, 2021		—		—
Class B common stock, $0.01 par value; 150,000,000 shares authorized and 16,221,101 shares issued and outstanding as of September 30, 2022 and December 31, 2021		162		162
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021		—		—
Additional paid-in capital		977,063		950,464
Accumulated deficit		(318,843)		(359,472)
Total stockholders’ equity		659,363		592,096
Noncontrolling interests		110,039		103,078
Total equity		769,402		695,174
Total liabilities and equity	$	1,072,401	$	950,192

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

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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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenue
Water Services	$	221,243	$	112,474	$	580,845	$	253,348
Water Infrastructure		74,396		36,787		193,234		107,916
Oilfield Chemicals		79,433		55,372		231,665		148,228
Total revenue		375,072		204,633		1,005,744		509,492
Costs of revenue
Water Services		170,845		94,667		465,951		227,736
Water Infrastructure		54,197		28,494		143,514		81,130
Oilfield Chemicals		64,519		49,583		194,670		132,103
Other		(1)		—		—		—
Depreciation and amortization		26,672		22,904		82,425		65,572
Total costs of revenue		316,232		195,648		886,560		506,541
Gross profit		58,840		8,985		119,184		2,951
Operating expenses
Selling, general and administrative		29,782		22,044		84,792		57,828
Depreciation and amortization		543		562		1,636		1,835
Lease abandonment costs		83		154		336		480
Total operating expenses		30,408		22,760		86,764		60,143
Income (loss) from operations		28,432		(13,775)		32,420		(57,192)
Other income (expense)
(Loss) gain on sales of property and equipment and divestitures, net		(479)		315		1,905		(1,921)
Interest expense, net		(616)		(419)		(1,830)		(1,254)
Foreign currency (loss) gain, net		(6)		(6)		(9)		1
Bargain purchase gain		(3,273)		—		13,768		—
Other		1,153		(222)		2,277		(956)
Income (loss) before income tax (expense) benefit		25,211		(14,107)		48,531		(61,322)
Income tax (expense) benefit		(276)		32		(672)		211
Equity in losses of unconsolidated entities		(218)		(129)		(576)		(129)
Net income (loss)		24,717		(14,204)		47,283		(61,240)
Less: net (income) loss attributable to noncontrolling interests		(3,393)		2,160		(6,654)		9,522
Net income (loss) attributable to Select Energy Services, Inc.	$	21,324	$	(12,044)	$	40,629	$	(51,718)

Net income (loss) per share attributable to common stockholders (Note 15):
Class A—Basic	$	0.23	$	(0.14)	$	0.44	$	(0.60)
Class B—Basic	$	—	$	—	$	—	$	—

Net income (loss) per share attributable to common stockholders (Note 15):
Class A—Diluted	$	0.22	$	(0.14)	$	0.43	$	(0.60)
Class B—Diluted	$	—	$	—	$	—	$	—

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

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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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	24,717	$	(14,204)	$	47,283	$	(61,240)
Comprehensive income (loss)		24,717		(14,204)		47,283		(61,240)
Less: comprehensive (income) loss attributable to noncontrolling interests		(3,393)		2,160		(6,654)		9,522
Comprehensive income (loss) attributable to Select Energy Services, Inc.	$	21,324	$	(12,044)	$	40,629	$	(51,718)

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

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

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

~~(unaudited)~~For the nine months ended September 30, 2022 and 2021

~~(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

(unaudited)


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of December 31, 2021	94,172,920	$	942	16,221,101	$	162	$	950,464	$	(359,472)	$	592,096	$	103,078	$	695,174
ESPP shares issued	4,681		—	—		—		34		—		34		1		35
Equity-based compensation	—		—	—		—		9,454		—		9,454		1,569		11,023
Issuance of restricted shares	2,529,231		25	—		—		2,220		—		2,245		(2,245)		—
Stock options exercised	70,000		1	—		—		583		—		584		24		608
Issuance of shares for acquisitions	4,203,323		42	—		—		34,456		—		34,498		1,356		35,854
Repurchase of common stock	(2,794,983)		(28)	—		—		(20,109)		—		(20,137)		(438)		(20,575)
Restricted shares forfeited	(87,242)		(1)	—		—		(78)		—		(79)		79		—
NCI income tax adjustment	—		—	—		—		39		—		39		(39)		—
Net income	—		—	—		—		—		40,629		40,629		6,654		47,283
Balance as of September 30, 2022	98,097,930	$	981	16,221,101	$	162	$	977,063	$	(318,843)	$	659,363	$	110,039	$	769,402


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of December 31, 2020	86,812,647	$	868	16,221,101	$	162	$	909,278	$	(317,247)	$	593,061	$	112,821	$	705,882
ESPP shares issued	7,787		—	—		—		44		—		44		(1)		43
Equity-based compensation	—		—	—		—		5,290		—		5,290		958		6,248
Issuance of restricted shares	2,154,897		22	—		—		2,162		—		2,184		(2,185)		(1)
Issuance of shares for acquisitions	3,600,000		36	—		—		20,627		—		20,663		(359)		20,304
Other	738		—	—		—		5		—		5		—		5
Repurchase of common stock	(199,976)		(2)	—		—		(1,223)		—		(1,225)		19		(1,206)
Restricted shares forfeited	(319,874)		(3)	—		—		(332)		—		(335)		335		—
Noncontrolling interest in subsidiary	—		—	—		—		(140)		—		(140)		(934)		(1,074)
NCI income tax adjustment	—		—	—		—		31		—		31		(31)		—
Net loss	—		—	—		—		—		(51,718)		(51,718)		(9,522)		(61,240)
Balance as of September 30, 2021	92,056,219	$	921	16,221,101	$	162	$	935,742	$	(368,965)	$	567,860	$	101,101	$	668,961

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

statements

Table of Contents

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

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended September 30, 2022 and 2021

(unaudited)

(in thousands, except share data)


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of June 30, 2022	98,160,573	$	982	16,221,101	$	162	$	974,066	$	(340,167)	$	635,043	$	106,102	$	741,145
ESPP shares issued	1,541		—	—		—		10		—		10		—		10
Equity-based compensation	—		—	—		—		3,265		—		3,265		539		3,804
Repurchase of common stock	(40,060)		(1)	—		—		(268)		—		(269)		(2)		(271)
Restricted shares forfeited	(24,124)		—	—		—		(22)		—		(22)		22		—
NCI income tax adjustment	—		—	—		—		12		—		12		(15)		(3)
Net income	—		—	—		—		—		21,324		21,324		3,393		24,717
Balance as of September 30, 2022	98,097,930	$	981	16,221,101	$	162	$	977,063	$	(318,843)	$	659,363	$	110,039	$	769,402


	Class A			Class B
	Stockholders			Stockholders
		Class A			Class B		Additional				Total
		Common			Common		Paid-In		Accumulated		Stockholders’		Noncontrolling
	Shares	Stock		Shares	Stock		Capital		Deficit		Equity		Interests		Total
Balance as of June 30, 2021	88,160,703	$	882	16,221,101	$	162	$	912,872	$	(356,921)	$	556,995	$	103,551	$	660,546
ESPP shares issued	2,906		—	—		—		14		—		14		—		14
Equity-based compensation	—		—	—		—		1,957		—		1,957		345		2,302
Issuance of restricted shares	311,089		3	—		—		281		—		284		(285)		(1)
Issuance of shares for acquisitions	3,600,000		36	—		—		20,627		—		20,663		(359)		20,304
Restricted shares forfeited	(18,479)		—	—		—		(17)		—		(17)		17		—
NCI income tax adjustment	—		—	—		—		8		—		8		(8)		—
Net loss	—		—	—		—		—		(12,044)		(12,044)		(2,160)		(14,204)
Balance as of September 30, 2021	92,056,219	$	921	16,221,101	$	162	$	935,742	$	(368,965)	$	567,860	$	101,101	$	668,961

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)

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


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	47,283	$	(61,240)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		84,061		67,407
(Gain) loss on disposal of property and equipment and divestitures		(1,905)		1,921
Equity in losses of unconsolidated entities		576		129
Bad debt expense (recovery)		2,091		(651)
Amortization of debt issuance costs		539		516
Inventory adjustments		(612)		139
Equity-based compensation		11,023		6,248
Bargain purchase gain		(13,768)		—
Unrealized loss on short-term investment		—		1,406
Other operating items, net		(710)		(309)
Changes in operating assets and liabilities
Accounts receivable		(141,468)		(32,509)
Prepaid expenses and other assets		(200)		(10,284)
Accounts payable and accrued liabilities		10,983		13,331
Net cash used in operating activities		(2,107)		(13,896)
Cash flows from investing activities
Purchase of property and equipment		(50,815)		(29,925)
Investment in note receivable		—		(1,101)
Purchase of equity-method investments		(6,767)		(2,200)
Collection of note receivable		184		—
Distribution from cost method investment		60		120
Acquisitions, net of cash and restricted cash received		5,707		(18,644)
Proceeds received from sales of property and equipment		21,433		6,491
Proceeds received from divestitures		705		—
Net cash used in investing activities		(29,493)		(45,259)
Cash flows from financing activities
Borrowings from revolving line of credit		82,000		—
Payments on revolving line of credit		(82,000)		—
Payments on long-term debt		(18,780)		—
Payments of finance lease obligations		(108)		(238)
Payment of debt issuance costs		(2,144)		—
Proceeds from share issuance		35		43
Distributions to noncontrolling interests		—		(1,074)
Repurchase of common stock		(19,967)		(1,206)
Net cash used in financing activities		(40,964)		(2,475)
Effect of exchange rate changes on cash		(15)		4
Net decrease in cash and cash equivalents		(72,579)		(61,626)
Cash and cash equivalents, beginning of period		85,801		169,039
Cash and cash equivalents, end of period	$	13,222	$	107,413
Supplemental cash flow disclosure:
Cash paid for interest	$	1,255	$	1,108
Cash refunds received for income taxes, net	$	(452)	$	(927)
Supplemental disclosure of noncash investing activities:
Issuance of shares for acquisitions	$	35,854	$	20,304
Conversion of notes receivable to equity-method investment	$	4,442	$	—
Capital expenditures included in accounts payable and accrued liabilities	$	19,896	$	8,433

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

911

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~~

We are a leading provider of comprehensive water-management 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 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~~chemical solutions to the ~~U.S. conventional oil and natural gas industry. The Company offers water‑related services that support~~ oil and gas ~~well completion and production activities including sourcing, transfer, containment, monitoring, treatment, flowback, hauling and disposal~~industry in the U.S. ~~shale basins. These services establish and maintain~~As a leader in the ~~flow~~water solutions industry, we place the utmost importance on safe, environmentally responsible management of ~~oil and natural gas~~oilfield water throughout the ~~productive life~~lifecycle of a ~~horizontal~~ well. Additionally, we believe that responsibly managing water resources through our operations to help conserve and protect the environment in the communities in which we operate is paramount to our continued success.

~~The~~Class A and Class B Common Stock: As of September 30, 2022, the Company ~~also operates a wellsite services group to complement its total water solutions offering. These services include equipment rental, accommodations, crane~~had both Class A and ~~logistics services, wellsite~~Class B common shares issued 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: On December 20, 2016, Select Energy Services completed a private placement (the “144A Offering”)~~outstanding. Holders of ~~16,100,000~~ shares of our Class ~~A‑1~~A common stock, par value $0.01 per share (“~~Select~~ Class ~~A-1~~A Common Stock”) ~~at an 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”) 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, and Select Energy Services became the sole managing member of SES Holdings. Select Energy Services issued 38,462,541 shares of Class B common stock, par value $0.01 per share (“~~Select~~ Class B Common Stock”) are entitled to ~~the other member of SES Holdings, SES Legacy Holdings, LLC (“Legacy Owner Holdco”), or~~ one share for each SES Holdings LLC Unit held by Legacy Owner Holdco. The Company also acquired 3,802,972 SES Holdings LLC Units from certain legacy owners (the “Contributing Legacy Owners”) in exchange for the issuance of 3,802,972 shares of Class A common stock, par value $0.01vote per share ~~(“Select Class A Common 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~~presented 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 based onour stockholders for their ownership of Select Class B Common Stock. The reorganization transactions were treated as a combination of entities under common control with assets and liabilities transferred at their carrying amounts in a manner similar to a pooling of interests.vote or approval.

~~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 of the IPO exercised their over-allotment option to purchase an additional 1,305,000 shares 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 the net proceeds in the following manner: (i) $34.0 million was used to repay borrowings incurred under the Company’s Credit Facility to fund the cash portion 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. See Note 7—Debt for further discussion.

Exchange ~~rights~~: rights: Under the Eighth Amended and Restated Limited Liability Company Agreement of SES Holdings (the “SES Holdings LLC Agreement”), SES Legacy Holdings LLC (“Legacy Owner ~~Holdco has~~Holdco”) 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 December 2016, in connection with the closing of the 144A Offering, Select Energy Services entered into a registration rights agreement with FBR Capital Markets & Co. 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 additional 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 closing 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 Common Stock outstanding automatically converted into a share of Select Class A Common Stock on a one‑for‑one basis at that time. In addition, Legacy Owner Holdco has 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.

~~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. 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 Quarterly Report relates to the ~~accompanying unaudited interim consolidated financial statements~~three and ~~related notes~~nine months ended September 30, 2022 (the “Current Quarter” and the “Current Period”, respectively) and the three and nine months ended September 30, 2021 (the “Prior Quarter” and the “Prior Period”, respectively). The Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), filed with the SEC on February 23, 2022, includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report. 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~~interim periods have been reflected. The results for the Current Quarter and ~~2015 included~~Current Period may not be indicative of the results to be expected for the full year, in part due to the ~~Final Prospectus.~~ war between Russia and Ukraine, the continuing effects of the COVID-19 pandemic and large variations in oil and natural gas prices during the Current Quarter and Current Period.

Table of Contents

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~~the Company exercises significant influence over operating and financial policies are accounted for using the ~~equity method,~~equity-method, and investments in entities for which the Company does not have significant control or influence are accounted for using the cost ~~method.~~method or other appropriate basis as applicable. As of September 30, 2022, the Company had three equity-method investments and one cost-method investment. 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. Our investments in unconsolidated entities are summarized below and are included in the assets of our Water Services segment:


	Year				As of September 30,	As of December 31,
Type of Investment	attained	Accounting method	Balance Sheet Location	2022		2021

				(in thousands)
20% minority interest	2011	Cost-method	Other long-term assets, net	$	60	$	120
Notes receivable (1)	2020	Amortized cost basis	Other long-term assets, net		—		4,446
21% minority interest (1)	2021	Equity-method	Other long-term assets, net		4,608		—
40% minority interest (2)	2021	Equity-method	Other long-term assets, net		5,313		1,779
49% minority interest (3)	2021	Equity-method	Other long-term assets, net		2,633		142

(1)

Investment in notes receivable converted to equity-method investment during the Current Period.

(2)

Ownership percentage increased in the Current Period due to additional contributions. Minority interest was 33% as of December 31, 2021.

(3)

Ownership percentage increased in the Current Period due to additional contributions. Minority interest was 45% as of December 31, 2021.

Segment reporting: The Company has three 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. See “Note 16—Segment Information” for additional information.

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, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions, and our produced water gathering systems and saltwater disposal wells, as well as solids disposal facilities, primarily serving E&P companies.

The Oilfield Chemicals segment provides technical solutions, products and expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, pipelines and well completions for customers ranging from pressure pumpers to major integrated and independent oil and gas producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the fracturing fluid system in conjunction with the quality of water used in well completions.

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

Table of Contents

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~~2021, 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.~~2021 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 reserve, income taxes, ~~self‑insurance~~self-insurance liabilities, ~~share‑based~~share-based compensation, contingent liabilities, lease-related reasonably certain option exercise assessments, 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 relates 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~~Company adjusts this allowance based on specific information in connection with aged receivables. Historically, most bad debt has been incurred when a customer’s financial condition significantly deteriorates, which in some cases leads to bankruptcy. Market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods.

The change in the allowance for credit losses is as follows:


	Nine months ended September 30, 2022
	(in thousands)
Balance as of December 31, 2021	$	4,401
Increase to allowance based on a percentage of revenue		2,016
Charge-offs		(1,555)
Recoveries		29
Balance as of September 30, 2022	$	4,891

Table of ~~2012 (the “JOBS Act”~~Contents

Asset retirement obligations: The Company’s asset retirement obligations (“ARO”)~~, we are an “emerging growth company,” or an “EGC,” which allows us~~ relate to ~~have an extended transition period~~disposal facilities with obligations for ~~complying with new or revised accounting standards pursuant~~plugging wells, removing surface equipment, and returning land to ~~Section 107(b) of~~its pre-drilling condition. The following table describes the ~~JOBS Act. We intend~~changes to ~~take advantage of all of~~ the ~~reduced reporting requirements and exemptions, including the longer phase‑in periods~~Company’s ARO liability for the ~~adoption~~Current Period:



	Nine months ended September 30, 2022
	(in thousands)
Balance as of December 31, 2021	$	29,551
Accretion expense, included in depreciation and amortization expense		855
Acquired AROs		13,029
Divested		(1,490)
Payments		(779)
Balance as of September 30, 2022	$	41,166

Short-term ARO liability		4,490
Long-term ARO liability		36,676
Balance as of September 30, 2022	$	41,166

We review the adequacy of ~~new or revised financial accounting standards under Section 107 of~~our ARO liabilities whenever indicators suggest that the ~~JOBS Act until we~~estimated cash flows underlying the liabilities have changed. The Company’s ARO liabilities are ~~no longer an emerging growth company. Our election to use the phase‑~~included in ~~periods permitted by this election may make it difficult to compare our financial statements to those of non‑emerging growth companies~~accrued expenses and other ~~emerging growth companies that have opted out of the longer phase‑in periods under Section 107 of the JOBS Act~~current liabilities 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.

~~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 the amount of variable consideration to include~~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 all 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 as the Company is an EGC and able to utilize the extended transition period 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. accompanying consolidated balance sheets.

Lessor Income: The Company is ~~still evaluating the impact that the new accounting guidance will have on its consolidated financial statements~~a lessor for a nominal number of owned facilities and ~~related disclosures and has not yet determined the method by which it will adopt the standard.~~

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes, which amends existing guidance on~~also recognizes income taxes to require the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet. 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 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 interim periods within fiscal years beginning after December 15, 2020, using a modified retrospective approach. 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 impactmultiple facility subleases 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~~are accounted for as ~~acquisitions (or disposals)~~follows:


		Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021

		(in thousands)
Category	Classification
Lessor income	Costs of revenue	$	74	$	113	$	238	$	239
Sublease income	Lease abandonment costs and Costs of revenue		369		262		1,076		736

The Company also generates short-term equipment rental revenue. See “Note 4—Revenue” for a discussion of ~~assets or businesses. As an EGC utilizing~~revenue recognition for the ~~extended transition period for new accounting~~accommodations and rentals business.

Defined Contribution Plan: During 2020, due to worsening economic conditions, the Company suspended the match of its defined contribution 401(k) plan and the suspension continued into the first half of 2021. Effective July 1, 2021, the Company reinstated matching contributions of 50% of employee contributions, up to 4% of eligible earnings. The Company incurred $0.5 million, $0.1 million, $1.7 million and $0.1 million match expense in the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

Payroll Tax Deferral: In 2020, the Company took advantage of the employer payroll tax deferral provision in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and deferred the payment of $6.0 million of payroll taxes. Half of the deferral was paid during the fourth quarter of 2021 and the remaining balance of $3.0 million must be repaid by December 31, 2022. The remaining deferral is reported under accrued salaries and benefits on the accompanying consolidated balance sheets as of September 30, 2022.

Severance: During the Prior Period, the Company incurred $3.2 million of severance in connection with the termination of its former chief executive officer, which was paid in full during the first quarter of 2021 and included in selling, general and administrative in the consolidated statements of operations.

1315

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~~pronouncements, this pronouncement is effective for annual reporting periods beginning after December 15, 2018,~~NOTE 3—ACQUISITIONS

Business combinations

The following table presents key information connected with our 2022 and ~~interim periods within fiscal years beginning after December 15, 2019. The amendments~~2021 acquisitions (dollars 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.~~thousands, except share amounts):


Assets and Operations Acquired	Acquisition Date	Shares Issued		Cash Consideration		Value of Shares Issued		Total Consideration	Segments
Nuverra	February 23, 2022	4,203,323	$	—	$	35,854	$	35,854	Water Services & Water Infrastructure
HB Rentals	December 3, 2021	1,211,375		2,610		7,135		9,745	Water Services
Agua Libre and Basic	October 1, 2021	902,593		16,394		4,684		21,078	Water Services & Water Infrastructure
Complete	July 9, 2021	3,600,000		14,356		20,304		34,660	Water Services & Water Infrastructure
Total		9,917,291	$	33,360	$	67,977	$	101,337

~~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 be applied prospectively to an award modified on or after the adoption date. The Company is still evaluating the impact that the new accounting guidance will have on its consolidated financial statements and related disclosures.

~~NOTE 3— ACQUISITIONS~~

~~Business combinations~~Nuverra Acquisition

On ~~September 15, 2017,~~February 23, 2022, the Company completed ~~its~~the acquisition ~~(the “Resource Water Acquisition”~~of Nuverra Environmental Solutions, Inc. (“Nuverra”) for total consideration 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”) operators in West Texas and East Texas. Resource Water’s assets include 24 miles$35.9 million based on the closing price of layflat hose as well as numerous pumps and ancillary equipment required to support water transfer operations. Resource Water has longstanding customer relationships across its operating regions which are viewed as strategic to the Company’s ~~water solutions business.~~

~~The total consideration for the Resource Water Acquisition was $9.1 million, with $6.7 million paid in cash 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~~on February 23, 2022 (the “Nuverra Acquisition”). Consideration transferred consisted of the consideration 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, judgments 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 workforce as well as synergies 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:

~~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

On March 10, 2017, the Company completed its acquisition (the “GRR Acquisition”) 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 sources 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~~4,203,323 shares of ~~Select~~ Class A Common ~~Stock valued at $20.00 per share, subject~~Stock. The acquisition strengthened Select’s geographic footprint with a unique set of water logistics and infrastructure assets, particularly in the Bakken, Haynesville and Northeast, while continuing to ~~customary post‑closing adjustments. The Company funded~~expand Select’s production-related revenues. Select also acquired a 60-mile underground twin pipeline network in the ~~cash portion of the consideration~~Haynesville Shale in Texas and Louisiana. This pipeline network is used for the ~~GRR~~collection of produced water for transport to interconnected disposal wells and the delivery or re-delivery of water from water sources to operator locations for use in well completion activities. Additionally, Nuverra operates a landfill facility in North Dakota located on a 50-acre site. The facility provides a unique opportunity for Select to expand its logistics capabilities into a new service offering. The acquisition is expected to result in a bargain purchase gain based on our preliminary evaluation, as Nuverra was experiencing financial distress and actively evaluating strategic alternatives leading up to the transaction.

The Nuverra Acquisition with $17.3 million of cash on hand and $34.0 million of borrowings under the Company’s Credit Facility. For the nine months ended September 30, 2017, the Company expensed $1.0 million of transaction-related costs. The GRR Acquisition is beingwas 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 Company has engaged third-party valuation experts to assist in the ~~fair value~~purchase price allocation. These estimates, judgments and assumptions and valuation of the ~~net~~property and equipment acquired, current assets, ~~acquired. Therefore, goodwill~~current liabilities and long-term liabilities have not been finalized as of ~~$11.0~~September 30, 2022. The Nuverra debt, including accrued interest, totaled $18.8 million, and was ~~recorded. The goodwill recognized is primarily attributable to synergies related to~~repaid during the ~~Company’s comprehensive water solutions strategy that are expected to arise from~~Current Period after the ~~GRR Acquisition and is attributable to the Company’s Water Solutions segment.~~acquisition was completed. The assets acquired and liabilities assumed ~~and the results of operations of the acquired business~~ are included in the Company’s Water ~~Solutions segment.~~ Services and Water Infrastructure segments. The Company incurred $0.5 million and $3.6 million of transaction-related costs related to this acquisition in the Current Quarter and Current Period, respectively, and such costs are included in selling, general and administrative within the consolidated statements of operations.

The Company assumed $1.6 million of severance liabilities in connection with the Nuverra acquisition and $0.1 million is included in accrued salaries and benefits as of September 30, 2022.

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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


Preliminary purchase price allocation	As Reported as of June 30, 2022		Current Quarter Adjustment		Amount

Consideration transferred	(in thousands)
Class A Common Stock (4,203,323 shares)	$	35,854	$	—	$	35,854
Total consideration transferred		35,854		—		35,854
Less: identifiable assets acquired and liabilities assumed
Working capital		7,818		(117)		7,701
Property and equipment		65,138		—		65,138
Right-of-use assets		2,931		—		2,931
Other long-term assets		100		—		100
Long-term debt		(18,780)		—		(18,780)
Long-term ARO		(12,980)		—		(12,980)
Long-term lease liabilities		(1,189)		—		(1,189)
Total identifiable net assets acquired		43,038		(117)		42,921
Bargain Purchase Gain		(7,184)		117		(7,067)
Fair value allocated to net assets acquired, net of bargain purchase gain	$	35,854	$	—	$	35,854

~~Resource~~HB Rentals Acquisition

On December 3, 2021, the Company, through its subsidiary Peak Oilfield Services, LLC, completed the acquisition of certain assets of H.B. Rentals, L.C. (“HB Rentals”), an operating subsidiary of Superior Energy Services, Inc. (“Superior”), for total initial consideration of $8.7 million based on the closing price of the Company’s shares of Class A Common Stock on December 2, 2021 (the “HB Rentals Acquisition”). Consideration transferred consisted of 1,211,375 shares of Class A Common Stock and $1.5 million in cash. The Company paid $1.1 million on April 1, 2022, representing the final working capital settlement. The Company acquired the U.S. onshore assets of HB Rentals, including working capital. This acquisition strengthened the Company’s accommodations and rentals footprint in the Permian, Haynesville, MidCon, Northeast and Rockies regions and added revenue-producing fixed assets including a significant number of skid houses and trailer houses. The acquisition resulted in a bargain purchase gain in part due to the seller recently emerging from bankruptcy and deciding to divest domestic assets and operations and focus on international operations.

The HB Rentals Acquisition 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 estimates, judgments and assumptions. These estimates, judgments and assumptions and valuation of the property and equipment acquired, current assets, current liabilities and long-term liabilities were finalized as of June 30, 2022. The assets acquired and liabilities assumed are included in the Company’s Water ~~Acquisition contributed revenue and net income of $0.2 million and less than~~Services segment. The Company incurred $0.1 million ~~respectively,~~of transaction-related costs related to this acquisition in the ~~results~~Current Period, and such costs are included in selling, general and administrative within the consolidated statements of operations.

Table of Contents

The following table summarizes the ~~Company from~~consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of ~~acquisition through September 30, 2017. The GRR Acquisition contributed revenue~~acquisition:


Purchase price allocation	As Reported as of December 31, 2021		Current Period Adjustment		Amount

Consideration transferred	(in thousands)
Class A Common Stock (1,211,375 shares)	$	7,135	$	—	$	7,135
Cash paid		1,526		—		1,526
Final working capital settlement		—		1,084		1,084
Total consideration transferred		8,661		1,084		9,745
Less: identifiable assets acquired and liabilities assumed
Working capital		29		880		909
Property and equipment		14,091		929		15,020
Right-of-use assets		1,316		—		1,316
Long-term lease liabilities		(835)		—		(835)
Total identifiable net assets acquired		14,601		1,809		16,410
Bargain Purchase Gain		(5,940)		(725)		(6,665)
Fair value allocated to net assets acquired, net of bargain purchase gain	$	8,661	$	1,084	$	9,745

Agua Libre Midstream and ~~net income of $21.5 million and $1.9 million, respectively, to the consolidated results of the Company~~water-related assets from ~~the date of acquisition through September 30, 2017. The following unaudited consolidated~~

~~Table of Contents~~

~~pro forma information is presented as if the GRR Acquisition 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~~Basic 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 adjustments for the 144A Offering 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 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 benefits of the GRR Acquisition or Resource Water Acquisition, and are presented 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~~October 1, 2021, the Company completed the acquisition of ~~fixed~~certain assets of Agua Libre Midstream, LLC (“Agua Libre”) and other water-related assets, operations and assumed liabilities from ~~Tex-Star~~Basic Energy Services, Inc. (“Basic”) for total initial consideration of $21.1 million based on the closing price of the Company’s shares of Class A Common Stock on September 30, 2021 (the “Agua Libre and Basic Acquisition”). Consideration transferred consisted of 902,593 shares of Class A Common Stock and $16.4 million in cash. The Company acquired substantially all of the water-related assets and ongoing operations of Agua Libre and Basic, including working capital. With this acquisition, the Company acquired a solid production services footprint in Texas, New Mexico, Oklahoma and North Dakota, as well as more than 550,000 barrels per day of permitted disposal capacity. The acquisition resulted in a bargain purchase gain as the seller was distressed and decided to divest its assets and operations to multiple buyers as operations were wound down and the business was shuttered.

The Agua Libre and Basic Acquisition 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 estimates, judgments and assumptions. The Company also engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments and assumptions and valuation of the property and equipment acquired, current assets, current liabilities and long-term liabilities have been finalized as of September 30, 2022. The assets acquired and liabilities assumed are included in the Company’s Water Services ~~LLC (the “TEX Acquisition”) for $4.2~~and Water Infrastructure segments. The Company incurred $1.4 million, $0.6 million and $1.4 million of transaction-related costs related to this acquisition in ~~cash, funded entirely with cash on hand.~~the Prior Quarter, Current Period and Prior Period, respectively, and such costs are included in selling, general and administrative within the consolidated statements of operations.

Table of Contents

The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition:


Purchase price allocation	As Reported as of December 31, 2021		Current Period Adjustment		Amount

Consideration transferred	(in thousands)
Class A Common Stock (902,593 shares)	$	4,684	$	—	$	4,684
Cash paid		16,394		—		16,394
Total consideration transferred		21,078		—		21,078
Less: identifiable assets acquired and liabilities assumed
Working capital		(506)		37		(469)
Property and equipment		41,000		6,330		47,330
Right-of-use assets		309		—		309
Long-term ARO		(15,810)		—		(15,810)
Long-term lease liabilities		(281)		10		(271)
Total identifiable net assets acquired		24,712		6,377		31,089
Bargain Purchase Gain		(3,634)		(6,377)		(10,011)
Fair value allocated to net assets acquired, net of bargain purchase gain	$	21,078	$	—	$	21,078

Complete Energy Services Acquisition

On ~~May 30, 2017~~July 9, 2021, the Company completed the acquisition ~~of automated manifold intellectual property and related assets from Data Automated Water Systems, LLC~~ (the ~~“DAWS~~“Complete Acquisition”) of Complete Energy Services, Inc. (“Complete”), an operating subsidiary of Superior Energy Services, Inc. (“Superior”) for ~~$4.0 million. This acquisition was paid with $2.0~~initial consideration of $34.5 million based on the closing price of ~~cash and 128,370~~the Company’s shares of ~~Select~~ Class A Common Stock ~~valued at approximately $2.0~~on July 9, 2021. Consideration transferred consisted of 3.6 million shares of Class A Common Stock and $14.2 million in cash. In October 2021, the Company paid $0.2 million related to the settlement of the working capital which resulted in a final purchase price of $34.7 million. The ~~DAWS Acquisition~~Company acquired substantially all of the water-related assets, liabilities and ongoing operations of Complete as well as Superior’s well testing operations, including working capital. Superior retained certain non-core and non-water-related assets that were part of Complete as part of the transaction. This acquisition expanded the Company’s water-related services and infrastructure footprint and strengthened the geographic footprint, particularly in the Mid-Continent, Permian and Rockies. The acquisition resulted in ~~fixed~~a bargain purchase gain in part due to the seller recently emerging from bankruptcy and deciding to divest domestic assets and operations and focus on international operations.

The Complete Acquisition was accounted for as a business combination under the acquisition method of ~~$1.8~~accounting. When determining the fair values of assets acquired and liabilities assumed, management made estimates, judgments and assumptions. The Company also engaged third-party valuation experts to assist in the purchase price allocation. These estimates, judgments and assumptions and valuation of the property and equipment acquired, current assets, current liabilities and long-term liabilities were finalized as of June 30, 2022. The assets acquired and liabilities assumed are included in the Company’s Water Services and Water Infrastructure segments. The Company incurred $0.9 million, ~~patents of $1.9~~$0.4 million and ~~software~~$1.0 million of ~~$0.3 million.~~transaction-related costs related to this acquisition in the Prior Quarter, Current Period and Prior Period, respectively, and such costs are included in selling, general and administrative within the consolidated statements of operations.

~~NOTE 4—EXIT AND DISPOSAL ACTIVITIES~~

~~Due to a reduction in industry activity from 2014,~~

Table of Contents

The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition:



Purchase price allocation	As Reported as of December 31, 2021		Current Period Adjustment		Amount

Consideration transferred	(in thousands)
Class A Common Stock (3,600,000 shares)	$	20,304	$	—	$	20,304
Cash paid		14,356		—		14,356
Total consideration transferred		34,660		—		34,660
Less: identifiable assets acquired and liabilities assumed
Working capital		15,783		(200)		15,583
Property and equipment		36,761		(201)		36,560
Right-of-use assets		3,331		—		3,331
Other long-term assets		24		—		24
Long-term ARO		(9,800)		—		(9,800)
Long-term lease liabilities		(2,028)		—		(2,028)
Total identifiable net assets acquired		44,071		(401)		43,670
Bargain Purchase Gain		(9,411)		401		(9,010)
Fair value allocated to net assets acquired, net of bargain purchase gain	$	34,660	$	—	$	34,660

Contingent Consideration

In connection with an August 2021 business combination, the Company ~~made~~recorded a $1.1 million contingent earn-out liability. The maximum earn-out is $1.6 million, dependent on revenue generated in the ~~decision during~~first and second 12-month periods following the ~~year ended~~acquisition, beginning on October 1, 2021. This liability was $1.1 million as of both September 30, 2022 and December 31, ~~2016~~2021, is entirely related to ~~close 15 facilities~~the second 12-month period following the acquisition, and ~~consolidate operations~~is recorded in other long-term liabilities in the accompanying consolidated balance sheets.

NOTE 4—REVENUE

The Company follows ASU 2014-09, Revenue from Contracts with Customers (Topic 606), for most revenue recognition, which provides a five-step model for determining revenue recognition for arrangements that are within the scope of 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 performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model only to contracts when it is probable that we will collect the consideration the Company is entitled to in exchange for the ~~purpose~~goods or services the Company transfers to the customer. The accommodations and rentals revenue continues to be guided by ASC 842 – Leases, which is discussed further below.

The following factors are applicable to all three of ~~improving operating efficiencies.~~the Company’s segments for the Current Quarter, Prior Quarter, Current Period and Prior Period, 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.

Table of Contents

●

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 services rendered and 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 Water Infrastructure segments, performance obligations arise in connection with services provided to customers in accordance with contractual terms, in an amount the Company 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 usually simultaneously received and consumed by customers at their job sites. As a multi-job site organization, contract terms, including pricing for the 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 per unit basis with unconditional rights to consideration for services rendered reflected as accounts receivable trade, net of allowance for credit losses. In cases where a prepayment is received before the Company satisfies its performance obligations, a contract liability is recorded in accrued expenses and other current liabilities. Final billings generally occur once all of the proper approvals are obtained. Mobilization and demobilization are factored into the pricing for services. Billings and costs related to mobilization and demobilization are not material for customer agreements that start in one period and end in another. As of September 30, 2022, the Company had nine contracts in place for these segments lasting over one year. The Company has recorded ~~$2.9~~a $2.6 million contract liability associated with one 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~~long-term contracts as of September 30, ~~2017. The Company had a remaining balance~~2022, of ~~$20.0~~which $1.2 million ~~inclusive of a short‑term balance of $1.9 million~~is recognized in accrued expenses and other current liabilities and $1.4 million is recognized in other long-term liabilities in the accompanying consolidated balance sheets. This liability was $8.2 million as of December 31, 2021 and the Company has recognized $5.6 million in revenue during the Current Period. The Company expects this contract liability to be converted to revenue under the terms of the contract as it is earned.

Accommodations and rentals revenue is included in the Water Services segment and 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 September 30, ~~2017 related~~2022, there were no material rental agreements in effect lasting more than one year. During the Current Quarter, Prior Quarter, Current Period and Prior Period, approximately $21.1 million, $8.1 million, $54.3 million and $21.0 million of accommodations and rentals revenue was accounted for under ASC 842 lease guidance, with the remainder accounted for under ASC 606 revenue guidance.

In the Oilfield Chemicals segment, the typical performance obligation is to ~~accrued lease obligations~~provide a specific quantity of chemicals to customers in accordance with the customer agreement in an amount the Company expects to collect. Products and ~~terminations at exited facilities within its Water Solutions segment. As~~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 material in-process customer agreements for this segment as of September 30, ~~2017,~~2022, lasting greater than one year.

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


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(in thousands)
Geographic Region
Permian Basin	$	176,357	$	93,976	$	462,481	$	248,535
Rockies		42,139		25,412		113,756		44,630
Marcellus/Utica		41,160		17,956		98,913		42,874
Eagle Ford		40,213		27,827		113,505		73,181
Mid-Continent		30,758		18,925		91,548		36,928
Haynesville/E. Texas		25,039		18,404		77,818		53,972
Bakken		22,567		3,209		54,564		13,976
Eliminations and other regions		(3,161)		(1,076)		(6,841)		(4,604)
Total	$	375,072	$	204,633	$	1,005,744	$	509,492

In the Water Services segment, the most recent top three revenue-producing regions are the Permian Basin, Marcellus/Utica and Rockies, which collectively comprised 68%, 70%, 68% and 67% of segment revenue for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. In the Water Infrastructure segment, the most recent top three revenue-producing regions are the Permian Basin, Bakken and Haynesville/E. Texas which collectively comprised 88%, 78%, 86% and 83% of segment revenue for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. In the Oilfield Chemicals segment, the most recent top three revenue-producing regions are the Permian Basin, Rockies and Eagle Ford, which collectively comprised 85%, 68%, 74% and 67% of segment revenue for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

NOTE 5—INVENTORIES

Inventories, which are comprised of chemicals and raw materials available for resale and parts and consumables used in operations, are valued at the lower of cost and net realizable value, with cost determined under the weighted-average method. The significant components of inventory are as follows:



	September 30, 2022		December 31, 2021

	(in thousands)
Raw materials	$	20,159	$	20,396
Finished goods		20,155		24,060
Total	$	40,314	$	44,456

During the Current Quarter and Current Period, the Company ~~has completed~~recorded net credits to the reserve for excess and obsolete inventory of $0.8 million and $0.6 million, respectively. The Company recorded net charges to the reserve for excess and obsolete inventory of $0.1 million in both the Prior Quarter and Prior Period. Both credits and charges to the reserve for excess and obsolete inventory were recognized within costs of revenue on the accompanying consolidated statements of operations. The Company’s inventory reserve was $3.3 million and $3.9 million as of September 30, 2022 and December 31, 2021, 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.

1622

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~~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—6—PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation. Depreciation (and amortization of finance lease assets) is calculated on a straight-line basis over the estimated useful life of each asset. Property and equipment consists of the following as of September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:



	September 30, 2022		December 31, 2021

	(in thousands)
Machinery and equipment	$	651,221	$	626,633
Buildings and leasehold improvements		135,717		108,177
Pipelines		72,829		72,829
Gathering and disposal infrastructure		62,903		63,228
Vehicles and equipment		26,875		28,502
Land		22,488		16,873
Computer equipment and software		4,804		5,395
Office furniture and equipment		773		764
Machinery and equipment - finance lease		519		544
Vehicles and equipment - finance lease		58		324
Computer equipment and software - finance lease		56		412
Construction in progress		40,159		19,834
		1,018,402		943,515
Less accumulated depreciation⁽¹⁾		(591,340)		(551,727)
Total property and equipment, net	$	427,062	$	391,788

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 $0.6 million and $1.1 million of accumulated depreciation related to finance leases as of September 30, 2022 and December 31, 2021, 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 7— Other Intangible Assets” is as follows:

~~Long‑lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount~~


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(in thousands)
Category
Depreciation expense from property and equipment	$	24,379	$	20,612	$	75,083	$	59,216
Amortization expense from finance leases		5		64		106		167
Amortization expense from intangible assets		2,572		2,686		8,017		7,919
Accretion expense from asset retirement obligations		259		104		855		105
Total depreciation and amortization	$	27,215	$	23,466	$	84,061	$	67,407

Table of ~~an asset may not be recoverable.~~Contents

~~The Company had no capital lease obligations as of September 30, 2017 and December 31, 2016.~~

NOTE ~~6—GOODWILL AND~~ 7—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. The changes in the carrying

~~Table of Contents~~

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

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 September 30, 2022 and December 31, 2021 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


							As of September 30, 2022						As of December 31, 2021
							Gross		Accumulated		Net		Gross		Accumulated		Net
							Value		Amortization		Value		Value		Amortization		Value

	December 31, 2016
	Gross		Accumulated		Net
	Value		Amortization		Value
	(in thousands)
							(in thousands)						(in thousands)
Definite-lived
Customer relationships	$	56,826	$	48,236	$	8,590	$	116,554	$	(45,172)	$	71,382	$	116,554	$	(38,371)	$	78,183
Patents and other intellectual property								12,772		(5,354)		7,418		12,772		(4,313)		8,459
Other		5,491		2,495		2,996		7,234		(6,970)		264		7,234		(6,795)		439
Total other intangible assets	$	62,317	$	50,731	$	11,586
Total definite-lived								136,560		(57,496)		79,064		136,560		(49,479)		87,081
Indefinite-lived
Water rights								7,031		—		7,031		7,031		—		7,031
Trademarks								14,360		—		14,360		14,360		—		14,360
Total indefinite-lived								21,391		—		21,391		21,391		—		21,391

Total other intangible assets, net							$	157,951	$	(57,496)	$	100,455	$	157,951	$	(49,479)	$	108,472

~~Intangibles obtained through acquisitions~~The weighted-average amortization period for customer relationships, patents and other intellectual property, and other definite-lived assets was 8.0 years, 5.7 years, and 1.9 years, respectively, as of September 30, 2022. See “Note 6—Property and Equipment” for the amortization expense during the Current Quarter, Prior Quarter, Current Period and Prior Period, 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)
Remainder of 2022	$	2,648
Year ending December 31, 2023		10,594
Year ending December 31, 2024		10,525
Year ending December 31, 2025		10,362
Year ending December 31, 2026		10,274
Thereafter		34,661
Total	$	79,064

1824

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NOTE 7—8—DEBT

~~Credit Facility term loans~~Sustainability-linked credit facility and revolving line of credit

Select Energy Services’ Credit Facility, originally executed in May 2011, has been amended over time. Effective December 20, 2016, the Company amended its Credit Facility to extend the maturity date from February 28, 2018 to February 28, 2020 and reduce the revolving line of credit to $100.0 million. The agreement also amended certain financial covenants and restrictions and outlined a new pricing grid that is effective after receipt 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 Ratio (as defined in the Credit Facility) falling between 2.00% and 4.00% as outlined below. In addition, a commitment fee related 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 under the Credit Facility. Effective June 13, 2017, the Company amended its Credit Facility to permanently waive the default associated with the DAWS Acquisition. This waiver is specifically for such acquisition and does not remedy any other present or future defaults associated with 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
%

Select Energy Services had no debt outstanding under the revolving line of credit as of September 30, 2017 and December 31, 2016. The borrowing capacity under the revolving line of credit was reduced by outstanding letters of credit of $14.1 million as of September 30, 2017. The Company’s letters of credit have a variable interest rate between 3.00% and 4.50% based on the Company’s Leverage Ratio as outlined above. The unused portion of the available borrowings under the revolving line of credit was $85.9 million at September 30, 2017.

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 were $3.0 million. 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.

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.

~~Table of Contents~~

~~NOTE 8—COMMITMENTS AND CONTINGENCIES~~

~~Litigation~~

The Company is named from time to time in various legal proceedings in the ordinary course of business. The legal proceedings are at different stages; however, the Company does not believe the resolution of any of these proceedings would 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 are in the oil and gas industry. The oil and gas industry is currently facing unique challenges due to the continued volatility and depressed state of oil and gas prices.

~~NOTE 9—EQUITY‑BASED COMPENSATION~~

The SES Holdings 2011 Equity Incentive Plan, (“2011 Plan”) was approved by the Predecessor’s board of managers in April 2011. In conjunction with the 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 144A Offering were cancelled in exchange for new options granted under the 2016 Plan.

On ~~July 18, 2017, the Select Energy Services board of directors approved the First Amendment to the 2016 Plan~~March 17, 2022 (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)) and allows 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 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). The Company’s consenting stockholders, who hold a majority of the outstanding common stock of Select Energy Services, 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 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 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 assumption of the Rockwater Equity Plan, subject to adjustment in the event of recapitalization or reorganization, or related to 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.

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, certain awards that were granted during 2016 in exchange for cancelled awards were immediately vested and fully exercisable on the date of grant because they were granted in exchange for the cancellation of outstanding options granted under the 2011 Plan that were fully vested and exercisable prior to such cancellation. The Company utilizes the Black‑Scholes model to determine fair value, which incorporates assumptions to value equity‑based awards. The 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.

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

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

The weighted‑average grant date fair value of stock options granted during the nine months ended September 30, 2017 was $7.85. The relevant assumptions for stock options granted during the period are 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

~~There was no vested stock option activity, or exercise of vested stock options, during the nine months ended September 30, 2017.~~

~~A summary of the Company’s restricted stock unit activity and related information for the nine months ended September 30, 2017 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

~~Table of Contents~~

The Company recognized approximately $0.6 million and $0.0 million 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 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 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 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 to the extent that the 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 of the completion 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 on the date of the IPO of $14.00, the cash payment with respect to each phantom unit was approximately $5.53, before employer taxes. The Company recognized compensation expense of $7.8 million during the nine months ended September 30, 2017 related to the settlement of its phantom unit awards. As of September 30, 2017 there are no phantom units outstanding.

~~NOTE 10—DERIVATIVE FINANCIAL INSTRUMENTS~~

The Company had variable rate debt outstanding which was subject 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 of the Company’s derivative instruments are presented on a net basis in the accompanying consolidated statements of operations. Changes in the fair value of the Company’s interest rate swap derivative instruments are 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~~	$	—

~~NOTE 11—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 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 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 no transfers into, or out of, the three levels of the fair value hierarchy for the nine months ended September 30, 2017 or the year ended December 31, 2016.

~~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 and December 31, 2016 due to the short‑term maturity of these instruments. The Company had no outstanding debt as of September 30, 2017 and December 31, 2016. 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 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.

~~NOTE 12—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. The Company has entered into a significant number of transactions with related parties. The Company’s board of directors regularly reviews these transactions; however, the Company’s results of operations may have been different if these transactions were conducted with non‑related parties.

During the three months ended September 30, 2017, sales to related parties were $0.4 million and purchases from related party vendors were $2.1 million. These purchases comprised $0.7 million relating to purchases of property and equipment, less than $0.1 million relating to inventory and consumables, $0.8 million relating to rent 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 inventory and consumables, $1.7 million relating to rent 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~~

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

The first of the Tax Receivable Agreements, which the Company entered into with Legacy Owner Holdco 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 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 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 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 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 would not result in such a change of control.

~~NOTE 13—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. federal 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 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 includable 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. The effective tax rates for the three and nine months ended September 30, 2017 differ from the statutory 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.

~~Table of Contents~~

~~The Company recorded income tax expense (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 the nine months ended September 30, 2017 and 2016, respectively.~~

The tax benefits of deferred tax assets are recorded 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 Company’s change in ownership interest in these subsidiaries, the Company reduced its noncontrolling interests and recognized an increase 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’ ownership interest in SES Holdings while it retains its controlling interest are accounted for as equity transactions.

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~~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—EARNINGS PER SHARE~~

Earnings per share are based on the amount of income allocated to the shareholders and the weighted‑average number of shares outstanding during the period for each class of common stock. Outstanding options to purchase 597,749 and 977,352 shares are not included in the calculation of diluted weighted-average shares outstanding for the three and nine months ended September 30, 2017 as the effect is antidilutive.

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Earnings related to periods prior to the reorganization and 144A Offering are attributable to the Predecessor. The following table presents the Company’s calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 (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

$
—



$
—

~~NOTE 16—SEGMENT INFORMATION~~

Select Energy Services is an oilfield services company that provides solutions to the North American onshore oil and natural gas industry. The Company’s services are offered through three operating segments. Operating 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 chief operating decision maker assesses performance and allocates resources on the basis of the three reportable segments. Corporate and other expenses that do not individually meet the criteria for segment reporting are reported separately as Corporate. Each operating segment reflects a reportable segment led by separate managers that report

~~Table of Contents~~

~~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~~—The Water Solutions segment 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 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.

~~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 as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016, by segment, 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

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

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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—SUBSEQUENT EVENTS~~

~~Completion of the Merger~~

On November 1, 2017, the Company completed the transactions contemplated by the Agreement and Plan of Merger, dated as of July 18, 2017 (the “Merger Agreement”), by 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 subsidiary of the Company (the “Corporate Merger”), and LLC Merger Sub merged with and into RES Holdings, with RES Holdings continuing as the surviving entity as an indirect wholly owned subsidiary 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 0.7652 in accordance with the terms of the Merger Agreement.

Shares 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 Time by the Exchange Ratio, at an exercise price per share 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”~~“Restatement Date”), SES Holdings and Select Energy Services, LLC ~~(the “Borrower”~~(“Select LLC”), a wholly-owned subsidiary of SES Holdings, entered into a ~~$300.0~~$270.0 million amended and restated senior secured sustainability-linked revolving credit facility (the ~~“New~~“Sustainability-Linked Credit ~~Agreement”~~Facility”), by and among SES Holdings, as parent, ~~the Borrower,~~Select LLC, as borrower, and certain of

~~Table of Contents~~

SES ~~Holdings’s~~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 New~~ (which amended and restated the Credit Agreement dated November 1, 2017 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 the Administrative Agent (the “Prior Credit Agreement”)). Refer to “Note 10—Debt” in the Company’s Annual Report on Form 10-K for a discussion of the Prior Credit Agreement. The Sustainability-Linked Credit Facility also has a sublimit of $40.0 million for letters of credit and ~~a sublimit of $30.0~~$27.0 million for swingline ~~loans.~~loans, respectively. Subject to obtaining commitments from existing or new lenders, ~~the Company~~Select LLC has the option to increase the maximum amount under the senior secured credit facility by ~~$150.0~~$135.0 million during the first three years following the ~~Closing.~~Restatement Date.

The ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility permits extensions of credit up to the lesser of ~~$300.0~~$270.0 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 in the ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility), plus (ii) 75% of Eligible Unbilled Receivables (as defined in the ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility), 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 ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility) at such time and (B) the product of 85% multiplied by the Net Recovery Percentage (as defined in the ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility) identified in the most recent Acceptable Appraisal of Inventory (as defined in the ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility), 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 ~~New~~Sustainability-Linked Credit ~~Agreement)~~Facility), 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~~Sustainability-Linked Credit ~~Agreement)~~Facility). The borrowing base is calculated on a monthly basis pursuant to a borrowing base certificate delivered by ~~the Borrower~~Select LLC to the Administrative Agent.

Borrowings under the ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility bear interest, at ~~the Borrower’s~~Select LLC’s election, at either the (a) one-~~, two-, three-~~ or ~~six-month LIBOR (“Eurocurrency Rate”)~~three-month Term SOFR (as defined in the Sustainability-Linked Credit Facility) or (b) the greatest of (i) the federal funds rate plus ½%0.5%, (ii) ~~the~~ one-month ~~Eurocurrency Rate~~Term SOFR 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~~Term SOFR loans ranges from ~~1.50%~~1.75% to ~~2.00%~~2.25% and the applicable margin for Base Rate loans ranges from ~~0.50%~~0.75% to ~~1.00%~~1.25%, in each case, depending on ~~the Borrower’s~~Select LLC’s average excess availability under the ~~New~~Sustainability-Linked Credit ~~Agreement. The applicable margin for Eurocurrency Rate loans will be 1.75% and~~Facility, as set forth in the ~~applicable margin for Base Rate loans will be 0.75% until June 30, 2018.~~table below. 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~~Sustainability-Linked Credit ~~Agreement~~Facility will bear interest at 2.00% plus the otherwise applicable interest rate. The ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility is scheduled to mature on the fifth anniversary of the ~~Closing.~~Restatement Date.


Level	Average Excess Availability	Base Rate Margin	SOFR Margin

I	< 33.33% of the commitments	1.25%	2.25%
II	< 66.67% of the commitments and ≥ 33.33% of the commitments	1.00%	2.00%
III	≥ 66.67% of the commitments	0.75%	1.75%


Level	Average Revolver Usage	Unused Line Fee Percentage

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

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Under the Sustainability-Linked Credit Facility, the interest rate margin and the facility fee rates are also subject to adjustments based on Select LLC’s performance of specified sustainability target thresholds with respect to (i) total recordable incident rate, as the Employee Health and Safety Metric and (ii) barrels of produced water recycled at permanent or semi-permanent water treatment and recycling facilities owned or operated, as the Water Stewardship Metric, in each case, subject to limited assurance verification by a qualified independent external reviewer. The adjustment for the interest rate margin is a range of plus and minus 5.0 basis points and the adjustment for the fee margin is a range of plus and minus 1.0 basis point, subject to the mechanics under the Sustainability-Linked Credit Facility.

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

The ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility 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~~Sustainability-Linked Credit ~~Agreement~~Facility to be immediately due and payable.

In addition, the ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility restricts SES ~~Holdings’s~~Holdings’ and ~~the Borrower’s~~Select LLC’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~~Sustainability-Linked Credit ~~Agreement~~Facility 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~~$33.75 million or (b) if SES ~~Holdings’s~~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~~$27.0 million. Additionally, the ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility generally permits ~~the Borrower~~Select LLC to make distributions required under its existing ~~tax receivable agreements.~~Tax Receivable Agreements. See “Note 12—Related Party Transactions—Tax Receivable Agreements” for further discussion of the Tax Receivable Agreements.

The ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility also requires SES Holdings to maintain a fixed charge coverage ratio of at least 1.0 to ~~[1.0]~~1.0 at any time availability under the ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility 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

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and including the first day after such time that availability under the ~~New~~Sustainability-Linked Credit ~~Agreement~~Facility 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~~Sustainability-Linked 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.

The Company had no borrowings outstanding under the Sustainability-Linked Credit Facility as of September 30, 2022 and no borrowings outstanding under the Prior Credit Agreement as of December 31, 2021. As of September 30, 2022 and December 31, 2021, the borrowing base under the Sustainability-Linked Credit Facility and Prior Credit Agreement was $254.4 million and $132.7 million, respectively.The borrowing capacity under the Sustainability-Linked Credit Facility and Prior Credit Agreement was reduced by outstanding letters of credit of $22.9 million and $15.6 million as of September 30, 2022 and December 31, 2021, respectively. The Company’s letters of credit have a variable interest rate between 1.75% and 2.25% based on the Company’s average excess availability as outlined above. The

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unused portion of the available borrowings under the Sustainability-Linked Credit Facility was $231.5 million as of September 30, 2022.

In ~~addition, certain lenders party~~connection with the entry into the Sustainability-Linked Credit Facility, the Company incurred $2.1 million of debt issuance costs during the Current Period. 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, 2022 and December 31, 2021, were $2.2 million and $0.6 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 sheets. Amortization expense related to debt issuance costs was $0.1 million, $0.2 million, $0.5million and $0.5 million for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

The Company was in compliance with all debt covenants as of September 30, 2022.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to 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 ~~Credit Facility~~ultimate outcome of these matters.

Retentions

We are ~~lenders~~self-insured up to certain retention limits with respect to workers’ compensation, general liability and vehicle liability matters, and health insurance. We maintain accruals for self-insurance retentions that we estimate using third-party data and claims history.

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NOTE 10—EQUITY-BASED COMPENSATION

The SES Holdings 2011 Equity Incentive Plan (the “2011 Plan”) was approved by the board of managers of SES Holdings in April 2011. In conjunction with the private placement of 16,100,000 shares of the Company’s Class A Common Stock on December 20, 2016 (the “Select 144A Offering”), the Company adopted the Select Energy Services, Inc. 2016 Equity Incentive Plan (as amended, the “2016 Plan”) for employees, consultants and directors of the Company and its affiliates. Options that were outstanding under the ~~New Credit Agreement.~~2011 Plan immediately prior to the Select 144A Offering were cancelled in exchange for new options granted under the 2016 Plan. On May 8, 2020, the Company’s stockholders approved an amendment to the 2016 Plan to increase the number of shares of the Company’s Class A Common Stock that may be issued under the 2016 Plan by 4,000,000 shares and to make certain other administrative changes. The 2016 Plan includes share recycling provisions that allow shares subject to an award that are withheld or surrendered to the Company in payment of any exercise price or taxes or an award that expires or is cancelled, forfeited or otherwise terminated without actual delivery of the underlying shares of Class A Common Stock to be considered not delivered and thus available to be granted as new awards under the 2016 Plan.

Currently, the maximum number of shares reserved for issuance under the 2016 Plan is approximately 13.3 million shares, with approximately 2.9 million shares available to be issued as of September 30, 2022. For all share-based compensation award types, the Company accounts for forfeitures as they occur.

Stock Option Awards

The Company has outstanding stock option awards as of September 30, 2022 but there have been no option grants since 2018. The stock options were granted with an exercise price equal to or greater than the fair market value of a share of Class A Common Stock as of the date of grant. The expected life of the options at the time of the grant was based on the vesting period and term of the options awarded, which was ten years.

A summary of the Company’s stock option activity and related information as of and for the Current Period is as follows:


	For the nine months ended September 30, 2022
				Weighted-average
		Weighted-average		Grant Date Value	Aggregate Intrinsic
	Stock Options	Exercise Price		Term (Years)	Value (in thousands) ^(a)
Beginning balance, outstanding	2,074,216	$	16.89	4.4	$	—
Exercised	(70,000)		8.70
Forfeited	(9,411)		20.00
Expired	(316,878)		17.41
Ending balance, outstanding	1,677,927	$	17.12	4.4	$	—
Ending balance, exercisable	1,677,927	$	17.12	4.4	$	—
Nonvested as of September 30, 2022	—	$	—

^(a)Aggregate intrinsic value for stock options is based on the difference between the exercise price of the stock options and the quoted closing Class A Common Stock price of $6.97 and $6.23 as of September 30, 2022 and December 31, 2021, respectively.

The Company recognized no compensation expense related to stock options during the Current Quarter, Prior Quarter or Current Period and a nominal amount of compensation expense during the Prior Period. As of September 30, 2022, all equity-based compensation expense related to stock options had been recognized.

Restricted Stock Awards

The value of the restricted stock awards granted 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

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to three years from the applicable date of grant. The Company recognized compensation expense of $3.7 million, $2.4 million, $10.3 million and $5.4 million related to the restricted stock awards for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively. As of September 30, 2022, there was $20.4 million of unrecognized compensation expense with a weighted-average remaining life of 1.7 years related to unvested restricted stock awards.

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


	For the nine months ended September 30, 2022
		Weighted-average
	Restricted Stock Awards	Grant Date Fair Value
Nonvested as of December 31, 2021	3,144,513	$	6.35
Granted	2,529,231		8.14
Vested	(1,534,748)		6.91
Forfeited	(87,242)		7.26
Nonvested as of September 30, 2022	4,051,754	$	7.24

Performance Share Units (PSUs)

During 2020, 2021 and 2022, 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 applicable period from either January 1, 2020 through December 31, 2022, January 1, 2021 through December 31, 2023 or January 1, 2022 through December 31, 2024.

During 2021, the Company also approved grants of PSUs subject to both performance-based and service-based vesting conditions based on adjusted earnings before taxes and depreciation (“Adjusted EBITDA”) as defined in the agreement. The target PSUs granted in 2021 connected with Adjusted EBITDA would vest at 100% only if the minimum Adjusted EBITDA threshold was met. All Adjusted EBITDA-linked PSUs granted in 2021 did not achieve the performance-based vesting conditions and were forfeited.

The target number of shares of Class A Common Stock subject to each remaining PSU granted in 2020, 2021 and 2022 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 zero 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, June 30, 2024 for the 2021 PSU grants, and June 30, 2025, for the 2022 PSU grants, assuming the applicable minimum performance metrics are achieved.

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The target PSUs granted in 2020 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, but only if the Company’s Average Return on Assets is equal to or greater than 5% during the performance period. The target PSUs granted in 2021 and 2022 removed the 5% minimum ROA for the Company and added that the Company must have a positive Total Shareholder Return (as defined in the applicable PSU agreement) over the performance period. As a result of this market condition being added, the 2021 and 2022 PSUs will be valued each reporting period utilizing a Black-Scholes model.


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 granted during 2022, 2021 and 2020 was $5.0 million, $4.4 million and $4.4 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 Company’s estimate, are probable to vest by the measurement date (i.e., the last day of each reporting period date) fair value and recognized using the accelerated attribution method. The Company recognized compensation expense of $0.1 million, a credit to compensation expense of $0.1 million and compensation expense of $0.7 million and $0.8 million related to the PSUs for the Current Quarter, Prior Quarter, Current Period and Prior Period, respectively.

As of September 30, 2022, the unrecognized compensation cost related to our unvested PSUs is estimated to be $4.5 million and is expected to be recognized over a weighted-average period of 1.9years. However, this compensation cost will be adjusted as appropriate throughout the applicable performance periods.

The following table summarizes the information about the PSUs outstanding as of September 30, 2022:


		PSUs
Nonvested as of December 31, 2021		2,205,604
Target shares granted		665,992
Target shares forfeited (1)		(872,956)
Target shares outstanding as of September 30, 2022		1,998,640

(1)

All PSUs granted in 2019 and all PSUs granted in 2021 tied to Adjusted EBITDA did not achieve the respective performance targets and were forfeited.

Employee Stock Purchase Plan (ESPP)

The Company has 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 per year 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

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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 nine months ended
	September 30, 2022
Cash received for shares issued	$	35
Shares issued		4,681

Share Repurchases

During the Current Quarter, the Company repurchased 40,060 shares of Class A Common Stock in connection with employee minimum tax withholding requirements for shares vested under the 2016 Plan. All repurchased shares were retired. During the Current Quarter, the repurchases were accounted for as a decrease to paid-in-capital of $0.3 million and a decrease to Class A Common Stock of less than $1,000.

During the Current Period, the Company repurchased 2,297,985 shares of Class A Common Stock in the open market and repurchased 496,998 shares of Class A Common Stock in connection with employee minimum tax withholding requirements for shares vested under the 2016 Plan and the cashless exercise of stock options. All repurchased shares were retired. During the Current Period, the repurchases were accounted for as a decrease to paid-in-capital of $20.5 million and a decrease to Class A Common Stock of approximately $28,000. In the Prior Period, the Company repurchased 199,976 shares in connection with employee minimum tax withholding requirements.

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NOTE 11—FAIR VALUE MEASUREMENT

The Company utilizes fair value measurements to measure assets and liabilities in a business combination or assess impairment and abandonment of property and equipment, intangible assets and goodwill or to measure the value of securities marked to market. 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.

ASC 820 establishes a three-level valuation hierarchy for the 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 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).

Nonmonetary transaction:During 2020, the Company had a nonmonetary exchange with a customer whereby the customer settled an accounts receivable balance using its restricted common stock, warrants and other privately traded securities. The Company chose the fair value option to account for the securities because it represents the period-end value of the securities, which the Company has the ability to sell. The registration statement registering the resale of the restricted common stock, warrants and other privately traded securities received became effective in the fourth quarter of 2020. Accordingly, the Company uses a Level 1 calculation with the value of the securities derived from quoted market pricing of unrestricted, publicly-traded securities. The Company recorded unrealized losses of $0.2 million and $1.4 million on the securities during the Prior Quarter and Prior Period, respectively, based on the value of the securities as of the end of each reporting period, recognized within other income (expense), net on the accompanying consolidated statements of operations. The Company sold most of these securities during 2021. The remaining securities expired during the Current Quarter resulting in a realized loss of $0.1 million recognized within other income (expense), net on the accompanying consolidated statements of operations.

Other fair value considerations

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NOTE 12—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, an investment in a company that is significantly influenced by another related party, and cost-method and equity-method investees. The Company has entered into a number of transactions with related parties. 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, the Company’s results of operations may have been different if these transactions were conducted with non-related parties.

During the Current Quarter, sales to related parties were $0.5 million and purchases from related-party vendors were $3.3 million. These purchases consisted of $2.9 million relating to the rental of certain equipment or other services used in operations, $0.3 million relating to management, consulting and other services and $0.1 million relating to property and equipment, inventory and consumables.

During the Prior Quarter, sales to related parties were $0.2 million and purchases from related-party vendors were $1.5 million. These purchases consisted of $1.7 million relating to the rental of certain equipment or other services used in operations and a credit of $0.2 million relating to management, consulting and other services.

During the Current Period, sales to related parties were $1.6 million and purchases from related-party vendors were $8.8 million. These purchases consisted of $7.4 million relating to the rental of certain equipment or other services used in operations, $1.0 million relating to management, consulting and other services and $0.4 million relating to property and equipment, inventory and consumables.

During the Prior Period, sales to related parties were $0.8 million and purchases from related-party vendors were $5.0 million. These purchases consisted of $4.1 million relating to the rental of certain equipment or other services used in operations, $0.7 million relating to management, consulting and other services and $0.2 million relating to purchases of property and equipment.

Tax Receivable Agreements

In connection with the Select 144A Offering, the Company entered into two tax receivable agreements (the “Tax Receivable Agreements”) with Legacy Owner Holdco and certain other affiliates of the then holders of SES Holdings LLC Units (each such person and any permitted transferee thereof, a “TRA Holder,” and together, the “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 Legacy Owner Holdco 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

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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.

The Company has not recognized a liability associated with the Tax Receivable Agreements as of September 30, 2022 or December 31, 2021.

NOTE 13—INCOME TAXES

The Company’s income tax information is presented in the table below. The effective tax rate is different than the 21% standard Federal rate due to net income allocated to noncontrolling interests, state income taxes and valuation allowances.


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(in thousands)
Current income tax expense (benefit)	$	284	$	63	$	729	$	(122)
Deferred income tax benefit		(8)		(95)		(57)		(89)
Total income tax expense (benefit)	$	276	$	(32)	$	672	$	(211)
Effective Tax Rate		1.1%		0.2%		1.4%		0.3%

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NOTE 14—NONCONTROLLING INTERESTS

The Company’s 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
	September 30, 2022		December 31, 2021

	(in thousands)
Noncontrolling interests attributable to joint ventures formed for water-related services	$	1,012	$	1,091
Noncontrolling interests attributable to holders of Class B Common Stock		109,027		101,987
Total noncontrolling interests	$	110,039	$	103,078

During the Prior Period, the Company initiated the dissolution of one of its water-related services joint ventures and increased its ownership interest in another joint venture, which, combined, eliminated $0.9 million of noncontrolling interest. Additionally, for all periods presented, there were changes in Select Inc.’s ownership interest in SES Holdings. The effects of the changes in Select Inc.’s ownership interest in SES Holdings are as follows:


	Nine months ended September 30,
	2022		2021

	(in thousands)
Net income (loss) attributable to Select Energy Services, Inc.	$	40,629	$	(51,718)
Transfers from (to) noncontrolling interests:
(Decrease) increase in additional paid-in capital as a result of issuing shares for business combinations		(1,356)		359
Decrease in additional paid-in capital as a result of stock option exercises		(24)		—
Increase in additional paid-in capital as a result of restricted stock issuance, net of forfeitures		2,166		1,850
Increase (decrease) in additional paid-in capital as a result of the repurchase of SES Holdings LLC Units		438		(19)
(Decrease) increase in additional paid-in capital as a result of the Employee Stock Purchase Plan shares issued		(1)		1
Change to equity from net income (loss) attributable to Select Energy Services, Inc. and transfers from noncontrolling interests	$	41,852	$	(49,527)

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NOTE 15—INCOME (LOSS) PER SHARE

Income (loss) per share is based on the amount of loss allocated to the stockholders and the weighted-average number of shares outstanding during the period for each class of common stock. Outstanding options to purchase 1,677,927, 2,105,965, 1,677,927 and 2,105,965 shares of Class A Common Stock are not included in the calculation of diluted weighted-average shares outstanding for the Current Quarter, Prior Quarter, Current Period and Prior Period respectively, as their effect is antidilutive.

The following tables present the Company’s calculation of basic and diluted loss per share for the Current and Prior Quarter and the Current and Prior Period (dollars in thousands, except share and per share amounts):


	Three months ended September 30, 2022						Three months ended September 30, 2021
	Select Energy						Select Energy
	Services, Inc.		Class A		Class B		Services, Inc.		Class A		Class B
Numerator:
Net income (loss)	$	24,717					$	(14,204)
Net (income) loss attributable to noncontrolling interests		(3,393)						2,160
Net income (loss) attributable to Select Energy Services, Inc. — basic	$	21,324	$	21,324	$	—	$	(12,044)	$	(12,044)	$	—
Add: Reallocation of net income (loss) attributable to noncontrolling interests for the dilutive effect of restricted stock		30		30		—		—		—		—
Add: Reallocation of net income (loss) attributable to noncontrolling interests for the dilutive effect of performance units		20		20		—		—		—		—
Net income (loss) attributable to Select Energy Services, Inc. — diluted	$	21,374	$	21,374	$	—	$	(12,044)	$	(12,044)	$	—
Denominator:
Weighted-average shares of common stock outstanding — basic				94,014,963		16,221,101				88,596,736		16,221,101
Dilutive effect of restricted stock				893,562		—				—		—
Dilutive effect of performance share units				611,763		—				—		—
Dilutive effect of ESPP				77		—				—		—
Weighted-average shares of common stock outstanding — diluted				95,520,365		16,221,101				88,596,736		16,221,101
Income (loss) per share:
Basic			$	0.23	$	—			$	(0.14)	$	—
Diluted			$	0.22	$	—			$	(0.14)	$	—


	Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Select Energy						Select Energy
	Services, Inc.		Class A		Class B		Services, Inc.		Class A		Class B
Numerator:
Net income (loss)	$	47,283					$	(61,240)
Net (income) loss attributable to noncontrolling interests		(6,654)						9,522
Net income (loss) attributable to Select Energy Services, Inc. — basic	$	40,629	$	40,629	$	—		(51,718)	$	(51,718)	$	—
Add: Reallocation of net income (loss) attributable to noncontrolling interests for the dilutive effect of restricted stock		62		62		—		—		—		—
Add: Reallocation of net income (loss) attributable to noncontrolling interests for the dilutive effect of performance units		33		33		—		—		—		—
Net income (loss) attributable to Select Energy Services, Inc. — diluted	$	40,724	$	40,724	$	—	$	(51,718)	$	(51,718)	$	—
Denominator:
Weighted-average shares of common stock outstanding — basic				93,231,711		16,221,101				86,290,886		16,221,101
Dilutive effect of restricted stock				973,378		—				—		—
Dilutive effect of performance share units				509,336		—				—		—
Dilutive effect of ESPP				234		—				—		—
Weighted-average shares of common stock outstanding — diluted				94,714,659		16,221,101				86,290,886		16,221,101
Income (loss) per share:
Basic			$	0.44	$	—			$	(0.60)	$	—
Diluted			$	0.43	$	—			$	(0.60)	$	—

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NOTE 16—SEGMENT INFORMATION

Select Inc. is a leading provider of comprehensive water-management and chemical solutions to the oil and gas industry in the U.S. The Company’s services are offered through three reportable segments. Reportable segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the CODM in deciding how to allocate resources and assess performance. The Company’s CODM assesses performance and allocates resources on the basis of the three reportable segments. Corporate and other expenses that do not individually meet the criteria for segment reporting are reported separately as Corporate or Other.

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

Water Services — 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.

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

Oilfield Chemicals — The Oilfield Chemicals segment provides technical solutions, products and expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, pipelines and well completions for customers ranging from pressure pumpers to major integrated and independent oil and gas producers. This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the fracturing fluid system in conjunction with the quality of water used in well completions.

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


	For the three months ended September 30, 2022
			Income		Depreciation and		Capital
	Revenue		before taxes		Amortization		Expenditures

	(in thousands)
Water Services	$	222,108	$	23,892	$	16,926	$	7,318
Water Infrastructure		76,047		11,193		7,471		10,555
Oilfield Chemicals		79,705		8,657		2,275		1,121
Other		—		(3)		—		—
Eliminations		(2,788)		—		—		—
Income from operations				43,739
Corporate		—		(15,307)		543		527
Interest expense, net		—		(616)		—		—
Bargain purchase gain		—		(3,273)		—		—
Other income, net		—		668		—		—
	$	375,072	$	25,211	$	27,215	$	19,521

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	For the three months ended September 30, 2021
			(Loss) Income		Depreciation and		Capital
	Revenue		before taxes		Amortization		Expenditures

	(in thousands)
Water Services	$	113,564	$	(1,622)	$	13,698	$	7,847
Water Infrastructure		36,787		(544)		6,860		8,578
Oilfield Chemicals		55,538		(39)		2,346		2,066
Other		—		(2)		—		—
Eliminations		(1,256)		—		—		—
Loss from operations				(2,207)
Corporate		—		(11,568)		562		378
Interest expense, net		—		(419)		—		—
Other income, net		—		87		—		—
	$	204,633	$	(14,107)	$	23,466	$	18,869


	For the nine months ended September 30, 2022
			Income		Depreciation and		Capital
	Revenue		before taxes		Amortization		Expenditures

	(in thousands)
Water Services	$	583,955	$	40,772	$	47,857	$	21,309
Water Infrastructure		196,970		17,070		27,341		32,234
Oilfield Chemicals		232,120		18,027		7,228		2,017
Other		—		(111)		—		—
Eliminations		(7,301)		—		—		—
Income from operations				75,758
Corporate		—		(43,338)		1,635		3,031
Interest expense, net		—		(1,830)		—		—
Bargain purchase gain		—		13,768		—		—
Other income, net		—		4,173		—		—
	$	1,005,744	$	48,531	$	84,061	$	58,591


	For the nine months ended September 30, 2021
			(Loss) Income		Depreciation and		Capital
	Revenue		before taxes		Amortization		Expenditures

	(in thousands)
Water Services	$	257,511	$	(24,834)	$	39,091	$	10,820
Water Infrastructure		107,922		228		19,561		18,160
Oilfield Chemicals		148,817		(291)		6,920		3,266
Other		—		(18)		—		—
Eliminations		(4,758)		—		—		—
Loss from operations				(24,915)
Corporate		—		(32,277)		1,835		379
Interest expense, net		—		(1,254)		—		—
Other expense, net		—		(2,876)		—		—
	$	509,492	$	(61,322)	$	67,407	$	32,625

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Total assets by segment as of September 30, 2022 and December 31, 2021, is as follows:


	As of		As of
	September 30, 2022		December 31, 2021

	(in thousands)
Water Services	$	565,747	$	533,071
Water Infrastructure		306,105		229,803
Oilfield Chemicals		189,933		180,732
Other		10,616		6,586
	$	1,072,401	$	950,192

NOTE 17—SUBSEQUENT EVENTS

On September 7, 2022, the Company announced that our board of directors approved the initiation of a dividend program under which the Company intends to pay regular quarterly dividends. On October 27, 2022, our board of directors declared a quarterly cash dividend of $0.05 per share of Class A Common Stock to be paid on November 17, 2022 to shareholders of record as of the close of business on November 7, 2022. A distribution of $0.05 per unit was also approved for those holders of units of SES Holdings, LLC, who also hold an equal number of shares of Class B Common Stock of the Company, which is subject to the same payment and record dates. All future dividend payments are subject to quarterly review and approval by the board of directors.

On November 1, 2022, the Company closed on the announced acquisition of Breakwater Energy Services, LLC (“Breakwater”) in a stock-for-stock transaction. In consideration, the Company issued approximately 9.2 million shares of Class A Common Stock to Breakwater shareholders, subject to customary post-closing adjustments. The Company also repaid or assumed approximately $12.6 million of outstanding borrowings and other obligations in conjunction with closing.

On November 1, 2022, the Company closed on the announced acquisition of certain saltwater disposal assets of Cypress Environmental Solutions, LLC (“Cypress”) in an all-stock transaction. In consideration, the Company issued approximately 950,000 shares of Class A Common Stock to Cypress.

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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 our Annual Report on Form 10-K for the ~~Final Prospectus.~~year ended December 31, 2021, filed with the Securities and Exchange Commission on February 23, 2022 (our “2021 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.”~~Statements” and other cautionary statements described under the heading “Risk Factors” included in our 2021 Form 10-K and this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements.

This discussion relates to the three and nine months ended September 30, 2022 (the “Current Quarter” and the “Current Period”, respectively) and the three and nine months ended September 30, 2021 (the “Prior Quarter” and the “Prior Period”, respectively).

Overview

We are a leading provider of ~~total water~~comprehensive water-management and chemical solutions to the oil and gas industry in the United States (“U.S.”). As a 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 help conserve and protect the environment in the communities in which we operate is paramount to our continued success.

Sustainability

Select is committed to implementing a corporate strategy that supports the long-term viability of our business model in a manner that focuses on our people, our customers, the environment, and the communities in which we operate. We believe this focus will help both us and our customers achieve their short-term and long-term environmental, social and governance (“ESG”) goals, help us attract and retain top talent, maintain community support in our areas of operations and further our efforts to generate stockholder returns. We believe our commitment to foster a culture of corporate responsibility is an important part of being a company with operations spanning the contiguous U.S. Further, we believe being a good corporate steward is strategic to our growth in the oil and gas industry and will better allow us to develop solutions that both address the needs of our customers and contribute to sustainable business practices. We compete with other solutions and service providers based on various factors, including safety and operational performance, technological innovation, process efficiencies and reputational awareness. We believe there is a strong link between these corporate responsibility initiatives and our ability to provide value in our industry.

We are one of the few public companies whose primary focus is on the management of water and water logistics in the oil and gas development industry, with an emphasis on driving efficient, environmentally responsible and economical solutions that lower costs throughout the lifecycle of the well. We believe water is a valuable resource and seek to enhance the long-term sustainability of this resource between the needs of the oil and gas industry as well as other industries and the general public. As a company, we provide access to various sources of water as demanded by our customers and have significantly increased our investments and focus on the recycling and reuse of produced water to meet the industry’s water demand and align our operations with the goals of our customers. We have invested significantly in recent quarters in the development of fixed recycling facilities that support the advancement of commercialized produced water reuse solutions. By doing so, we strive to reduce both the amount of produced water being reinjected into SWDs and our usage of fresh water. We view our rather unique capabilities as an opportunity to transform water management by leveraging our Oilfield Chemicals business to develop additional produced water management solutions that increase our customers’ ability to reuse this produced water and add value to their operations.

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By implementing our innovative approach to water solutions, Select has become a leader in recycling produced water to be reused across multiple well completions.

Our strong company culture values commitments to all stakeholders, and we aim to create a work environment that fosters a diverse and inclusive company culture. Additionally, we prioritize safety in our operations through rigorous training, structured protocols, incentives and awards programs and ongoing automation of our operations where appropriate. Our prioritization of safety includes a commitment to safeguarding the communities in which we operate.

We believe that proper alignment of our management and our board of directors with our shareholders is critical to creating long-term value, including the alignment of management compensation and incentive structures and the active engagement of a diverse, experienced and independent board of directors.

Recent Developments

Between July 2021 and February 2022, Select completed five acquisitions. Collectively these acquisitions expanded our revenue base and service offerings with many of our key customers and increased our overall service offerings within multiple basins. Effectively integrating the acquired assets and operations is a major focus of ours for the remainder of 2022. Our integration and related efforts include, but are not limited to, increasing revenue through strategic market share gains, regional service line expansion, increased pricing, and achieving operational synergies. These operational synergies are expected to be realized by effectively connecting complementary assets with one another, pairing assets with related services, realizing cost synergies, and selling excess assets.

On February 23, 2022, the Company acquired Nuverra, an energy-focused environmental solutions company, providing environmental solutions, including the removal, treatment, recycling, transportation and disposal of restricted solids, fluids and hydrocarbons for exploration and production companies operating across the U.S., including in the Bakken, Haynesville, Marcellus and Utica Shales. With the Nuverra transaction, we added more than 300,000 barrels per day of permitted daily disposal capacity in Texas, Louisiana, North Dakota, Montana and Ohio. When combined with our existing assets and other recent acquisitions, this brings our company-wide permitted daily disposal capacity to approximately 2.5 million barrels per day.

The Complete Acquisition, Agua Libre and Basic Acquisition and HB Rentals Acquisition improved our financial results in the year ended December 31, 2021, as well as our competitive positioning in the water solutions market. These acquisitions strengthened our geographic footprint and provided access to employee expertise as well as opportunities to expand our growing water recycling business into new areas. The acquisitions also increased our market share and added multiple opportunities for revenue and cost synergies.

In February 2022, Russia launched a large-scale invasion of Ukraine that has led to significant armed hostilities. As a result, the U.S., the United Kingdom, the member states of the European Union and other public and private actors have levied severe sanctions on Russian financial institutions, businesses and individuals. This conflict, and the resulting sanctions and concerns regarding global energy security, has contributed to significant increases and volatility in the prices for oil and natural gas, with the posted price for WTI reaching a high of $123.64 per barrel during the Current Period. Such volatility may lead to a more difficult investing and planning environment for us and our customers. While the near-term impact of these events resulted in higher oil and gas prices in the Current Period, the ultimate geopolitical and macroeconomic consequences of this invasion and associated sanctions cannot be predicted, and such events, or any further hostilities in Ukraine or elsewhere, could severely impact the world economy and may adversely affect our financial condition.

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While the ongoing effects of the COVID-19 pandemic on our operations have decreased in recent quarters, this pandemic has had a material negative impact on our financial results. While we have seen economic recovery and higher oil prices through the Current Quarter and the Current Period, such negative impact may continue well beyond the containment of the pandemic until global GDP levels, associated oil demand and resulting oilfield activity fully rebound. While we have seen oilfield activity improve considerably and global inventories rapidly normalize with continued demand growth since the low point experienced in 2020, considerable uncertainty remains. Even with this recent recovery however, we cannot provide assurance that our assumptions used to estimate our future financial results will be correct, given the unpredictable nature of the current market environment after the recent elevated volatility in demand for oil and demand for our services. As a consequence, our ability to accurately forecast our activity and profitability is uncertain.

As a result of reduced oil inventories driven by the economic recovery and oil demand growth in much of the world, as well as supply uncertainties heightened by the Russia/Ukraine war, oil and gas prices increased notably in the Current Quarter as compared to the Prior Quarter. During the Current Quarter, the average spot price of West Texas Intermediate crude oil was $93.06versus an average price of $70.62 for the Prior Quarter. The average Henry Hub natural gas spot price during the Current Quarter was $7.99 versus an average of $4.36 for the Prior Quarter. These price levels are supportive of our customers’ drilling and completion programs in the major shale basins.

Many of our customers have demonstrated their resolve to manage their capital spending to within budgets and cash flow from operations and increase redemptions of debt and/or returns of capital to investors. Additionally, consolidation among our customers can disrupt our market in the near-term and the resulting demand for our services. Overall however, the financial health of the oil and gas industry and many of our customers specifically, as reflected in debt metrics, recent capital raises, and equity valuations, greatly improved over the year ended December 31, 2021 and through the Current Period.

From an operational standpoint, many of the recent trends still apply to ongoing unconventional oil and gas ~~industry. Within~~development. The continued trend towards multi-well pad development, executed within a limited time frame, has increased the ~~major shale plays~~overall complexity of well completions, while increasing fracturing efficiency and the use of lower-cost in-basin sand has decreased total costs for our customers. However, we note the continued efficiency gains in the ~~United States,~~well completions process can limit the days we ~~source~~spend on the wellsite and, ~~transfer~~therefore, negatively impact the total revenue opportunity for certain of our services utilizing day-rate pricing models.

This multi-well pad development, combined with recent upstream acreage consolidation and the growing trends around the reuse applications of produced water ~~(both~~provides a significant opportunity for companies like us that can deliver increasingly complex solutions for our E&P customers across the full completion and production lifecycle of wells. While these trends are most advanced in the Permian Basin, they are emerging in other basins as well.

The trend of increased use of produced water will require additional chemical treatment solutions, and we have a dedicated team of specialists focused every day on developing and deploying innovative water treatment and reuse services for our customers. Our FluidMatch™ design solutions enable our customers to economically use these alternative sources to optimize their fluid systems by ~~permanent pipeline~~providing water profiling and ~~temporary pipe) prior~~fluid assessment services working towards real-time. This trend also 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 ~~its use~~provide advanced technology solutions. Ultimately, we intend to play an important role in ~~drilling~~the advancement of water and ~~completion activities associated~~chemical solutions that are designed to meet the sustainability goals of key stakeholders.

Our water logistics, treatment, and chemical application expertise, in combination with ~~hydraulic fracturing or “fracking,” which we collectively refer~~advanced technology solutions, are applicable to ~~as “pre-frac water services.” In~~other industries beyond oil and gas. We are working to further commercialize our services in other businesses through our industrial solutions group.

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February 2021 Severe Weather

Severe winter weather in February 2021 negatively impacted our Prior Period results, equating to approximately one lost week of operations across most of our ~~areas of operations, we provide complementary water-related services~~locations, with extended raw material shortages that ~~support oil and gas well completion and production activities including containment, monitoring, treatment, flowback, hauling and disposal. Our services are necessary~~impacted our Oilfield Chemicals segment into March. We estimate that this negatively impacted Prior Period revenue by an amount ranging from $9 million to establish and maintain production of oil and gas over the productive life of 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 stages in the laterals and increased water and proppant use per foot of lateral) in order to improve production and recovery of hydrocarbons. Historically, we have generated a substantial majority of our revenues through providing total water solutions to our customers. We provide our services to major integrated and large E&P companies, who typically represent the largest producers in each of our areas of operations, as well as other independent companies operating in these regions.$12 million.

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 Services. 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.

●

Water ~~Solutions. Our~~Infrastructure. The Water ~~Solutions~~Infrastructure segment ~~is operated~~consists of the Company’s infrastructure assets, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions, and our produced water gathering systems and saltwater disposal wells, as well as solids disposal facilities, primarily ~~under our subsidiary Select LLC,~~serving E&P companies.

●

Oilfield Chemicals. The Oilfield Chemicals segment provides technical solutions, products and ~~provides water-related services~~expertise related to chemical applications in the oil and gas industry. We develop, manufacture, manage logistics and provide a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, pipelines and well completions for customers ~~that include~~ranging from pressure pumpers to major integrated ~~oil companies~~ and independent oil and ~~natural~~ gas producers. ~~These services include:~~This segment also utilizes its chemical experience and lab testing capabilities to customize tailored water treatment solutions designed to optimize the ~~sourcing~~fracturing fluid system in conjunction with the quality of ~~water; 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,~~used in well ~~testing and handling of flowback and produced formation water; and the transportation and recycling or disposal of drilling, completion and production fluids.~~

completions.

~~Accommodations 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 operations to the U.S. onshore oil and gas industry.

~~Wellsite Completion and Construction Services~~. Our Wellsite Completion and Construction Services segment is operated under our subsidiary Affirm Oilfield Services, LLC, and 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.

How We Generate Revenue

We currently generate ~~a significant~~the majority 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. We generate~~well completions, provided through our Water Services and Water Infrastructure segments. The majority of this revenue is realized through customer agreements with fixed pricing terms ~~but no guaranteed throughput amounts.~~

~~Table~~and is recognized when delivery of ~~Contents~~

services is provided, 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 and specialty 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, vehicle and 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 incurred 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 ~~represent~~and contract labor comprise the ~~most significant~~largest portion of our costs of ~~our~~doing business. We incurred labor and labor-related costs of ~~$54.8~~$122.7 million, $74.2 million, $338.8 million and ~~$34.4~~$191.8 million

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for the ~~three months ended September 30, 2017~~Current Quarter, Prior Quarter, Current Period and ~~2016,~~Prior Period, 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 dependent on the then-current market environment 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.~~headquarters, as well as for third-party support, licensing and services.

We incur significant vehicle and equipment costs in connection with the ~~operation of our business,~~services we provide, including depreciation, ~~repair~~repairs and maintenance, rental and leasing costs. We incurred vehicle and equipment costs of ~~$36.0~~$69.8 million, $43.0 million, $193.4 million and ~~$26.2~~$113.6 million for the ~~three months ended September 30, 2017~~Current Quarter, Prior Quarter, Current Period and ~~2016,~~Prior Period, respectively.

We incur raw material costs in manufacturing our chemical products, as well as for water that we source for our customers. We incurred ~~equipment~~raw material costs of ~~$98.4~~$77.3 million, $55.3 million, $223.4 million and ~~$84.5~~$145.8 million for the ~~nine months ended September 30, 2017~~Current Quarter, Prior Quarter, Current Period and ~~2016,~~Prior Period, 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~~We incur variable transportation costs associated with ~~water transportation are a significant operating cost.~~our service lines, predominately fuel and freight. We incurred fuel and freight costs of ~~$8.2~~$31.0 million, $15.8 million, $86.9 million and ~~$4.6~~$39.8 million for the ~~three months ended September 30, 2017~~Current Quarter, Prior Quarter, Current Period and ~~2016,~~Prior Period, respectively. ~~We incurred~~Rising fuel ~~costs of $21.4 million and $12.1 million for the nine months ended September 30, 2017 and 2016, respectively. Fuel~~ prices impact our transportation costs, which affect the pricing and demand offor our services and, ~~have an impact on~~therefore, our results of operations.

We incur water sourcing costs in connection with obtaining strategic and reliable water sources to provide repeatable water volumes to our customers. We incurred water sourcing costs of $9.7 million and $5.8 million for the three months ended September 30, 2017 and 2016, 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.

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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.

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~~segment performance is 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 the 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.

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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 seek to increase gross profit at the expense of lower margins, nor pursue higher gross margins 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-cash~~nonrecurring compensation expense, ~~non-recurring~~non-cash compensation expense, and nonrecurring 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/(minus) losses/(gains) on unconsolidated entities less bargain purchase gains from business combinations. The adjustments to EBITDA are generally consistent with such adjustments described in our Sustainability-Linked Credit Facility. See “—Comparison of Non-GAAP Financial ~~Measures”~~Measures—EBITDA and ~~“Note Regarding Non-GAAP Financial Measures”~~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 “—Recent Developments” above.

Acquisition Activity

As described above, we continuously evaluate 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.

Between July 2021 and February 2022, we completed five acquisitions. Our historical financial statements for periods prior to the respective date each acquisition was completed do not include the results of operations of that acquisition. See “—Recent Developments” and “Note 3—Acquisitions” for a description of these transactions.

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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 September 30,				Change
									2022		2021		Dollars		Percentage

	Three months ended September 30,				Change
	2017			2016	Dollars		Percentage
		(in thousands)
										(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	%
Water Services									$	221,243	$	112,474	$	108,769	96.7	%
Water Infrastructure										74,396		36,787		37,609	102.2	%
Oilfield Chemicals										79,433		55,372		24,061	43.5	%
Total revenue		153,880		73,907		79,973	108.2	%		375,072		204,633		170,439	83.3	%


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	%
Water Services										170,845		94,667		76,178	80.5	%
Water Infrastructure										54,197		28,494		25,703	90.2	%
Oilfield Chemicals										64,519		49,583		14,936	30.1	%
Other										(1)		—		(1)	NM
Depreciation and amortization		23,420		21,613		1,807	8.4	%		26,672		22,904		3,768	16.5	%
Total costs of revenue		134,371		82,877		51,494	62.1	%		316,232		195,648		120,584	61.6	%
Gross profit (loss)		19,509		(8,970)		28,479	NM

Gross profit										58,840		8,985		49,855	554.9	%

Operating expenses
Selling, general and administrative		16,087		8,764		7,323	83.6	%		29,782		22,044		7,738	35.1	%
Depreciation and amortization		375		363		12	3.3	%		543		562		(19)	(3.4)	%
Lease abandonment costs		590		13,169		(12,579)	(95.5)	%		83		154		(71)	(46.1)	%
Total operating expenses		17,052		22,296		(5,244)	(23.5)	%		30,408		22,760		7,648	33.6	%
Income (loss) from operations		2,457		(31,266)		33,723	NM			28,432		(13,775)		42,207	306.4	%


Other income (expense)
(Loss) gain on sales of property and equipment and divestitures, net										(479)		315		(794)	(252.1)	%
Interest expense, net		(484)		(4,343)		3,859	(88.9)	%		(616)		(419)		(197)	47.0	%
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
Foreign currency loss, net										(6)		(6)		—	NM
Bargain purchase gain										(3,273)		—		(3,273)	NM
Other										1,153		(222)		1,375	NM
Income (loss) before income tax (expense) benefit										25,211		(14,107)		39,318	278.7	%
Income tax (expense) benefit										(276)		32		(308)	NM
Equity in losses of unconsolidated entities										(218)		(129)		(89)	NM
Net income (loss)	$	2,593	$	(35,204)	$	37,797	NM		$	24,717	$	(14,204)	$	38,921	274.0	%

Revenue

Our revenue increased ~~$80.0~~$170.4 million, or ~~108.2%~~83.3%, to ~~$153.9~~$375.1 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$73.9~~$204.6 million for the ~~three months ended September 30, 2016. The~~Prior Quarter. This increase was ~~primarily attributable to an~~composed of a $108.8 million increase in Water Services revenue, a $37.6 million increase in Water Infrastructure revenue and a $24.1 million increase in Oilfield Chemicals revenue. These increases were driven primarily by higher demand for our services coupled with increased pricing in comparison to the Prior Quarter. Included in the increases in Water Services and Water Infrastructure were incremental revenue contributions from the Complete, Agua Libre and Basic, HB Rentals and Nuverra acquisitions. 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 and ~~Rentals,~~Oilfield Chemicals constituted 59.0%, 19.8% and ~~Wellsite Completion and Construction Services segments constituted 81.3%, 10.1% and 8.6%~~21.2% of our total revenue, respectively, compared to ~~82.5%~~55.0%, ~~7.9%,~~18.0% and ~~9.6%~~ 27.0%, respectively, for the ~~three months ended September 30, 2016.~~Prior Quarter. The revenue ~~increase~~changes by ~~operating~~reportable segment ~~was~~are as follows:

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Water ~~Solutions~~Services. Revenue increased ~~$64.1~~$108.8 million, or ~~105.1%~~96.7%, to ~~$125.1~~$221.2 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$61.0~~$112.5 million for the ~~three months ended September 30, 2016.~~Prior Quarter. The increase was primarily attributable to ~~an increase in the~~higher demand for our services ~~as a result of a rise~~coupled with increase pricing in ~~completion activities and an increase in average quarterly rig count of 97.4% during the third quarter of 2017 compared~~comparison to the ~~third quarter of 2016. Additionally,~~Prior Quarter. The increase was also impacted by incremental revenue contributed by the ~~GRR Acquisition, which closed March 10, 2017, contributed $10.4 million of revenue for the three months ended September 30, 2017.~~Basic, HB Rentals and Nuverra acquisitions.

~~Table of Contents~~

~~Accommodations and Rentals~~. Water Infrastructure. Revenue increased ~~$9.8~~by $37.6 million, or ~~167.5%~~102.2%, to ~~$15.6~~$74.4 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$5.8~~$36.8 million for the three 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 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.~~Prior Quarter. 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 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 increased demand for these services resulting from several new customers resuming completion activities during 2017.

~~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~~in comparison to the ~~overall~~Prior Quarter. The increase ~~in drilling, completion~~was also modestly impacted by incremental revenue contributed by the Agua Libre and ~~production activities, particularly in our Water Solutions segment. The cost of revenue increase by operating segment was as follows:~~Nuverra acquisitions.

~~Water Solutions~~Oilfield Chemicals. ~~Cost of revenue~~Revenue increased ~~$38.1~~$24.1 million, or ~~76.2%~~43.5%, to ~~$88.1~~$79.4 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$50.0~~$55.4 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~~. Cost of revenue increased $7.0 million, or 141.0%, to $12.0 million for the three months ended September 30, 2017 compared to $5.0 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. Cost of revenue increased $4.6 million, or 72.9%, to $10.9 million for the three months ended September 30, 2017 compared to $6.3 million for the three months ended September 30, 2016.~~Prior Quarter. The increase was primarily attributable to higher demand for our services in comparison to the Prior Quarter.

Costs of Revenue

Costs of revenue increased ~~direct labor~~$120.6 million, or 61.6%, to $316.2 million for the Current Quarter compared to $195.6 million for the Prior Quarter. The increase was primarily composed of a $76.2 million increase in Water Services costs, an $25.7 million increase in Water Infrastructure costs, and a $14.9 million increase in Oilfield Chemicals costs due to supporting the higher revenue-producing activity discussed above.

Water Services. Costs of ~~$1.7~~revenue increased $76.2 million, ~~contract labor expense~~or 80.5%, to $170.8 million for the Current Quarter compared to $94.7 million for the Prior Quarter. Cost of ~~$2.2~~revenue as a percent of revenue decreased from 84.2% to 77.2% due primarily to higher pricing and economies of scale from higher revenue activity.

Water Infrastructure. Costs of revenue increased $25.7 million, ~~and rental expense~~or 90.2%, to $54.2 million for the Current Quarter compared to $28.5 million for the Prior Quarter. Cost of ~~$0.7 million.~~revenue as a percent of revenue decreased from 77.5% to 72.8% due primarily to a higher relative contribution of high-margin disposal revenue.

Oilfield Chemicals. Costs of revenue increased $14.9 million, or 30.1%, to $64.5 million for the Current Quarter compared to $49.6 million for the Prior Quarter. Cost of revenue as a percent of revenue decreased from 89.5% to 81.2% due primarily to picking up additional market share for our portfolio of products.

Depreciation and Amortization. Depreciation and amortization expense increased ~~$1.8~~$3.8 million, or ~~8.4%~~16.5%, to ~~$23.4~~$26.7 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$21.6~~$22.9 million for the ~~three months ended September 30, 2016. The increase was~~Prior Quarter, due primarily ~~attributable~~ to ~~the depreciation recognized in the three months ended September 30, 2017~~a higher fixed asset base related to ~~recently acquired assets from the GRR Acquisition, the DAWS Acquisition and the TEX Acquisition.~~acquisitions occurring after June 30, 2021.

~~Table of Contents~~

Gross Profit ~~(Loss)~~

Gross profit ~~(loss) improved by $28.5 million, to a gross profit of $19.5~~was $58.8 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~a gross loss of~~ $9.0 million for the Prior Quarter due primarily to higher revenue in all three ~~months ended September 30, 2016~~segments resulting from increased activity levels. Gross profit increased by $32.6 million, $11.9 million and $9.1 million in our Water Services, Water Infrastructure and Oilfield Chemicals segments, respectively. Partially offsetting the increase in gross profit was a $3.8 million increase in depreciation and amortization expense. Gross margin as a ~~result~~percent of ~~factors described above.~~revenue was 15.7% and 4.4% 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~~increased $7.7 million, or ~~83.6%~~35.1%, to ~~$16.1~~$29.8 million for the ~~three months ended September 30, 2017~~Current Quarter compared to ~~$8.8~~$22.0 million for the ~~three months ended September 30, 2016~~Prior Quarter. The increase was due primarily to a $1.5 million increase in business development costs, a $1.5 million increase in equity-based compensation costs, a $1.3 million increase in incentive compensation cost, a $1.1 million increase in bad debt expense, $0.8 million in higher vehicle lease costs, $0.7 million higher wages and associated payroll taxes, $0.4 million higher information technology costs, $0.4 million higher research and development costs, $0.4 million of costs from the additional personnel and related back-office expenses as

Table of Contents

a result of our recent acquisitions and $1.5 million from a combination of other expenses partially offset by $1.9 million lower legal and professional expenses.

Net Interest Expense

Net interest expense increased by $0.2 million, or 47.0%, to $0.6 million for the Current Quarter compared to $0.4 million in the Prior Quarter due primarily to lower interest income related to notes receivable that were converted to an equity-method investment during the Current Period and higher interest expense due to borrowings in the Current Quarter.

Bargain Purchase Gain

A reduction to bargain purchase gain of $3.3 million in the Current Quarter was comprised primarily of adjustments related to a 2021 acquisition.

Other

Other income was $1.2 million in the Current Quarter compared to an ~~increase~~expense of $0.2 million in ~~administrative labor costs of $1.5 million,~~the Prior Quarter. During the Current Quarter, other income was primarily related to the sale of excess assets acquired in our ~~new status as a public company and an increase in legal and professional fees of $4.9 million during~~recent acquisitions. During the ~~three months ended September 30, 2017 as compared to the prior year period, largely~~Prior Quarter, other expense was primarily related to the ~~Merger, offset by lower corporate office rent~~mark-to-market of ~~less than $0.1 million.~~

~~Lease Abandonment Costs~~

~~Due to depressed industry conditions and a resulting reduction in~~equity securities using the need for facilities primarily in 2016, during the three months ended September 30, 2017, we recorded $0.6 million of lease abandonment costs related to certain facilities that were no longer in use. During the three months ended September 30, 2016, we ~~recorded $13.2 million of lease abandonment costs related to certain facilities that were no longer in use~~.

~~Interest Expense~~

The decrease in interest expense of $3.9 million, or 88.9% during the three months ended September 30, 2017 compared to the three 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 the GRR Acquisition.fair value option.

Net ~~Loss~~Income (Loss)

Net ~~income~~Income (loss) ~~improved~~increased by ~~$37.8~~$38.9 million, to a net income of ~~$2.6~~$24.7 million for the ~~three months ended September 30, 2017~~Current Quarter compared to a net loss of ~~$35.2~~$14.2 million for the ~~three months ended September 30, 2016~~Prior Quarter, driven primarily by increased revenue due to a gradual increase in demand for our services as well as contributions from our recent acquisitions. The Prior Quarter was negatively impacted by a ~~result~~significant reduction in demand for our services due to a gradual recovery following the onset of the ~~factors described above.~~COVID-19 pandemic.

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

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)
%


	Nine months ended September 30,				Change
	2022		2021		Dollars		Percentage

		(in thousands)
Revenue
Water Services	$	580,845	$	253,348	$	327,497	129.3	%
Water Infrastructure		193,234		107,916		85,318	79.1	%
Oilfield Chemicals		231,665		148,228		83,437	56.3	%
Total revenue		1,005,744		509,492		496,252	97.4	%

Costs of revenue
Water Services		465,951		227,736		238,215	104.6	%
Water Infrastructure		143,514		81,130		62,384	76.9	%
Oilfield Chemicals		194,670		132,103		62,567	47.4	%
Depreciation and amortization		82,425		65,572		16,853	25.7	%
Total costs of revenue		886,560		506,541		380,019	75.0	%
Gross profit		119,184		2,951		116,233	3938.8	%

Operating expenses
Selling, general and administrative		84,792		57,828		26,964	46.6	%
Depreciation and amortization		1,636		1,835		(199)	(10.8)	%
Lease abandonment costs		336		480		(144)	(30.0)	%
Total operating expenses		86,764		60,143		26,621	NM
Income (loss) from operations		32,420		(57,192)		89,612	NM

Other income (expense)
Gain (loss) on sales of property and equipment and divestitures, net		1,905		(1,921)		3,826	199.2	%
Interest expense, net		(1,830)		(1,254)		(576)	45.9	%
Foreign currency (loss) gain, net		(9)		1		(10)	NM
Bargain purchase gain		13,768		—		13,768	NM
Other		2,277		(956)		3,233	NM
Income (loss) before income tax (expense) benefit		48,531		(61,322)		109,853	179.1	%
Income tax (expense) benefit		(672)		211		(883)	NM
Equity in losses of unconsolidated entities		(576)		(129)		(447)	NM
Net income (loss)	$	47,283	$	(61,240)	$	108,523	177.2	%

Revenue

Our revenue increased ~~$172.6~~$496.3 million, or ~~80.0%~~97.4%, to ~~$388.3~~$1.0 billion for the Current Period compared to $509.5 million for the ~~nine months ended September 30, 2017 compared to $215.7 million for the nine months ended September 30, 2016. The~~Prior Period. This increase was ~~primarily attributable to an~~composed of a $327.5 million increase in Water Services revenue, a $85.3 million increase in Water Infrastructure revenue and a $83.4 million increase in Oilfield Chemicals revenue. These increases were driven primarily by higher demand for our services coupled with increased pricing in comparison to the Prior Period. Included in the increases in Water Services and Water Infrastructure were incremental revenue contributions from the Complete, Agua Libre and Basic, HB Rentals and Nuverra acquisitions. For the Current Period, our Water ~~Solutions segment revenues of $138.1 million. For the nine months ended September 30, 2017, our~~Services, Water ~~Solutions, Accommodations~~Infrastructure and ~~Rentals,~~Oilfield Chemicals constituted 57.8%, 19.2% and ~~Wellsite Completion and Construction Services segments constituted 80.2%, 9.9% and 9.9%~~23.0% of our total revenue, respectively, compared to ~~80.3%~~49.7%, ~~9.1%,~~21.2% and ~~10.6%~~ 29.1%, respectively, for the ~~nine months ended September 30, 2016.~~Prior Period. The revenue ~~increase~~changes by ~~operating~~reportable segment ~~was~~are as follows:

Water ~~Solutions~~Services. Revenue increased ~~$138.1~~$327.5 million, or ~~79.8%~~129.3%, to ~~$311.3~~$580.8 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$173.2~~$253.3 million for the ~~nine months ended September 30, 2016.~~Prior Period. The increase was primarily attributable to ~~an increase in the~~higher demand for our services ~~as a result of a rise~~coupled with increased pricing in ~~completion activities~~comparison to the Prior Period. The increase was also impacted by incremental revenue contributed by the Complete, Basic, HB Rentals 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.

Nuverra acquisitions.

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~~Accommodations and Rentals~~. Water Infrastructure. Revenue increased ~~$18.9~~by $85.3 million, or ~~96.4%~~79.1%, to ~~$38.5~~$193.2 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$19.6~~$107.9 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.~~Prior Period. The increase was primarily attributable to ~~an increase~~higher demand for our services 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, offset by $3.1 million duecomparison 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.Prior Period. The increase was also ~~attributable to an increase in materials~~modestly impacted by incremental revenue contributed by the Complete, Agua Libre 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.Nuverra acquisitions.

~~Accommodations and Rentals~~Oilfield Chemicals. ~~Cost of revenue~~Revenue increased ~~$15.2~~$83.4 million, or ~~97.7%~~56.3%, to ~~$30.7~~$231.7 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$15.5~~$148.2 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.~~Prior Period. The increase was primarily attributable to ~~expansion into~~higher demand for our services in comparison to the ~~Permian region~~Prior Period.

Costs of Revenue

Costs of revenue increased $380.0 million, or 75.0%, to $886.6 million for the Current Period compared to $506.5 million for the Prior Period. The increase was primarily composed of a $238.2 million increase in ~~2017~~Water Services costs, a $62.4 million increase in Water Infrastructure costs, and ~~new customer wins which led~~a $62.6 million increase in Oilfield Chemicals costs due to supporting the higher revenue-producing activity discussed above. Current Period inflation also impacted variable costs for labor, fuel and services. We were able to pass much of these increased costs to customers with surcharges and pricing increases.

Water Services. Costs of revenue increased $238.2 million, or 104.6%, to $466.0 million for the Current Period compared to $227.7 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 89.9% to 80.2% due primarily to economies of scale from higher revenue activity.

Water Infrastructure. Costs of revenue increased $62.4 million, or 76.9%, to $143.5 million for the Current Period compared to $81.1 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 75.2% to 74.3% due primarily to a higher relative contribution of high-margin disposal revenue.

Oilfield Chemicals. Costs of revenue increased $62.6 million, or 47.4%, to $194.7 million for the Current Period compared to $132.1 million for the Prior Period. Cost of revenue as a percent of revenue decreased from 89.1% to 84.0% due primarily to higher ~~direct~~utilization 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.~~absorption at our manufacturing facilities.

Depreciation and Amortization. Depreciation and amortization expense ~~decreased $6.7~~increased $16.9 million, or ~~9.1%~~25.7%, to ~~$67.1~~$82.4 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$73.9~~$65.6 million for the ~~nine months ended September~~Prior Period, due primarily to a higher fixed asset base related to acquisitions occurring after June 30, ~~2016. The decrease was primarily attributable to assets becoming fully depreciated or being impaired during the first half of 2016.~~2021.

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Gross Profit ~~(Loss)~~

Gross profit ~~(loss) improved by $69.7 million, to a gross profit of $31.5~~was $119.2 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~gross loss of $38.2~~$3.0 million for the ~~nine months ended September 30, 2016~~Prior Period due primarily to higher revenue in all three segments resulting from increased activity levels. Gross profit increased by $89.3 million, $22.9 million and $20.9 million in our Water Services, Water Infrastructure and Oilfield Chemicals segments, respectively. Partially offsetting the increase in gross profit was a $16.9 million increase in depreciation and amortization expense. Gross margin as a ~~result~~percent of ~~factors described above.~~revenue was 11.9% and 0.6% in the Current Period and Prior Period, respectively.

Selling, General and Administrative Expenses

~~The increase in selling,~~Selling, general and administrative expenses ~~of $23.4~~increased $27.0 million, or ~~90.1%~~46.6%, to ~~$49.3~~$84.8 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$25.9~~$57.8 million for the ~~nine months ended September 30, 2016~~Prior Period. The increase was due primarily to $5.0 million higher wages and associated payroll taxes, a $4.8 million increase in equity-based compensation costs, $3.9 million of costs from the additional personnel and related back-office expenses as a result of our recent acquisitions, comprised of $1.2 million of personnel costs and $2.7 million of other back-office costs, a $3.1 million increase in incentive compensation cost, $2.9 million in higher vehicle lease costs, a $2.4 million increase in business development costs, a $2.4 million increase in bad debt expense, a $1.1 million increase in travel, meals and entertainment costs, a $1.0 million increase in information technology costs and $3.6 million from a combination of other expenses partially offset by $3.2 million in Prior Period severance expense.

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Net Interest Expense

Net interest expense increased by $0.6 million, or 45.9%, to $1.8 million for the Current Period compared to $1.3 million in the Prior Period due primarily to writing off unamortized deferred debt issuance costs in connection with amending and restating the Prior Credit Agreement in the Current Period, lower interest income related to notes receivable that were converted to an equity-method investment during the Current Period and higher interest expense due to ~~a payout on our phantom equity units and IPO success bonuses~~borrowings in the Current Period.

Bargain Purchase Gain

Bargain purchase gain of ~~$12.5~~$13.8 million ~~including associated taxes, an increase~~ in ~~administrative labor costs~~the Current Period was comprised of ~~$2.7~~$7.1 million ~~primarily~~ related to ~~our new status as a public company,~~the Nuverra Acquisition and ~~an increase~~$6.7 million in ~~legal and professional fees~~adjustments related to acquisitions that occurred in 2021.

Other

Other income was $2.3 million in the Current Period compared to other expense of ~~$6.4~~$1.0 million in the Prior Period. During the Current Period, other income was primarily related to the ~~Merger, GRR Acquisition~~sale of excess assets and assignment to third parties of leased properties with asset retirement obligations acquired in our recent acquisitions. During the Prior Period, other ~~deal costs, during the nine months ended September 30, 2017 as compared~~expenses were primarily related to the ~~prior year period offset by lower corporate office rent~~mark-to-market of ~~$0.6 million.~~

~~Impairment~~

~~There were no impairment losses recorded during~~equity securities using 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.fair value option.

Net ~~Loss~~Income (Loss)

Net ~~loss decreased~~Income (loss) increased by ~~$269.1~~$108.5 million, ~~or 93.0%,~~ to ~~$20.2~~a net income of $47.3 million for the ~~nine months ended September 30, 2017~~Current Period compared to ~~$289.2~~a net loss of $61.2 million for the ~~nine months ended September 30, 2016 largely as~~Prior Period, driven primarily by increased revenue due to a ~~result~~gradual increase in demand for our services and a bargain purchase gain of $13.8 million. The Prior Period was negatively impacted by a significant reduction in demand for our services due to a gradual recovery following the onset of the ~~impairment losses and other factors described above.~~COVID-19 pandemic.

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,

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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/(minus) losses/(gains) on unconsolidated entities less bargain purchase gains from business combinations. The adjustments to EBITDA are generally consistent with such adjustments described in our Sustainability-Linked Credit Facility. See “—Comparison of Non-GAAP Financial Measures” 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 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.

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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 the 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 Financial Data” in our Final Prospectus.~~

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


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(in thousands)
Net income (loss)	$	24,717	$	(14,204)	$	47,283	$	(61,240)
Interest expense, net		616		419		1,830		1,254
Income tax expense (benefit)		276		(32)		672		(211)
Depreciation and amortization		27,215		23,466		84,061		67,407
EBITDA		52,824		9,649		133,846		7,210
Non-cash compensation expenses		3,804		2,302		11,023		6,248
Nonrecurring severance expenses⁽¹⁾		—		—		—		3,225
Non-cash loss on sale of assets or subsidiaries⁽²⁾		1,608		189		3,141		3,036
Nonrecurring transaction costs⁽³⁾		965		2,709		7,461		3,270
Lease abandonment costs		83		154		336		480
Bargain purchase gain		3,273		—		(13,768)		—
Equity in losses of unconsolidated entities		218		129		576		129
Foreign currency loss (gain), net		6		6		9		(1)
Adjusted EBITDA	$	62,781	$	15,138	$	142,624	$	23,597

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 Prior Period, these costs related to severance costs associated with our former CEO.

(2)	For all periods presented, the losses were due primarily to sales of real estate and underutilized or obsolete property and equipment.

(3)	For all periods presented, these costs were due primarily to legal-related due diligence costs as well as costs related to certain acquired subsidiaries.

EBITDA was $52.8 million for the Current Quarter compared to $9.6 million for the Prior Quarter. The $43.2 million increase in EBITDA was driven primarily by an increase of $53.6 million in gross profit partially offset by a $7.7 million increase in selling, general and administrative costs and a bargain purchase gain reduction of $3.3 million in the Current Quarter. Adjusted EBITDA was $62.8 million for the Current Quarter compared to $15.1 million for the Prior Quarter. The $47.7 million increase is primarily attributable to the items discussed above.

EBITDA was $133.8 million for the Current Period compared to $7.2 million for the Prior Period. The $126.6 million increase in EBITDA was driven primarily by an increase of $133.1 million in gross profit, a $13.8 million bargain purchase gain in the Current Period and a $3.8 million increase in net gains from asset sales partially offset by a $27.0 million increase in selling, general and administrative costs. Adjusted EBITDA was $142.6million for the Current

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Period compared to $23.6 million for the Prior Period. The $119.0 million increase is primarily attributable to the items discussed above.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity ~~to date have been capital contributions~~are cash on hand, borrowing capacity under the Sustainability-Linked Credit Facility, cash flows from ~~our members, the net~~operations and proceeds from the ~~144A Offering, the net proceeds from the IPO, borrowings under our Credit Facility~~sale of excess property and ~~cash flows from~~

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

As of September 30, 2022, 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.

Based on our current cash and cash equivalents balance, operating cash flow, available borrowings under our Sustainability-Linked Credit Facility and the ongoing actions discussed above, we believe that we will be able to maintain sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants through the next twelve months and beyond, prior to giving effect to any future financing that may occur.

We intend to finance most of our capital expenditures, contractual obligations and working capital needs with cash on hand, cash generated from operations and borrowings ~~from~~under our Sustainability-Linked Credit Facility. For a discussion of the Sustainability-Linked Credit Facility, see “—Sustainability-Linked Credit Facility” below. WeAlthough we cannot provide any assurance, we believe that our current cash balance, operating cash flow and available borrowings under our Sustainability-Linked Credit Facility 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,~~2022, cash and cash equivalents totaled ~~$42.4 million. In addition to cash~~$13.2 million, and ~~cash equivalents,~~ we had approximately ~~$85.9~~$231.5 million of available borrowing capacity under our Sustainability-Linked Credit ~~Facility as~~Facility. As of September 30, ~~2017.~~2022, the borrowing base under the Sustainability-Linked Credit Facility was $254.4 million, we had no outstanding borrowings and outstanding letters of credit totaled $22.9 million. As of October 31, 2022, we had no outstanding borrowings, the borrowing base under the Sustainability-Linked Credit Facility was $251.0 million, the outstanding letters of credit totaled $22.9 million, and the available borrowing capacity under the Sustainability-Linked Credit Facility was $228.1 million.

Cash Flows

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


	Nine months ended September 30,				Change
	2022		2021		Dollars		Percentage

	(in thousands)
Net cash used in operating activities	$	(2,107)	$	(13,896)	$	11,789	84.8	%
Net cash used in investing activities		(29,493)		(45,259)		15,766	34.8	%
Net cash used in financing activities		(40,964)		(2,475)		(38,489)	(1555.1)	%
Subtotal		(72,564)		(61,630)
Effect of exchange rate changes on cash and cash equivalents		(15)		4		(19)	NM
Net decrease in cash, cash equivalents, and restricted cash	$	(72,579)	$	(61,626)

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)

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Analysis of Cash Flow Changes ~~Between~~between the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021

Operating Activities. Net cash used in operating activities was ~~$4.2~~$2.1 million for the ~~nine months ended September 30, 2017,~~Current Period, compared to ~~net cash provided by operating activities of $8.1~~ $13.9 million ~~for~~in the ~~nine months ended September 30, 2016.~~Prior Period. The ~~$12.3~~$11.8 million decrease inis comprised of an increase of $113.0 million of net ~~cash provided~~income combined with non-cash adjustments, partially offset by ~~operating activities was primarily attributable to increases in accounts receivable and~~$101.2 million of increased 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~~primarily due to the ~~prior year period.~~timing of collecting trade receivables connected with increased revenue.

Investing Activities. Net cash used in investing activities was ~~$121.5~~$29.5 million for the ~~nine months ended September 30, 2017,~~Current Period, compared to ~~$20.4~~$45.3 million for the ~~nine months ended September 30, 2016.~~Prior Period. The ~~$101.2~~$15.8 million ~~increase~~decrease in net cash used in investing activities was due primarily to $18.6 million spent in the Prior Period for acquisitions, a $14.9 million increase in proceeds received from sales of property and equipment and $6.9 million in cash and restricted cash received in the Nuverra Acquisition partially offset by a $20.9 million increase in purchases of property and equipment, a $3.5 million increase in investments and a $1.1 million working capital settlement in the Current Period related to a prior year acquisition.

Financing Activities. Net cash used in financing activities was $41.0 million for the Current Period compared to $2.5 million for the Prior Period. The $38.5 million increase in cash used in financing activities was due primarily to net ~~cash used for acquisitions~~debt repayments of ~~$62.2~~$18.8 million, ~~and by higher capital expenditures~~a $18.8 million increase in repurchases of shares of Class A Common Stock during the ~~nine months ended September 30, 2017 of $37.4 million as~~Current Period compared to the ~~nine months ended September 30, 2016.~~

~~Financing Activities~~. Net cash provided by financing activities was $128.1 million for the nine months ended September 30, 2017, compared to cash provided by financing activities of $2.7 million for the nine months ended September 30, 2016. The $125.4 million increase in net cash provided by financing activities was primarily due to $128.5Prior Period and $2.1 million in ~~net proceeds received from the~~debt issuance ~~of shares~~costs in the ~~IPO, including exercise of the over-allotment option.~~Current Period.

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Sustainability-Linked Credit Facility

On ~~May 3, 2011, we~~March 17, 2022 (the “Restatement Date”), SES Holdings, a subsidiary of the Company, and Select Energy Services, LLC (“Select LLC”), a wholly-owned subsidiary of SES Holdings, entered into ~~our~~a $270.0 million amended and restated senior secured sustainability-linked revolving credit facility (the “Sustainability-Linked Credit ~~Facility, which was~~Facility”), by and among SES Holdings, as parent, Select LLC, as borrower and certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”) (which amended ~~most recently on June 13, 2017. As of September 30, 2017,~~and restated the ~~total commitment under our~~Prior 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.Agreement dated November 1, 2017). The ~~revolver~~Sustainability-Linked Credit Facility also has a sublimit of ~~$20.0~~$40.0 million for letters of credit and a sublimit of ~~$5.0~~$27.0 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, Select LLC has 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~~senior secured credit facility by $135.0 million during the first three years following the Restatement Date.

Refer to ~~waive any defaults resulting from the DAWS Acquisition not being in compliance with the Positive EBITDA Test.~~

~~Our Credit Facility contains certain financial covenants, including (i) the maintenance of an Interest Coverage Ratio (as defined in the Credit Facility) of not less than (a) 1.25 to 1.0~~“Note 8—Debt” for the quarter ending on March 31, 2017, (b) 1.50 to 1.0 for 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 (ii) the maintenance of a Leverage Ratio of not greater than (a) 4.00 to 1.0 for 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 for 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 plus an applicable margin that ranges between 3.00% and 4.50%, based on our Leverage Ratio. Our capacity to make capital expenditures is $35 million for 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 asfurther discussion of the ~~end of 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~~Sustainability-Linked Credit Facility contains an anti-cash hoarding provision that restricts us from making any borrowing, if after giving effect to such borrowing, we would have in excess of $20 million in cash and cash equivalents at the end of the week such borrowing is made.

~~As of September 30, 2017, we were in compliance with all restrictive covenants under our Credit~~ Facility.

Contractual Obligations

Our contractual obligations include, among other things, our Sustainability-Linked Credit Facility and operating leases. Refer to ~~Note 7—Debt~~“Note 6—Leases” in our 2021 Form 10-K for operating lease obligations as of December 31, 2021 and “Note 8—Debt” in Part I, Item 1 of this Quarterly Report for an update to our ~~contractual obligations~~Sustainability-Linked Credit Facility as of September 30, ~~2017.~~2022.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in our ~~Final Prospectus filed on April 24, 2017.~~2021 Form 10-K.

Recent Accounting Pronouncements

~~For information regarding new accounting policies or updates to existing accounting policies as a result~~None.

Off-Balance-Sheet Arrangements

As of ~~new accounting pronouncements, please refer to Note 2 - Significant Accounting Policies in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference.~~

~~Off Balance Sheet Arrangements~~

~~Currently,~~September 30, 2022, 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.

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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 drilling and completion activity ~~for~~in the U.S. oil and gas industry. ~~Industry conditions are~~The level of drilling and completion activity is influenced by numerous factors over which we have no control, including, but not limited to: global health events, including the COVID-19 pandemic; the supply of and demand for oil and gas; ~~the level of prices,~~war, economic sanctions and other constraints to global trade and economic growth; current price levels as well as expectations about future prices of oil and gas; the magnitude and timing of capital spending by our customers; the cost of exploring for, developing, producing and delivering oil and gas; the ~~expected rates of declining current~~extent to which our E&P customers choose to drill and complete new wells to offset decline from their existing wells; the extent to which our E&P customers choose to invest to grow production; ~~the discovery rates~~discoveries 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~~in alternative forms of energy ~~consumption;~~(e.g. wind and solar electricity, electric vehicles) that encourage substitution for or displacement of oil and gas consumption in end-use markets; 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~~acquisition activity ~~among oil~~ and ~~gas producers.~~consolidation in our industry, and other factors.

~~The level~~Any combination of ~~activity~~these factors that results in the U.S. oil and gas industry is 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 insustained low oil and gas prices ~~would likely affect oil and gas production levels~~ and, therefore, ~~affect demand for~~lower capital spending and / or reduced drilling and completion activity by our ~~services. A material decline in oil and gas prices or U.S. activity levels could~~customers, would likely have a material adverse effect on our business, financial condition, results of operations and cash flows.

Interest Rate Risk

AtAs of September 30, ~~2017,~~2022, we had no outstanding ~~debt~~borrowings under our Sustainability-Linked Credit Facility. As of October 31, 2022, we had no outstanding borrowings and approximately $228.1 million of available borrowing capacity under our Sustainability-Linked Credit Facility. Interest is calculated under the terms of our Sustainability-Linked Credit Facility 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 divestitures of our Canadian operations, we anticipate minimal future exposure to foreign currency exchange risk.

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.~~2022.

Table of Contents

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~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4556

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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.

Item 1A. Risk Factors

~~The following risk factors update the risk factors described under “Risk Factors” in the Final Prospectus. Except as set forth below, there~~There have been no material changes to the Risk Factors disclosed in the ~~Final Prospectus.~~2021 Form 10-K.

~~The Merger may not be beneficial to us.~~

The consummation of the Merger involves potential risks, including, without limitation, the failure 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 may be imposed without regard to fault or the legality of conduct; 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, and our future financial performance and results of operations could be negatively impacted.

~~Failure to successfully combine our business with the business from Rockwater may adversely affect our future results.~~

~~The consummation 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 to materialize, any desired benefits of 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.

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~~

Proceeds

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. The shares were repurchased tosatisfy tax withholding obligations related to restricted stock previously awarded to certain of our ~~equity securities during the period covered by this Quarterly Report on Form 10‑Q.~~current and former employees.


	Total Number of	Weighted-Average Price
Period	Shares Purchased	Paid Per Share
July 1, 2022 to July 31, 2022	22,346	$	6.81
August 1, 2022 to August 31, 2022	17,714	$	6.70
September 1, 2022 to September 30, 2022	—	$	—
Total	40,060	$	6.76

Item 3. Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4. Mine Safety ~~Disclosures.~~Disclosures

Not applicable.

Item 5. Other ~~Information.~~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.

4757

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~~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~~*31.1		Waiver and Amendment No. 16 to Amended and Restated Revolving Credit Agreement, dated June 13, 2017 (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).

~~10.2~~		Credit Agreement. dated November 1, 2017, by and among Select Energy Services, LLC, SES Holdings, LLC, Wells Fargo Bank, N.A., as administrative agent, and 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 Select Energy Services, Inc.’s Quarterly Report on Form 10-Q, filed August 11, 2017).

~~10.4~~		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		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flow, and (vi) Notes to Consolidated Financial Statements.

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

*Filed herewith

**Furnished herewith

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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~~3, 2022	By:	/s/ ~~Holli Ladhani~~John D. Schmitz
		~~Holli Ladhani~~John D. Schmitz
		Chairman, President and Chief Executive Officer
~~(Principal Executive Officer)~~


Date: November ~~13, 2017~~3, 2022	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)~~

5059


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5 6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33 40

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45 55

Item 4.	Controls and Procedures	45 55

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	46 57

Item 1A.	Risk Factors	46 57

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

Item 3.	Defaults ~~upon~~Upon Senior Securities	47 57

Item 4.	Mine Safety Disclosures	47 57

Item 5.	Other Information	47 57

Item 6.	Exhibits	47 57


	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