Select Water (WTTR) Q2 EPS Falls 23%

Select Water Solutions (WTTR -5.58%), a provider of water management solutions to the energy sector, reported its Q2 2025 earnings on August 5, 2025. The most notable takeaway from the release was a mixed performance: while revenue (GAAP) totaled $364.2 million, slightly missing the analyst expectation of $366.74 million GAAP revenue and landing below the $365.1 million (GAAP) figure from Q2 2024. The outlook for the quarter was shaped by solid profitability in its water infrastructure segment, but with lower free cash flow (non-GAAP) due to significant investment spending. Overall, the quarter showed steady operational progress within strategic priorities, even as near-term results reflected heightened investment and softer activity in some segments.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

About the Business and Strategic Focus

Select Water Solutions manages water supply, recycling, and wastewater disposal infrastructure for oil and gas producers. Its operations include building permanent pipeline networks, running treatment and recycling plants, and supporting energy companies with logistics, chemicals, and technology services.

Over the past several years, the company has shifted its focus toward scaling up its water infrastructure segment. The strategy centers on winning long-term contracts, expanding its permanent water networks, and pushing sustainability-friendly operations like water recycling, all while aiming for cost efficiency and regulatory alignment. The company's success depends heavily on its ability to win large water contracts, execute projects in oil and gas growth areas, and manage capital investment and compliance costs.

Quarter Highlights and Business Performance

During the quarter, Water Infrastructure stood out as the company’s main growth driver, with segment revenue increasing 11.7% sequentially and gross margin before D&A reaching 55.2%. This segment saw revenue grow 11.7% from the previous quarter to $80.9 million, ahead of company expectations. Segment gross margin before depreciation and amortization rose to 55.2%, helped by operational scale. Management highlighted new, long-term contracts, especially a major 12-year deal in the Northern Delaware Basin, which added approximately 42,000 dedicated and 235,000 right-of-first-refusal acres, as announced in Q2 2025. Projects to build out more treatment and recycling sites in Lea and Eddy counties also expanded Select’s presence in core oil patch geographies.

The company’s Water Services segment faced tougher conditions. Revenue for the Water Services segment dropped 4.4% sequentially to $215.7 million (GAAP), with segment gross margin before D&A for Water Services softened to 19.6% from 22.5% in Q2 2024. This reflected generally lower oilfield activity and company moves to divest non-core operations -- such as certain trucking and logistics assets -- with an eye toward boosting future profitability. Notably, an asset swap with OMNI Environmental Solutions allowed Select to offload trucking units in exchange for Bakken landfill and treatment sites, reducing short-term service revenue but realigning the business around higher-margin, stable segments.

The Chemical Technologies segment manufactures specialty chemicals for water treatment and drilling. It experienced a steeper-than-expected revenue decline, falling to $67.7 million from $76.3 million in the prior quarter, though Gross margin before depreciation, amortization and accretion (non-GAAP) for Chemical Technologies improved to 17.5% from 15.2% compared to Q1 2025. Management attributed this to new product launches, helping to counterbalance industry-wide slowdowns.

Other important developments included strong progress on infrastructure expansion. Select commissioned or announced several pipeline projects and initiated the buildout of new recycling plants capable of handling up to 240,000 barrels per day. These moves are tied to multi-year customer agreements, supporting recurring revenue growth.

Financial Health, Dividend, and Capital Management

The company's balance sheet remained strong. Liquidity increased to $279.3 million as of June 30, 2025, and Cash on hand (GAAP) was $51.2 million as of June 30, 2025. Debt included a $250.0 million term loan and an additional $25.0 million of new revolver borrowings as of June 30, 2025, supporting large-scale capital projects.

Free cash flow (non-GAAP) came in at $10.8 million, a notable decrease from $37.4 million in Q2 2024, due to lower operating cash flow and higher capital expenditures. Gross capital expenditures reached $79.4 million as the company pushed forward on infrastructure and asset acquisitions. Still, management reported $8.3 million in dividends and distributions paid, continuing its policy of returning cash to shareholders.

Looking Ahead

Management expects the next quarter to bring flat-to-modestly down results from the infrastructure segment, while revenue in Water Services is expected to decline by approximately 25% due to recent divestitures, specifically the material impact of the divested trucking operations from the OMNI transaction. Adjusted EBITDA guidance is set at $55–$60 million, compared to $72.6 million of Adjusted EBITDA in the prior quarter, with a recovery anticipated in Q4 2025. The company projects a strong 20% year-over-year growth rate in Water Infrastructure for 2026, underpinned by its sizeable contract backlog.

Leadership did not make material changes to its annual financial outlook but pointed to elevated capital spending through the end of the year. Free cash flow (non-GAAP) is expected to remain compressed near term as infrastructure projects ramp up, with cash flow improving as new assets move into service in 2026.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.