Service & Supply | Oilfield Services | Job Cuts / Downsize / Layoff

Select Energy Services Lays Off Over 30% of Workforce; Cuts Budget in Half

Share Print Bookmark    |    Tuesday,March 31,2020

Select Energy Services Inc. has announced job cuts and wage reductions in response to the market decline.

Select has taken the following actions:

• Headcount and wage reductions across the employee base, including executive management - since March 1, 2020, Select has reduced total staff headcount by 31%, including field operations and corporate positions - the company reported having ~3,900 employees in its latest filing, which means over 1,200 jobs were eliminated

• Expect to realize annualized SG&A savings of $25-30 million, or approximately 25-30% relative to the annualized fourth quarter SG&A of $98.7 million (and a further reduction from 2019 total SG&A of $111.6 million)

• Significant curtailment or renegotiation of other internal and third-party expenses, with initial benefits realized in the first quarter of 2020, and full realization by the third quarter of 2020

• Significantly reducing 2020 capital expenditures by at least 50% (new 2020 capex of $28-35 million)

Holli Ladhani, President and CEO, commented, "First and foremost, Select is closely monitoring the impact of COVID-19 and taking active precautions to help protect the health and well-being of our employees and the communities in which we work, in accordance with local, state and federal health authority recommendations. We are also working closely with our customers and vendors on business continuity plans. The significant and sudden pullback in commodity prices has forced our customers to meaningfully reduce their operational plans for 2020, requiring us to take immediate actions to reduce our operating expenses and capital expenditures. Agility and financial strength will be key to successfully navigating this rapidly evolving market landscape. While our cash flow will be impacted by current market conditions, we believe the actions we are taking, and will continue to take, will enable us to continue to generate solid positive free cash flow during 2020.

"With a current cash balance in excess of $100 million and no debt on our balance sheet, we are well prepared to manage through this difficult market. We will continue to closely monitor macro conditions, making further adjustments to our cost structure as necessary, until we have a better understanding of global oil demand, the activity levels of our customers and the near- and longer-term impact of COVID-19. While we undertake these difficult but necessary steps, we will continue delivering best-in-class service to our customers," concluded Ladhani.

Balance Sheet & Cash Flow

As of February 29, 2020, Select had a total net working capital balance of $275.0 million, including a cash balance of $101.3 million.

Additionally, the Company had no outstanding borrowings under its revolving credit facility and $174.9 million of available borrowing capacity thereunder, resulting in total liquidity of $276.1 million. As of March 12, 2020, Select had 104.5 million total shares of capital stock outstanding. Despite a challenging market, the Company expects to generate strong free cash flow during the first quarter of 2020, even after consideration of share buybacks during the quarter totaling $5.5 million.

The Company expects relatively flat revenue for the first quarter of 2020 as compared to the fourth quarter of 2019, with activity starting to decline in early March. Currently, the Company expects gross margin percentage declines of approximately 1%-3% for the consolidated business during the first quarter of 2020 relative to the fourth quarter of 2019. Net income during the first quarter of 2020 is expected to be negatively impacted by severance expenses of approximately $4 million and other non-recurring costs relating to yard closures and potential impairments driven by the precipitous drop in commodity prices. The Company expects results of operations during the second quarter of 2020 will be significantly impacted by current market conditions and plans to provide more detail on its first quarter earnings conference call in early May 2020.