# Select Water Solutions, Inc. (WTTR) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Select Water Solutions, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1693256/000155837022001752/wttr-20211231x10k.htm
Accession: 0001558370-22-001752
Filing date: 2022-02-23
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WTTR/
All MD&A years: /company/WTTR/mda/
Next year: /company/WTTR/mda/fy2022/ (FY 2022)

ITEM 7.              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 our consolidated financial statements and related notes thereto in Part II, Item 8. “Financial Statements and Supplementary Data”. This discussion and analysis contains forward-looking statements based on 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” and Part I, Item 1A. “Risk Factors.” We assume no obligation to update any of these forward-looking statements.

Overview

We are a leading provider of comprehensive water-management and chemical solutions to the oil and gas industry in the U.S. We also develop, manufacture and deliver a full suite of chemical solutions for use in oil and gas well completion and production operations. As a leader in the water solutions industry, we place the utmost importance on safe, environmentally responsible management of 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.

In many regions of the country, there has been growing concern about the volumes of water required for new oil and gas well completions. Working with our customers and local communities, we strive to be an industry leader in the development of cost-effective alternatives to fresh water. Specifically, we offer services that enable our E&P customers to treat and reuse produced water, thereby reducing the demand for fresh water while also reducing the volumes of saltwater that must be disposed by injection. In many areas, we have also acquired sources of non-potable water, such as brackish water or municipal or industrial effluent. Through our expertise in chemical technologies and our FluidMatch™ design solutions, we provide water profiling and fluid assessment services for our customers to support the optimization of their fluid systems, enabling the economic use of these alternative sources. We also work with our E&P customers to lower their emissions through methane combustion technology, and reduce the environmental footprint of their operations through the use of temporary hose and permanent pipeline systems, which are supported by extensive monitoring and automation technology solutions that provide safer and more efficient water resource management. These solutions significantly reduce the demand for trucking operations, thereby reducing gasoline and diesel exhaust emissions, increasing safety and decreasing traffic congestion in nearby communities.

Recent Trends and Outlook

The recent acquisition of Complete, the acquisition of substantially all of the assets of Agua Libre and other water-related assets, operations and assumed liabilities from Basic, and the acquisition of U.S. Lower 48 onshore accommodations and rental assets and operations H.B. Rentals, benefitted our financial results in the year ended December 31, 2021, as well as our competitive positioning in the water solutions market. These acquisitions expanded our geographic footprint, most notably in the Rockies region, 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 significant revenue-producing assets and multiple opportunities for future revenue and cost synergies.

On December 12, 2021, the Company entered into the Nuverra Merger Agreement with Nuverra, an energy-focused environmental solutions company, providing comprehensive, full-cycle 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 will be adding 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 transaction closed on February 23, 2022. See “Note 19—Subsequent Events” for additional information on the merger.

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The ongoing effects of the COVID-19 pandemic on our operations have had a material negative impact on our financial results. While we have seen economic recovery and higher oil prices through the year ended December 31, 2021, such negative impact may continue well beyond the containment of the pandemic until global GDP levels, associated oil demand and resulting oilfield activity all fully rebound. While we have seen activity improve considerably since the low point experienced in 2020, there remains uncertainty, but global oil inventories have rapidly normalized with continued demand growth. 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 the demand for oil and demand for our services. As a consequence, our ability to accurately forecast our activity and profitability is uncertain.

​

The future magnitude and ultimate duration of the COVID-19 pandemic is also uncertain. Therefore, we cannot estimate its impact on our business, financial condition or near- or longer-term financial or operational results with certainty. In this environment, the Company has planned for a range of scenarios and has taken a number of actions to decrease operating and capital expenses, and defer other expenses in accordance with the provisions of the CARES Act. To protect our workforce during the COVID-19 pandemic, we have taken steps to support our people who are affected by the virus, manage work-from-home scheduling as appropriate, limit on-site visitors, and monitor and consistently communicate with those who are required to be at a work location, while also providing these employees with additional personal protective equipment.  

​

During the year ended December 31, 2021, the average spot price of WTI crude oil was $68.16 versus an average price of $39.16 for the year ended December 31, 2020. The average Henry Hub natural gas spot price during the year ended December 31, 2021, was $3.91 versus an average of $2.04 for the year ended December 31, 2020. The significant improvement in oil and gas prices in 2021 relative to 2020 has been driven largely by reduced oil inventories resulting from economic recovery and oil demand growth in much of the world. 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, has greatly improved over the year ended December 31, 2021.

​

From an operational standpoint, many of the recent trends still apply to ongoing unconventional oil and gas development. For example, while we believe leading-edge lateral lengths and proppant use are plateauing, the average operator continues to catch up to this leading edge. The continued trend towards multi-well pad development, executed within a limited time frame, has increased the 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 well completions process can limit the days we spend on the wellsite and, therefore, negatively impact the total revenue opportunity for certain of our services utilizing day-rate pricing models.

​

This multi-well pad development, combined with recent upstream acreage consolidation and the growing trends around the reuse applications of produced water, particularly in the Permian Basin but also emerging in other basins as well, however, provides 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.

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 providing water profiling and fluid assessment services working towards real time. With our water treatment capabilities, our Well Chemical Services team and our knowledge base within our Oilfield Chemicals segment, we are well-positioned to advance these solutions. 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 provide advanced technology solutions that are able to economically

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compete with alternative historical solutions. Ultimately, we intend to play an important role in the advancement of water and chemical solutions that are designed to meet the sustainability goals of all stakeholders.

Our water logistics, treatment, and chemical application expertise, in combination with advanced technology solutions, are applicable to other industries beyond oil and gas, and we are working to further commercialize our services in other industrial businesses.

Permian Basin and Rockies Recycling Facility Projects

In 2021, we were awarded contracts underwriting the construction of three new produced water recycling facilities serving key customers in the Permian Basin, with two located in the Midland Basin and one located in the Delaware Basin. These state-of-the-art facilities will allow us to leverage our expertise in fracturing chemistry and fluid optimization and provide customers with sustainable recycling solutions that deliver a consistent water quality standard for use in completion activities, thereby decreasing both fresh water usage and waste disposal. We also signed a multi-year agreement with a large customer in the Rockies with a dedicated pipeline from its property to our water treatment facility. We will receive, treat and recycle water and have the ability to dispose excess water for this customer. The facility will have a throughput capacity to receive and treat 15,000 barrels per day with the ability to upgrade to 30,000 barrels per day. This agreement includes a minimum volume commitment and operations commenced in the fourth quarter of 2021.

​

In support of this growing Permian water infrastructure network, we also acquired infrastructure from an existing customer with one million barrels of storage capacity and are in the process of upgrading our previously announced Midland Basin produced water recycling facility to meet additional commercial demand from customers adjacent to the facility. We commenced construction on the two new Midland Basin fixed infrastructure produced water recycling facilities during the second quarter of 2021. Both projects are supported by long-term contracts with private operators in the Midland Basin for the purchase and delivery of recycled produced water. Each facility will support the recycling of up to 40,000 barrels of water per day while providing approximately 1.3 million barrels of adjacent recycled water storage capacity. Operations commenced during the second half of 2021.

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Additionally, we expanded our previously announced Midland Basin produced water recycling facility serving Martin and Midland Counties, Texas and installed a bi-directional pipeline infrastructure to connect the facility to nearby operators to meet increasing demand from our anchor customer as well as from nearby third-party operators. These upgrades are expected to increase the throughput capacity of the facility by 30% to 65,000 barrels of produced water per day and increase the nearby recycled water storage capacity by 40% to 2.7 million barrels. The new pipeline is capable of transporting approximately 58,000 barrels of water per day to and from the facility. These upgrades were completed and became operational during the second half of 2021, and are expected to be accretive financially given the existing infrastructure already in place.

​

We also completed construction and commenced operations on a third facility during the second half of 2021, which is a centralized produced water recycling facility for a major integrated operator in the Delaware Basin. This facility is designed for recycling up to 30,000 barrels of produced water per day and will be supported by one million barrels of adjacent recycled water storage capacity.

​

These projects supplement our sizable existing footprint of water storage, distribution and recycling infrastructure in the Permian Basin and represent our entry with recycling solutions into the Rockies. In aggregate, we expect to spend approximately $10 million to construct the three new recycling facilities, to purchase the existing storage infrastructure, and to upgrade the existing produced water treatment facilities in the Midland Basin. Once fully operational, these projects will bring our total centralized produced water recycling capacity in the Permian Basin to approximately 375,000 barrels of water per day, which is supplemented by our mobile recycling technologies and capabilities that are currently supporting nearly 150,000 barrels per day of active produced water recycling projects.

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February 2021 Severe Weather

Severe winter weather in February 2021 negatively impacted our 2021 results, equating to approximately one lost week of operations across most of our locations, with extended raw material shortages that impacted our Oilfield Chemicals segment into March. We estimate that this negatively impacted 2021 revenue by an amount ranging from $9 million to $12 million.

Our Segments

Our services are offered through three reportable segments: (i) Water Services; (ii) Water Infrastructure; and (iii) Oilfield Chemicals.

[[GREPCENT_TABLE]]
[["","\u25cf","Water Services. The Water Services segment consists of the Company\u2019s 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 as well as the Company\u2019s industrial solutions business."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Water Infrastructure. The Water Infrastructure segment consists of the Company\u2019s infrastructure assets, including operations associated with our water sourcing and pipeline infrastructure, our water recycling solutions and infrastructure, and our produced water gathering systems and SWDs, primarily serving E&P companies."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Oilfield Chemicals. The Oilfield Chemicals segment provides technical solutions and expertise related to chemical applications in the oil and gas industry. We also have significant capabilities supplying logistics for chemical applications. We develop, manufacture and apply a full suite of chemicals used in hydraulic fracturing, stimulation, cementing, production, pipelines and well completions. Given the breadth of chemicals and application expertise we provide, our customers range 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."]]
[[/GREPCENT_TABLE]]

How We Generate Revenue

We currently generate the majority of our revenue through our water-management services associated with hydraulic fracturing, provided through our Water Services and Water Infrastructure segments. The majority of this revenue is realized through customer agreements with fixed pricing terms and is recognized when delivery of 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, specialty chemicals and production chemicals through our Oilfield Chemicals segment. We invoice the majority of our Oilfield Chemicals customers for services provided based on the quantity of chemicals used or pursuant to short-term contracts as the 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), raw materials and water sourcing costs and fuel costs. Our fixed costs are relatively low. Most of the costs of serving our customers are variable, i.e., they are incurred only when we provide water and water-related services or chemicals and chemical-related services to our customers.

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Labor costs associated with our employees and contract labor comprise the largest portion of our costs of doing business. We incurred labor and labor-related costs of $285.7 million, $243.6 million and $477.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The majority of our recurring labor costs are variable and are incurred only while we are providing operational services. We also incur costs to employ personnel to sell and supervise our services and perform maintenance on our assets, which is not directly tied to our level of business activity. Additionally, we incur selling, general and administrative costs for compensation of our administrative personnel at our field sites and in our operational and corporate headquarters as well as for third-party support, licensing and services.

We incur significant vehicle and equipment costs in connection with the services we provide, including depreciation, repair and maintenance, rental and leasing costs. We incurred vehicle and equipment costs of $165.1 million, $157.6 million and $245.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We incur raw material costs in manufacturing our chemical products, as well as for water that we source for our customers. We incurred raw material costs of $209.7 million, $154.2 million and $274.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We incur variable transportation costs associated with our service lines, predominately fuel and freight. We incurred fuel and freight costs of $58.5 million, $35.6 million and $81.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Rising fuel prices impact our transportation costs, which affect the pricing and demand for our services and, therefore, our results of operations.

Public Company Costs

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General and administrative expenses related to being a publicly-traded company include: Exchange Act reporting expenses; expenses associated with compliance with Sarbanes-Oxley; 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 these and other general and administrative expenses related to being a publicly-traded company will generally remain consistent with costs incurred during 2021. 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:

[[GREPCENT_TABLE]]
[["","\u25cf","Revenue;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Gross Profit;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Gross Margins;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","EBITDA; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted EBITDA."]]
[[/GREPCENT_TABLE]]

Revenue

We analyze our revenue and assess our performance by comparing actual monthly revenue to our internal 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 reportable segments to identify potential areas for improvement, as well as to determine whether segment performance is meeting management’s expectations.

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Gross Profit

To measure our financial performance, we analyze our gross profit, which we define as revenues less direct operating expenses (including depreciation and amortization expenses). We believe gross profit provides insight into profitability and true operating performance of our assets. We also compare gross profit to prior periods and across segments to identify trends as well as underperforming segments.

Gross Margins

Gross margins provide an important gauge of how effective we are at converting revenue into profits. This metric works in tandem with gross profit to ensure that we do not 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/(loss), plus 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 generally accepted accounting principles in the U.S. (“GAAP”), plus non-cash losses on the sale of assets or subsidiaries, non-recurring compensation expense, 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, 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 Credit Agreement. 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.

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 Trends and Outlook” above.

Acquisition and Divestiture Activity

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

Complete Energy Services Acquisition

On July 9, 2021, we acquired Complete, an operating subsidiary of Superior Energy Services, Inc. (“Superior”) for purchase consideration of $34.7 million. Our historical financial statements for periods prior to July 9, 2021 do not include the results of operations of Complete.

UltRecovery Acquisition

On August 2, 2021, we acquired substantially all of the assets of UltRecovery Corporation (“UltRecovery”), a provider of sustainable production enhancement applications focused on existing conventional and unconventional oil and gas wells. The total purchase consideration was $3.6 million and our historical financial statements for periods prior to August 2, 2021 do not include the results of operations of UltRecovery.

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Agua Libre and Basic Acquisition

On October 1, 2021, we completed the acquisition of certain assets of Agua Libre and other water-related assets, operations and assumed liabilities from Basic. The total purchase consideration was $21.1 million and our historical financial statements for periods prior to October 1, 2021 do not include the results of operations of Agua Libre and Basic.

HB Rentals Acquisition

On December 3, 2021, Peak Oilfield Services, LLC, an indirect wholly-owned subsidiary of Select, completed the acquisition of certain assets of HB Rentals, an indirect wholly-owned subsidiary of Superior. The total purchase consideration was $8.7 million and our historical financial statements for periods prior to December 3, 2021 do not include the results of HB Rentals. Refer to “Note 3—Acquisitions and Divestitures” for detail on recent acquisition and divestiture activity.

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Results of Operations

The following table sets forth our results of operations, including revenue by segment, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 is set forth in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

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Revenue

Our revenue increased $159.5 million, or 26.4%, to $764.6 million for the year ended December 31, 2021, compared to $605.1 million for the year ended December 31, 2020. The increase was composed of a $74.3 million

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increase in Water Services revenue, a $29.4 million increase in Water Infrastructure revenue and a $55.8 million increase in Oilfield Chemicals revenue. For the year ended December 31, 2021, our Water Services, Water Infrastructure and Oilfield Chemicals revenues constituted 51.6%, 20.2% and 28.2% of our total revenue, respectively, compared to 52.9%, 20.7% and 26.4%, respectively, for the year ended December 31, 2020. The revenue changes by reportable segment are as follows:

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Water Services. Revenue increased $74.3 million, or 23.2%, to $394.1 million for the year ended December 31, 2021, compared to $319.8 million for the year ended December 31, 2020. The increase was primarily attributable to higher demand for our services in comparison to the year ended December 31, 2020, which was impacted by a significant reduction in drilling and completions activity following the onset of the COVID-19 pandemic, as well as $78.6 million of incremental revenue contributed by the Complete, Basic and HB Rentals acquisitions. This was partially offset by comparative decreases in the first quarter of 2021 versus the first quarter of 2020, as the majority of the first quarter of 2020 revenue activity occurred before the onset of the COVID-19 pandemic. Also offsetting the comparative increase was the impact of severe weather in February 2021 for the year ended December 31, 2021.

Water Infrastructure. Revenue increased by $29.4 million, or 23.5%, to $154.8 million for the year ended December 31, 2021, compared to $125.4 million for the year ended December 31, 2020. The increase was primarily attributable to higher demand for our services in comparison to the year ended December 31, 2020, which was impacted by a significant reduction in drilling and completions activity following the onset of the COVID-19 pandemic, as well as $6.0 million of incremental revenue contributed by the Complete and Agua Libre acquisitions. This was partially offset by comparative decreases in the first quarter of 2021 versus the first quarter of 2020, as the majority of the first quarter of 2020 revenue activity occurred before the onset of the COVID-19 pandemic. Also offsetting the comparative increase was the impact of severe weather in February 2021 for the year ended December 31, 2021.

Oilfield Chemicals. Revenue increased $55.8 million, or 34.9%, to $215.8 million for the year ended December 31, 2021, compared to $160.0 million for the year ended December 31, 2020. The increase was primarily attributable to higher demand for our services in comparison to the year ended December 31, 2020, which was impacted by a significant reduction in drilling and completions activity following the onset of the COVID-19 pandemic. This was partially offset by comparative decreases in the first quarter of 2021 versus the first quarter of 2020, as the majority of the first quarter of 2020 revenue activity occurred before the onset of the COVID-19 pandemic. Also offsetting the comparative increase was the impact of severe weather in February 2021 for the year ended December 31, 2021.

Costs of Revenue

Costs of revenue increased $109.4 million, or 17.2%, to $743.8 million for the year ended December 31, 2021, compared to $634.4 million for the year ended December 31, 2020. The increase was comprised of a $55.0 million increase in Water Services costs, a $16.3 million increase in Water Infrastructure costs and a $47.6 million increase in Oilfield Chemicals costs. This was partially offset by an $8.8 million decrease in depreciation and amortization expense, primarily due to a lower fixed asset base prior to the Complete, Agua Libre and Basic, and HB Rentals acquisitions.

Water Services. Costs of revenue increased $55.0 million, or 18.9%, to $346.7 million for the year ended December 31, 2021, compared to $291.7 million for the year ended December 31, 2020. Cost of revenue as a percent of revenue decreased to 88.0% from 91.2%, primarily due to a gradual increase in demand for our services after June 30, 2020, which spread fixed costs over a larger revenue base. Additionally, costs of revenue were impacted during the year ended December 31, 2020, by severance and yard closure costs totaling $5.6 million.

Water Infrastructure. Costs of revenue increased $16.3 million, or 16.4%, to $115.9 million for the year ended December 31, 2021, compared to $99.5 million for the year ended December 31, 2020. Cost of revenue as a percent of revenue decreased to 74.9% from 79.4%, primarily due to a higher relative contribution from high-margin pipeline revenue as well as a discrete cost in the year ended December 31, 2020 related to a customer bankruptcy. Additionally, costs of revenue were impacted during the year ended December 31, 2020 by severance and yard closure costs totaling $0.5 million.

Oilfield Chemicals. Costs of revenue increased $47.6 million, or 33.1%, to $191.1 million for the year ended December 31, 2021, compared to $143.6 million for the year ended December 31, 2020. Cost of revenue as a percent of

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revenue decreased to 88.6% from 89.7%, primarily due to certain events in 2020 that did not recur in 2021. For the year ended December 31, 2020, costs of revenue were impacted by inventory adjustments and reserve additions of $0.6 million, severance costs of $0.6 million, and yard closure and equipment rental return costs of $0.5 million, including costs associated with idling our Tyler manufacturing facility to consolidate production in Midland. For the year ended December 31, 2021, costs were impacted by the severe winter weather in February and rising raw materials costs due to certain raw materials shortages, supply chain challenges, and inflationary pressures.

Depreciation and Amortization. Depreciation and amortization expense decreased $8.8 million, or 8.9%, to $90.0 million for the year ended December 31, 2021, compared to $98.8 million for the year ended December 31, 2020, primarily due to a lower fixed asset base for the majority of the year ended December 31, 2021, prior to the Complete, Agua Libre and Basic, and HB Rentals acquisitions.

Gross Profit (Loss)

Gross profit was $20.9 million for the year ended December 31, 2021 compared to a gross loss of $29.3 million for the year ended December 31, 2020. Gross profit increased by $19.3 million in our Water Services segment, $13.1 million in our Water Infrastructure segment and $8.2 million in our Oilfield Chemicals segment. Depreciation and amortization expense also decreased by $8.8 million. Gross margin as a percent of revenue was 2.7% and (4.8%) during the years ended December 31, 2021 and December 31, 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $8.7 million, or 11.7%, to $83.1 million for the year ended December 31, 2021, compared to $74.4 million for the year ended December 31, 2020. The increase was primarily due to $5.8 million of costs from the additional personnel and related back-office expenses as a result of our 2021 acquisitions, comprised of $4.1 million of personnel costs and $1.7 million of other back-office costs, a $3.7 million increase in equity-based compensation costs, $2.6 million in higher legal and professional fees in connection with work on realized and considered transactions, $1.3 million in higher dues and subscriptions, $1.1 million in higher travel, meals and entertainment costs, and $1.5 million from a combination of other expenses partially offset by a $6.6 million net decrease in bad debt expense and $0.7 million in lower costs related to the Company’s annual bonus plan.

Impairment

Goodwill and trademark impairment costs were $276.0 million for the year ended December 31, 2020. During the year ended December 31, 2020, all of our goodwill was impaired due to the significant decline in oil prices and the uncertainty associated with the future recovery. We also recorded a $9.1 million partial impairment of our Rockwater trademark.

Impairment and abandonment of property and equipment costs were $7.9 million for the year ended December 31, 2020. These impairment costs were comprised of leasehold improvements related to abandoned facilities, abandonment of certain saltwater disposal and fresh water wells, and obsolete machinery and equipment.

There were no costs related to goodwill and trademark impairment or impairment and abandonment of property and equipment in 2021.

Lease Abandonment Costs

Lease abandonment costs were $0.9 million and $4.4 million for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, lease abandonment costs primarily related to expenses associated with facilities previously abandoned. The costs incurred in 2020 were primarily due to leases abandoned associated with realignment and combining activity on fewer leased properties.

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Bargain Purchase Gain

Bargain purchase gain of $19.0 million in 2021 was comprised of $9.4 million, $5.9 million and $3.6 million for the Complete, HB Rentals, and Agua Libre and Basic acquisitions, respectively. The Complete and HB Rentals acquisitions resulted in a bargain purchase in part due to the seller recently emerging from bankruptcy and deciding to divest domestic assets and operations and focus on international operations. The Agua Libre and Basic acquisition resulted in a bargain purchase 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.

​

Other Income (Expense)

Other income was $0.7 million for the year ended December 31, 2021 compared to other expense costs of $3.5 million for the year ended December 31, 2020. During the year ended December 31, 2021, other income primarily related to the disposal of asset retirement obligations and the realized gain, partially offset by an unrealized loss on equity securities sold in 2021 versus the mark-to-market fair value as of December 31, 2020. During the year ended December 31, 2020, other expenses primarily related to legal and sales tax expenses related to certain acquired subsidiaries.

Net Loss

Net loss decreased by $351.6 million, to a net loss of $50.1 million for the year ended December 31, 2021 compared to a net loss of $401.7 million for the year ended December 31, 2020, primarily due to the $276.0 million in goodwill and trademark impairment costs and $7.9 million in impairment and abandonment of property and equipment costs during the year ended December 31, 2020, a $50.1 million increase in gross profit for the year ended December 31, 2021 and a bargain purchase gain of $19.0 million related to 2021 acquisitions, an increase to other income (expense) of $4.2 million and a $3.5 million reduction in lease abandonment costs. This was partially offset by an increase in selling, general and administrative costs of $8.7 million.

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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 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 non-cash losses on the sale of assets or subsidiaries, non-recurring compensation expense, 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, 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 Credit Agreement. See “—Note Regarding 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.

Note Regarding Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You 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.

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​

The following table sets forth our reconciliation of EBITDA and Adjusted EBITDA to our net (loss) income, which is the most directly comparable GAAP measure, for the years ended December 31, 2021 and 2020. The reconciliation of EBITDA and Adjusted EBITDA for the years ended December 31, 2020 and 2019 is set forth in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["(1)","For 2021, these costs related to severance costs associated with our former CEO. For 2020, these costs related to severance due to the significant adverse change to the demand for the Company\u2019s services in connection with a significant decline in the price of oil."]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(3)","For 2021, these costs were primarily legal-related due diligence costs as well as costs related to certain acquired subsidiaries. For 2020, these costs were primarily due to a legal accrual related to certain previously acquired subsidiaries."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","For 2020, these costs were due to the significant adverse change to the demand for the Company\u2019s services in connection with a significant decline in the price of oil."]]
[[/GREPCENT_TABLE]]

EBITDA was $44.2 million for the year ended December 31, 2021 compared to ($299.4) million for the year ended December 31, 2020. The $343.6 million increase in EBITDA was driven primarily by the $276.0 million in goodwill and trademark impairment costs and $7.9 million in impairment and abandonment of property and equipment costs during the year ended December 31, 2020, a bargain purchase gain of $19.0 million related to 2021 acquisitions, and higher gross profit of $41.4 million. Adjusted EBITDA was $50.0 million for the year ended December 31, 2021 compared to $20.9 million for the year ended December 31, 2020. The $29.1 million increase is primarily attributable to many of the items discussed above.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash on hand, borrowing capacity under the Credit Agreement, cash flows from operations and proceeds from the sale of excess property and equipment. Our primary uses of capital have been to

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

As of December 31, 2021, 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 Credit Agreement 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 under our Credit Agreement. For a discussion of the Credit Agreement, see “—Credit Agreement” below. Although we cannot provide any assurance, we believe that our current cash balance, operating cash flow and available borrowings under our Credit Agreement will be sufficient to fund our operations for at least the next twelve months.

​

As of December 31, 2021, cash and cash equivalents totaled $85.8 million and we had approximately $117.1 million of available borrowing capacity under our Credit Agreement. As of December 31, 2021, the borrowing base under the Credit Agreement was $132.7 million, we had no outstanding borrowings, and outstanding letters of credit totaled $15.6 million. As of February 21, 2022, we had no outstanding borrowings, the borrowing base under the Credit Agreement was $148.4 million, the outstanding letters of credit totaled $15.6 million, and the available borrowing capacity under the Credit Agreement was $132.8 million.

​

As of December 31, 2021, we had no material off-balance sheet arrangements. As such, we are not exposed to any material financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

​

Our contractual obligations include, among other things, our Credit Agreement and operating leases. Refer to “Note 6—Leases” for operating lease obligations as of December 31, 2021 and “Note 10—Debt” for an update to our Credit Agreement as of December 31, 2021.

​

Cash Flows

​

The following table summarizes our cash flows for the years ended December 31, 2021 and 2020. The summary of our cash flows for the years ended December 31, 2020 and 2019 is set forth in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Cash Flow Changes Between the Years Ended December 31, 2021 and 2020

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended December 31,","\u200b","Change","\u200b"],["\u200b","","2021","","2020","","Dollars","","Percentage","\u200b"],["\u200b","\u200b","(in thousands)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net cash (used in) provided by operating activities","\u200b","$","(16,248)","\u200b","$","105,810","\u200b","$","(122,058)","\u200b","(115.4)","%"],["Net cash used in investing activities","\u200b","\u200b","(64,456)","\u200b","\u200b","(5,393)","\u200b","\u200b","(59,063)","\u200b","(1095.2)","%"],["Net cash used in financing activities","\u200b","\u200b","(2,542)","\u200b","\u200b","(10,710)","\u200b","\u200b","8,168","\u200b","76.3","%"],["Subtotal","\u200b","\u200b","(83,246)","\u200b","\u200b","89,707","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Effect of exchange rate changes on cash and cash equivalents","\u200b","\u200b","8","\u200b","\u200b","64","\u200b","\u200b","(56)","\u200b","NM","\u200b"],["Net (decrease) increase in cash and cash equivalents","\u200b","$","(83,238)","\u200b","$","89,771","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

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​

Operating Activities. Net cash used in operating activities was $16.2 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $105.8 million for the year ended December 31, 2020. The $122.1 million decrease is primarily due to $160.1 million lower cash from a non-recurrence of harvesting substantial working capital in the year ended December 31, 2020, as well as the current timing of collecting receivables connected with increasing revenue. This was partially offset by cash flows stemming from higher profitability for the year ended December 31, 2021 versus 2020.

Investing Activities. Net cash used in investing activities was $64.5 million for the year ended December 31, 2021, compared to $5.4 million for the year ended December 31, 2020. The $59.1 million increase in net cash used in investing activities was primarily due to $34.7 million in cash disbursed for acquisitions during the year ended December 31, 2021, an $18.8 million increase in purchases of property and equipment and a $5.9 million decrease in proceeds received from sales of property and equipment.

Financing Activities. Net cash used in financing activities was $2.5 million for the year ended December 31, 2021, compared to net cash used in financing activities of $10.7 million for the year ended December 31, 2020. The $8.2 million decrease in cash used in financing activities was primarily due to a $9.7 million decrease in repurchases of shares of Class A Common Stock during the year ended December 31, 2021 compared to the year ended December 31, 2020 partially offset by a net $1.4 million increase in distributions to noncontrolling interests in water-related services joint ventures.

Credit Agreement

On November 1, 2017, SES Holdings and Select LLC entered into a $300.0 million senior secured revolving credit facility (the “Credit Agreement”), by and among SES Holdings, as parent, Select LLC, as borrower, certain of SES Holdings’ subsidiaries, as guarantors, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, issuing lender and swingline lender (the “Administrative Agent”). The Credit Agreement has a sublimit of $40.0 million for letters of credit and a sublimit of $30.0 million for swingline loans. The maturity date of the Credit Agreement is the earlier of (a) November 1, 2022, and (b) the termination in whole of the Commitments pursuant to Section 2.1(b) of Article VII of the Credit Agreement. It is our intention to either extend the current Credit Agreement or enter into a new Credit Agreement prior to the termination of the current Credit Agreement. Refer to “Note 10—Debt” for further discussion of the Credit Agreement.

Tax Receivable Agreements

We intend to fund any obligation under the Tax Receivable Agreements with cash from operations or borrowings under our Credit Agreement. With respect to obligations under each of our Tax Receivable Agreements (except in cases where we elect to terminate the Tax Receivable Agreements early, the Tax Receivable Agreements are terminated early due to certain mergers or other changes of control or we have available cash but fail to make payments when due), generally we may elect to defer payments due under the Tax Receivable Agreements if we do not have available cash to satisfy our payment obligations under the Tax Receivable Agreements or if our contractual obligations limit our ability to make these payments. Any such deferred payments under the Tax Receivable Agreements generally will accrue interest.

We intend to account for any amounts payable under the Tax Receivable Agreements in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingent Consideration. For further discussion regarding such an acceleration and its potential impact, please read Part I, Item 1A. “Risk Factors – Risks Related to Our Organizational Structure – In certain cases, payments under the Tax Receivable Agreements may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreements.”

We have assessed the amount of any liability under the Tax Receivable Agreements required under the provisions of ASC 450 in connection with preparing the consolidated financial statements. We determined that there was no liability related to the Tax Receivable Agreements arising from the corporate reorganization and subsequent

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exchanges as of December 31, 2021 due to there not being any payments under the Tax Receivable Agreements that are probable under the provisions of ASC 450 within the foreseeable future. The Company would generally expect to recognize the liability under the Tax Receivable Agreements as probable in conjunction with the conclusion that deferred tax assets are more likely than not to be realized and, therefore, part or all of the valuation allowance on the deferred tax assets is released. We believe this correlation is appropriate given the relationship between the likelihood of realization of deferred tax assets and the probability of utilization of certain tax benefits that are subject to the Tax Receivable Agreements.

Critical Accounting Policies and 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 disclosures about any 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. Our critical accounting policies are described below to provide a better understanding of how we develop our assumptions and judgments about future events and related estimations and how they can impact our financial statements. The following accounting policies involve critical accounting estimates because they are dependent on our judgment and assumptions about matters that are inherently uncertain.

We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions about future events and their effects are subject to uncertainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as the business environment in which we operate changes. We believe the current assumptions, judgments and estimates used to determine amounts reflected in our consolidated financial statements are appropriate, however, actual results may differ under different conditions. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.

Goodwill and other intangible assets: The purchase price of acquired businesses is allocated to its identifiable assets and liabilities based upon estimated fair values as of the acquisition date. Goodwill and other intangible assets are initially recorded at their fair values. Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired in a business combination. Our goodwill balance at both December 31, 2021 and 2020 was zero. Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Intangible assets with finite useful lives are amortized either on a straight-line basis over the asset’s estimated useful life or on a basis that reflects the pattern in which the economic benefits of the intangible assets are realized.

Impairment of goodwill, long-lived assets and intangible assets: Long-lived assets, such as property and equipment and finite-lived intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Recoverability is measured by a comparison of their carrying amount to the estimated undiscounted cash flows to be generated by those assets. If the undiscounted cash flows are less than the carrying amount, we record impairment losses for the excess of their carrying value over the estimated fair value. Fair value is determined, in part, by the estimated cash flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels, and operating performance. Development of future cash flows also requires management to make assumptions and to apply judgment, including the timing of future expected cash flows, using the appropriate discount rates and determining salvage values. The estimate of fair value represents our best estimates of these factors based on current industry trends and reference to market transactions and is subject to variability. Assets are generally grouped at the lowest level of identifiable cash flows. We operate within the oilfield service industry, and the cyclical nature of the oil and gas industry that we serve and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the estimated fair value of these assets and, in periods of prolonged down cycles, may result in impairment charges. Changes to our key assumptions related to future performance, market conditions and other economic factors could adversely affect our

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impairment valuation. During the year ended December 31, 2020, we impaired $7.9 million of property and equipment because the carrying values were deemed not recoverable and were comprised of leasehold improvements related to abandoned facilities, abandonment of certain saltwater and fresh water wells and obsolete machinery and equipment.

We conduct our annual goodwill impairment tests in the fourth quarter of each year, and whenever impairment indicators arise, by examining relevant events and circumstances which could have a negative impact on our goodwill, such as macroeconomic conditions, industry and market conditions, cost factors that have a negative effect on earnings and cash flows, overall financial performance, acquisitions and divestitures and other relevant entity-specific events. If a qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would be required to perform a quantitative impairment test for goodwill comparing the reporting unit’s carrying value to its fair value. The Company’s reporting units are based on its organizational and reporting structure. In determining fair values for the reporting units, the Company relies primarily on the income, market and cost approaches for valuation. In the income approach, the Company discounts predicted future cash flows using a weighted-average cost of capital calculation based on publicly-traded peer companies. In the market approach, valuation multiples are developed from both publicly-traded peer companies as well as other company transactions. The cost approach considers replacement cost as the primary indicator of value.

If the fair value of a reporting unit is less than its carrying value, impairment is calculated based on the difference between the fair value and carrying value in accordance with our early adoption of Accounting Standards Update (“ASU“) 2017-04– Simplifying the Test for Goodwill Impairment. Application of the goodwill impairment test requires judgment, including the identification of reporting units, allocation of assets (including goodwill) and liabilities to reporting units and determining the fair value. The determination of reporting unit fair value relies upon certain estimates and assumptions that are complex and are affected by numerous factors, including the general economic environment and levels of E&P activity of oil and gas companies, our financial performance and trends and our strategies and business plans, among others. Unanticipated changes, including immaterial revisions, to these assumptions could result in a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and time frames, it is not possible to reasonably quantify the impact of changes in these assumptions. During the first quarter of 2020, we recorded $266.9 million of goodwill impairment due to the significant decline in oil prices coupled with the uncertainty associated with future recovery. This impairment brought our goodwill balance to zero.

Retentions: We assume risk of loss through deductibles and self-insured retentions, up to certain levels for losses related to general liability, workers’ compensation and employer’s liability, vehicle liability, and effective June 1, 2020, health insurance. Our exposure (i.e., the self-insured retention or deductible) per occurrence is $1.0 million for general liability, $1.0 million for workers’ compensation and employer’s liability, $2.0 million for vehicle liability and $0.3 million for health insurance. We also have an excess loss policy over these coverages with a limit of $100.0 million in the aggregate. Management reviews its estimates of reported and unreported claims and provides for losses through reserves. We use actuarial estimates to record our liability for future periods. If the number of claims or the costs associated with those claims were to increase significantly over our estimates, additional charges to earnings could be necessary to cover required payments. As of December 31, 2021, we estimate the range of exposure to be from $12.2 million to $14.3 million and have recorded liabilities of $13.2 million, which represents management’s best estimate of probable loss related to workers’ compensation and employer’s liability, and vehicle liability. Additionally, as of December 31, 2021, accrued health insurance and accrued general liabilities were $2.9 million and $0.5 million, respectively.

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Recent Accounting Pronouncements

Refer to “Note 2—Significant Accounting Polices” for recent accounting pronouncements.

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