Select Energy Services, Inc. Class A Aktie

Greetings, and welcome to the Select Water Solutions Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Garrett Williams, Vice President, Corporate Finance and Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call to discuss our announced acquisition of Pilot Water Solutions. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President and Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Commercial Officer; and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer.

Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay until October 9, 2026. The access information for this replay was also included in the acquisition press release. Please note that the information reported on this call speaks only as of today, September 25, 2026, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K, our quarterly reports on Form 10-Q and our other filings with the SEC to understand those risks, uncertainties and contingencies as well as to review additional disclosures associated with the pending acquisition.

In addition, comments made by management during this conference call may contain discussions of certain non-GAAP financial metrics. For the definitions of such metrics, please refer to our SEC reports and the related disclaimers set forth therein. These non-GAAP measures should be considered in conjunction with the information contained in our financial statements prepared in accordance with GAAP. The pending transaction of Pilot Water Solutions, which is currently expected to close in the fourth quarter of 2026, is subject to customary closing conditions and receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.

Now I'd like to turn the call over to John.

Thanks, Garrett. Good morning, and thank you for joining us. Today, we announced our agreement to acquire Pilot Water Solutions, a leading private water midstream company with a sizable produced water infrastructure footprint, most notably across the Permian's Delaware Basin. With Pilot Water, Select will have highly contracted production-related earnings stream at an accretive valuation in the heart of the Delaware Basin. The Pilot Water acquisition strengthens Select's position as a diversified market-leading water midstream platform. While Select will continue to lead with its recycle-first strategy, with the integration of Pilot Water, we will have a well-balanced overall infrastructure network, managing both scaled recycling and disposal across a market-leading presence in the broader Delaware Basin.

Pilot Water's infrastructure platform consists of approximately 2.7 million barrels per day of active permitted disposal capacity, nearly 900,000 barrels per day of incremental undeveloped permitted disposal capacity and more than 700 miles of pipeline infrastructure. In the first half of 2026, Pilot Water has handled about 850,000 barrels per day of produced water with more than 80% of these volumes coming from the Delaware Basin across both Texas and New Mexico.

Additionally, a new 175,000 barrels per day MVC-based contract in the Delaware Basin is expected to increase Pilot Water's daily produced water volumes handled to 1 million barrels per day during 2027. Importantly, Pilot Water's revenues are supported by an attractive contract portfolio with more than 80% of its annual revenue supported by long-term contracts with an average tender of more than 7 years. These contracts include 480,000 barrels per day of minimum volume commitments and 306,000 dedicated acres.

Select has successfully built a scaled acreage dedication contract portfolio in recent years, and I am very excited to strengthen Select's pro forma contract book with Pilot's sizable MVC contract base in addition to the incremental dedications, adding greater predictability and durability to Select's future cash flows. Pilot Water's strategic disposal portfolio provides Select with immediately available capacity, which will allow for near-term utilization enhancements and long-term system optimization and water balancing capabilities across Select's broader recycling and disposal network.

When tied into Select's existing Delaware Basin network, we will be well positioned to efficiently capture the full life cycle economics of produced and treated produced water across a broader pro forma footprint. Additionally, Pilot Water has approximately 900,000 barrels of undeveloped permitted disposal capacity, largely in the Delaware Basin across both Texas and New Mexico ensures Select is well positioned to capture a growing percentage of the industry's produced water volumes in the region, which are expected to grow by more than 10% per year over the next decade.

This capacity I outlined is before taking into account the broader leased and owned surface we will acquire in this transaction that provides access to additional high-value pore space, offering incremental optionality for long-term out-of-basin disposal or beneficial reuse solutions efficiently located related to Select's broader New Mexico network. We will continue to prioritize local recycling as the most cost-advantaged solution for every barrel.

However, Pilot Water's available disposal capacity and permitted undeveloped pore space availability gives Select the flexibility to optimize volumes across an integrated system and the opportunity to capture the full growth potential of our contracted produced water in the future. Select has been on a steady growth-oriented strategic path over the last 5 years to build out our Water Infrastructure segment and transform our business into a production-weighted midstream business supported by long-term contracts and durable and predictable cash flows.

I believe we have been very successful at executing our strategy in recent years with our Water Infrastructure segment growing at an average annual growth rate of more than 50% over the last 5 years. The Pilot Water acquisition is expected to immediately deliver another 60%-plus leg of growth for the Water Infrastructure segment in 2027. We have near-term visibility to growing our combined daily volumes to more than 2.5 million barrels per day during the first half of next year, supported by additional contracted MVC volumes.

And with multiple previously announced projects set to be completed by the end of 2027, we are well positioned for additional contracted growth in the years ahead. To put that in perspective, in 2027, Water Infrastructure is now expected to comprise approximately 70% of Select's pro forma consolidated gross profit before depreciation and amortization with the majority of this earnings stream under long-term MVCs or acreage dedication commitments. To conclude, I am very excited for what's to come for the integrated business, and I look forward to welcoming the new Pilot Water employees into the Select family soon.

At this point, I'll hand it over to Chris to provide additional highlights around this accretive acquisition. Chris?

Thank you, John, and good morning, everyone. We are pleased to announce the acquisition of Pilot Water for aggregate closing consideration of $700 million, including $600 million of cash and $100 million of shares of Select's Class A common stock. The sellers also have a right to an additional $15 million contingent cash payment payable upon the satisfaction of certain operational milestones expected in early 2027.

Additionally, the sellers retain a right to a cash true-up payment if the 30-day volume-weighted average share price as of the 6-month anniversary of the closing date is lower than the 30-day volume-weighted average price at the closing date. For the full year of 2026, Pilot Water is expected to generate $100 million to $110 million of 2026 adjusted EBITDA, which is expected to grow to $120 million to $130 million in 2027, primarily driven by the new 175,000 barrel per day MVC-based contract that John mentioned earlier.

Longer term, we are targeting an additional $10 million to $15 million of annual cost synergies that are incremental to the 2027 forecast and are expected to be achieved during the next 12 to 18 months. These metrics equate to a highly accretive acquisition represented by valuation multiples of 6.8x, 5.7x and 5.2x based on the total transaction value, including earn-out consideration, relative to the EBITDA guidance midpoints for 2026, 2027 and an implied 2027 run rate with fully realized synergies, respectively.

We believe the combined systems, especially in the Delaware Basin, also offer significant revenue synergy potential in the coming years with excess capacity availability, enhanced commercialization opportunities and broader system balancing capabilities. Additionally, there are incremental opportunities to develop capital-efficient out-of-basin disposal solutions, significantly scale mineral extraction royalties and efficiently integrate long-term beneficial reuse solutions.

We look forward to harvesting incremental value as the combined network positions us to deliver our customers with increased optionality, scaled produced water flow assurance and ultimately attractive economic savings. Select's combined network will have significant scale with 3.8 million barrels per day of recycling capacity, 4.8 million barrels per day of combined active and undeveloped permitted disposal capacity, over 1,600 miles of pipelines and approximately 57 million barrels of treated and produced water storage capacity.

Looking forward, we expect the acquired assets to require approximately $20 million to $25 million of additional recurring annual maintenance CapEx, while we separately plan to invest approximately $50 million of onetime additional integration and network enhancement CapEx for each of the next 2 years to enhance, tie in and integrate Pilot Water's infrastructure into Select's existing networks. As we have continued to grow and mature our Water Infrastructure segment and its contractually secured earnings streams with a diversified blue-chip customer base, the long-term cash flow visibility and through-cycle stability of the business has been significantly enhanced.

On a pro forma basis, Select maintains a highly diversified customer base with no single customer representing more than 7% of consolidated revenues. As John mentioned, Select's future earnings will be supported by a strong contract portfolio, which on a pro forma basis includes over 600,000 barrels per day of MVC commitments, about 90% of which are with investment-grade counterparties as well as approximately 3.6 million acres under dedication or ROFR dedication with a weighted average remaining contract term of approximately 9 years. The combined company's robust contract position supports improved visibility, through-cycle durability and steady growth in produced water volumes across a diversified footprint operating across all major U.S. basins with an especially strong position in the core of the core in the Delaware Basin within the Permian.

Additionally, this contract stability provides us with incremental flexibility as we look at the long-term capital structure of the business. As noted in the transaction release, in connection with the acquisition, Select has entered into debt commitment letters with JPMorgan and Bank of America to provide a committed financing sufficient to fund the acquisition, subject to customary conditions.

Select expects to fund the cash portion of the consideration with cash on hand, borrowings under our committed debt financings or depending on market conditions, other debt financing. That said, we fully intend to maintain a prudent balance sheet and capital allocation framework, preserving strategic flexibility as we continue to invest in and grow the business in the years ahead.

Accordingly, pro forma for the anticipated debt financing required to fund the acquisition of Pilot Water, we anticipate net leverage at closing to remain less than 2.0x, demonstrating our ongoing commitment to maintaining a more conservative leverage profile as compared to most other competitors in the marketplace. While we expect a near-term uplift in CapEx with the addition of Pilot Water's assets, the combined company's cash flow generating capabilities are strong and growing, and we expect the transaction to be immediately accretive on a cash flow per share basis.

Overall, we believe we are well positioned to continue investing in the business while still returning cash to shareholders and maintaining a very attractive balance sheet. While the transaction remains subject to the satisfactory completion of customary closing conditions and regulatory approvals, the transaction is expected to close during the fourth quarter of 2026. Ultimately, I am very excited about the opportunities ahead for the pro forma business.

And with that, I'll hand it over to the operator for any questions. Operator?

[Operator Instructions] Our first question comes from the line of Jim Rollyson with Raymond James.

Congrats on the deal and certainly pretty favorable relative multiples here. I don't know if this is for John or Chris, but you guys have been clearly leaders in Permian recycling, and this really seems to round out your capabilities on the disposal side. I guess I would love to hear your thoughts and any maybe brackets around potential, but what does this combination do for your growth opportunity?

Because as I think about this, you guys have been capturing a lot of value, locking things up, particularly led by recycling and maybe you were getting to later innings and how much potential you had to capture from here. Curious what you think this does for that kind of back-end opportunity set.

Yes, it's a great question, Jim. It obviously expands the opportunity set for us and gives us more choices. But maybe I'll give Michael a chance to weigh in on this one.

Yes. Thank you, Jim. I mean, obviously, we think the systems are highly complementary. We still love our recycling-first position, but the optionality and the flexibility that we create by providing the disposal backup from the Pilot assets is significant. And I would say that really our goal is to tie the systems together and then to utilize that disposal backup to fully monetize the investment we made in the large diameter dual pipeline system across New Mexico and further monetize the contracts that both Select and Pilot have as we look kind of out into 2029, 2030 and beyond. So we're really excited about this transaction, and we think there is significant kind of revenue and operational synergies that will come in future years.

I presume the revenue opportunities on synergies are meaningfully higher than the $10 million to $15 million just in cost synergies. But Chris, on the second -- just follow-up question here on kind of cash flows, CapEx, things like that, you laid out maintenance CapEx of $20 million to $25 million that PWS adds and then the kind of a couple of years of $50 million a year to integrate all this stuff together.

I presume they've been on a similar growth trajectory somewhat to you guys. But maybe once you get past that integration CapEx, just how to think about ongoing CapEx growth opportunities and kind of how this ultimately builds to free cash flow on a combined basis for you guys?

Yes. It certainly is going to scale the long-term free cash flow generating capabilities of the business, Jim. As we outlined and you referenced, we do have near-term visibility into the capital needs to put the system together effectively. The MVC that we mentioned that's coming online in 2027 has been an ongoing capital project for Pilot over the course of the bulk of 2026 here, and that will largely be completed and ready to come online in the early part of 2027. So there'll be a little bit of capital associated with the completion and build-out of that project and then the other needs of putting the 2 systems together.

But the maintenance needs of that system at that point, as I referenced, on top of what we've historically outlined for our needs, I mean that we think is an expectation we can maintain go forward. So as we look out 2 years from now, we'll have a meaningful acceleration in the free cash flow potential of the business. And at that point, we'll have a great set of capital allocation choices to continue to invest in growth or to continue to look at other opportunities to return or deploy capital.

Our next question comes from the line of Derrick Whitfield with Texas Capital Securities.

Congrats on the acquisition as well. As you think about the synergy associated with Pilot's customers, could you speak to what that could mean for diversification and growth with that client base for you guys?

Sure. So I mean, the Delaware Basin is a relatively small customer base. So there's obviously a lot of overlap. But there's clearly customers where Select has a stronger relationship and ones where Pilot has a stronger relationship. And it's largely centered around the fact that Pilot's the disposal solution and Select is recycling-first. So really, our job is to combine the 2, integrate the system and then strengthen both those relationships by bringing our industry-leading recycling solution to those that are primarily disposal and then by providing, as I mentioned earlier, by providing the disposal backstop to our current recycling solution for our primary customers.

Great. Makes sense. And clearly, looking at Slide 11, it's a hand-in-glove situation from a fit perspective. But as you guys think about future projects that could drive further synergy, it would seem that bringing down your Eddy Connector pipeline into Culberson/Reeves could be very synergistic for both businesses. How do you think about that opportunity?

That's a good question, Derrick. What I would say is that there's -- you're exactly right. The complementary nature of the system from a geographic perspective is really attractive. And then again, from a purpose perspective, one being recycling, one disposal. I would say that this acquisition does present us with several kind of other solutions. One would be it's an avenue to an out-of-basin solution or other disposal solutions like the one that you mentioned on Eddy County.

Obviously, -- not obvious, but Pilot wasn't involved in mineral extraction or beneficial reuse solutions. And so we would have, kind of, technology and partnerships to bring to this relationship through the work we've done over the last 12 to 18 months on those fronts. So there's a number of different opportunities that this will allow us to embark on that really would be harder to have achieved as a stand-alone company.

Next question comes from the line of Scott Gruber with Citigroup.

I'll reiterate the congrats on the deal. I'm just thinking about the timing around those commercial synergies. Slide 6 suggests those could be sizable and kind of several times the size of the cost synergies. You talked about 2 years of investment to integrate the systems. How should we think about the timing around capturing the commercial synergies kind of post integration?

Yes. I'll maybe start and let Michael add too, Scott. Obviously, first and foremost, we're focused on getting the transaction to an efficient and timely close, and we'll be in a position to have more open and discrete discussions with our customers and with the appropriate counterparties at that point in time. So we think that there's certainly a lot of opportunity here to pull those existing contracts together and find the right opportunities to get the appropriate integrated outcome. The time line to integrate the system could accelerate to the extent there was an appropriate reason to do so. As we outlined on the cost synergy side, we're targeting a 12- to 18-month time line here. So we want to make sure that we make the right choices and the appropriate time lines to get the best outcomes. But I think that, that 24-month period here is going to be a very important period for us. But Michael, anything to add?

Yes. I mean we agree with you. We think the revenue synergies are really attractive. There's a number that we've identified, and there's a number more that we just think that when we get in there and work with our collective customer base and really show them the full offering that there's going to be more that we haven't identified today. In terms of timing, the first step is getting the system fully integrated and connected. And that's a process that we've already begun evaluating, but there's going to be a phased-in approach.

So I would expect some of the synergies to come kind of within that initial 2 years as we get the system built. And then there's going to be a number of them that are going to be outside of that time frame. So it's not going to be a light switch where they all just show up once we connect the system. It's going to be -- we'll have some hopefully next year, certainly the year after and then continue to build from there.

I appreciate that. And then just looking at the complexion of the systems, obviously, different being more recycling-led in New Mexico and disposal led in Texas. So does the $100 million of CapEx in total to integrate the system, does that contemplate recycling build-out in Texas? Would that come after? Is there interest in that from your customers? Just a little bit of color on the -- kind of how you see the recycling side building out in Texas, if there's interest.

Yes. It's a good question, Scott. Right now, the focus of that capital is on integrating the system, continuing to complete the build-out of existing projects underway. There are existing permits and capacity for recycling across both portfolios. So we will have flexibility of choice, obviously, with the scale of what we've built out on the Select side with recycling. We think that gives us a meaningful avenue to utilize that footprint to treat and distribute barrels efficiently throughout New Mexico.

And as we look down into Texas, as we previously mentioned, and you'll see we've got existing projects we've added into the Texas side here in recent periods as well with contracted framework. So we do think there's going to be optionality to look at more of an integrated recycling and disposal approach long term across the whole of the footprint. But we think we can do that pretty efficiently on a recycled barrel basis with the integrated system with adding that pipeline connectivity between the 2 systems.

Our next question comes from the line of Bobby Brooks with Northland Capital Markets.

Just wanted to touch on like the time line of this coming to fruition, also just a nice multiple you paid on this. Is it fair to think the Pilot team saw upside in joining Select with having a bigger network, right, more network effects? And then also, obviously, they took a portion of the acquisition has given them equity in Select. So they also -- they continue to have upside exposure to this. Just wanted to hear on those 2 pieces.

Yes. Thanks. This is John. I would say that both parties come out really well in this transaction. They have a core business that they want to focus on. And at the same time, they wanted some value out of their asset base that had some upside. And we, on the other side, completely are very excited about the integration opportunity with these 2 assets. We also are getting both operational and regulatory and permitting and things of that nature out of the team that's staying with us that really enhances our abilities with this system and other things when we think about regulatory application of beneficial reuse or mineral extraction or things of that nature.

So I think both parties got really good value out of it. It allowed the sellers to concentrate on a core that they were very focused on, and it allowed us to actually add to our core in a meaningful way, and there's a lot of synergies between these 2 systems.

I agree both parties definitely coming out on top. And just on like time line, like has this been something has Pilot been on your radar for has this been over the past 9 months, 18 months? Just any sense there?

Yes. I mean they were a competitor. So we have had a relationship with them in a positive way for a long period of time. And this was an asset that we stayed very close to and understood and would be something that we'd tell you that we had a long-term focus on. As far as the transaction itself, I think we executed it and both sides did an extremely good job of executing the due diligence and what we got to yesterday, and we're very proud of that. But we've known them for a long time. They're great people. It's a great asset. It allows both parties to do what they want to do.

Yes, makes perfect sense. And then just last one for me. The added disposal volume and permitted undeveloped disposal volume seems very meaningful because it's my view that -- or my understanding like getting permits for these SWDs is becoming incrementally harder. Could you just discuss that dynamic? And is my logic fair there? I know you guys touched on like this kind of gives a backstop to the recycling-first view. Just wanted to hear more color and discussion there.

Yes. So I mean the -- a large -- they handle a lot of produced water that provides a lot of stability to their earnings, which we like. It does provide a backstop to our disposal to where we can be more aggressive in our -- in securing MVCs and making sure that we have an outlet when completion volumes lag or schedules change, which, again, strategically and synergistically, we really like. There is a considerable amount of excess capacity. If you think about it, when the 175,000 barrel per day MVC comes online, their Delaware system is going to be about 60% utilized.

So we have upside to continue to commercialize that. And we think with the integrated solution, we'll be able to do that. And that's before you move into the 900,000 barrels per day in permitted capacity, much of which has already been drilled but uncompleted. So that's going to be, one, you don't have to get the permits when permits are becoming increasingly more challenging to obtain, but it also will be much quicker to bring those assets online and commercialize them. So it's all kind of part of how we think about the deal, Bobby, and it's really why we're excited about bringing these 2 assets together.

Our next question comes from the line of Don Crist with Johnson Rice.

You partially answered this with your response to Bobby's question, but I was going to ask about utilization across the Pilot system. As I appreciate it, your Northern Delaware system that you're building out today is roughly 50% utilized or you expect it to be roughly 50% utilized. So it gives you a lot of optionality on the interruptible side to kind of juice returns. But what about the Pilot system? Are there kind of bottlenecks as you move into Texas that the $50 million in CapEx per year is going to alleviate? Can you just kind of expand on that?

Yes. No, you're exactly right, Don. So there are bottlenecks in that system that we know we have to alleviate to fully integrate the way that we want to integrate it. There will also be inevitably bottlenecks that we have not identified now that hopefully, we can prior to closing, but maybe not that we'll have to address, which is why we kind of have that phasing in over 2 years. But once we do get that kind of all worked out and have the system fully integrated with, I'll just say, large diameter pipe and in many instances, dual pipe, then we think we'll have kind of one system that we can be really flexible and opportunistic around commercializing. -- question, I'm sorry.

Maybe one thing I'll add to it, Don, when you think about that utilization framework you outlined, I'd just reinforce, I mean, most of the dedicated acres we've contracted here have been put in place over the last 24 months. We're still actively building out a big piece of that position in the Eddy County side. They're actively underway in building out the project to bring that new MVC online in the early part of next year.

So while the utilization of the system today is lower, the pace at which this is getting built out in both the Select and Pilot side across the whole network really is in the early innings of accelerating that commercialization long term, both on the base contracts, but as we get those core projects built out over the next 18 months. But furthermore, as we look beyond that to the overall commercialization framework we outlined to use the rest of the capacity, we think we're still in the early stages of executing upon that, but the demand is there and the opportunity set is meaningful.

Okay. And I did want to ask about kind of the areas outside of the Permian Basin. Obviously, the Haynesville looks like a pretty decent system. Does that integrate in the other areas outside of the Permian, do they integrate well with what you have today? And how does specifically the Haynesville look? Because it looks like Pilot had a pretty good system there, too.

They did, and we're actually tied into their system already in the Haynesville. So again, it's a system that we know well. It's a team we know well. It's an asset we know well. And we do have overlapping operations in the other basins, and we're really glad that it's part of the deal and coming with it. But as you'd expect, at the end of the day, what we're most excited about is the Delaware. I mean the Delaware has been our kind of core focus for the last couple of years, and it's also been Pilot's core focus for the last couple of years. And I know I've said it before, so I apologize for repeating myself, but we just couldn't be happier with how these 2 systems marry up from what they're able to accomplish in a geographic standpoint.

And I think some of that smaller diversity across other basins, too, it just really put us in a unique position to bring those other positions online and absorb them and integrate them efficiently into what we already have given the breadth of diversity we have across every basin.

Our final question this morning comes from the line of Jeff Robertson with Water Tower Research.

As you think about putting these 2 systems together and managing capacity utilization over the next several years, how do you think about the margin profile of the infrastructure business?

Yes. It's a good question, Jeff. Obviously, as you increase utilization on existing capital assets, you're going to get a margin efficiency over time. We outlined that there's a big opportunity here to continue to scale that mineral extraction potential across now a footprint that's managing 800-plus thousand barrels a day going to 1 million next year. So that's a big scaled volume base that we can expand that opportunity set around. Obviously, there's more opportunity to harvest and efficiently capture scale out of that system as well.

So part of the operational cost synergies we outlined is processes, procedures, things like that, but some of it is operational efficiency, getting everything integrated onto the platform on a combined basis. And we think that there's opportunity to improve the margin profile of the base asset as we get it integrated with ours where we're seeing a margin profile that's obviously attractive and been moving up here over the recent quarters.

To your point, Chris, about mineral extraction and some of the other ways to maximize the value of the barrel. Will the combined system as you stitch it together and the volume that it will have moving through it change the nature of the conversations that you have around those types of opportunities with mineral extractors or ultimately beneficial reuse?

Yes. It certainly scales the overall potential and will give us opportunities to think through the time lines and the pace and prioritization of where and how we deploy those opportunities. Obviously, expanding the footprint here into the Texas side of the Delaware gives us another set of geographic reach where you've got obviously varied quality and content across broad geographic footprint, where you've got different diversification of opportunity there.

So we think it's going to continue to add opportunity to scale this thing up in a manner with broader reach that may provide different opportunities than where you're at today. But Michael, anything to add?

Yes. No, I think it's just important to add that when we talk about changing the conversation, the conversation that I think really changes gets back to customers because Pilot was having primarily a disposal conversation, and we've been having a recycling-first conversation and being able to go to that customer base and show them a recycling and a disposal option and really just in conjunction, a one-stop shop total water management solution. That's the customer -- that's the conversation that I think changes the most. And nothing against mineral extraction, we love that, but that's where the real revenue synergies should occur.

And as we think about the long-term opportunity set as well, having that footprint reach into the Texas side as we think about beneficial reuse and the potential flexibility around moving barrels around to maximize the opportunity set around beneficial reuse over the coming years as well between both New Mexico and importantly, into Texas is another important consideration.

Lastly, Michael or Chris, does Pilot have surface acreage as you think -- that you could leverage as you think about expanding the recycling business into the southern part of the Delaware Basin?

Yes, it's a great question, Jeff. They do have some surface acreage on an owned basis as well as a meaningful, as you can imagine, surface use agreement position on a lease basis, both for their existing activities, but as well as we think about that existing permit portfolio that they have as well as incremental acreage positions that would allow for future permitting opportunities. So we think it's an opportunity that's going to continue to bring value.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Schmitz for any final comments.

Thanks to everybody for joining the call today to learn more about this exciting acquisition. We appreciate your continued support and interest in Select Water Solutions.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to the Select Water Solutions 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Garrett Williams, Vice President of Corporate Finance and Investor Relations. Thank you, Garrett. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the second quarter of 2026. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President and Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Commercial Officer; and Michael Lyons, Executive Vice President and Chief Strategy and Technology Officer.

Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until August 19, 2026. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, August 5, 2026, and therefore, time-sensitive information may no longer be accurate at the time of the replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Now I'd like to turn the call over to John.

Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. The second quarter of 2026 was a very strong quarter for Select. I'd like to start with some of the key second quarter highlights and other strategic and market updates. Then I'll hand it over to Chris to discuss the second quarter financial results and the forward outlook in more detail. In the second quarter, Select delivered strong overall performance across all 3 operating segments with both our Water Infrastructure and our Chemical Technologies segments producing record revenue and gross profit in the quarter. During the second quarter, on a consolidated basis, we increased revenue by 8%, increased adjusted EBITDA by 19% and more than doubled net income as compared to the first quarter of 2026.

Our Water Infrastructure segment outpaced our guidance for the period delivering another quarter of revenue growth and margin improvement. Increased produced water volumes and improved skim oil recovery drove record quarterly revenue of $102 million for the segment in the second quarter. This results in 26% year-over-year growth in revenue for the segment relative to the second quarter of 2025, demonstrating the significant progress we've made with our water infrastructure growth strategy.

We expect to see further growth in the third quarter, and we are well on track to achieve the upper end of our 25% to 30% full year growth guidance for the segment, setting the stage for additional run rate growth looking into 2027. While much has been accomplished, we continue to find new opportunities, both large and small, to further enhance the long-term potential value of our Northern Delaware network. We added several MVCs, acreage dedications and interruptible tie-in agreements during the quarter while also executing a new mineral extraction agreement with a new strategic partner for iodine extraction across the portfolio.

Importantly, during the second quarter, we executed a new 7-year agreement with a large public operator in the Northern Delaware Basin, supported by a sizable 128 million barrel MVC contract. This agreement also included the conveyance of a portfolio of underutilized but strategic SWDs across Eddy and Lea County, New Mexico. We intend to tie these SWDs into our existing water infrastructure network and the full project associated with the large MVC award is expected to cost approximately $25 million to $30 million and to be operational within the next 12 months.

The conveyance of these SWDs was largely enabled by the historical success of the full life cycle water management solutions we developed in collaboration with this operator, which increased their recycling volumes and decreased the utilization of their own operated disposal wells in the Northern Delaware. This reduced the operators' need for owning disposal wells in the region. This speaks to the value our integrated recycling and disposal infrastructure network brings to our customers and more broadly, to the Northern Delaware region.

Ultimately, the customer views this disposal capacity as more valuable to them as part of Select's broader commercial platform than part of their own internal system. Select's comprehensive water management framework allows us to take a basin-wide approach to produced water disposal, treatment and supply to unlock value across the Northern Delaware Basin, and I believe there will continue to be opportunities to acquire existing assets that are scalable and synergistic with Select's ongoing organic infrastructure build-out.

Water management is mission-critical to the energy industry and disposal remains an essential part of a comprehensive water management solution. We are proud of the increasing collaboration and commitment from our customers to grow our full life cycle and cost advantage solution in partnership together.

Elsewhere, in our Chemical Technologies segment, we saw significant sequential and year-over-year improvement coming in well above our expectations. Our Chemical Technologies segment, in-basin manufacture, rapid new product development pace and steady field execution has driven market share gains. Furthermore, increased completion intensity and complexity and the growing interest in surfactant technology has driven increased demand for our higher spec and higher-margin product offerings. This contributed to record-setting Chemical Technologies revenue in the second quarter and despite increases to oil-based raw material input costs, we delivered margin gains in the quarter as well.

Looking at our Water Services segment, we outperformed our expectations in the second quarter and have been pleased with the year-to-date performance of our last mile water logistics and delivery business. Looking at the macro outlook more broadly, the geopolitical and commodity price environment remains fluid. We believe the customer activity environment will remain supportive of continued solid performance and the more direct activity correlated offerings within our Water Services and Chemical Technologies segments. While our Water Infrastructure segment will continue to benefit from the strong secular tailwinds, a steady pace of new projects and a growing portfolio of contracted future inventory in the core of the Permian Basin.

Overall, I am very pleased with the performance of the business year-to-date. With the support of a healthy balance sheet, we are well positioned to continue to invest in attractive growth opportunities in front of us in order to deliver long-term value to our customers, employees and stakeholders as we look ahead. At this point, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Thank you, John, and good morning, everyone. Select made great strides in the second quarter, which included strong consolidated revenue, net income and adjusted EBITDA growth, another quarter of record adjusted EBITDA and consolidated gross margins before D&A, record Water Infrastructure and Chemical Technology revenues and ongoing strong performances in Water Services.

Looking at our second quarter segment performance in more detail, we grew consolidated revenues to $396 million, net income to $23 million and adjusted EBITDA to $93 million. As John mentioned earlier, the Water Infrastructure segment delivered another positive quarter marked by top line revenue growth, margin expansion and incremental contract awards. We increased our produced water volumes handled to 1.5 million barrels per day and improved our skim oil capture alongside higher pricing, contributing to record revenues of $102 million and very strong 58% gross margins before D&A, outpacing our guided expectations. This represents a 5% increase in revenue and a 9% increase in gross profit before D&A as compared to the first quarter of 2026.

Importantly, this equates to year-over-year growth in revenue and gross profit before D&A of 26% and 27%, respectively, relative to Q2 of 2025. As John noted, in the second quarter, we bolstered the outlook for our infrastructure business with the addition of several new infrastructure contracts, including a sizable MVC award in multiple dedications and interruptible tie-in opportunities across the Permian, Bakken, MidCon and Northeast regions.

In addition to the 14 SWDs conveyed as part of the larger contract John outlined, we also acquired 2 separate SWDs in the Delaware Basin during the second quarter for a total of 16 new active SWDs added in the region. Separately, we also closed on the previously announced strategic surface acquisition of the Black River Ranch during the quarter. This multipurpose surface acquisition in Eddy County, New Mexico adds future infrastructure development opportunities, high-margin surface and mineral cash flows and long-term cost synergies to our existing network.

Looking ahead to the third quarter, we anticipate 5% to 10% revenue growth for the segment and expect to sustain gross margins in the 56% to 58% range during Q3. This ongoing execution coupled with the outperformance in the first half of the year, leaves us well positioned to come in on the high end of our already increased full year guidance of 25% to 30% year-over-year growth for the segment.

Switching over to Water Services. This segment saw revenues grow by approximately 4% sequentially, outpacing our guidance of a modest decline, driven by slightly improved activity levels and continued strength in our last mile logistics and rental offerings. Gross margins before D&A in Water Services increased to 23% during Q2, a solid improvement compared to 21.8% in the first quarter. We anticipate generally steady revenue levels for Water Services in the third quarter and forecast margins before D&A in the 20% to 22% range in Q3.

Overall, we believe this segment is poised to participate in any activity upside and pricing opportunities that may arise if elevated commodity prices are sustained in the near term. Elsewhere, the Chemical Technologies segment posted a stellar second quarter with significant sequential revenue gains and meaningful outperformance relative to our prior forecast.

Revenue of $96 million increased by 23% relative to Q1 of 2026 and gross margin before D&A of 20% combined to deliver 35% sequential growth in gross profit before D&A to $19.4 million in the second quarter of 2026. While we forecast a modest retrenchment to $85 million to $90 million of revenue based on current customer schedules forecasted for the third quarter, we continue to see healthy demand for our high-spec, higher-margin friction reducer and specialty surfactant product offerings. Accordingly, margins for the segment should remain in the 20% to 21% range.

Overall, we remain very excited about the future opportunity set for this segment. On a consolidated basis, supported by meaningful gross profit gains and relatively steady SG&A, altogether, we generated consolidated adjusted EBITDA of $93 million during the second quarter of 2026, significantly above the high end of our guidance range of $77 million to $80 million, resulting from outperformance across all 3 segments.

Looking forward into the third quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $90 million to $94 million as Water Infrastructure growth is balanced against our near-term outlook for Water Services and Chemical Technologies. While we may see some modest seasonal impacts in the fourth quarter across parts of the business, we believe we are poised for continued year-over-year growth in 2027. Looking at our other costs, D&A expense should climb slightly in the third quarter to the $48 million to $52 million range as several capital projects are expected to be completed in the quarter.

Net interest expense decreased sequentially in conjunction with reduced borrowings, and we expect interest to remain in the $4 million to $6 million range per quarter in the near term.

On the operating cash flow side, we saw a meaningful improvement compared to Q1 with $87 million of operating cash flow generated in the quarter as we studied our working capital management compared to the prior build in Q1.

On the investing side, we deployed $112 million towards a combination of CapEx and acquisitions in the second quarter, primarily in support of our water infrastructure business. In addition to the $70 million of net CapEx, as I mentioned earlier, we closed on $42 million of strategic bolt-ons for the water infrastructure business in the quarter as well as the buyout of several long-term facility leases for key operating locations. While the maintenance needs of the business remained steady around the $60 million range in support of our latest infrastructure contract awards and growth opportunities, we now expect net capital expenditures to increase to $250 million to $290 million in 2026, up from the $250 million high end of our prior guidance. As we continue to scale our core Northern Delaware water infrastructure network, the opportunity set in front of us has expanded with it, and we are confident in our ability to keep delivering accretive growth projects in the quarters ahead that will drive significant long-term value for our shareholders.

Our leading customers in the Permian Basin continue to grow through consolidation, lease sales and successful exploratory well results and Select is geographically and operationally well positioned to benefit and participate in this growth with our customers.

Overall, our business maintains a maintenance-light capital model, which has the ability to generate strong discretionary cash flow. We expect this discretionary cash flow to provide increasing optionality, especially as our Northern Delaware build-out matures over time. While this ongoing build phase will limit our free cash flow potential this year, we are establishing a tremendous portfolio of long-term contracted cash flows.

We have an actively scaling infrastructure platform, which possesses room for significant utilization enhancement over time. Even with the potential for additional growth capital investment in 2027, resulting from a strong backlog of opportunities, this platform and our steadily growing earnings profile reinforces our confidence in improved free cash flow potential in 2027 and beyond.

Overall, we are very pleased with the strong year-over-year trajectory across all parts of the business so far in 2026. While there is much left to do, I'm especially encouraged by the significant progress we've made with our water infrastructure growth strategy and the opportunity set in front of us remains robust. With that, I'll hand it over to the operator for any questions. Operator?

[Operator Instructions] Our first question is from Jim Rollyson with Raymond James.

Fabulous results again as usual. I don't know if this is for John or Chris, but if you kind of take the run rate you are on in Water Infrastructure to now hit the high end of the revised range of 30% growth in top line this year. And you kind of look at the momentum of projects you already have in hand, some of the recent deals you've done, how do you handicap the rate of growth we should be thinking about going into next year? It clearly seems like it's a double-digit number, but I kind of want to make sure we don't get the cart too far in front of the horse here as we think about the run rates.

Yes, Jim, -- so I think you're certainly thinking about it correct. As we sit here today, looking at the additional projects we've added to the to the recent win list as we think about what the opportunity set looks like for the rest of the back half of the year. Obviously, we're adding to the capital program in '26. I think we're pretty confident that we're going to continue to add to it for 2027. I think on a base case, as we sit here today, on a run rate, you're looking to execute on another year of double-digit growth into 2027. And I think we've got an opportunity set to continue to add to that profile with additional project wins and/or bolt-on acquisitions over the next couple of quarters.

So we're pretty excited about the continued growth in the backlog and the opportunity set. We're pretty excited about the recent execution of the projects we have coming online here in Q3 that's setting up the stage for continued growth into 2027. And so hopefully, we can execute on that, build upon it. And certainly, as we sit here today, something that starts with double-digit growth in next year is how we would think about it.

Yes, that's Chris. And this is John. So the only thing I'd add to Chris' position is in the quarter, we announced what Michael and his team did with that operator. And for that operator to give us the amount of disposal wells because of the really game-changing application of recycle first. This network has become very important to the industry. into that area. And I think that it says a lot to the other piece of the system that we always talked about that we thought would get filled up with either commercial is the way we described it and now we're describing it as interruptible. And we -- that call volume and that action by that operator to give us those disposals to network this thing and continue to build it out is very powerful.

Yes. It's not an insignificant investment they made in those 14 SWDs, I suppose.

As a follow-up, maybe this is one for John, but kind of longer-term picture question that I'm going to take a shot at here. You're kind of on this run rate now, second quarter and third quarter guide of this low to mid-$90 million EBITDA run rate puts you well on track for the numbers that people have for next year and beyond. If you start adding up some of the smaller wins that aren't contributing today like the different minerals extraction royalty stream and your municipal water transaction that starts maybe late next year in Colorado, surfactant opportunities, et cetera. If you start stacking those up, what kind of incremental EBITDA should we be looking at 2, 3, 4 years out that kind of adds to what you've built in the water infrastructure and rest of your business on a current run rate basis?

Certainly, as we think about some of the other opportunities around the portfolio, I think at the end of the day, the core focus remains how do we build upon the core build-out of the infrastructure platform, how do we maximize value out of the return -- or the investments we are making to improve returns over time, something like the mineral extraction opportunity set that we added on to this quarter with iodine in addition to the previously announced lithium projects. All of that we view as margin enhancing and return enhancing to the existing investments we're consistently making.

So how do we continue to focus on maximizing that return profile over time, whether it's adding the interruptibles and increasing that utilization over time. So it's very fair to say the earnings power capability of the asset base is much higher than it sits today. Some of that will take time. We're certainly expecting to get dollars flowing on the minerals side in 2027, but it will take time to scale it up over a period of time to multiple facilities in multiple regions and some of the other tangential opportunities. But as we sit here today, building upon the growth that we already are executing on, pulling effectively forward a full year of earnings into this year, we think it sets us up great.

Obviously, there's components of the business that we'll need to see continued strength and outlook of the macro environment. But whether it's the services or the chemical side in addition to infrastructure, the asset base is capable of significantly more and the activity profiles that the market is setting the stage for, we're in a position to continue to execute on without meaningful capital investment, particularly on the services side.

Our next question is from Bobby Brooks with Northland Capital Markets.

I wanted to get an update on your ROFR acres within the Permian. Obviously, as those flip to active sites, it can represent very accretive deals. So I was just curious to hear have those in your year-to-date results -- do your year-to-date results benefit from any of those ROFR acres slipping to active sites that maybe you initially didn't plan for? And just more broadly, how should investors be thinking about the uplift from them?

This is Michael Skarke. The ROFR acres are a big part of the way that we're constructing deals. We love the dedicated acres that aligns us well with our customer. We underwrite the geology. We feel great about the rock in the Northern Delaware and the ROFR acres really give us that option value that as the operator starts to expand and our system starts to expand, those are acres that we expect to pick up. In our year-to-date results, we have not seen a material conversion of the ROFR acres into dedicated acres. Although that's something that we still expect to see going forward and are working hard to secure as the operators' plans start to move that direction as our system gets built out.

But when we look at what the system can do, and John addressed this a little bit with Jim's question, we size our expansions around an anchor tenant, but we upsized the system whether the throughput of the pipes by about 50% or doubled to get 50% underutilized capacity. It's that excess capacity, that commercialization is really where I think you'll see the big win over the next couple of years as we build the system out and fully commercialize it with interruptibles, but also with MVCs, smaller MVCs, dedicated acres just to lesser operators, smaller operators, not lesser, smaller operators. So that's really what we're excited about.

And I think importantly, Bobby, the position we've built and the system we have in place as our customers continue to grow, as we mentioned, whether that's through consolidation, whether that's through new exploration or new acreage additions, we're extremely well positioned to support them in that growth and establish the contract frameworks that allow us to effectively and efficiently convert that into tactical growth over time.

And I think the new acreage position is particularly important because we're seeing operators push the boundaries of how we have traditionally defined the Northern Delaware. They're stepping out further and further and getting really good results. And as they do that, our network is best positioned to support them in those expansions. So as you continue to see new exploratory wells become core and operators expand their positions beyond what we classically defined as the core Northern Delaware, I think that's going to be a really good fit for us. Really appreciate that color.

And then there's been a lot of talk today of the growth of opportunity sets for infrastructure and the pipeline of that. Could you maybe just help frame that growth in some way? Is the pipeline maybe -- is it 20% larger than it was a year? Or is it 20% larger than what it was at year-end '25? Just trying to frame how that pipeline has grown.

So I'll start and let Chris clean me up. I had a comment in March on our Q4 about the pipeline. And really what I was talking about is we had a couple of really large opportunities out there, one of which we just announced on this earnings call. And -- but we were seeing more and more of the small commercialization opportunities. So the number of projects in our backlog in our pipeline continues to grow.

And really, as we expand our market-leading large diameter network, you're accessing new acreage, and we are the most logical solution from a cost perspective to continue to expand with them. What we're seeing right now is we're seeing more interest in recycling today than we ever have before. And I think in part, it's because of the size and scale of our system, the flexibility of our system, operators have more comfort in the longevity and sustainability, the reliability of that recycling solution.

And so it's kind of a self-fulfilling process. The bigger you get, the more customers you bring on, the more reliable you are and the more you're able to expand. I do think going forward, you're going to see us do more deals that require less capital than maybe you have in the past on some of these bigger chunkier deals.

Yes. Still very fair, though, to say there's still a couple of chunky opportunities out there, but there is a point at which the white space in the map gets filled in some regard. And so we wanted to be clear in our view that there is still some larger opportunity sets out there. As we look forward into 2027 and think about the capital profile, we do think there is another year of meaningful build opportunity in 2027 at probably a larger size than we might have otherwise anticipated. But importantly, as we've accelerated the earnings growth so far this year, we're doing so in a manner that's allowing us to continue to backfill that investment opportunity set into next year in addition to supporting the earnings growth meaningfully beyond where we came into the year.

And so we do think that even if we were able to replicate another year of the growth capital in '27 like we're seeing in '26, that's still creating an opportunity to increase the free cash flow generative potential of the business that can really accelerate as we look forward another year into 2028.

And Bobby, I know you understand this, but it's probably worth just reiterating like the project we just announced, and we announced it today. It's going to be operational in 12 months. We're probably going to need a couple of months to really make it efficient and start to optimize it. And so an announcement today is spend over 12 months and cash flow in month kind of 13 through 5, 6, 7, 10 years after that.

And importantly, what that means is you've got a view on continued growth looking into '28 on top of the run rate growth we're already executing on into '27.

Yes.

Very helpful color. And then just last one for me is on that, the 128 million barrel minimum volume commitment project announced yesterday. Obviously, that was great to hear and nice to hear that was like something that was in the pipeline that you executed on. But just curious to hear a deeper discussion on how this deal might contrast to the past deals because it does seem like there's some key differences. Obviously, the scale, the 14 SWDs that they gave -- handed over to you. But are there other pieces that are important to be thinking about of how this might be different from past ones we've seen?

I think there's a couple of things, and we kind of hit on it, Bobby, but I'll reiterate, we're really excited about those 14 SWDs in New Mexico. We think that's a big deal that our system rendered those underutilized where the operators saw very little value in them. And when you tie them into our network, that allows us to provide increased firm takeaway and really make sure that our recycling first solution can weather the highs and lows of a cyclical business.

So we get really excited about that piece. The other thing I thought was interesting, and it really speaks to the value of our [ Lorth ] pipeline network. This operator, we traditionally do things on a dedicated acreage basis, and we like that. This was a large MVC because they really wanted to reserve capacity on a specific piece of pipe that they wanted us to build. And it takes our system down into Texas, which is going to be a geographic expansion for us. But the fact that they were willing to sign up for an MVC, they had, they believe they need it, they're going to use it, and we're going to size it appropriately so that other operators can benefit from this expansion as well.

Yes. This certainly wasn't the first time we've been directly conveyed assets. We've now done this multiple times over the last year or 2 where we've had customers directly convey assets, whether that's disposal, recycling, storage or pipe. And so I think what you continue to see is the value of having interconnectivity to our network creates more value to the customer than stand-alone assets and the commercial ability to monetize those and utilize those effectively. So we think that that's something that we've continued to execute on.

And then furthermore, as Michael mentioned, our ability to continue to add MVCs, whether a real size like this one or some of the smaller ones we've tactically added on over the last couple of quarters. The bigger the system gets, the more surety folks want to access to the system. And so I think that ability to translate those from dedications into MVCs on a secondary and a tertiary basis, we'll continue to see opportunities around.

Bobby, this is John. The -- Michael made a very good point. I mean the network is very valuable to putting the 14 SWDs in place to get an ability to add capacity of disposal to the system. And then Michael said it gets us to the Texas line every time we move another contract into another area, it gives this system a very unique position because this system is dual line. It collects and distributes for a recycle first program. It's really the only one out there. But every time it has an extension, the thesis itself, the network value gets extended into a different area and gets an ability to hook up to more pipe and more assets. Quarter.

Our next question is from Derrick Whitfield with Texas Capital.

Great update across all 3 segments. I wanted to start with your Chemicals segment for my first question. How would you characterize the demand you're seeing in the market today for surfactants? How broad-based is it? And what could it grow to be within your portfolio?

Yes, go ahead.

I'll take.

Yes. Derrick, this is Michael. So I appreciate the question. As we've mentioned in the past, we're seeing increased demand for surfactants, and it's really completions and workovers and a little bit of EORs. We're expecting this to continue to grow into 2027. But I think it's important to start with the market. We do less than 10% of the new well completions today are using surfactants. And of the ones using it, it's 95% out of the Permian. There's a lot of room for this market to grow. It's just going to take some time to get there.

And what I mean by that is we've developed 26 new formulas for just one customer. And this is the kind of specialty chemistry that really required for surfactants to be worth it to add the value that they can add. This is also where our chemistry team really excels. I guess to answer the last part of your question, surfactants are still a fairly small percent of our chemicals revenue. I mean it's consistent with it being 10% of the market, but it's increasing quickly. I mean we've seen it grow 50% year-over-year, and we see that growth continuing into 2027.

Yes. The only thing I was going to add to it is Paul and his team has a great team, but it also has a very unique position in the marketplace with the lab position we have, the reactive plant we have in Midland, the relation to water and produced water as part of this. And Michael said, just for that one, we did all this formulas, and we can do that very quickly with a great team and great assets. But if you ask the team today, they're saying everybody is still working with formulas and applying and coming up with new thoughts around surfactants. So we think this year has done a lot of testing, a lot of developing a lot of what if Ford for our customers, and we get to participate in that. We think that's going to turn into a great opportunity for us, but the volumes that we think it will turn into are probably more '27 volumes.

And maybe just to clarify on part of your response with the surfactants and their applications towards EOR, is that in an unconventional sense because that does have tax implications associated with that. That's something that Diamondback spoke to during their call. And I think, again, that has pretty significant implications for industry as they start to latch on to that and potentially get on that path?

That is correct. That's what I was speaking to and a great company and a great customer, but they're not the only ones. There are a lot of people very focused on it. And -- but that is the place that they're focused on.

Terrific. And maybe just following up on the mineral extraction opportunity. Are you guys seeing greater inbounds from industry following your announcements for applications for mineral extraction outside of on outside of lithium?

So when you say industry, I would say we are seeing certainly more inbound in general. The potential offtakers is a pretty diverse group. I mean we're seeing the offtake ranging from glass manufacturers to battery manufacturers. So I think the offtake is diverse, which gives us good confidence in being able to place all of the minerals. And I think what was most important to us and remains important is the fact that we did a lot of work around characterizing our asset base. And like thanks to Michael and the team, that asset base continues to grow.

And the merging of our knowledge of pretreatment, getting large volumes of water treated and available and really the recycling component of our network really unlocked for us and I think for the industry, the ability to do this at scale. So yes, we and our partners are both getting inbounds. And I think the fact that we can create a domestic supply is also very important, like you're seeing defense and other folks that really care about the supply chain end-to-end also inbound. So I think we remain very, very excited about the opportunity. As we said earlier, I mean, it's pick and shovel work. I mean we've got to make sure the land is ready and that the war bonds are there. So I mean, we will -- and it's completely first of kind on all of these. So I think we will take some time to get the flywheel running, but then we'll have really a widget that we can go out and just -- it will start to accelerate. And so you'll see the financial impact over time. It will be in our forecast, and we'll talk about facilities and so on as they get up and running.

And then maybe just one clarification. Part of what I was thinking about was with the success that you guys have had with these mineral extraction opportunities for iodine and lithium specifically, have there been other critical minerals, whether it be magnesium or other components that are starting to create opportunities or inbounds right now for you guys?

Yes. So we've looked at magnesium as one option. Frankly, I think it's pretty hard economics. So we haven't focused very much on that versus just doing it with seawater or other sources. We have -- one of our partners is looking at Strontium as an option. It's a very unique mineral and there's others. So again, that's part of our ongoing characterization of our asset base. And not all mineral concentrations are created equal across the network. And frankly, it's one of the great things about being a multi-basin or all-basin player that gives us that access. So I think as we were speaking before, I mean, this is just -- I think it's a phenomenal way to get every last dollar and drop of value out of our water.

And one thing I might add to it, Michael said it earlier, as you continue to expand the bounds of what the geology looks like, what the opportunity set looks like in a specific region, the quality of that water, the interaction of that water to the system changes. And so one of the things you can continue to do is just make the mineral content review part of your just core expansion opportunity set. As you move the water changes and as the water changes, what's the right opportunity set. So it's effectively just something that can layer on to the system over time and the growth opportunity set over time.

Our next question is from Jimmy Larkin with Bank of America.

I guess my first question is really starting on the guidance for Water Infrastructure next quarter. The 5% to 10% seems even if assuming a strong skim oil pricing environment, it seems that volumes are going to have to pick up pretty significantly next quarter. So I was wondering if you could just kind of talk through what you're seeing for volumes growth maybe into next quarter and the fourth quarter? And then how much of that is primarily related to kind of the start-up of your next recycling facility in the third quarter?

Yes. So the skim oil component of this is certainly part of the growth we saw in Q2 and is a strong potential continued tailwind for the outlook into Q3. to put some specific context around that. Obviously, you saw the uplift starting in March on the skim oil pricing. In the second quarter, you saw that hold through for the majority of the period. So if you think about the variability between something like a $65 spot pricing environment and a $95 spot pricing environment, that can reflect give or take, around $1 million a month of variability. So that is something that will be a component of the outlook in one form or fashion depending upon where the commodity sits at any point in time.

But as we think about the volume side, we do expect to see recycling growth from a volumetric standpoint in the third quarter with new facilities coming online. We do have new disposals that have been added to the portfolio here as well, both organically and through acquisitions that will drive growth in the disposal side of our volume framework.

So our expectation would be to see volumes grow generally in line with that 5% to 10% growth framework that we guided to for the top line in Q3, assuming generally a fairly steady commodity pricing environment to what we see today.

The only thing I'd add to that is it's not all new facilities coming online. There's a heavy portion of just commercialization and kind of seasoning facilities and getting them operational. So getting back to my comments earlier, as you think about this going forward, I think this platform will support continued growth without having to add more capital along the way.

Great. And then I guess my second question, just going back to data centers is obviously a big theme still. And just we had a data center in West Texas that was announced -- that announced that it would use produced water in the future. And seemingly, there's more data centers in West Texas to come. I was just kind of -- can you remind us how you guys would be set up to benefit from this? And if you're seeing any kind of discussions pick up on that side?

I'd start off by saying just if you think about Select, our core competency is sourcing water, moving it, treating it and disposing of it and doing so in very large quantities in a cost-efficient manner. And so that really aligns us well with data centers and developers and EPC firms, and we're involved in multiple conversations in West Texas and frankly, outside of West Texas on just that. The water needs are going to vary depending on the project and where it is and how they're operating. But we've established Select as an expert in water and water logistics, and that puts us really as one of the premier service providers -- solution providers around water. So we're having the conversations. We're a part of them and certainly hopeful that we can be -- continue to grow as that segment of the market increases.

Yes. I think one thing to add to your question on reusing produced water. I mean, beneficial reuse is part of the overall kind of opportunity set around comprehensive produced water management. At the end of the day, it's going to be a core part of long-term solutions for the Permian Basin to manage the core application of produced water management in the oilfield. So what you do with that water on the backside of that data center is certainly a very potential and sizable part of that opportunity set to deploy those barrels. But there's also going to be short-term need for other application of source as well.

And then I'd also add, there's also a picks and shovels aspect of the data center opportunity set that supports the build-out phase, the construction time lines of these projects over the next couple of years as well that our services business is very well positioned to support in addition to the long-term opportunity set around the water logistics and water management.

Our next question is from Don Crist with Johnson Rice.

Continuing on the data center side, obviously, you have peak out there, and they have a very specific skill set. Are you seeing inbounds on the data center side, not necessarily from the water and beneficial use on water, but from the peak side as well and the growth there?

As I kind of alluded to a second ago, we do see opportunity on the services side of the business, and that's coming out of both the peak side of our business on the Power Solutions on a distributed basis as well as some of the other rentals and support solutions, storage solutions and logistics. So as an example, in the second quarter, we did have about $6 million of revenue come out of the services side of the business in support of those construction projects for data center projects.

So that's obviously going to be a variable opportunity set, but it's something that we've got real tangible existing revenue from and Peak is a component of that, primarily on the Power Solutions basis. So it's been a good opportunity to see that. We're not necessarily looking to scale that into the large behind-the-meter solutions in support of those projects. But during the build-out phase, talking about the distributed needs of those solutions in support of these projects is something we've already seen success with, and I think we'll continue to see success with in the coming quarters as we think about how the water side of the business can further enhance that relationship over time.

Okay. And I wanted to ask about customer behavior because obviously, there's been some rigs added to the industry up to 50 or 60, but we haven't really seen too much on the completion side, which is obviously more impactful for you all. But as you kind of get schedules for the next 6 months to 9 months or 12 months, are you seeing, generally speaking, a pickup, whether it be from the start-up of the natural gas pipelines out of New Mexico or just from the lack of additions to completion activity so far? I mean, just any kind of color around that because in my opinion, it feels like we're underestimating the completion activity in '27 as of right now?

Yes. The answer is in 2 segments. They're both really good answers as it comes to Select and the opportunity for Select Don, and this is John. I would tell you that the intensity of the completion cycle of these wells and the lateral length continue to be a really good tailwind for us. I mean, we fit in that so well as these operators continue to do more with less and get better results. We really like that space, and we are surprised how much push there is from the operator to do that.

On the industry itself as far as you're correct, we've added drilling horsepower now. We're drilling wells. There's going to be a ramp in the amount of frac fleets running how they complete those wells are going to be higher intensity. It's going to be a really good opportunity for pretty well all points of Select. If you look across chemicals, water service, our last mile logistics or what they're doing with those drilling rigs where they're going, you just look at the Haynesville, it's doubled in drilling rigs, and we have a very unique position in takeaway for the Haynesville. So I think we set up really well on both sides of it, Don.

Yes. And that was going to be my next question was going to be all the discussion has been around the Permian, but your positions in probably the Bakken are probably doing pretty well from a workover perspective and in the Haynesville and Marcellus as well.

Yes. Select is very unique in that sense. I mean what Michael and his team has put together in the upper Delaware and that dual value system, we think that's some of the best rock in the United States. It has the most challenge to produce water management and frac water management. But if you go to the Northeast, we probably have the #1 position in disposal. If you go to the Haynesville, that is a very unique piece of pipe that's coming out of the soda Parish in the Joaquin. Our concentration in the Bakken, we really do like. We got a lot of wellbores. So I think we're set up to bring value to our customers across the plays in a very unique way.

Of course, we can't talk enough about that Delaware position because it's very, very unique, Don.

Just to put some specificity to what John said, I mean, again, he's exactly right. But we've executed -- we have infrastructure assets in every U.S. onshore basin, and we've executed contracts this year in most of those basins. Now they all compete with capital. The Permian is getting the bulk of it, but we're still getting deals done in other basins, and I think that will certainly continue, Don.

Our next question is from Jeff Robertson with Water Tower Research.

Michael, you talked about the way you all have built the Northern Delaware system with embedded capacity available for future utilization. Can you share any color on how the take-up of the utilization on the system and how having the capacity with the new SWD wells that were conveyed could affect margins over the next couple of years?

Sure. No, it's a great question, Jeff. So it's an infrastructure asset. So the more volumes you flow through, the higher your margins are going to go because of the high incremental margin for every incremental barrel. The key around the disposal is it increases the reliability and allows you to get closer to a maximum utilization around your recycling first network because when you get close to that recycling limit, if you go over it, you can always just send those barrels to disposal. So you can operate at a higher sustained utilization over a longer period of time. And that's one of the reasons we get excited about it.

The other reason is there still are -- I mentioned we have more customers in recycling today than ever before. There still are some customers who are very fixated on firm capacity and making sure that you can provide firm capacity through good times and bad times, really, you have to count on some level of disposal. And so tying in more disposal to our system kind of helps us with that as well. Across the system, there's various constraints, but we've really done -- tried to do a very good job of oversizing the pipe and having 2 lines in every ditch so that we can send water north, south, east, west, all at the exact same time for maximum flexibility to really drive utilization as high as it can go. But I'd tell you that if we put no more capital in the system just through continued commercialization and with operators' drilling plans, you're going to see utilization continue to climb up. I mean what we've seen here on recycling, if you look at our earnings over the last few quarters or last few years, disposals increased some, but it's been fairly consistent, which you love the consistency of the produced water. Recycling has been a lot of the growth, and it's through increased utilization across that expansive network.

And you mentioned that the customer wanted a pipeline to extend, I think you said down to the Texas, New Mexico border. Is that a strategic decision on their part because they have other assets that could be added to the system in the future? Or was there something -- some other motivation behind that?

You're exactly right. It was strategic on their part, and they were very specific as to where they wanted the pipeline to go and how much capacity they wanted to reserve on the pipeline. Now I would add that it's also strategic on our part. I mean we want to make sure that we're developing an asset that will solve that customer's need, but it's also something that we can use as part of a bigger opportunity to solve the basin's need. And so this was one of those really fun transactions that allows us to do both.

Our next question is from John Daniel with Daniel Energy Partners.

Michael, I believe in an earlier response to a question, you talked about 26 formulas designed for one customer. I'm curious, when you do that, do you own the formula? And once you have that formula, if it's working, can you take that and provide that to other operators?

Yes. So I'll answer your question generally, and the answer is it depends, depending on the operator you're working for. We will take specific formulas from operators and fine-tune them for them or manufacture those for them, and we're happy to do that. That puts volume through our manufacturing plant that gives us kind of that preferred relationship with the operator. However, there are a lot of opportunities where customers say, work on a formula for us, designing something for us, design something for the region, and we're doing the design work. And in most cases, we end up owning that formula. And it's not uncommon for an operator to come and say, "Hey, I want what XYZ has over there. Now it's not that simple.

You can't just -- it's not portable. You want to go through the testing phase. And I thought John did a really good job of explaining kind of we're in that testing phase. We're excited about it, and we really think we're investing a lot of time and effort, and we think it's going to bear fruit or some in '26, but largely in '27. But it is good to see operators say, "Hey, what are you doing? What would work here and then we can bring those '26 formulas or others to that solution.

Okay. Got it. And then going over to the SWDs that were conveyed to you guys. I know you also mentioned you've had that happen multiple times over the years. I'm just curious, when those are conveyed, is it the customer coming to you with the idea? Or are you proactively going out there and sourcing these opportunities? And how many inbound calls from other operators do you have with like similar conveyance ideas?

Yes. No, it's an interesting question, and I hadn't thought of it that way. It's actually both. We've had customers come to us and say, we want you to take these assets that we're not using them, you're going to use them more, it's going to backstop your performance for us, we want you to take them, which is a great feeling. It's really -- it's the strongest endorsement I can think of kind of what we've built. There are other scenarios where we've brought it up and said, "Hey, we've looked online and you're not putting many volumes through these wells. This would be really fit our system and help us better serve you. I think the key, whether it's their idea or our idea is at the end of the day, we get to the same point. which is the asset is more valuable to the customer under our control as part of our network.

Okay. Got it. And so if you were to put someone's third-party volumes into that SWD that was conveyed to you that I'm assuming that's allowed and then there's ultimately a benefit to the person conveys to you or sorry for asking a dumb question.

No, it's not a dumb question at all. It is allowed, and it would be to our benefit if we do that.

We have reached the end of the question-and-answer session. I would like to turn the floor back over to John Schmitz for closing comments.

Thanks to everybody for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions, and we look forward to speaking to you again next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Greetings, and welcome to Select Water Solutions' First Quarter 2026 Earnings Conference Call. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Garrett Williams, Vice President of Finance and Investor Relations. Thank you, Mr. Williams. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions' conference call and webcast to review our financial and operational results for the first quarter of 2026. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; and Chris George, Executive Vice President and Chief Financial Officer.

Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until May 20, 2026. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 6, 2026, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. Listeners are encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures.

Now I'd like to turn the call over to John.

Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. The first quarter of 2026 was a strong start to the year for Select. I'd like to start with some of the key first quarter highlights and other strategic and market updates. Then I'll hand it to Chris to discuss the first quarter financial results and forward outlook in more detail.

The first quarter was a great start for the year for us. We executed within or ahead of our expectations across all parts of our business, continued to add new contracts to the portfolio and are well positioned for a strong rest of the year.

During the first quarter, on a consolidated basis, we increased revenue by $19.5 million, increased adjusted EBITDA by $13.5 million and increased net income by $11.5 million as compared to the fourth quarter of 2025. Our Water Infrastructure segment performed very well in the first quarter, meaningfully outpacing our guidance for the period.

During the first quarter, we increased our Water Infrastructure revenues by 19% relative to the fourth quarter of 2025. Additionally, Water Infrastructure gross margins before D&A increased to 56%, driving consolidated gross margins before D&A above 30% for the first time and to a new all-time high for the company.

Across our Water Infrastructure network, we managed approximately 1.4 million barrels per day of produced water during the first quarter of 2026, with increases to both our recycling and disposal volumes. This resulted in a record quarterly segment revenue of approximately $97 million. Supported by the strong outperformance during the first quarter, our Water Infrastructure segment is well on track to exceed the high end of our previous full year guidance.

We continue to focus on maximizing the value out of our invested capital across the system with increased commercialization and contracted service offering expansion. Since year-end, we have executed several new contracts across multiple basins, leveraging our existing networks to provide incremental committed volumes, tie-in opportunities or increased produced water flows and utilization throughout our system. For example, during the first quarter of 2026, we leveraged our market-leading disposal position in the Northeast region to sign a new multiyear disposal dedication agreement with a core customer while concurrently becoming the preferred water transfer provider for this customer.

In total, since the start of the first quarter of 2026, we have added 3 new MVCs, 2 additional acreage dedications, 2 new ROFR dedications and 8 new interruptible agreements to our network across the Permian, the Northeast, Bakken and MidCon regions. While we still have another number of sizable growth capital expansion opportunities that we are targeting around our core network, I am very excited to see the progress in adding these low to no capital required commercialization opportunities. These opportunities leverage the strength of the expanding networks we have already have in place, add incremental revenue through the enhanced utilization and further bolster the flexibility and the water balancing capabilities of the network overall.

More recently, here in May, we also closed on multiple acquisitions in the Northern Delaware Basin, adding approximately 4,000 acres of surface and minerals, 30,000 barrels per day of disposal capacity, 1,800 acre feet of annual water rights and 500,000 barrels of storage across Texas and New Mexico. We expect these acquisitions to integrate efficiently and bolster the operational and economic development potential of our Northern Delaware network, and we will continue to look for opportunities to tactically add to our footprint in the region.

Elsewhere in our Water Service segment, we outperformed our expectation in the first quarter with a 7% top-line revenue increase compared to the fourth quarter and remain very well positioned to capitalize on any activity uplift in the market associated with the current commodity price environment.

Our Chemical Technologies segment continue to see strong demand for new product development, both in our core friction reducer product lines as well as our specialty surfactant product offering, which should drive strong double-digit percent revenue growth and margin uplift for the second quarter ahead.

On the macro side of things, the recent geopolitical tension in the Middle East has changed the commodity outlook in a big way since the start of the year. While it is not yet clear what the long-term impacts are for the energy markets, what is very clear is that the U.S. energy industry will remain a critical stabilizer of a diversified global energy supply chain for many years to come.

While we have yet to see any major behavioral changes from our customers' activity or pricing perspective, we are closely monitoring the commodity and the activity outlook with our customers and are well positioned to support any uplift in demand, whether over the short-term or the long-term.

In the meantime, on the revenue side, we expect to benefit from higher skim oil pricings within our Water Infrastructure segment. Separately, on the cost side, we will work to mitigate any impacts from higher commodity prices or supply chain disruptions. Overall, I am very pleased with the performance of the business year-to-date, and I believe we are well positioned to drive incremental growth in the quarters ahead.

At this point, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Thank you, John, and good morning, everyone. Select made great strides in the first quarter, which included strong consolidated revenue, net income and adjusted EBITDA growth, record consolidated gross margins before D&A, record Water Infrastructure revenue and continued commercialization wins across our water infrastructure platform, strong outperformance in Water Services and a successful equity offering, enhancing the company's liquidity and balance sheet flexibility.

Looking at our first quarter segment performance in more detail. As I mentioned earlier, Water Infrastructure posted a great first quarter. We grew both our recycled and disposed volumes in the first quarter, driving revenue growth of 19% compared to the fourth quarter of 2025 and more than 33% growth on a year-over-year basis relative to Q1 of '25. This led to record revenues of $97 million and very strong 56% gross margins before D&A, meaningfully outpacing our guided expectations. While we expect a relatively steady second quarter for the segment, with the strength of the first quarter growth and with additional projects coming online over the course of the second and third quarters, we are well positioned to exceed our original full year guidance for the segment.

Accordingly, we are increasing our full year guidance to 25% to 30% year-over-year growth for the segment in 2026, up from the 20% to 25% growth previously forecasted. We still have a strong organic business development backlog for this segment, and I am confident in our ability to add additional contract wins across the year, both for greenfield expansion and ongoing commercialization opportunities.

Switching over to Water Services. This segment saw revenues grow by about 7% sequentially, outpacing our guidance of steady revenues, driven by improved activity levels, strong gains in our water transfer business unit and increased spot market water sales.

Gross margins before D&A and services increased to 21.8% during Q1, a solid improvement compared to 19.6% in the fourth quarter and our guided margins in the 19% to 21% range. While we forecast a modest low single-digit percentage revenue decline in the second quarter for Water Services, this decline is largely attributable to the nonrecurrence of certain sizable spot market water sales we benefited from during Q1. We anticipate margins to remain relatively steady at the 20% to 22% range in Q2. Overall, this segment is well positioned to participate in any activity upside and pricing opportunities that may arise with elevated commodity prices in the near term.

In the Chemical Technologies segment, both revenue and gross margins in the first quarter of $78 million and 19% were in line with our guided expectations. Looking ahead to the second quarter, we expect strong sequential revenue growth of 10% to 15% as the business continues to see increased demand for both its core friction reducer and specialty surfactant product offerings. Additionally, margins for the segment should move upward into the 20% to 21% range as well. We are excited about the initial results of a number of our surfactant projects and looking at full year 2026, we do see the potential for upside to our original full year guidance for the segment.

Looking back on a consolidated basis, in the first quarter, we decreased SG&A by more than 6% to $40.6 million or approximately 11% of revenue, showing good progress on our cost reduction efforts. Altogether, we saw consolidated adjusted EBITDA of $77.6 million during the first quarter of 2026, significantly above the high end of our guidance, largely resulting from the stronger-than-expected performance in our Water Infrastructure and Water Services segments. Looking forward into the second quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $77 million to $80 million.

Overall, we are very pleased with how our business has performed year-to-date in 2026 and with the current commodity price levels are encouraged by the potential tailwinds that could benefit our business as we look ahead to the remainder of the year. We continue to advance the commercialization and earnings potential of our Water Infrastructure business. And with the additional projects slated to come online in late Q2 and Q3, we expect to drive continued growth in the back half of 2026 and well into 2027 for the Water Infrastructure segment, which should support continued improvement in consolidated revenue and margin profile for the business.

Looking at our other costs, D&A expense should remain fairly steady in Q2 at approximately $47 million to $50 million before modestly ticking up throughout the year in the low 50s as new capital projects are completed.

Following the recent equity offering, we were able to fully repay our outstanding borrowings on the revolver and ended the quarter with $196 million of net debt outstanding and more than $300 million of total available liquidity. Relatedly, net interest expense decreased sequentially in conjunction with reduced borrowings, and we expect interest to remain in the $4 million to $6 million range per quarter in the near term.

On the operating cash flow side, we had a relatively meaningful short-term drag on operating cash flow driven by increased accounts receivable. However, we expect this to largely cycle through during the year and convert back into cash in the near term.

On the investing side, we spent $78 million of CapEx in the first quarter, primarily in support of infrastructure projects with an expectation that CapEx spend accelerates during the second quarter as the bulk of our ongoing capital projects target late Q2 and early Q3 completion.

As John mentioned, we also closed on multiple acquisitions subsequent to quarter end, totaling approximately $29 million. These acquisitions can be integrated into our existing networks while adding accretive cash flows, attractive asset diversification and enhanced future development potential.

Following the recent project wins and acquisition integration expectations, we now expect $200 million to $250 million of net CapEx in 2026, up from $175 million to $225 million. We maintain our expectation of $50 million to $60 million of this CapEx going towards ongoing maintenance and margin improvement initiatives this year. While we continue to capitalize on the growth opportunities in front of us, we believe we are setting the stage for strong long-term free cash flow generation as we look into 2027 and beyond.

Outside of the sizable growth capital outlays, our business maintains a very maintenance-light capital model, and we have significant free cash flow generating capabilities and flexibility to manage this maintenance spend in accordance with market conditions without impacting our operational performance.

In summary, the financial, operational and strategic results of the first quarter of 2026 demonstrated significant progress in our ongoing business evolution, and we are excited to continue building on these financial results and strategic successes.

With that, I'll hand it over to the operator for any questions. Operator?

[Operator Instructions] The first question from the line of Jim Rollyson with Raymond James.

And congrats on a really nice quarter. I guess not to take the spotlight away from Water Infrastructure, but as we've seen this oil market kind of turn pretty remarkably post Iran conflict here. Obviously, I've heard a lot of commentary from other U.S. land OFS providers about prospects for getting things getting better. And you guys have kind of suffered through going on 4 years of impact there, especially in water services and to some extent, chemical technologies. So I would kind of love to hear your thoughts about what you see out there for prospects of that ramping up over the back half of this year, just kind of given the market shift here.

Yes, Jim, this is John Schmitz. I would -- logically, most of water services now have a big exposure to completion activity. It really relates to our water infrastructure, but moving water to the completion job is a big piece of our capture as well as the friction reducers or surfactants that we're building for the frac chemistry in the chemical side. We are having conversation now, and we are hearing from the market that the commodity price that we all watched ramp and the effects of that, they are pulling both the intensity at which they're completing the wells or bringing new oil online, starting to have those conversations or see that effect as well as we would also say that we're also seeing customers that, let's say, they had 4 frac crews running, they were going to drop in the second quarter.

They're not dropping it now. They're keeping 4 running or whether it's through the horsepower of the frac company or through our customer base in the E&P side, we are hearing of adding more frac crews. So we do believe we'll have some intensity from the macro, probably first to see something pull forward, get it to market faster or the intensity of adding to the volume or repairing the volume and refracking or just making sure the oil is still being produced and sold.

And maybe to just add on top of that, Jim, I'd say from a financial perspective, we're certainly going to be, I would say, looking for a close dialogue with our customers on an ongoing basis here to see what the outlook looks like and whether that -- if activity gets pulled forward, whether it stabilizes on a through-cycle basis through the end of the year and what the impact is on customer budgets and the outlook.

I'd say for the chemicals business, we're guiding to pretty strong double-digit growth in the second quarter here, and that's absent, I would say, any material uplift in activity. It's really driven by the intensity of what's going on in that business. And so based on the numbers we're putting out in front of you, we're not taking an aggressive outlook on the activity framework here. But whether it's services, whether it's chemicals or whether it's the pull forward of volumes getting on to the infrastructure side, we're taking, I would say, a pretty sober approach to what the macro outlook looks like, but we're well positioned to capitalize on any uplift in activity or any pull forward or hopefully, also the potential to stabilize or look at pricing opportunities as well, particularly on the services side.

Yes. It would certainly be amazing to see everything moving in the same direction for a change.

And maybe, Chris, just as a follow-up. I don't want to get too far ahead of things here. But if I kind of take your first quarter numbers, your second quarter guidance and obviously, the implied pick up from incremental projects that start up in the second half, it kind of seems like you're on a pace to maybe have an exit run rate EBITDA somewhere approaching the mid-$300 million range. Am I doing my math right there?

Well, we're certainly not putting in any formal guidance out yet on the back half or into '27. But what I would say, Jim, is that with the strength of Q1, the opportunity set in front of us, we certainly see growth in the second half of the year. It would be good to see how some of the macro settles out. Every day is a new day right now, as you see this morning. But the projects they're going to come online in late Q2, Q3 are definitely going to provide uplift into the third quarter. A little unclear what Q4 is going to look like. But as we put a run rate on that heading into '27, I mean you're well positioned to see good, solid additional double-digit growth on an infrastructure basis looking into 2027.

And depending upon the outlook on the services and chemi side are going to be well positioned to see that that EBITDA push towards levels like you're describing. The earnings capacity of the business is certainly pushing towards that. And we're going to continue to hopefully add to that with new contracted opportunities over the next couple of quarters as well.

Next question comes from the line of Bobby Brooks with Northland Capital Markets.

First, I wanted to ask on the new Northern Delaware water supply and takeaway agreement. Reading the presser and listening to the prepared remarks, it sounds like a highly accretive bolt-on opportunity that you probably won given your footprint that you already had existing there. Am I thinking of that right? And if so, could you just give some more framework of how to think about how accretive this could be and maybe a little bit more color on like how that win came about?

Yes. Certainly, good read-through on that, Bobby. The -- I think thing about the first quarter was most of the commercial opportunities we brought to bear around the infrastructure side of the business are pretty low capital to some of them even no capital opportunities in terms of adding incremental volume growth through volume flow through the system over time, whether it's on an MVC basis, a dedication basis or just adding additional commercial potential around interruptible.

So from a capital deployment perspective, we're talking about something less than likely $5 million on an aggregate basis across all of those commercial arrangements. So it's very much leveraging the existing invested capital or ongoing build-out that's already been underwritten for that footprint. And we're pretty excited about adding on to that with these additional commercial development opportunities. There still are some larger capital projects that are in the backlog and some on a more greenfield basis. But to the extent we can start rolling into the ROFR cycle here or adding on a brownfield basis or a tie-in basis and underwrite those with committed capacity, it's a great outcome from an accretive add on to the system.

Got it. And then just one follow-up there is: I think you guys have talked about the cash-on-cash returns of kind of greenfield opportunities like 3 to 5 years maybe is the number you said, I think, what you put out before. Is that a shorter time line on these more tie-in opportunities?

I'd say on the tie-in side, Bobby, it can certainly have an accelerated time line given the strength of the existing footprint and the capital we've already invested.

From a greenfield project underwriting framework, you're correct, generally targeting that 4-year cash-on-cash is still the kind of the base framework. And we do still have some of those chunkier opportunities ahead of us that we're looking to get to the finish line. But as we continue to roll new capacity onto the system or new volumes onto the system, every barrel is an incremental accretive barrel from a margin standpoint and a return on capital standpoint.

And so some of these ROFR executions could look like something more in between what you're describing, Bobby, in a traditional greenfield build-out where you are adding capital to the system to build out grab new geography, but doing it under a base dedication or base ROFR dedication within the current footprint.

Got it. That's super helpful. And just other -- one last for me is: obviously, there's been a ton of news and movement about data center developments in West Texas and those facilities. And if those facilities use evaporative cooling, they're going to need a ton of water, which is obviously a specialty of yours. And so with that in mind, I was just curious to hear your thoughts about how your business and expertise might lead to opportunities within that build-out in West Texas and if that's something on your radar and just general thoughts there.

Yes. It's a great question, Bobby. It's very much something on our radar. I don't have anything specific to convey today, but we do have a number of active and ongoing dialogues in that space, both on a water solutions side in terms of the source water need for some of these projects, as you described, but there's also application of support around services, rentals, power, other things that all are part of the core business or ancillary to the business. There's a waste stream application of management as well.

So we're pretty active and engaged in understanding the marketplace, and there will be, I'd say, a critical need for water solutions because water can be a gatekeeping item to getting some of these projects to the finish line. And so I think folks are pretty focused on it.

Next question comes from the line of Derek Podhaizer with Piper Sandler.

Maybe to kind of keep going on that line of questioning, just coming at it from a different angle, just overall M&A and looking at your portfolio and thinking about optimization. First off, peak rentals, right? You kind of mentioned power in your response, and I know you stood this thing up, you're ring-fenced it, you're feeding in a bit of capital. So first, maybe let's start there on an update of how we should think about peak rentals moving ahead.

And then maybe just separately, the portfolio optimization and feeding growth projects like your friction reducers and surfactants and if you have the right footprint today to capture those growth tailwinds? Or could we see some potential bolt-on opportunities for that as well?

Yes, this is John. Yes, I appreciate the conversation around peak and the question. But what we would say is there was really no material change yet that we -- that we're ready to express here. And -- but we're still very actively evaluating all opportunities around that. The course of direction has not changed. The efforts in which we're applying has not changed. And so that's still very much like the last time is where it would be.

On the opportunity set, I think some of the acquisitions we just announced tells you the opportunity sense in some sort, which is really what asset base is there out there that is an enhanced value to that asset base if it's part of this network. And the network is very different than any other network because it's really built around recycling first.

So if you just think of the ability to have dual line, so a distributing line to be able to get frac fluids to where it's going to be needed or a gathering system to bring that barrel into the recycling facility or expose it to the ability to dispose of that barrel. There's assets that really fit that network in a meaningful way and the way that thing is dual purposed and built of size, it really enhances the value of that asset when we bring it into our network. It's got a big effect.

And I'd add to that, if you look over the last year, we've continued to focus on what adds value, what helps us drive incremental return profile to the footprint. So we've looked at things that might have historically been a bit more tangential around the solids management side with the landfill opportunities and solids treatment opportunities last year. Looking at the surface application of what's underneath the infrastructure we're deploying and building out, looking to add disposal capacity to both asset risk management profile and additional growth and committed capacity potential to the system.

So anything that fits the profile of how we're approaching growth around the asset, full life cycle and waste stream management, supporting the customers on their needed solutions, we're going to focus on all of those things. And I think there's still a good opportunity set around them.

To your question on the chemical side, there's -- I would say, Derek, a very good opportunity set in front of us, and we can execute and action upon that in a pretty meaningful way with what we've got, whether that's the existing manufacturing base that we have in basin in the Permian, the existing R&D and lab capabilities, the product lines and the pilot efforts that are already underway and some of these new projects and product development wins we've had. I think we feel pretty good about the opportunity set to drive further growth there.

And even if we get to the point where capacity becomes a consideration, we've got ability to flex up and add capacity to our existing footprint out in the Permian or alternatively supplement out in East Texas and do so in a way that's pretty capital efficient given the current footprint we've already got in place.

The thing that I would add to the chemical side of it is, as Chris expressed, we can expand the throughput in a meaningful way in our plant capacity. But we also have a very unique position to be able to service the customer and the delivery of that chemistry and the management of that chemistry throughout the fracking process. And that is localized. It is a very good footprint around a local manufacturing plant. So it really gives a value to the customer or a leverage to us to be able to win more business or expand that throughput capacity that Chris talked about.

Got it. I really appreciate the color, guys. Maybe switching just through to just -- I guess, really the capital outlook here for the business, right? I mean you upped CapEx this year, completely understand just given some of the acquisitions you made and some of the needs for capital. But Chris, I think in your prepared remarks, you talked about the company really being set up for free cash flow generation in 2027 and beyond, just given the growth outlook.

So maybe just help us understand the interplay of, you did the equity raise, you have, I think, $300 million of total liquidity. You're getting pretty good free cash flow generation out of services and chemicals. Just how should us and investors really think about the long-term free cash flow generation of the business, thinking about capital and maybe conversion down from EBITDA. Just help us understand that a little bit more, just given that's an exciting growth outlook for you guys.

Sure. It's a great question. And obviously, something we think about every day from a capital allocation framework perspective. I think importantly, the base maintenance needs on the business are pretty light. So looking at something like $60 million of maintenance capital on the system with a solid weighting towards the services side of the business there is a pretty effective position for us to be able to reinvest in the business efficiently. Obviously, last year and this year, we're focused more on the reinvestment side, and we continue to have a good profile of backlog opportunities that we're excited about getting to the finish line.

So we think that the build cycle is ongoing and has an opportunity to continue, and we'd be excited to add to that. So the base CapEx guide and the uptick here this quarter, could that translate into something that looks more like last year from a capital deployment profile than that current guide if we execute on additional contracts, that's very well a possibility here.

As we look forward into 2027, we think we're driving solid incremental growth as Jim questioned on and what that earnings power is going to also do to drive incremental free cash flow generation. So as we look forward into '27, we think the opportunity set still got some backlog opportunity to it. The growth of the earnings profile continues to move upwards as well. So both of those moving in tandem is still going to generate excess free cash flow opportunities. The margin profile of that infrastructure business is very well suited to generate very strong free cash flow on a through-cycle basis over the longevity of these contracts we're putting in place.

And so as we look forward to the back half of this year, I think it's more likely than not we continue to get opportunities to the finish line. As we look forward into 2027, we think that capital deployment program is probably going to have a bit more maturation to it, particularly in New Mexico. But even if we're able to continue to add on opportunities, you're going to grow the earnings profile and grow the free cash flow profile and start to generate those incremental dollars that you can make good discrete choices with.

But as we've said before, the services and chemicals businesses generate solid 70% to 80% free cash flow generation out of the gross profit in those businesses and infrastructure on a stable low growth basis should provide something similarly competitive. Right now, we're just focused on how to continue to reinvest and drive that growth like we saw in Q1, and we're expecting to see in the back half of the year.

Next question comes from the line of Don Crist with Johnson Rice.

I know you've answered this in a couple of different ways, but I'm hearing specifically in North -- sorry, in New Mexico that the E&P operators were going to drop frac crews because of natural gas takeaway issues and the lack of flaring opportunities. And I just wanted to explore that a little bit and see if, number one, you're hearing that. But number two, if those operators are now keeping those frac crews because of higher oil prices and that could set up a significant uplift in volumes across your system once the natural gas takeaway pipelines come on in the fourth quarter or first quarter next year, and that could drive significant higher volumes across your system. Just any comments around that because I'm hearing that more and more lately over the past couple of weeks.

Don, obviously, we're all looking at the new capacity coming online later this year, looking into next year as a needed solution. I would say based on the customer dialogues we're having, nothing has given us any indication that we've got any meaningful change in outlook expected due to nat gas takeaway concerns. The capital programs that we're talking to our customers about, the schedules that we have that we're building into to bring assets online over the next couple of quarters. There's nothing that gives us any indication there's any change expected there. If anything, it's probably more of a question around what's the commodity profile look like and how do you address the opportunity to maximize potential around that current commodity outlook.

So not to say that we're not thinking about it and focused on it and paying attention to what the customers are looking at out there. But that's the current lay of the land. But John, anything to add?

Don, I would mention a few things. One is those interruptible opportunities that keep ringing the phone, that's in that area. So that has really turned into a strategic ability to capture that work because of this network we put together. We thought it showed now, and it's pretty meaningful.

The other one I would tell you that one of the things we do get out of the operators is what can they do with that gas differently than what they're doing today, whether it's in movement, whether it's in heat-related application, whether it's in power generation application, it's help us think about what we can do with it differently than what it being -- what we're challenged with as it sits, but not to the tune that we're hearing from our operators that they're going to slow down their programs.

I appreciate that. And I know you don't like to talk about things before they are fully baked and ready to go into guidance. But on this data center opportunity, obviously, one of your main competitors is talking about how big it could be. Do you see the data center opportunity on the water side being a significant opportunity for many years to come, signing long-term contracts, et cetera, like some of your competitors are seeing?

What we do see is our position in the Permian, we think is a very unique position and our relationship between our service business units and our infrastructure business unit is a very positive way to address what they're asking us to address. And yes, we are having the conversations around water. But we would also tell you that we're having conversations that this company was really built on the skill set and the knowledge base of how you procure water, treat water, move water, store water, recycle water. But it's also built on doing intense operations in remote areas. We've been pulling off stuff in meaningful ways and take us in a long time -- for a long time. Well, PAMPANK much different. It just -- it really came to the fore fight that we can support the efforts in a different manner because of the way this company was built and the skill set that's in it, Don.

Next question comes from the line of Nick Armato with Texas Capital.

Congrats on the strong quarter. On the disposal and service agreements in the Northeast, can you provide some color on the structure of the agreement and the potential revenue uplift you are expecting? Additionally, could you provide maybe a brief overview of water handling needs in the basin and how they compare with the broader Permian complex as well as the potential for additional agreements similar to this going forward?

Yes. I'll jump on that, Nick. So very good question. We're actually quite excited about the opportunity set in the Northeast. We are the largest traditional disposal provider in the basin. It is a challenging market environment to operate in, just given the regulatory complexities across multiple states and the geography. That contract that you mentioned was a very good one for us on the back of one that we executed on late last year, where we added a large transfer dedication on top of an infrastructure relationship. This is another great one to add on that water transfer relationship scope in tandem with negotiating a commercial framework around a sizable disposal dedication.

So we were pretty excited to get that one to the finish line and able to leverage the strength of that leading disposal position and the asset and market share capacity we have in that basin to continue to engage in dialogue like that. We're pretty excited about the opportunity to continue to add that relationship between services and infrastructure in any of these areas where we've got strength of service and infrastructure scope overlapping.

I would say in the Northeast more broadly, that's a basin we really like the potential around. We've talked about the gas markets a little bit in the Permian, but I think more traditionally, our leading footprint in both the Haynesville and the Northeast provide pretty meaningful upside to us for gas market demand over time. And so we feel very good about that Northeast position. We've added assets to the basin over the last year as well, and it's one that we think that there's good opportunity set on to continue to grow and enhance that already market-leading position. Similarly, in the Haynesville.

I'd say from a market dynamics perspective relative to the Permian, it's a different type of need of solution versus the Permian. The scale of the problem in the Permian is just fundamentally different given the size of the production scope, the size of the water problem in terms of the volumes and the intensity of the fracs and the bench depths and everything else that comes with the Permian. But we very much are going to continue to focus on the opportunity set across all of our footprint. And as you saw here, we added new contract scope across 4 basins. And so you'll continue to see our capital priorities weighed towards the Permian, but we think there's a good opportunity set elsewhere.

John, anything to add?

Yes. Just a couple. It's not necessarily just directly to the Northeast. But if you look at the history of Select, where we've been able to apply the last mile logistics or water transfer along with our water infrastructure for quite a few years now, we've always gotten better margins out of the service side of it. And the reason is because those 2 things together brings real value to our customers and the ability to share some of that value is meaningful to us in the service side.

The other side, I'd tell you, if you ask the relationship to the Permian that Chris was talking about, the Permian is really very focused on recycle first, the value add, what -- how can they balance water. And if you're recycling produced water, that means your water transfer has to be built about around transferring that produced water to the frac site. And that is a different skill set than transferring fresh water to the frac site. And Selects tidelines, Selects automation, Selects interaction with that infrastructure brings meaningful value to our customers, and we should be able to pull a portion of that value as we bring that along by bringing those 2 segments together.

Perfect. Maybe shifting over to the municipal business. Could you offer some color on how that project is progressing? And then also in light of the stronger commodity environment, how do you think about opportunities like this relative to some of the more traditional oil and gas-related ones?

Yes. I'd say on the base project up in Colorado on the municipal space, no material updates at this point other than we continue to see good progress in marching that towards the original expectation of getting contracts in hand by 2027 and putting that incremental capital to work. So I still feel like we're moving in the right direction. It's a slower development cycle working with municipal counterparties than traditional oilfield counterparties. And similarly, with some of the other industrial opportunities in the region as well. But still feel very good about the position and the potential to get something moving by 2027, and we'll keep working on that.

As it relates to kind of capital allocation choices between that diversification opportunity set versus the core potential in the energy industry, I don't think our view has really changed. We want to continue to focus on the right return profile, how we add stability and contracted stability to the business over time. We're going to focus on the competitive return profile amongst all of our growth opportunities But -- we're definitely focused on getting this one done.

There definitely are other opportunities that we're going to be spending time on along the way. But we're not going to have them conflict or limit our ability to develop what is a very attractive opportunity set in the core business today, and we're continuing to see that as you saw here in Q1 and some of the larger opportunities we're looking to get to the finish line over the course of the next couple of quarters this year.

So very much a growing opportunity set across the business, whether that's industrial or municipal opportunities around that Colorado project, data centers or elsewhere. As we look at beneficial reuse as another technology application that's going to bring freshwater to market over time, that's something that lends itself towards a diversity of potential consumers. Whether that's the base industrial demand around the oilfield or whether that's other opportunities. So either way, they should move in tandem, particularly as beneficial reuse progresses over the next couple of years, and we'll be focused on the right return profile across that full opportunity set.

Next question comes from the line of Jeff Robertson with Water Tower Research.

John, given some of the comments around free cash flow growing into 2027, can you just talk a little bit about your thought process around returning cash to shareholders through the repurchase program and the common stock dividend?

Yes. I do believe -- I think Chris leaned into this. What we are building is really a low maintenance capital required business. And as the growth capital matures, the systems, the networks, the growth show, we do have a very strong opinion that we are building a company that is built around repeatable, predictable and dividends will be a part of the capital allocation and the growth of that dividend.

We're probably, by nature, more of value takers when it comes back to stock buybacks. If you look at when we really spent the money, it's when the stock got affected by the banking crisis out on the West Coast, and we took a big -- we took advantage of that. But we do believe we are building a company that will be able to focus on regular way dividend and capital allocation decisions.

We also believe that, yes, the infrastructure growth that we're building in Eddy and Lea in different places across the United States as we come up with opportunities that are very attractive in building these networks in the oil and gas space. We actually believe that our skill sets in and around water really open up opportunities in addition to that. So I don't think the growth is going to disappear on us. I think those opportunities are still going to be there. And the contractual nature and the high gross margin and the good rate of return, I believe, will show up within our skill sets around water.

And maybe just wrap on that, Jeff, whether it's looking at the base dividend and the potential to grow that over time, whether it's adding stability through cycle in a historically cyclical industry or whether it's thinking about diversification of industry scope. I mean all of those things lend themselves towards more repeatable, predictable cash flows over time, whether that's looking at the balance sheet structure or shareholder returns, either way, you're going to have different choices as we continue along this strategic transition, and we're focused on what that right structure looks like over time.

As John said, we'll continue to be tactical in our view around the ability to repurchase shares in and out of excess free cash flow. But as we look forward to generating incremental free cash, we're going to make the right choices and have the right balance between growth and shareholder returns. But obviously, for now, we've got a great growth opportunity set in front of us, and that's what we're focused on in the immediate term.

One question on the assets, the Black River Ranch and the surface acreage bought in New Mexico. Can you talk about how that fits into your Delaware Basin system, John, or Chris?

Yes, I'll start, and John, feel free to add on top. But when we're looking at the full footprint build-out of what we're doing in New Mexico, we look at all the opportunities to get value out of that footprint. So that surface position is effectively overlapping with our existing infrastructure build-out. So the ability to utilize right away and easement access across the piece of owned surface is obviously accretive to the cost structure of the business. The ability to utilize that surface to develop incremental capacity, whether it's storage, whether it's disposal, whether it's recycling, all provides opportunity to the footprint. If we can add accretive returns through some royalty structures or mineral structures along with that surface, that's a good high-margin opportunity for us as well.

So when we're looking at what best fits the profile of the build-out of the system, we're looking at all these opportunities, and we're going to continue to find these along the way. And if we can do so in a manner that provides very clear strategic benefit to the build-out of the core strategy or gives us leverage and opportunities to develop something new, we'll continue to look at opportunities like that.

But John, anything to add?

The one thing I'd add is that whether it's opportunities we're finding by buying surface and being able to harvest royalty or position out of that surface, what we are, for sure, finding in a meaningful way is that the asset base of the company, whether it's the water itself, whether it's the location, whether it's surface owned, whether it's the network of pipe, we're finding ways now that we can take repeatable, high gross margin or full gross margin royalty type revenue into our existing company today to increase the margins or have a different type of income stream than a typical service company had. And it's becoming more and more apparent as we build out this network or buy the surface or create the relationship between waste stream management and fluids management.

Next question comes from the line of John Daniel with Daniel Energy Partners.

John and Chris, not sure this has been addressed enough. I'm just curious, with the market getting heating up a bit, how -- what are the opportunities right now for you guys to talk to customers about incremental pricing opportunities? Are you having those yet?

Yes. First of all, John, as you know very well, there are certain conversations that you have to have because there's an effect on your business as it relates to the procurement side. And some of that's built in, some of it's not. But I would say those conversations are very active. They're not lagging and they're well received. I would not say they're getting a lot of pushback.

As it relates to price, what we find is that where we can bring value and we can demonstrate value that the price conversations with the customers that are trying to do more with less with better results are conversations they love to have and they will give you price and they will share in that value that you bring. And we find very good success there, John.

Yes. And I'd add to that, as John mentioned earlier, when you can integrate that service capability with the infrastructure relationship around the contracted barrel, it's always a more productive outcome for us on a margin profile basis. And it can also have a benefit on the revenue basis as well.

And then furthermore, if you're thinking about something like chemicals, the push into some of the higher-margin specialty application of product, whether it's on the FR side around the intensity of what's demanded right now or whether it's the, I would say, the more specialty application of surfactant development around the reservoir, we're off the matching of that with the chemistry and the quality of the water along with it. That's just a fundamentally different solution, and we're going to be able to price that in a manner that's more effective because at the end of the day, it's helping the customer create more oil production out of the reservoir, and we can share in the benefit of that uplift.

Can you remind me like roughly what percent of your business you would characterize as spot and therefore, opportunities to incremental pricing later this year?

On the services side, John, I mean, you're going to have some integrated pricing relationships with your infrastructure contracts. You're going to have some relationships that are more medium or kind of pad or well program defined. But I wouldn't say there's any expectation that there's not going to be an ability to be responsive to the market conditions and the need of the industry's application for service. So nothing that's going to be limiting in our ability to capitalize on the market opportunity set in any meaningful respect.

And so obviously, on the infrastructure side of the business, you've got more defined long-term contracted structures there with frameworks that get us a great outcome and great return profile regardless of market conditions.

But John, anything to add to that?

I guess the one thing I'd say, John, is we have experienced -- we've all experienced this, that the market has become such intensity in 24-hour operations that a schedule and planning and engineering of jobs have become more and more important. So even our call-out business, one, it's probably going to have pricing arrangements around it. It's going to have MSAs around it. It's going to have contractual relations to our infrastructure around it. So that's changed some. But I would tell you the biggest thing that changed in the industry, it's just become mission-critical in what we do and how we do it now that brings value to the customer. The ability to take the phone call and execute a call -- I mean, execute a job inside this business is still very much intact, John. And if it torques up, we can take the call and we can make the money. But boy, it has really changed in planning and engineering and execution and the ability of not having that downtime.

And one thing I might add further on the infrastructure side of the business, the real, I would say, mover there is really in this type of market environment is something like skim oil. We generate a good amount of skim oil out of that infrastructure footprint. And so any uplift in the commodity price in the short-term or medium-term, if it becomes more stabilized is something that gives us upside opportunities as we continue to extract incremental oil barrels out of that footprint, whether it's through recycling, disposal or solids either way, you're in a position to capture oil, and that's a good opportunity set for us to move up with the spot market oil pricing.

And then I'd say, furthermore, the ability to be responsive to the market's need for reuse barrels versus dispose. The more we can reuse that barrel versus put it down hole and get rid of it, the more opportunity we have to maximize the revenue and the value stream out of that barrel potential. And so obviously, it's a good market environment to potentially do that.

Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to John Schmitz for closing comments.

Thanks to everyone for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions. We look forward to speaking to you again next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

Greetings, and welcome to the Select Water Solutions Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Williams, Vice President, Corporate Finance and Investor Relations. Garrett, please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the fourth quarter and full year of 2025. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President and Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Operating Officer; and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer.

Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until March 4, 2026. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, February 18, 2026, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws.

These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listeners are encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand these risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures.

Now I would like to turn the call over to John.

Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. 2025 was another record-setting year for Select, both operationally and financially. I'll start with some of our 2025 highlights and provide an update on our key strategic development efforts. Now I'll hand it off to Chris to speak to the fourth quarter and the financial outlook in more detail.

In 2025, we improved our consolidated margins, streamlined our Water Services segment and drove significant market share gains in our Chemical Technologies segment. We made key investments in long-term diversification efforts across the municipal and industrial space and advanced our technology efforts in both beneficial reuse and mineral extraction. But importantly, we made great strides in our core water infrastructure growth strategy including the ongoing build-out of our premier Northern Delaware water infrastructure network.

During 2025, we grew recycled produced water volumes by 18% resulting in more than 330 million barrels of recycled during the year. We also hit a significant milestone during the fourth quarter, achieving 1 billion barrels recycled since the beginning of 2021 which helped drive the water infrastructure revenue growth of more than 800% across that same 5-year period. During that time, we've seen Water Infrastructure grow from our smallest segment to now our largest segment by profitability. Importantly, we continue to add inventory and underwrite future infrastructure growth and in 2025, we executed multiple new MVCs and added nearly 1 million new dedicated acreage with an average contract term of 11 years.

Accordingly, we are well on track towards growing our Water Infrastructure to our stated target of greater than 60% of our consolidated gross profit in the next 24 months supported by sizable additional year-over-year growth of 20% to 25% in 2026 as compared to '25. Our industry faces significant evolving produced water challenges, and these challenges are perhaps most keenly felt in the Northern Delaware Basin. We've made a strategic choice to focus in this basin, which contains some of the most productive geology and lowest breakevens in the industry but also produces the highest water cuts in a region with decreasing disposal availability and increasing regulatory scrutiny.

In the Northern Delaware, our recycling first infrastructure network gathers hundreds of thousands of barrels per day with our facilities acting as distribution hubs that can balance water longs and shorts across a broad regional footprint through expansive dual aligned pipeline networks. Additionally, the network can be balanced as needed with our interconnected traditional disposal solutions are alternatively enable future beneficial reuse and out of basin disposal solutions. Our unique infrastructure model sets at Select to be the cost advantage provider versus other competitors in the industry creating significant economic value and cost savings for our customers while generating attractive long-term returns for Select.

We also continue to partner with our customers to find the most economic and operationally efficient ways to enhance the utilization of their existing infrastructure. Notably, at times, this may result in our customers operationally transferring our direct conveyance of their existing water-related infrastructure assets to us. Select's ability to integrate these assets into our existing commercial network drives greater operational efficiencies, reduce cost and yields enhanced systems reliability. Throughout 2025, we have been conveyed multiple recycling, disposal and storage facilities from key partner customers.

This continued in the fourth quarter as we reached an agreement with a top customer for the direct conveyance of 3 existing treated produced water storage facilities as well as a permit for additional disposal facilities in Eddy County, New Mexico. We have since drilled and completed this disposal facility with immediate plans to integrate it into our broader network. We believe this is a strong endorsement of our customers' trust in Select and the value-added solutions we are providing.

When combined with an additional disposal acquisition we completed in the fourth quarter, we added 55,000 barrels per day of new disposal capacity in the Northern Delaware during the quarter. These new assets and contract awards, combined with the significant backlog of our ongoing construction projects will drive additional network capacity and geographic reach across the entirety of the Northern Delaware Basin, supporting the strong 20% to 25% growth outlook I mentioned for the Water Infrastructure segment in 2026.

We are also finding new ways to leverage the produced water volumes within our existing infrastructure asset base to generate incremental cash flow and high margin royalty stream without requiring incremental capital investment. This includes recently announced strategic partnership for produced water lithium extraction in both the Haynesville and the Permian regions, which should begin contributing initial royalty revenues by early 2027 and growing from there. In summary, our Water Infrastructure growth strategy is working. I'm excited to see the continued growth from this segment in the years ahead.

Now shifting briefly over to our other segments before I hand it over to Chris. Our Chemical Technologies segment proved adaptable during 2025, achieving tremendous growth and market share gains in spite of a softer activity environment. This included 19% year-over-year revenue growth and more importantly, 45% growth in gross profit before D&A. Our research and development efforts continue to drive new product enhancements and demand for advanced chemical technologies. Growing lateral lengths and increased focus on enhancing recovery rates for oil in place continue to drive demand from our highest quality friction reducers and our advanced surfactant product offering. I am very pleased with our recent market share gains and technology advancements and I am cautiously optimistic about the renewed focus from our customers on securing high-quality offerings that improve well performance.

On the Water Services side, we were focused on streamlining this segment throughout the past year to simplify our service offerings and position us for the long-term operational efficiency and margin enhancement. Overall, our Water Services segment performed quite well against a challenging market environment in 2025, maintaining its market-leading positions across each of the segment's core service offerings. We continue to evaluate strategic alternatives for our Peak rentals business with a measured and disciplined approach to ensure an outcome that best serves each of Peak and select strategic focuses and growth initiatives while maximizing the value for Select shareholders.

While we proceed with this process, Peak continues to garner increased traction in its power solutions offering while generating ample excess free cash to support Select's core Water Infrastructure growth strategy. To conclude, I believe that Select remains extremely well positioned to meaningfully grow our adjusted EBITDA in 2026 with a unique integration of high growth, Water Infrastructure solutions alongside steady market-leading Water Services and Chemical Technologies solutions. I'm excited for the year ahead and firmly believe our current strategy will continue to drive long-term value for Select shareholders.

At this point, I'll hand it over to Chris to speak to our recent financial results and the 2026 outlook in a bit more detail. Chris?

Thank you, John, and good morning, everyone. As John mentioned, 2025 was an important year for Select across many financial and operational metrics. While 2025 brought a challenging macro environment overall, I believe the business performed quite well within those conditions, generating $1.4 billion of consolidated revenue with improved consolidated margins and a record $260 million of adjusted EBITDA. I'll start by covering a few high-level market perspectives before getting into the financial performance and outlook in more detail.

Looking forward, we anticipate a commodity price environment in 2026, but is fairly steady overall. With oil largely expected to stay within the $55 to $65 price range we've seen during the second half of 2025 and so far, early in 2026. Near term, we do foresee potential upside to the natural gas market outlook and are well positioned to benefit from our market-leading positions in key gas basins if incremental opportunities arise. Generally, we believe this current commodity environment supports overall activity levels holding relatively steady to the second half of 2025.

Now looking at our recent segment level performance and outlook in more detail. We saw meaningful annual growth in each of our Water Infrastructure and Chemical Technology segments across 2025 and more recently, we grew both revenue and gross profit across all 3 of our segments during the fourth quarter. In the fourth quarter of 2025, the Water Infrastructure segment increased gross profit before D&A by 5%, while improving margins to 54%. As we continue our New Mexico system expansion, we work closely with our customers to support their evolving development schedules alongside our planned construction time lines.

During late Q4, certain top customers requested short-term schedule changes, resulting in modestly lighter than anticipated volume growth across our fixed infrastructure. However, given the breadth of Select's integrated service offerings, including our temporary water transfer capabilities, we were readily able to support these changing development needs during the quarter, allowing key customers to achieve their adjusted production objectives while maintaining our originally planned infrastructure build-out time lines. This resulted in a 77% sequential uplift in our water transfer revenues in New Mexico during Q4.

Driving a sizable outperformance in the period for our Water Services segment, more than offsetting the expected seasonal impacts for that segment and driving 7% overall revenue growth for Water Services as compared to the prior guidance of modest sequential declines. With the continued infrastructure build-out in New Mexico and new facilities coming online, we expect a growing shift in volume activity onto our fixed infrastructure network in the coming months, which should drive high-margin sequential growth for the Water Infrastructure segment during the first quarter and further throughout 2026.

Accordingly, we anticipate 7% to 10% growth in Water Infrastructure's revenue and gross profit before D&A during the first quarter of 2026 as compared to the fourth quarter of '25. With several projects planned to come online during the first 3 quarters of 2026, we anticipate a continued growth trajectory for Water Infrastructure over the course of the year. Altogether, we expect very meaningful 20% to 25% year-over-year growth for the segment, while maintaining strong, steady margins throughout the year, similar to the 54% gross margin before D&A we generated in Q4.

As we continue to commercialize the new facilities over the course of the year, we also believe there remains capacity utilization enhancement that can drive further upside into 2027 alongside other new potential contract wins. For Water Services, gross margin before D&A improved during the fourth quarter by approximately 2 percentage points to 20%. And when combined with the aforementioned 7% revenue gains drove strong 16% growth in gross profit before D&A for the segment during Q4. Coming off a strong fourth quarter, we anticipate steady revenue in the first quarter for Water Services.

While we anticipate revenues to be down year-over-year for the segment, recent divestments account for more than 80% of this decline and we expect to maintain relatively steady revenue consistent with the recent Q4 run rate and current Q1 outlook throughout the full year 2026. Supported by our recent rationalization and operational improvement efforts, we expect to see near-term margin improvement for the segment, with gross margin before D&A of 19% to 21% for both the first quarter and full year 2026.

As John mentioned, the Chemical Technologies segment had a tremendous year in 2025 with annual revenue growth of 19% and 45% growth in gross profit before D&A relative to 2024. The segment finished the year strong with record quarterly revenue generation of $87 million during the fourth quarter, a 14% sequential increase. Gross profit before D&A grew further with 16% sequential gains resulting in 20% gross margins before D&A during Q4.

On the back of recent gains, we expect this segment can produce similar annual revenue in '26 to that of the prior year with upside potential while gross margins before D&A should hold steady in the 19% to 20% range. Based on current customer activity outlook for the first quarter of 2026, we anticipate Q1 revenue to return to the high 70s up to the $80 million range with margins remaining in the 19% to 20% range. While SG&A increased modestly to $43 million during the fourth quarter of '25, we are targeting a 5% to 10% year-over-year reduction in SG&A and SG&A expected to reduce back below 11% of revenue for full year '26 and potentially as early as Q1 as we recognize the benefits of ongoing cost reduction and business optimization efforts.

Altogether, we generated consolidated adjusted EBITDA of $64.2 million during the fourth quarter of '25, above the high end of our adjusted EBITDA guidance of $60 million to $64 million, driven by sequential revenue and gross profit gains across all segments during the fourth quarter. For the first quarter of 2026, we expect an increase in consolidated adjusted EBITDA to $65 million to $68 million primarily attributable to increased volumes on our Northern Delaware infrastructure network with a continued upward trajectory throughout the year, setting the stage for solid year-over-year adjusted EBITDA growth.

Looking below the line, we anticipate cash tax payments in 2026 to be a relatively modest $5 million to $10 million, including state taxes, and our book tax expense percentage applied to pretax operating income to likely stay in the low 20% range. Driven by the continued capital investment in our infrastructure business, I expect depreciation, amortization and accretion will continue in the $46 million to $50 million range during the first quarter, while trending up into the low 50s over the course of 2026. Interest expense should remain in the $5 million to $7 million range per quarter.

With fourth quarter net CapEx of $70 million, we finished the year at $279 million in net CapEx, just slightly above our previous guidance. The continued strong customer demand for recycling centric Water Infrastructure solutions led to significant capital investment throughout '25 with numerous facility expansions and pipeline projects that are currently underway. To fund our continued water infrastructure growth, we anticipate net capital expenditures of $175 million to $225 million in 2026, after considering an expected $10 million to $15 million of ongoing asset sales. This includes approximately $50 million to $60 million of maintenance spend weighted predominantly towards the Water Services segment, consistent with the prior year.

We are entering 2026 and with several projects already under construction were contracted with construction commencing soon, which should result in a heavier CapEx weighting to the first half of 2026. While this 2026 capital program includes all existing contracted projects, we do have an additional backlog of future opportunities. We are in the middle of a unique build-out window, especially for our premier infrastructure position in the Northern Delaware, and we would be excited to convert some of these opportunities into future growth throughout 2026 and into 2027. The Water Infrastructure assets we placed in service have very low maintenance capital needs, which should result in very strong discretionary cash flow for Select over time.

With an 11-year average contract tenor for our current projects, we expect to deliver highly accretive long-term revenue and cash flow benefits. While the build window and growth capital associated with the projects continues at pace in the short term, we would expect capital expenditures to come down in 2027 providing ample long-term free cash flow generation. Additionally, as we have discussed before, our Water Services and Chemical Technologies segment also each provides strong cash flow conversion given their low capital intensity. Converting approximately 70% or greater of their gross profit to cash flow, helping to support the near-term build-out of our footprint while maintaining a very disciplined balance sheet.

While we are very focused on executing on near-term infrastructure investment and growth strategy, we believe we are positioning the business to deliver healthy and durable free cash flows over the long term that will provide us with good optionality for future capital allocation frameworks over time, including future growth investments, diversification opportunities or enhancements to our shareholder return program. To conclude, I am very excited about the year ahead. I believe we have a clear execution path to increase shareholder value with a growing long-term contract portfolio, supporting a multiyear growth trajectory and increase through cycle stability in addition to nascent long-term diversification potential across opportunities such as our Colorado municipal and industrial project, beneficial reuse and mineral extraction.

With that, I'll hand it over to the operator for any questions. Operator?

[Operator Instructions] And our first question comes from the line of Scott Gruber with Citigroup.

You guys have a couple of larger expansions coming online in Northern Delaware this year. But you mentioned there are some additional opportunities in the Northern Delaware. So just curious, would the additional opportunities be kind of smaller bolt-ons to your system? Or would they require larger trunkline expansion? I'm just curious after kind of what's in the queue has become operational, kind of where do you stand in the maturation of that Northern Delaware system?

Yes. Thanks for the question, Scott. This is Michael. We are seeing a lot more smaller opportunities than we saw last year, the year before as the system gets built out, and it's roughly half to be built out, but we're continuing to move forward. We're really able to find some small opportunities that leverage the entire system, and they create really attractive returns because you're leveraging the full system and adding acreage. So I'd say that we're seeing a lot more of those than we've seen in the last couple of years. There still are a couple of pieces that are chunkier out there that we're still chasing that as we expand into new territories, specifically in Eddy County that are becoming available. So I'm hopeful that we can deliver on some bigger projects. But really as kind of you look past that and kind of into the back half of '26 and beyond. I think it's going to -- you're going to see more and more of the smaller opportunities that are just highly accretive because you're leveraging the full system.

And just thinking longer term, after the Northern Delaware is established and as you said, you'll keep tapping into those smaller opportunities. Is there an opportunity to kind of really expand the system, whether it's into the Southern Delaware, we hadn't further east at all or other basins. Kind of what's the next leg of growth for the infrastructure business longer term? How do you think about that?

Yes. So you saw us announce something in Winkler County, which is really kind of the first time that we stepped below the Texas State line out of New Mexico inside the Delaware in a meaningful way. We will continue to expand within Lea and Eddy County. I go back to those 2 counties have the most economic inventory. They're underbuilt -- there's just a tremendous opportunity there. And I think what we're building in Lea and Eddy County is really truly differentiated. There's not another asset system like that in the Permian or outside the Permian and it's certainly where you want to be.

Now having that said, that system can expand into the Central Basin platform, where you're seeing the development for the Barnett and the Woodford and that's kind of what we were looking at when we moved into the Winkler. So I think you'll see us continue to grow that system beyond just Lea and Eddy County and then possibly expand kind of some of the existing systems like what we have in [ Upton ] trying to kind of meet in the middle somewhere on the platform.

The next question comes from the line of Bobby Brooks with Northland Capital Markets.

So first, you guys have announced 2 different lithium extraction partnerships the past few months. And it seems like a really exciting way to add another incremental high-margin revenue stream to the business along with highlighting how your infrastructure can further deleveraged the uplift financials. With that in mind, I was just curious to hear what other opportunities might you be evaluating in the similar lane as lithium extraction or just other opportunities where you see things that could be kind of similar, high revenue, low cost uplift?

Bobby, this is Mike. Thanks for the question. And yes, we're really happy with our progress over basically a year of really characterizing our asset base across all of our basins and a lot of engagement with technology partners. And I think you're seeing the results yield and some exciting announcements recently, but there's more to come there. The strategic decision we did make was to participate, spend our capital on building out Water Infrastructure, large volume available at a single point, water storage and in particular, as Michael was mentioning, that Northern New Mexico system, where we're treating water anyway, that is a very unique capability that we have, and it is a big OpEx reduction for these technology partners.

So we're in a position where we can provide the water with already a big chunk of that cost done for them essentially. So we're looking across the available market, picking the best-of-breed operators. And this recycling first model has really put us in a pole position and a very attractive partner for these folks. So you will see more of these lithium deals. We have something in the New Mexico area that we haven't given details on but we will also, hopefully, in the first half of this year, we're expecting also some interesting news around iodine extraction. And even some of our partners are talking strontium magnesium. So we, again, we're always very thoughtful about bringing the right technology to the right water. And I think when you got that marriage right, you can make some of that really high-margin royalty revenue that you're referring to.

Got it. Super helpful color. And then just was curious to hear a little bit more of an update on kind of how you guys are looking at the Peak rental business and kind of strategic moves there. It seems like nothing has happened yet, but just curious like kind of what outcomes do you guys see as most likely? And then could you also just remind us like what type of [ genset ] equipments are -- does Peak own?

Yes. This is John. Yes. So we continue to engage strategically around Peak rentals and making sure that both the outcome is very positive for Peak because of the uniqueness of their opportunity that they have as well as the outcome to Select and the capital that we're deploying in the Water Infrastructure are the various areas around these networks that have been described. But Peak was built around an accommodations business that supported accommodations around drilling rigs and frac equipment. And any time you do that, you support that accommodations with power generation, communications, security, water application of both sewage as well as fresh and to support that mechanism.

So our power generation were diesel-powered distributed mobile generators, and they supported everything on the drilling side and everything on the completion side. What we have inside of Peak that we think is very special is about 350 MSAs with the people that are drilling wells and completing wells, we're now taking Peak into the production phase of the well, where they're lacking power and we have both the MSAs as well as the network and the knowledge base to distribute that power properly. We also have found a very unique opportunity and Peak has now harvested it and put it out and now demonstrating the value, but putting a battery pack between that distributed power, basically our diesel power units and then the use has really shown value, both in the economics of the usage of diesel or the economics of the cycle time of those generators or really the value of the electric current going into the use system.

Especially if you can take it away from smaller generations where you're putting it into trader houses with air conditioning and computers and TVs and refrigerators and start taking it into artificial lift, compression, things of that nature. So artificial lift equipment is very sensitive in their prior needs and what they do. They're already a customer, they're already in the MSA, and we've now entered that market with what we've got. We've also started to expand the distributed power business from diesel-powered natural gas -- I mean, diesel power generation to natural gas power generation. It fits really well both in movement of water, compression and artificial lift. So it's just natural. But we're being very careful, and we want to make sure that we Protect peak because it's got a very good thesis in it. At the same time, we're looking for the right capital structure both for Peak as well as the right outcome for Select.

And maybe one thing to add to that, Bobby, is what we've seen with that business and the transition to the nat gas genset capabilities, primarily on a recent basis, but we've used that to support the build-out and the pace of our own Water Infrastructure development, particularly in New Mexico, where power is short and you're talking about 3- to 5-year build windows for full power build out. So we've had the need and the opportunity to build our own integrated power capabilities through that business to support the pace of our own growth and development. So we're going to be thoughtful and diligent around the approach on how we support our own internal needs to Select, to generate cash out of the peak business to support our growth and then find the right long-term opportunity set for it.

That's terrific color. I really appreciate all that detail. And then just one last one for me is in the press release and your prepared remarks kind of hinted that you guys had multiple successful benefits of reuse pilots. And I was just hoping to get a little bit more color there. Where these pilots in collaboration with the E&P is testing their own internally developed technology or maybe there was internally developed technology by Select were all the pilots focused on Permian? Or were there pilots happening in other basins? And maybe what were some -- just generally, what were some key learnings from these pilots and ultimately, like what made them successful in your...

Yes. Bobby, this is Mike again, a great question. And it's interesting because you're touching on another area where because of our recycling first and large-scale treatment capabilities, this is another area that benefits directly from that. So starting from treated produced water versus raw really gives you a leg up in this area. So we've, over the years and more recently have completed several pilots of increasing scale, everything from life film evaporation to multi-effect vacuum distillation, the membrane distillation, normal [ RO ] units. The fact is we touch a lot of different colors and types of water, and we always want to be able to bring the right technology, which, again, because we're multi-basin and we touch a lot of that water, we want to be ready.

More recently, in conjunction with one of our premier operators, university in the [ Price Water Consortium ]. We did one of our larger scale projects where we were able to take treated produced water, treat it fully. And actually, we're land applying it as a part of a pilot with this university, and we are growing all sorts of native and other crop plants out nearby our treatment facility and also the water is going into a greenhouse for what we would consider to be one of the largest and more technically advanced plant growing tests. So we're proving up the water quality not only by just running the standard test, but we're also proving it by looking at biological growth and soil quality.

So all of that is kind of our strategy, is our contribution to prove that this is a viable way to operate in the future. We're helping inform regulatory efforts with this data. And ultimately, I think the reason we're chasing this is push the industry, but also it's transformational. It's a critical long-term solution that we need to bring to life. And so our focus now is around the techno-economics of these different solutions. And ultimately, we need to make money on this. So we are going to look very carefully and build the systems that have the right capital return and investability. And really what we're trying to solve here ultimately is what we all know is a pinch point in industry, especially in the areas where we operate in New Mexico and around the Texas border, we have to find ways to dispose barrels.

So I mean, really, what we're doing is defining the future of Select to be a pioneer in the space and to really continue to create for the next 5, 10, 20 years, the way that our system that we're investing in now can live on as that portfolio shifts to perhaps a more disposal-oriented solution. So I think what you'll see from us is over the next couple few years, we will begin to announce plans, and we will begin to brand commercial scale facilities online.

Congrats on a good quarter.

The next question comes from the line of Derrick Whitfield with Texas Capital.

Congrats on a strong quarter and update as well.

Thank you, Derrick.

I wanted to start with the macro environment for Water Infrastructure. With all macro being a bit murky at present, a, how are you guys thinking about growth opportunities in the second half on the upstream side? And b, when do you see a potential inflection in capital for municipal growth opportunities?

Good questions, Derrick. So from a back half of the year kind of near-term macro outlook perspective, as we define from a capital program, we're going to be heavily weighted towards the first half of the year on the current capital outlay based on contracts in hand, but we do have some strong backlog opportunities and continued excitement around the ability to layer on some incremental capital opportunities beyond the current program, and we'll be excited to win some of those, as Michael outlined. .

Looking at the back half of the year in '27, we do anticipate a maturation phase, as Michael outlined in New Mexico, and we do think that you're going to see a transition towards some of the incremental growth opportunities around the diversification set and some of the things that Mike mentioned around beneficial res as well. So we would anticipate that the larger kind of remaining committed portion of our municipal project up in Colorado sees its large investment cycle in 2027 to the extent that aligns with the time line of getting contracts in hand as we previously outlined.

So we think that we'll start to see a maturity phase out of the New Mexico footprint over the course of '26 and into early '27, and there continues to be an exciting opportunity set. But we do think that you'll start to continue to see excess free cash flow generation and more capital allocation, discretionary choice availability for us.

Great. And for my follow-up, I wanted to focus on your prepared comments on the chemicals segment. We're hearing from the upstream sector, increasing levels of interest in integrating surfactants in both completion and workover activities. I guess, are you guys seeing that demand out in the field? And if you are, how much of that are you baking into your revenue guidance?

We are seeing that demand out in the field. I mean we're seeing -- we're getting inbounds. We've seen the statements made by some of the largest operators around the benefits of surfactants. Thankfully, we have extensive experience appliance, surfactants, both in completions and [ EUR ] technology. Also surfactants are -- they're really customized. I mean they're highly specific to the rock which fits us well because our chemistry value prop is custom chemistry to enhance oil recovery. We saw a pickup in surfactants in Q4 and we think that will continue to benefit us in '26. There certainly is opportunity beyond kind of what we have in place. We're investing right now in our technical team and really making sure we understand what surfactant to chemical packages work well with which rock, which ones are fairly neutral and which ones are actually eroding the performance. And so as we couple that with our in-basin manufacturing and surfactants there in Midland, Texas, we think we're very well positioned to capitalize on what should be continued expansion of that chemical offering.

And one final point I might add is, as we continue to also see the growth and the demand of -- we're reusing produced water and treated produced water, it creates an even more complex set of circumstances for matching the right full suite of chemistry with the right outcome you're looking for. So as Michael talked about, those specialized and customized solutions based on the geology, having the overlap with our water recycling and treatment capabilities provides us a unique advantage to also look at that application of the advanced chemistry side as well.

The next question comes from the line of Derek Podhaizer with Piper Sandler.

I wanted to, I guess, stick on the Chemical Technology segment and maybe just -- can you talk to us a little bit about your market share here? I mean, the friction reducers and the surfactant sound pretty exciting from a growth angle perspective. Just looking at the model and you're at this $300 million run rate for top line revenue. Where could this potentially go? And then secondarily, do you have the capacity to grow revenue well beyond the $300 million? Or would we expect to see some capital meaning to start being fed into this to really start growing this more significantly as we get this uptake of friction reducers and particularly surfactants.

Yes, Derek, just to kind of start we're very excited about the market share increase we've seen. We're excited about the prospect of surfactants given our history and our technology team. And again, we saw some of that in Q4, but the majority of Q4 was our friction reducers and the chemistry that we've been providing. We do really well when you need a stronger, more durable chemistry. So it's more -- you see more produced water. We have higher market share in produced water jobs than we have in [ Brian ] fresh water jobs. We have higher market share on longer laterals than we do on shorter laterals. We have higher market share on [ simul ] fracs than we do on simul fracs. We have higher market share on [ signals ] than we do on [ zippers ]. So the more complex the solution, that's really where we shine. So we think we're skating to where the puck is in terms of providing complex technical chemistry. And I think the team has done a really good job of coming up with solutions and that's why you've seen us grow market share really pretty ratably over 2025.

And to your point on capacity and capital needs, Derek, we do have, as Michael said, our in-basin manufacturing plant in Midland, we've got another sizable plant in East Texas. And as it currently sits today, we've got continued opportunity for expansion. The business generates great free cash flow out of its core profitability. And so to the extent there's opportunities to add efficiency or add new line scale. I mean, we can do that in a meaningful way out of the current plant footprint and do it in a manner that's going to continue to allow us to generate in excess of something like 70% of free cash flow on the profitability of the business.

Got it. That's helpful. And then maybe kind of piggybacking off your last point there. I mean kind of I'm reading this correctly, that would get into more of a steady state as far as the capital needs for the overall business? I mean, how should we really start thinking about free cash flow generation maybe out of EBITDA, I mean, obviously, like we've ranged from negative to 25%, 30%. I mean what's the -- where do you see this going? Could we get kind of in that 40% range, 50% range? Just looking longer term as we recalibrate the CapEx here and you flip more to free cash flow generation for the overall business?

Certainly, a good question. We are in a pretty unique build-out phase for the business, particularly in that Mexico footprint. So this year, we do did guide to a lower capital program than we undertook in '25. But certainly, to the extent we can continue to build a backlog of opportunities beyond that, we're going to be excited to do that and look to capitalize on that in the next 12, 18 months. But looking out further, we think that the free cash flow generating capabilities of the business, Derek certainly could replicate something or beyond what you've outlined there. The core legacy services and chemicals businesses, as we've outlined before, generating strong free cash flow to fund our growth in excess of 70%.

Infrastructure is largely consuming it's capital or it's cash flow today for capital growth, but it's even, I would say, more maintenance-light application of operations than the rest of the business. So as we get to a through-cycle maturity phase here over the next 24 months, it will be making further choices around incremental growth, diversification, acquisitions or shareholder return enhancement. So we're pretty excited about what that can look like over the next 24 months as we get into '27 and beyond. But the maintenance needs of the business at $50 million to $60 million today are very modest and will continue to be so.

The next question comes from the line of Conor Jensen with Raymond James.

You noted a little project timing slippage in Water Infrastructure from the fourth quarter into '26. Just maybe a little color on what happened there and some puts and takes on how that could impact the 20% to 25% growth in 2026 on either side of the calendar there?

Yes, thank you, Conor. So the project slippage, we just had some, I think, fairly minor delays when we're building something of this size and magnitude and it's all linear, a few things can set you back. This one specifically around right of way. We had some delays in getting some of the right of way that we needed, which pushed it back a little bit. But it's all things that we've secured now. We're moving forward. And I think we're in a good position to kind of execute across the front half of this year.

Got it. That makes sense. And then for Water Services, I was wondering if anything changed there to drive a little bit stronger outlook, a little bit stronger run rate than we thought previously. Is any of that water transfer outperformance expected to continue going forward?

Yes, good question. So as we outlined, we definitely saw some strong uplift in New Mexico in tandem with the build-out time lines we talked about on the Water Infrastructure side. We were able to supplement that with the temporary water logistics in the fourth quarter, which drove a 70-plus percent growth in that New Mexico last mile logistics business, which was a great outcome. We talked about previously some of the opportunity we had to integrate water transfer into our long-term infrastructure contracts with sizable dedications that incorporated that water transfer. So we continue to be excited about the opportunity to see further stability and growth out of that part of the business within services over time, particularly in the Delaware Basin region.

So it was a great outcome for our ability to support our customers with changing schedules, both on their side and on our side in the fourth quarter. And as we continue to get the infrastructure up and running, we've got a good view into an ability to continue to see some stability and growth out of that segment or that region, and we think that will provide kind of a steady state for the business over time here. Obviously, we had the rationalization and the divestment activities in 2025 that were the right choices for the business. And so on the backside of that, the second half of '25, we think, provides a pretty good run rate for the business and you should see that through all the way for '26.

The next question comes from the line of Jeff Robertson with Water Tower Research.

Michael or Chris, would you anticipate that any of the efforts to increase utilization in the Northern Delaware Basin could have a positive impact on Water Infrastructure margins in 2027 versus what you think in 2026?

Good question, Jeff. So obviously, every incremental barrel you can push through a piece of infrastructure is generally an accretive barrel. So we do think over time, as we grow the utilization, we bring on commercial volumes beyond our core anchor tenants on the new assets that we'll continue to see opportunity to enhance the margins over time. So I think that, that's something we'll continue to be focused on. There is some exposure on the commodity side of oil sales through the asset base across both the disposal and recycling footprint that we'll be cognizant of as we think through margin profile as well.

But generally speaking, Jeff, you're right, there's definitely opportunity to continue to see the enhancement to the margin profile. We'll continue to be active and under taking new build-out and contract opportunities, and we'd be happy to underwrite those anywhere in that 50% to 60% margin profile as we've historically done. But we'll be focused on what that looks like to continue to improve.

With respect to your gas exposure, particularly in the Haynesville, would increased utilization have an impact on infrastructure margins that would be noticeable and/or Michael, what kind of opportunities are there to -- or need is there for Select to expand its footprint there?

Yes. No, thanks for the question. We're seeing good strength in the natural gas basins I mean, we're very fortunate that we have the leading disposal position in both the Haynesville and in the [ Marcellus ]. And we're having conversations regularly with customers about expansion opportunities or contracts. And those were conversations that really weren't being had 12 or 18 months ago, and that's just as a result of the gas price and the activity there. So I do expect that we will -- we're going to continue evaluating solutions in both basins, and I think you'll see us make some expansions outside of the Permian in 2026. Now having that said, again, most of the opportunity is around the Permian and most of it's in Lea and Eddy County as we've mentioned.

And one maybe final point to add back to your first question as well, Jeff, as we think about the margin profile long term, as we outlined earlier and Mike talked through the continued ability to add on some of these incremental royalty streams to the business. We're talking low to no cost type of revenue dollars that are benefiting from the existing capital investments we've already made. So to the extent we start to see those projects come online in late '26, early '27 and ramp over time. Those will continue to provide meaningful margin accretion opportunity as well.

And lastly, Mike, with respect to some of the beneficial reuse pilots, is it fair to think that if you can tie benefits our reuse into your Northern Delaware system, for example, that, that would attract more customers to the system because it would enhance your Select's water balancing capabilities in that area?

Yes, Jeff, absolutely. I think, in particular, in New Mexico, we need to continue to support the state and the legislation to get to a, I would say, environmentally responsible, but industrial-friendly outcome. So I think that will help as we think about either land application or water discharge. There are other technologies that we're evaluating as well that will get incremental disposal like nontraditional disposal, let's say, onto the system as well. And that's absolutely a part of what we consider to be the end-to-end full life cycle of the barrel solution. So -- and again, yes, you're right. It is part of something that we can offer because of the large infrastructure footprint that we already have, which includes treatment, which reduces cost and increases the viability techno economically of all these solutions. So we do believe we're in a very unique position to support our customers that way.

The next question comes from the line of Sean Mitchell with Daniel Energy Partners.

You guys mentioned earlier in the Q&A, simul-frac I'm just curious if you guys have an estimate or any color around simul-frac growth today versus maybe 2 years ago? I mean, obviously, there's a lot more sand and water going down hole with this completion design. Where is that today relative to maybe where it was 3 years ago? And where do you think the industry is at large on simul frac? Are we 25% of the industry, 30% of the industry using it? And where can that go potentially? Do you have any comments around that, that would be helpful.

Yes. This is John. First of all, I think I'd start the answer by percentage-wise of where that is today and where it's going. We would say that it's definitely increasing. But the way that we see it and primarily water and chemistry is the intensity in the space, whether it's simul-frac or [ tribal ] frac or longer laterals or how much you can do in a 24-hour period, that intensity is real, and it also is very engineered.

So what this company is seeing right now is the effects of all intensity, all complexity of multiple water sources in recycling application and delivering mechanisms for massive water throughout long periods because of movement into simul-frac for [indiscernible] frac or longer laterals or what it is. So probably can't answer your position as a percentage, but we'll tell you that this company sees a heavy-weighted engineered intensity.

This concludes the question-and-answer session, and I'd like to turn the call back over to John Schmitz for closing remarks.

Yes. Thanks, everyone, for joining the call and for your interest in learning more about Select Water Solutions, and we look forward to speaking to you again next quarter. Thanks.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Thank you for joining us today for a fireside chat with CEO, John Schmitz; CFO, Chris George; Chief Strategy and Technology Officer, Mike Lyons; and Vice President, Garrett Williams from Select Water Solutions. I am Jeff Robertson, Managing Director for Natural Resources at Water Tower Research. Before we begin, I would like to remind participants that our discussion could include forward-looking statements as of today, December 11, 2025. Select's disclosures regarding such statements can be found under the Investors tab of its corporate homepage. If anyone is not familiar, Select Water Solutions is a leading provider of sustainable full life cycle water solutions to the energy industry and is an emerging water infrastructure solutions provider to municipal and industrial markets.

These solutions are supported by the company's critical water infrastructure assets, including connected networks of pipelines, recycling, storage, disposal and solid treatment facilities and its water services and chemical technologies segments. Select owns an expansive infrastructure assets with high barriers to entry in every major producing U.S. producing basin. The Water Infrastructure segment is the company's highest margin and fastest-growing segment. Select scale and solutions provide significant through-the-cycle free cash flow generation capacity to fund organic growth prospects backed by long-term customer contracts and enhance its shareholder return opportunities.

The Water Infrastructure segment is expected to contribute about 60% of gross profit in the next 12 to 24 months, up from 51% for the first 9 months of 2025. Water Infrastructure revenue is expected to grow about 10% year-over-year in 2025 and 20% year-over-year in 2026. 2026 growth is expected to be driven primarily by projects that are either onstream or currently in progress. So with that introduction out of the way, John, Chris, Mike and Garrett, I want to thank you for taking the time to join us today.

Thanks for having us, Jeff.

Happy to. John, I'd like to start with -- just to focus on the company's ongoing transition to an infrastructure company. Since the early days of the transition in 2021 through the end of 2025, gross profit before depreciation and amortization in the segment is expected to have grown at a CAGR north of 70%. Can you talk about the motivation behind the transition and how you think that ultimately plays on the company's positioning in the market as an infrastructure company?

Sure. I'd be glad to, and thanks for having us as well, Jeff. Yes, what we saw really kind of going into -- the pandemic is a real big switch in the industry around the management of water. It was driven heavily weighted by the Permian Basin and the development of horizontal, but the reality is what came out of that is a switch from freshwater sources or sources that you go procure to management of the production water that comes out with the oil and gas and the way you could treat that water, recycle it and make it usable in the completion of new wells. We were really the very first adapters of that, but that's because of our background.

We've always been really a water-focused company to supply sources into the frac horsepower for completion in Lower 48. This was just another step in transition, and we identified it. At the same time that, that happened, the '21 year coming out of the pandemic, there was a lot of broken balance sheets or bankruptcies or things of that nature that was in the space after the pandemic. And the team really managed the company really well during the pandemic. So we came out with cash and no debt. And we went to work and took advantage of that because what it gave us is the ability to put together a bunch of assets that we could then drop in and develop this new thesis around recycle, repurpose and at the same time, build these networks out that we keep landing these contracts around. What does it change for the company?

Those assets and really the company was heavily focused on a call-out service business for completion activity around the wellhead. That's what we did. One of those services was water. I mean we always delivered water to the wellhead in a meaningful way, leader in the industry as it relates to that, but still a call-out service business. And what we've been able to do because of the assets, the networks, the contracts is move away from just completion and get into the water that's coming out with the oil and gas, the production like water throughout the life of the well, the management of that water, so repurposing it to use it as a completions water versus disposing of it. So recycle first, building out these networks so you can water balance and manage the companies that are long water and the companies that are short water and do it throughout these networks. and put contracts around it.

So get acre dedications, ROFRs, length of time. But along with that length of time, you're actually within the production life of the well. And because of the value that we brought to the marketplace, the earnings within those contracts in the dedication acres are the value in the management in the water solution. These contracts have 40% to 50% gross margins around that contract, around these services and around the actual water management solution that we bring. So stability through production life, stability through contracts, stability through way improved gross margins, it really changed the profile of the company, Joe.

Chris, the shift from a call-out business to providing a service over the life of a well, can you talk about it from a high level, how that impacts your earnings and cash flow visibility as you look out into the future?

Sure. So as John outlined, Jeff, the transition was really driven from a strategic standpoint for a few different reasons. One was a very intentional choice to expand into the production life of well to add through cycle stability, managing the resource over the 20-, 30-year life of the asset, materially changes the ability to stabilize the cash flow stream through cycle. The value proposition we were providing to customers allowed us to do that under contract to build out infrastructure, network the existing assets into larger systems versus stand-alone single assets, which creates more balancing flexibility of the volume flows through cycle as well. And I think importantly, the reason it was successful was because it was a better opportunity for our customer to save money. So it was a better economic choice for the customer we were providing, primarily driven by that focus on recycling and not just pure disposal.

The disposal piece is an important part. That's how you manage the longevity of that production stream over 30 years. But the ability to provide near-term economic value around the recycling application was really what established our infrastructure platform and allowed it to scale in a meaningful way and do so in a manner that was allowing us to add contracts that over the last 18 months have averaged about 11 years in tenure, but range from 5 to 20 years on an individual basis.

So certainly, the through-cycle stability is a great opportunity for us. It's allowed us to look at the balance sheet differently. It will allow us to look at shareholder returns differently over time as well and has been a great opportunity for us to redeploy the organic operating cash flow of the business into the high-growth application of infrastructure.

Just a follow-up question on the contract structure. Chris, can you tell us whether or not the contracts, just given their duration have some protections in them for Select's margins over their lives to maintain your margins?

Yes, that's a great question, Jeff. So we do have various forms of contract structure within infrastructure. The primary forms are acreage dedications, wellbore dedications, minimum volume commitments. And then John mentioned it, ROFRs, these right of first refusal dedications as well. Ultimately, those are structured in a manner where you have typically fixed pricing based on your capital return profile with standard escalators that allow you to protect against that inflationary application over the life of the contract given the longevity. Occasionally, we'll have capital return components of those contracts as well. But yes, generally speaking, Jeff, you're going to protect the longevity of that cash flow stream through defined terms.

The dedications in ROFRs are an important part of your business model. And I think you've added a lot of acreage just in the last 12 months or so. I think you have 2.5 million acres under long-term contract at the moment. When you think about future or supporting the future growth of the infrastructure business, how do you really characterize that inventory of dedicated acreage and acreage under ROFR to support the long-term business?

Yes, I'll hit on that and then maybe let John or Mike weigh in as well. But that 2.5 million acres under dedication and growing, the bulk of that has been put in place over the last 12 to 24 months. And so when you think about the long-term earnings opportunity around those contracts, we're just in the early stages. Many of these dedications are still being supported by infrastructure build-out under construction today that's not yet contributing to the earnings of the business.

So when you're talking about long-term contracts with these large dedications, we certainly look at the inventory from a well standpoint and a production standpoint over the life of that acreage position from our customers. We do our own engineering work around that inventory and the geology. And we generally think that when you look at the base leasehold dedications that we've underwritten through, through these contracts, you probably got somewhere around double that in terms of the right of first refusal acreage that's beyond that current leasehold.

And then I think importantly, even though it's outside the scope of our contracts in place today, those contracts help underwrite the infrastructure build-out. And then around that infrastructure, that asset footprint is geographically positioned to capture what is a meaningful uncontracted acreage and well inventory position for other customers that we expect to commercialize the assets with over time.

So is it fair to say that it really supports the maintaining a high utilization rate on the systems that you're putting in place over the long haul?

Yes. that's certainly the right way to think about it, Jeff. The larger the network gets, particularly around these recycling first networks like we have in the Northern Delaware, this is large diameter dual-line infrastructure. It is built to balance the longs and the shorts, like John mentioned earlier, and that balancing across a large geographic footprint allows you to continue to increase the stability of volume flows into the asset over time. Obviously, we still got to get the system fully built out over the next 12 months or so.

But once you do, the ability to balance the longs and the shorts over the full scope of the Northern Delaware and New Mexico around that Eddy Lea County position will allow you to maintain that stability of inflow with the demand and the outflow as well.

I guess one more question on the move from kind of a call-out business to a long-term infrastructure business. How do you think that transition ultimately will differentiate Select against oilfield service type peers, but also as you become more of an infrastructure type company with maybe exposure to multiple industries, how do you think that positions the company to really build value?

Yes. It's a great question. I'll start and John can probably weigh in as well here, Jeff. But we're obviously making the choices we've been making from a strategic shift here because we think it creates long-term value for our shareholders and all our stakeholders. We think that the differentiation between what we're doing today and where we're going versus where we came from is material. the ability to take what was 8% of the profitability of the business, grow it to 60% or so over the next 12, 24 months in the segment that we're talking about that's high-margin, long-term contracts, high value proposition to the customer. I mean that's a great way for us to generate, I think, long-term value over time.

We think that it also Select as a platform has a distinguishment against other water infrastructure peers and our ability to provide the integrated logistics with our service footprint. We've been able to add that logistics capability into some of our contracts here more recently. And our recycling first approach is also, I would say, different than most others have taken to market. And that's where that cost savings benefit really comes into play for our customers versus traditional disposal solutions and why we've been able to successfully ramp that contracted base over the last couple of years.

So we think that as we continue down the execution path, you're going to see the margins of the business grow. We've already seen the margin profile go from, call it, 20% to 30% over the last couple of years, even though the overall business hasn't fundamentally changed from a corporate earnings standpoint. So the margin profile, the quality of the earnings continues to improve. And we think over the next couple of years, once you continue to see that infrastructure growth drive corporate level earnings growth, you're going to see that long-term value proposition, I think, provide a good opportunity to drive shareholder value. John, anything to add there?

The only thing I'd add is we have really rationalized what's in water services and continue to do that. We will do more of it. We have made comments around that. But what is real strategic in water services and very strategic to our customers and value to our customers is that last mile logistics. That's a very big piece of water services. And we've now been able to contract that last mile water distribution system under these long-term contracts. So we got our first dedicated 300,000 acres around that. We pulled it through.

But I think really important to note that what we rationalize to is what is a value add to our customer that works interactive with that infrastructure business either through the completion side, through the chemistry side, actually, through the development of the network itself, it's become very apparent that having that water last mile logistics transfer and services has allowed us to be really good at building out these networks that we're building out and become an integrated part of it as we've done it. So I think we could affect our water services business differently than we have been in the past because of that value add, Jeff.

Mike, to bring you in, how significant are the barriers to entry that Select naturally is building, I guess, around the infrastructure networks that you control?

Yes. And John, I'm sure I'll miss something, so please chime in after. And I think the moats that we've been building actually go back many years. A lot of the technology that we use in the field, a lot of the software we've built, like we use Ignite as our SCADA backbone. The folks from that world, good and bad, will tell us that we operate the largest, most complex SCADA system in the entire industry, and that includes oil and gas, refineries, chemical plants. I mean we have mobile assets that we have to track [indiscernible] around each basin. The reason that, that is important is our mission for customers is to reduce costs on the AFE side and LOE side we're helping them unlock new acreage to bring water to and from assets that prior to our, let's say, creative solution providing weren't accessible.

We're bringing down their breakevens, and we're providing them water security. So to do all that, the network we build is differentiated and it's bigger and it's multi-flow, multidirectional. And so what we've built is a series of a 24/7 command center, 24/7, we're watching all of our assets. We have a digital twin of every single facility. We have the ability to digitally reach out and touch these assets. And when you've got hundreds of miles of large diameter pipe, millions and millions, tens of millions of barrels of storage, you have to increase your capabilities in that space to provide a very high level of service that includes the initial delivery of extremely high-volume complex [indiscernible], simul and even quad fracs.

So that part of it is quite complex, and we leverage our transfer, our infrastructure, water movement capabilities that John was just referencing, but we've been able to kind of lift and shift that into how we manage our water networks as well. So just the capabilities are a moat and then referencing some other things that Chris and John mentioned, the contracts are a moat and then having that large-scale network physically in place also is a moat versus competitors, which tend to be more point-to-point solution providers leaving often the operators either to do it themselves and deploy capital in the areas they don't want to deploy capital into or you're trying to deal with like multiple spot solution providers and the operator has to be the integrator, but they don't have to do that with us.

I'd like to come back to something you said with respect to Select's other 2 segments, Water Services and Chemical Technologies. Select posted a conversation recently between one of your PhD engineers talking about adapting chemistry to different well solutions. With what you're seeing in the recycling area, especially in the Permian Basin, are you seeing the capabilities of the company on services and some of the chemistry technology solutions that you can provide really playing into your customer needs as they continue to try to figure out how to adapt recycled water to what seems to be more complex well designs?

Yes. So I'll take them in 2 points, Jeff. The first one is the automation that we have developed in the company really throughout a long period of time because we have been a water logistics company for many years now into the frac horsepower. And that frac has gotten more complex and more intensity and the automation allows you to do these very technical enhanced jobs that are coming with simul-fracs and [indiscernible] and quads and multiple sources of water and either blending on the fly or treating on a daily basis and a massive quantity of water for long periods of time.

So the automation is really a unique position that we put ourselves in. The chemistry is really came with produced water recycling and repurposing for fracking that, that actually requires matching chemical science to that water quality and determining what chemistry mix that you need for that frac job and then being able to batch that job up and deliver it directly to the job. That is getting enhanced because of the volumes that we described. More and more water is getting pushed through the frac horsepower in a 24-hour period for longer periods of time, and that water is going longer reached into longer laterals and that chemistry has to do what it's supposed to do with that water at a longer lateral without breaking down or failing and then the actual what it does within the reservoir once it reaches the reservoir and gets pushed into the reservoir, the matching of that water to that chemistry is becoming more and more important. So intensity and longer lateral and more reservoir and more water in a 24-hour period is actually very positive to us, both on our automation and our chemistry.

And maybe to add one thing to that, Jeff, to put a financial perspective on that. I mean even though it's a tough macro environment, the completions crews out there has been decreasing steadily over the last 24 months. That completion chemicals application around what John is talking about in support of our water treatment application as well, you're going to see chemicals see 30% to 40% potential gross profit improvement year-over-year in 2025 versus prior year. So even in a tough macro, the success we've had around the chemical development, the R&D side and the importance of the quality of that chemistry and its integration with the produced water recycling solutions has definitely been driving market share capture and importantly, the drive towards higher-margin specialized chemistry products for us in those complex solutions.

It seems like it makes the business more strategic to the customer because you can deliver recycled water that's tailored to their specific lateral lengths and wellbore needs and I guess also with the type of proppant they're using to get the best economic outcome for them.

Yes. That's absolutely right.

It sure has. I mean there's not any piece of the industry is not saying something that we've been saying for about 2 years now, which is it's more with less with better results. You drill them faster, you complete them with more intensity and more proppant in water and chemistry and longer laterals and you get more oil and gas out of it. And we fit really well in that value-add proposition.

We started talking about the Permian Basin. I think just in the first 9 months of 2025, just over 50% of Select's total revenue has come out of the Permian Basin, where the company operates its largest infrastructure network in the northern portion of the Delaware Basin in Eddy and Lea Counties, New Mexico. That system includes about 220 miles of large diameter pipe plus more than 175 miles that are under construction, 1.3 million barrels of fixed recycling capacity with another 500,000 barrels under construction and 12 active disposal facilities. John, can you just talk a little bit about the industry's produced water problem or challenge in the Northern Delaware Basin and how your network and the build-out you have underway is really geared toward helping operators deal with that?

Yes. So I'll start off first with the challenges just around water. I mean the ability to balance water east, west, north, south across the Eddy and Lea County is a major value to our customers because really the western side is short and need and the Eastern side is more developed and long water and to be able to have those dual line cross flows that the team has described and have the network of storage and the ability to recycle first and dispose second really gives us a very unique position and value to our customer. But even if you just stop there and say, well, it's all along water or water is becoming a very big problem, whether it's in pore space, seismicity, out of basin takeaway, what is the solution to the amount of water that's being produced as we develop more and more wells in that area, all that's needed, but the important piece is it might all be needed, but recycle first is the most economic solution for our customers.

And the more we can do that, the less they use the pore space, the less they have to move water long distances at a higher cost, the less challenges you got from one regulatory body to the next regulatory body or one state to the next state. And it's just a very really value-add prop that we put in place, and it just is the best economic solution. I think Mike Lin said, both AFE. So the money they spend to drill and complete the well, we can forcefully push that down in a meaningful way as it relates to water. And the the value that we bring on the lease operating expense of dealing with that water during the life of the production of that well, we can push that down meaningfully too. So we can kind of hit both sides while also saving poor space and long distance cost.

Chris, can you put some quantification around some of the numbers on the economic model that Select offers for its customers and how that helps them from a cost standpoint, but also how it creates revenue opportunities for you?

Yes. Certainly, Jeff. And maybe before I hit on the specific kind of financial components of that kind of cost and value prop. And one thing to add on John's comments, I mean, when you think about the challenges in the Permian Basin and in particular, in the Northern Delaware, from a large macro kind of picture perspective, I mean, the Permian has all of the challenges. So if you think about as an overall industry where we're at, even if you think U.S. oil production is going to stay flat, every barrel of new oil production that comes on is incrementally driven to higher water production.

So you take away legacy conventional barrels, replace them with new barrels coming out of the Northern Delaware where the bulk of the growth in new production is coming from in the industry, you're adding more water to the industry's overall water production because you get more water out of the Delaware than you get about out of any other basin in the U.S. So the scale of the problem, even in a flat oil environment is growing from a water logistics and management standpoint.

So when we think about how you solve that problem, the most effective thing you can do, as we mentioned, is recycle a barrel of water locally, and that's going to be more efficient than disposing of it locally. It's going to be more efficient than disposing of it through out-of-basin disposal solutions. And so when you think about how that cost translates into financials, you're talking about a 30% to 40% economic savings for the customer to recycle a barrel of produced water versus dispose of it and resource that barrel versus an alternative fresh or brackish barrel that they have to procure. And so that benefits both the capital side of drilling and completing new wells and it benefits the operating cost side of a customer's long-term lease operating expenses that improve the longevity of their wells productivity and can enhance the reserve life for them as well.

So the scale of the problem is growing, the consumption of pore space locally or even from New Mexico pushing into the Texas State line, where you're getting a lot of the pressure issues and pore space challenges, that's pushing to what we're talking about in terms of longer distance solutions needed for pipeline distribution and out-of-basin disposal. Those costs continue to go up. And we think there's going to be an ability to provide relief of that cost pressure through recycling first and even longer term through recycling for solutions that are outside the industry's own reuse demand for new oil and gas consumption, but pushing into other industrial demand outlets like mining, data centers, nonconsumable agriculture, et cetera.

Chris, it sounds like -- and I maybe suggest people look at Slide 9 of your November investor deck, it sounds like that even if oil prices -- or I'm sorry, oil production stays relatively stable that the business opportunity for Select to deal with the water challenges that the operators will have is only will continue to grow.

Certainly, in the Permian Basin and especially in the Delaware. I think that's absolutely true, Jeff.

Just given some of those challenges in the Northern Delaware, and you started to talk about it, Chris, the interest in finding an economic beneficial reuse solution continues to rise. Mike, can you talk a little bit about Select's approach to develop economic reuse solutions?

Sure. That is definitely a hot topic. So I'll start with maybe the regulatory side. I think this is 2-sided in many respects. There are ways, especially in Texas, where you can land apply water, and that is something that the [indiscernible] allows. It's done often in an agricultural context or other context. That is something that is out there and that I think many of us in the industry are perhaps looking to utilize. But there's also a pretty strong industry push to develop a surface water discharge type permit that would allow for a very large volume discharge into the environment.

I think both are great, both should be utilized. And I think ultimately, the crux of it there is that our mission here is to bring treated produced water or produced water all the way from what would be considered an oil and gas waste fluid all the way to a clean barrel and something that is safe and reliably released into the water cycle. So you're either displacing fresh water that would have been used somewhere else otherwise or you're bringing just new water into the environment in a very positive way, either into the environment or recharging aquifers.

There's lots of ways to do this. So and the way this works, I think, at scale is you have to find an angle in the market where you're -- same we do with recycling. You got to deliver a solution that is cost advantaged and has the security in this case of like a disposal type takeaway, like firm takeaway. So we've put some of the -- some of our perspective into our IR materials showing where we believe from a technical economic point of view, where we can compete in the market.

And we do see good line of sight to being able to be competing against current disposal solutions and even some of the more out-of-basin solutions like distant disposal solutions out there. And what we're excited about is every bit of water, every region requires something slightly different in terms of pretreatment, desalination, posttreatment. Every water is a little bit different. We are technologically agnostic, but have solutions developed for Permian water, for the DJ Water and for other water around the region. And our infrastructure touches all the major regions.

So we see a future where in each region, we deploy what makes sense. We provide that service to an operator and then we provide, I would say, the beneficial use of either clean water to an industrial customer or clean water to the water cycle. And this needs to compete in the market. It needs to make us money.

It needs to be something we can deploy capital against and have a reasonable return against it. And everything that we're seeing with our several larger scale pilots that we've done proves that the economics are there. So we are excited to continue to work with various universities, with the states, partner with operators to not just mature the technology, but to scale it.

Like that's the piece that we're targeting in '26 and '27 is to make sure we bring proven commercial scale facilities to market to really play a leading -edge role here to mature both the technology but also mature the market around these solutions.

Mike, just to follow that thought, you talked about working with all the interested parties. Can you characterize maybe the conversations with either landholders or stakeholders to convince them that a barrel of what came out of an oil well is a clean barrel now to be used in some other industrial process or for surface discharge?

Yes, sure. Great question. In our line of work, the best way is not to try to convince them, it's just to show them. So that is a variety of treating the barrels all the way to our spec, what we -- what our technology can deliver. You can test it for everything, so you can show them that it's clean. A second step, an extra step that we've now undertaken for most of this year and will continue next year is we are in a pilot format, which allows this, the regulation allows this. We are land applying this treated water and actually growing what we call our farm out in the Permian.

So we have plants of all different varieties that are growing and actually grow better with the treated water than they do with just raw well water. So it is something that is proven safe via a number of different ways. And it's net positive, not only on the water side, but we can also find ways and have found ways to either harvest waste heat off of existing facilities. So a gathering system, a gas processing plant benefits from that heat being taken off of it. So you have an industrial positive benefit. But also there can be even like subsurface geothermal type sources of power to where you're turning a water waste into a water benefit, but you're also not taxing any of the power systems or adding additional burden in the processing and in the transformation of that water. So we're trying to be extremely thoughtful in making sure that this is something that is positive all the way around.

You mentioned well water in West Texas. If memory serves, the well water in West Texas is not quite what comes out of [indiscernible] bottle that someone buys in a grocery store.

It's funny. It takes a couple of more steps than that, correct, Jeff.

John mentioned moving water across state lines. Are there significant regulatory hurdles, just say, in the Permian Basin between New Mexico and Texas and how they treat produced water and disposal?

Yes, I'll hit that and let others clean me up. But I think it's fair to say, Jeff, there is definitely a distinction between the regulatory environments. Every state, every county and municipality can have its own application of oversight around water management when you're talking about both freshwater resources and discharge. But disposal capacity, the availability, the management of the seismicity challenges we've seen and the permitting frameworks between the states.

And it's not just Texas and New Mexico, it's Texas and Louisiana. It's the same in the Northeast around Pennsylvania and in Colorado as well. So each of these states has varying degrees of regulatory, I would say, oversight and some more challenging than others. But I think at the end of the day, regulation is appropriate for some of these challenges, but it also creates a need for solutions in an appropriate stewardship application.

And so we're very focused on partnering with the states to come up with the right solutions that fit within the regulatory frameworks that they're looking to put together. But it's pretty clear that there is going to be a need for increased recycling to meet the long-term objectives of the various states that we're interacting with.

I would add one thing to that subject. I mean there is a very big difference between the 2 states to -- it has some to do with regulations, but New Mexico is made up of a lot of federal land and state land. And what you can do across that land and how you get permits to do it is very different than the state of Texas, where you have private land ownership. As well, you could reverse that and say what you can do across private land in the negotiations with the landowner. And that discussion is very different than what you've got across federal and state in New Mexico. And it causes limitations and confusions between the 2 applications of states.

You see stories from time to time about the water tables in Texas and concerns over the water table levels and then there are stories about the need for water for the industrial parts along the Gulf Coast. Mike, you talked about distant transport. Just is it economically feasible to move produced water over longer distances to serve the needs in another market?

Short answer, yes. I think given the pressure that -- especially in the Northern Delaware that operators are feeling, and I say that in 2 ways. I mean, one is the physical pressure of some of the formations that they're looking to explore. I mean that becomes eventually cost prohibitive and like physically prohibitive if you cannot frac those formations, but also just that wall of water creates pressure for new and creative solutions. So I think we see the industry as having to develop and Select as having to develop really the everything and all of the above in the portfolio.

Like we will have and do have disposal in the Northern Delaware. That probably will grow over time. We will have recycling as well, and we will do as much of that as we can because it allows us to grow and improve our relationships with operators. That also needs to happen at scale. Beneficial reuse on the backside of this large infrastructure system needs to happen. And also, you need that same committed disposal to flow out of that area and then it just all needs to balance.

So we've seen some projects already being talked about in the space. And I think the returns are there. There's a lot of parcels of land you touch when you undertake a project like that. It's a lot of capital to put together. It's a lot of commercial negotiating to make happen. So it's a very big capital project that has all the warts and wrinkles on it. But I think it is certainly within our focus in a couple of different directions out of New Mexico and probably 2 or 3 different directions to try and figure out where that fits in our own portfolio. And I would not be surprised if you do see us developing those types of solutions because I think for our shareholders, it brings stability, it brings high free cash flow, great return on capital. And frankly, very important to us is our customers, and we're fixing and resolving some of their pain points. And John and Chris, I mean, you guys are in all these discussions that we're having around this. Anything else to add?

I think you covered it pretty good there, Mike. like to go down that path of diversification a little bit. Select entered the municipal and industrial water market in Southern Colorado in the first quarter of 2025 with the formation of the AB Farms joint venture. Mike, can you talk about the -- or outline the AB Farms development process as you work with potential customers and when you think it could start to become an earnings and EBITDA contributor?

Yes, sure. So we've been in the space in Colorado for about 15 years or more. And when you operate in Colorado, even in the water transfer space on the services side, we've owned water rights. We continue to own water rights. We own augmentation facilities, we own pipes and head gates and all of that. So we've really been in this market for quite some time. I think really what you're seeing us do here is expand our footprint, leveraging that capability and just increasing the size and the commitment against a different set of customers. And the reason we did that is because cities are becoming increasingly tight on budgets. They're having to spend a lot of money on treatments and treatment facilities and other things.

So we can step in, provide the capital, provide the certainty of delivery and all of our capabilities. So that really was the thesis behind it. Ultimately, we assembled a very unique asset base, lots of water rights across a couple of different addiction canal systems, locations for storage, right away around pipes. So it really was a very thoughtful assembly -- and everything that we're seeing in the market says, I need water, I need storage.

I need you to get it kind of some put to work locally, so creating value for greenhouses. We're talking to some data center companies. A lot of that would be dairies even. A lot of that can be water that stays local, provides value for farmers, for industrial customers, long-term contracts, very clear cash flows. And then separately, yes, there's absolutely discussions around some of this water reaching other parts of the state, but with similar characteristics, high free cash flow, high margin, super long duration contracts.

So that's, again, the thesis. And I think the -- everything we've seen and put out publicly, somewhere in that $20 million to $30 million range of free cash flow out of the asset coming. We had underwrote it with 20 forward. But all that said, that's fairly conservative. These contracts take a while to get in place, but then they're in place basically forever or for a very long period of time. And everything that we're seeing now is that parts of this portfolio we're pulling it forward.

And so as soon as these contracts get in place, that will be something that we can talk about publicly, and we'll start building that waterfall up to that $20 million to $30 million range. And we have line of sight beyond that as well, even for the same capital. So I think it's going to turn out to be a really nice cornerstone for this market entry.

Chris mentioned that the duration of the contracts in the Northern Delaware that have been put in place in the last year or so is about -- it's just over 11 years. Can you share any color over on dealing with the mix of industrial and municipal potential customers in Colorado just the length of contract that you're looking -- or length of contracts? And also, can you share any color on how margins there might compare to what you currently have in the Northern Delaware?

Yes. There's a discussion with -- so in general, whether it's AB Farms or other discussions we're having, I think data center contracts tend to be in the 15- to 20-year range. On AB Farms specifically, at least everything that we've put out into some of our offtakers is in the 30-year range with extensions and a very standard contract will have that kind of term. It will have escalators on price. It will have firm pieces of offtake or capacity reservations.

So that piece -- and I joke with Chris and John about -- well, joke about the structure in the sense of -- it's a lot of work to put these together, but then you have a very boring, very predictable, very high-margin business. And it has to be because you're putting a lot of capital to work, so you need that return. And these can be 80-plus percent gross margins ultimately. So very good paybacks, a high degree of security for shareholders, and I think a great way to grow the business and to return cash to investors in a very stable way.

Select is obviously looking for opportunities to leverage the infrastructure networks that the company owns, and that's really evidenced by the lithium extraction facility groundbreaking in East Texas that was announced in October with [indiscernible] Minerals. Mike, that's obviously a -- when I first read it, it sounded like a bit of a departure from the company, but you've clearly got Brian going through the system. Can you talk about how the company is just working in general to find areas across the asset base to generate incremental economic value and leverage the systems that you do have?

Yes, sure enough. And honestly, I have John and Chris and Michael [indiscernible] to thank, especially for this East Texas asset. This is something that it's a very unique piece of our infrastructure portfolio. It's a very long large diameter pipe that gathers water from a lot of different places. And we have a pinch point in a positive way in our system where a lot of that water collects in one single point. it's drawing off this formation that is higher in lithium concentration than anything we see in the Permian and frankly, anything we see in oilfield fluid waste or produced water anywhere in our portfolio.

So that was a very unique asset. It was competitively bid. A lot of -- we talked to essentially anybody that is doing direct lithium extraction. [indiscernible] has proven to be quite a strong operator. They're strong commercially. There's a lot of positives there. And that was the thesis, which supports we want to invest in bringing water together, and then this is a natural extension of that to further monetize that resource. And we still give our point of view on water treatment and water handling, like we play, I would say, more than I expected, we're playing a role in still making sure the water gets there consistently and sharing our knowledge on chemistry, water treatment to make sure the water gets to a point where we can hand it off and it can go through the rest of the process.

And this is something where we've characterized really for lithium, for iodine, for [indiscernible], for magnesium, like you pick a monetizable mineral, we've tested the majority of our asset base and have LOIs or contracts with probably 4 individual minerals partners, and that continues to grow. So I think our -- really, our strategy here is to bring the best of the minerals world to Select, partner with them, move quickly and get this cash flow coming into the business. That's really the goal there.

And I think to maybe add to that, Jeff, one thing that's important to note, I mean, in this particular circumstance, we already have the existing infrastructure, as Mike outlined, we already have the concentration of delivery to our facilities. And so we can provide a great opportunity to increase our revenue base and generate royalty-based cash flows here without investing incremental capital and partner with somebody to do that. So we're talking about generating incremental royalty stream cash flows out of an existing volume stream that's already existing in our system today.

And so when we think about what we have in the Permian, what we're aggregating there as well from a volume standpoint and the application of treatment on a base level that we're already doing there, plus opportunities around beneficial reuse, you continue to enhance the volume stream and potentially the concentration application of those volumes into heavy brine streams that provide potential extraction resource opportunities long term as well. So this is obviously a great way for us to start, but we already have the volumes. They're under contract. And how do you maximize the value out of those volume streams under contract, whether it's selling it back into an industrial market opportunity or finding ways to extract additional potential out of that stream.

Yes, I agree. And that was for us the big strategic question is, do you deploy capital into this? Or do you deploy capital in your water networks and water infrastructure. And we said that's what we're good at. Let's do that. And then Chris said that he was willing to take 100% margin revenue streams if I was willing to generate them.

I mean it sounds like this is something where Select has no technical risk. You deliver brine to the -- to the facility that's put into your system, it gets processed and then you get the brine back for disposal purposes. Is that that's basically the simple way that will work, isn't it?

Yes. I mean, yes, I would say, though, every company and every group of people that we're partnering in that space, we think of them as partners. I mean we have commitments, sometimes soft commitments like, look, bring us as much water on a ratable basis as you can. And we take that really seriously. Like if we say either contractually or just operationally that we're going to do something, whether it's one of our partners in the mineral space, whether it's a customer, like we take that very seriously, whether it's a contract or a handshake.

And so that is how we are approaching it. And and that drives how we every day go to work and find the barrels to find the volumes and make sure they're delivered safely and reliably because that's -- in this space, that's what our partners need. They need to know the volumes are coming. If it needs pretreatment, do that, if they need storage, do that, if you need little stouts to connect, like that's what we are delivering to them as full end-to-end solutions.

And one thing, Jeff, I mean, you mentioned technical risk. I mean one thing to be clear on, I mean, this is not a science project. This is, I mean, existing technology with a new application of outcome. So we're partnering with people that have that experience, have the technological ability here, have the offtaker relationships and opportunities there to get the appropriate outcome. And so we're, I think, finding ways to balance the expertise between both parties and a partnership managed structure that benefits both sides.

I want to be respectfully all time. So I want to come back. You've been an entrepreneur over your entire career in various parts of the upstream and midstream value chain in an industry that as it advances continues to create new opportunities. Can you just summarize your thoughts about the long-term positioning of a Select as a leading water infrastructure company with diversified and how you -- how diversifying the exposure to a variety of markets might impact the company's ability to deliver value in the future?

Sure. And I do look at it as kind of 2 buckets, Jeff. One is what is the current oil and gas Lower 48 land business and development of horizontal application what does it need? What really fits it, what fits more with less with better results, the intensity, the unlocking of hard rock reservoir. And I believe Select has a very unique position in that. I believe that we have developed the recycle first approach and have contracted to put the moat around it as well as put the networks together that bring the value that somewhat puts the motor around it and the automation and technology along with the in-basin chemistry.

I think we really have brought a lot of value there. And that gives us a unique position in the oil and gas space. But outside of that, we have been moving water a long time. We procure water when the oil and gas industry was fracking a lot of wells with a lot more frac horsepower than we have running today. We're the biggest water resource for the frac application and the completion across the United States in a meaningful way. In 2014, we probably had 30% or 35% of the market, and we had 2.5 billion barrels of water rights across many river basins and aquifers and source and we moved a lot of water and had a very unique position in the industry. We know how to procure.

We know how to move. We know how to store, we know how to treat. We know how to deliver. We know we approach it. Mike just described that leasing model that we're trying to bring into the municipality application. We think we know how to bring solutions or business models that are needed, just like we did in the recycling -- recycle first business model that we brought to the market and fix plants. So we'd like to take that -- our skill sets and our knowledge and take it to other areas, whether it's industrial, even in areas where the oil and gas has an industrial side or a processing side that it fits it very well or the agriculture piece or the municipality, we think our skill sets, the knowledge of water and how to do that kind of stuff fits really well, and we can bring new business models that are needed where places of water is shorter or there's a better way to do it than what's being done today. So I think we're very unique that way, Jeff.

[indiscernible] I want to thank you for joining us today. And to our participants, I want to thank you also for joining us today for our fireside chat. Our research can be accessed from our website, www.watertowerresearch.com. The views expressed on this fireside chat may not necessarily reflect the views of Water Tower Research LLC and are provided for informational purposes only. This fireside chat may not be redistributed, reproduced without the written consent of Water Tower Research and should not be considered research or recommendation. WTTR is an Investor Relations firm, not a licensed broker, broker-dealer, market maker, investment bank, underwriter or investment adviser. Additional disclaimers can be found at www.watertowerresearch.com. Once again, John, George, Mike, Garrett, thanks so much for taking the time to join us today.

Thank you very much.

Thank you for hosting, and thanks, everyone, for listening in.

Greetings, and welcome to the Select Water Solutions 2025 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Williams, VP, Corporate Finance and IR. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the third quarter of 2025.

With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President, Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Operating Officer; and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer.

Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until November 19, 2025. The access information for this replay was also included in yesterday's earnings release.

Please note that the information reported on this call speaks only as of today, November 5, 2025, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities law.

These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management.

The listener is encouraged to read our Annual Report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures.

Now I'd like to turn the call over to John.

Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. During the third quarter of 2025, we advanced key strategic objectives across each of our segments. In Water Infrastructure, we secured incremental contracts to enhance long-term water infrastructure scale and cash flow generation. In Water Services, we continued our consolidation and divestment efforts to drive a focus on long-term margin enhancement and efficiencies.

And finally, in Chemical Technologies, we increased our market share gains, driving strong sequential revenue and margin improvement. I'd like to start with some of the key third quarter highlights, then provide an overview of several additional long-term contracts before addressing the forward outlook in more detail.

In the third quarter, we maintained steady consolidated margins despite a weaker activity environment, driven by another strong margin quarter for the Water Infrastructure segment and improved Chemical Technologies margins. While general industry activity levels have been down, the produced water challenges our customers face continue to grow, creating the necessity for durable solution from commercial water midstream players.

Pore space availability and seismicity-based curtailments remain a concern for traditional disposal solutions, which are driving tailwinds behind the continued demand for Select's recycle first solutions. Accordingly, we continue to advance our end-to-end water midstream offering with new contracts, organic expansion and bolt-on acquisitions.

The Permian Basin remains the most active basin in the industry, but it still lacks the necessary infrastructure and solution to support future operator plans and expected produced water volumes over the coming years without additional development. We continue to scale our infrastructure operations to meet this demand and are proud to be recycling nearly 1 million barrels of water per day in the Permian Basin with the vast majority flowing through our fixed facilities.

Every day, these recycling solutions create significant operational efficiencies and economic value for our customers by providing synthetic disposal capacity that alleviates the need for significant produced water volumes to be injected into subsurface reservoirs. We expect to exceed our produced water recycling targets again this year with an active backlog of projects currently under construction, we expect strong growth into 2026 as well.

Supporting this future growth, in the third quarter, we signed several new midstream contracts in the Permian Basin to add over 65,000 additional acres under long-term dedication across both Texas and New Mexico. We now have added nearly 800,000 additional acres under dedication during 2025 alone and are highly confident that we will continue to add incremental dedications to this inventory backlog before the end of the year.

Something else that I'm very excited about, during the third quarter, we signed a new long-term contract for water transfer, our last mile temporary pipeline and logistics services in the Permian Basin. The existing water infrastructure contracts we signed in the Delaware Basin in the second and third quarter of 2025 paved the way for this expansive water transfer agreement with a key customer.

This contract enhances more than 300,000 acres under existing dedication with newly contracted water transfer services alongside existing water recycling, gathering and disposal dedications. I believe this shows the strengths of Select's unique integrated value proposition and our customers' trust in our automated water transfer and logistics services.

While produced water gathering, recycling and distribution remains the primary growth driver, we also continue to responsibly grow our Permian disposal capacity to complement this recycling footprint. With ever-growing produced water volumes, the Permian Basin demands comprehensive and flexible water midstream solutions going forward.

Our produced water systems incorporate large diameter dual gathering and distribution pipelines that are connected to both centralized recycling and disposal facilities, providing optionality on how we manage produced water for our customers. Disposal is and will continue to be a cornerstone of produced water management, and we will continue to add disposal capacity as needed to balance our overall system.

Our growing disposal network operates in unison with our recycling capabilities to provide comprehensive long-term solutions that bring stability and enhanced takeaway assurance for the long-term contracted water inventory volumes of our customers. As our network continues to scale, this optionality will further expand over time and will play a critical role in our long-term beneficial reuse solutions as well.

Treated produced water offers a unique and cost-effective starting point for both desalination and mineral extraction and provides enhanced flexibility and capacity [ as an ] alternative disposal outlet. We remain at the forefront of developing these new technologies and scalable solutions and are actively partnering with key customers, regulators, universities and other stakeholders on advancing the framework necessary for these beneficial reuse solutions.

Elsewhere on the technology side, we continue to advance our mineral extraction efforts that are very synergistic with our existing water midstream footprint and future beneficial reuse solutions. This includes the recently announced groundbreaking of Texas' first commercial produced water lithium extraction facility in the Haynesville Shale in East Texas.

This facility will be funded, designed, constructed and operated by our partner, Mariana Minerals, a leader in domestic critical mineral resource development. This project will leverage Select's extensive produced water gathering pipeline and disposal infrastructure in the Haynesville to source, transport and manage produced water streams critical to the extraction process.

For this, Select will receive reoccurring royalty payments. Based on the near-term goal to deliver up to 70,000 barrels per day and expected fixed price contracts, we expect royalty payments of about $2.5 million per year beginning in early 2027, ramping up to $5 million per year once the refinery is producing at full efficiency and capacity.

With nearly 1.3 million barrels per day of produced water moving through our infrastructure on average during 2025, there remains tremendous mineral extraction potential across Select portfolio, and we expect to grow this royalty-based cash flow over the coming years. To update on some of our other ongoing strategic initiatives, our municipal and industrial project in Colorado is steadily progressing as expected.

Additionally, on the peak rental side, demand for our distributed power solution continues to grow and stakeholder engagement remain constructive. We are aiming to establish a distinct path forward for peak before the end of the year. While two very different initiatives, the underlying strategy and message is consistent. We are focused on delivering to our shareholders a streamlined water infrastructure-focused company with more predictable and stable long-term earnings.

Ultimately, we have high confidence in what we are building. And even in a lower commodity price environment, our Water Infrastructure segment is demonstrating growth and resilience. We expect Water Infrastructure to grow by 10% in the fourth quarter and more than 20% during 2026. We believe that in a lower commodity price environment, more than ever, our customers will look to us to unlock incremental economics and efficiencies.

Large-scale water balancing and recycling is a prime example of the combinations of good stewardship and good economics as it mitigates potential reservoir pressure impacts from produced water injection while also serving as a cost advantage alternative to legacy disposal.

In addition to reducing lease operating expenses for our customers, recycling also provides a cheaper source barrel for our operators' completion needs as compared to traditional freshwater supply, thereby also reducing their capital expenditures for new well development.

While the current activity environment may present some challenges for more of our completions-oriented offerings in water services and chemical technologies, we believe our market-leading positions in these segments will allow us to outperform the market and continue to generate solid free cash flow to fund our overall growth. In summary, I am pleased with the ongoing advancement of our strategy and the way our organization responds to the challenging environment.

One of the key statements and tenets we tell ourselves at Select is that we have to do more with less with better results. The current market environment and our customers effectively demand this from us. But most importantly, we demand it of ourselves every day, and we are committed to delivering that for our stakeholders.

Looking ahead, I think the fourth quarter will be a good demonstration of these efforts, and I appreciate the continued dedication of our employees and the ongoing trust and support of our long-term shareholders.

With that, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Thank you, John, and good morning, everyone. In the third quarter, Select exhibited resilience in light of declining activity levels and made steady progress in advancing its strategic objectives. During the third quarter, we achieved another quarter of strong water infrastructure margins, sizable increases in Chemical Technologies revenue and gross profit before D&A of 13% and 29%, respectively, and cash flow from operating activities of $72 million, outpacing our adjusted EBITDA.

Looking at our third quarter in more detail, Water Infrastructure revenue decreased 2.5% with margins of 53%, modestly below prior quarter levels, but in line with our expectations. The modest reductions were primarily driven by reduced skim oil sales and lower realized oil prices as both disposal and recycling volumes held fairly steady during the quarter. Looking ahead for our Water Infrastructure segment, we anticipate revenue and gross profit growth of approximately 10% in the fourth quarter compared to the third quarter.

Furthermore, with our sizable backlog of ongoing construction projects and our latest contract wins, we expect continued growth well into next year, driving more than 20% annual growth in 2026 compared to 2025. We expect to maintain gross margins before D&A consistently above 50% in both Q4 and throughout 2026 as well. In the Water Services segment, in the third quarter, we saw revenues decrease by approximately 23% sequentially.

This decrease was heavily impacted by the divestment of legacy trucking operations associated with the Omni transaction, which closed in early July. This divestment accounted for more than 1/3 of the overall decline with the remainder driven by lower customer activity levels during the quarter. While sizable, this decrease was better than our prior revenue guidance of an expected 25% decline, though our gross margins before D&A and services of 18% came in slightly below our expectations during the third quarter.

We expect the impacts from ongoing lower activity levels and typical fourth quarter seasonality to result in sequential revenue declines of low to mid-single digits in Water Services with margins before D&A improving to 19% to 20% in the fourth quarter of 2025. Moving on to Chemical Technologies.

This segment achieved a sequential revenue increase of 13% during the third quarter, significantly above our guided expectations as ongoing successes with new product development initiatives drove market share gains. Importantly, gross margins before D&A also materially exceeded our expectations, coming in at 19.9% in the third quarter, resulting in gross profit before D&A of $15.2 million, a 29% sequential increase.

During the fourth quarter of 2025, we expect steady revenue with gross margins of 18% to 20% as continued market share gains and product mix contribute to notable outperformance versus the expected activity levels in the key markets and regions we serve. On a consolidated basis, SG&A increased to $42 million during the third quarter, driven primarily by severance and deal costs, including from the Omni transaction and ongoing peak efforts.

We expect SG&A to return to approximately $40 million in the fourth quarter, and we will continue to look for opportunities to reassess the cost structure of the business in conjunction with the ongoing rationalization efforts in Water Services. Altogether, adjusted EBITDA came in at just under $60 million during the third quarter of 2025, at the high end of our previous guidance.

For the fourth quarter of 2025, we expect consolidated adjusted EBITDA to grow to $60 million to $64 million as strong sequential growth in the Water Infrastructure segment is expected to more than offset typical fourth quarter seasonality. I'll now hit on a few below-the-line items and cash flow details before we wrap up.

Looking at our other costs for the third quarter, D&A increased approximately $2 million in Q3 to approximately $45 million. With the continued build-out of our growth capital projects, we expect D&A to increase in Q4 to approximately $46 million to $48 million. Interest expense should remain relatively steady, and our book tax rate applied to pretax operating income should stay in the low 20% range with cash taxes on the year remaining consistent with prior guidance of $10 million or less.

Given recent federal legislation, we would expect our cash tax obligations to remain relatively muted across the next couple of years as well. On the cash flow side, cash flow from operations of $72 million meaningfully exceeded our adjusted EBITDA for a second consecutive quarter as we continue to improve our working capital profile. Growth CapEx increased to $95 million during Q3, primarily in support of contracted infrastructure growth projects, resulting in negative free cash flow of $19 million in the third quarter.

We also incurred $35 million of cash outflows for acquisitions in the quarter related primarily to the Omni transaction as well as the acquisition of other disposal assets in the Permian and Northeast regions to strategically support our market-leading recycling and disposal networks in those basins. For several quarters in a row, we have seen our large backlog of water infrastructure opportunities materialize into actionable contracts.

Following the recent project wins and continued pace of development, we are modestly increasing our 2025 net CapEx guidance range to $250 million to $275 million, up $25 million since the prior update. While near-term cash flow is expected to be impacted by elevated growth CapEx spend associated with our new contracted infrastructure growth projects, we maintain a very healthy balance sheet overall.

We are well underway in executing our strategic commitment to streamline our overall business and deliver to our shareholders an industry-leading water infrastructure and midstream growth platform comprised of strong free cash flowing assets while upholding our commitment to a low leverage balance sheet.

We maintain our expectation of $50 million to $60 million of annual CapEx going towards ongoing maintenance and margin improvement initiatives in the near-term, although this could come down over time with additional services rationalization. Absent the ongoing sizable growth capital outlays, we have a very maintenance-light capital model.

Our operating assets have significant free cash flow generating capabilities and flexibility to manage maintenance spend in accordance with market conditions without impacting our overall operational performance.

In summary, we advanced our strategic initiatives in the third quarter and remain confident in our overall strategic outlook. We are proud to have positioned the company with strong liquidity, resilient earnings and growing contract coverage, and we look forward to continuing to deliver on our strategy.

With that, I'll hand it over to the operator for any questions. Operator?

[Operator Instructions] [Technical Difficulty]

Congrats on a nice result and continuing to advance the ball on contracting water infrastructure. John, I think we all pretty well know kind of your strategy around the infrastructure side with what you're doing in recycling, building out the networks and kind of controlling the water.

And you mentioned -- I think both you and Chris mentioned adding some disposal capacity this quarter and something you'll do going forward just to support what you're doing. I'm curious how you feel like you're positioned there versus -- obviously, there's a lot more water volume coming out of the Permian than you can recycle. So maybe spend a minute on how you think about disposal.

Well, I guess the first thing to say about it is it's the thing we continue to be -- to say is we always want to do our best to make an optionality of recycle first. We think it's the best economics to our customers. It's a very good profile for profitability for us. But we have to backstop that network, those volumes with that relief and that relief is that disposal, [ Jim ], that you're asking about.

As I think about it, and we continue to find it, I mean, we announced and have continued to get exposure to and find opportunities to buy what I would call stranded assets. So as we put these networks together and you get an ability to hook one piece of pipe or one storage, one recycling to other pipes and storage, you go across asset bases that we have been able to buy and those are stranded disposals.

And that disposal comes to us in the network to fit within the equation of water balancing in a big way. And that has showed up and continues to show up, and we expect it to continue to be an opportunity for us as this network gets built out, Jim.

Appreciate that, John. And the other kind of exciting thing, I think, or at least really interesting is the mineral extraction and you kind of mentioned beneficial reuse and you guys are working on that.

Maybe just talk about kind of what inning you're in, in the beneficial reuse and maybe what is the opportunity set of beneficial reuse and mineral extraction over the next 5 years, just kind of thinking about how this compounds the growth in water infrastructure.

Sure. I'll let Mike Lyons and Michael Skarke throw in here. But logically, with the announcement of what we did in East Texas, extremely excited to be able to spread that across more volumes that are in our control in our networks. And then the beneficial reuse our partnership with regulators or universities or upstream major players, we're very excited about taking a piece of that water and repurposing it. But Mike, please, I'll turn it to you.

Yeah. Thanks. So I think, Jim, the big win for us here is we spent a lot of -- we spent the last couple of years really digging in and characterizing our portfolio. And so we're really glad to seeing it pay off. And this is a commercial scale facility. So I mean, we're in the early innings of creating revenue around this, but I think we're farther along in that from a technical perspective and making sure that these projects make sense commercially.

We cast a pretty wide net to find partners who are good operators, who are well capitalized, have a competitive advantage and are committed, quite frankly, to moving beyond pilot scale because none of this means anything to us unless we can make money on it. And so the -- our water infrastructure networks, particularly recycling is what is so attractive to these partners, and it's what is going to create this value. And so we have -- we do have concrete plans in place to monetize the rest of the portfolio as well.

And of course, we'll continue to share that as they are put in motion. We like to talk about the stuff that's happening, not just talk about plans. And so I think we are clear on how this particular project will ramp, but you should expect to see more. And I think, Michael, on the desal side, if you want to say a few words, but I think recycling there provides a great starting point as well.

No, sure. I appreciate it. So Jim, on that point, we are looking to monetize the expansive network we have in New Mexico by providing traditional disposal in that way, we can be a recycling first provider, but still really monetize our position and make sure we solve the total water problem with traditional disposal. As we look forward, there's issues with in-basin disposal, there's distant disposal and there's beneficial reuse, and we think it's going to be all of the above.

So there's not going to be one answer to the proverbial water that's going to come in the Delaware Basin and the Permian more broadly. So we continue to work with strategic partners, like John mentioned, operator partners, universities and others on beneficial reuse solutions. We think this is coming. We've had some success at different levels and hope to have an announcement at some point in the future when we're further along in the process.

The next question is from Bobby Brooks from Northland Capital Markets.

So Chemical Technologies was a bright spot. Sales up 13% sequentially, the 20% margin, and that was versus a mid-single -- the guide of a mid-single-digit decline and 15% to 17% margins. I know, Chris, you had mentioned share wins via new products was kind of the drivers of strength.

But I was just curious if we could hear a little bit more, like was the new products, the entire driver of market share gains? And do you think you can keep -- you can maintain those market share gains? And maybe just discuss why those new products saw such strong adoption?

Yeah. No, I appreciate the question, Bobby. Obviously, we were very, very excited to see the performance of the segment during the quarter here in -- the Chemical products, the R&D side, we've got a very strong technology team. And I think one of the core drivers is the continued advancement of efficiency that John mentioned from our customers.

That comes in a number of different ways. In some ways, it's extending lateral wellbore lengths. In some ways, it's trying to decrease the number of days on pad and increase that overall efficiency. But at the end of the day, all of those things translate into, I would say, new technical requirements around chemical products as well.

The type of chemistry required to get out to the end of a 4-mile wellbore lateral as well as the type of chemistry required to push through a simul, trimal or quad frac, all of that translates into, I would say, advancing technical requirements, particularly when integrated with produced water and recycled produced water.

And I think that works really well in our favor when we're talking about the scale of our recycling capabilities here and the technical experience we have on managing that water resource as well. So those are some of the primary drivers here.

And I think that as we continue to look forward, we think that the recent success is going to continue, and we're proud of the team's ability to continue to progress those products in line with the market demand around efficiency.

Got it. That makes sense. And if we think about the kind of soft guide you've given of greater than 20% growth for water infrastructure next year, which is up from the 20% growth on the 2Q call you mentioned. Could you just break down maybe how much of that is going to be coming from the dozen or dozen plus new infrastructure projects you've announced this year versus how much of it is higher utilization on existing assets?

That's a very good question. It's definitely a combination of both. As we've conveyed previously, we generally look to underwrite these projects with a core anchor tenant customer and commercialize as they come online with additional contracted counterparties and interruptible volumes as well to balance the system effectively.

Given the pace at which new projects are coming online over the fourth quarter through the -- really the first three quarters of next year now, we think it's going to be a steady cadence of both new projects coming online as well as the commercialization of the investments we've made over the course of '25.

So it's going to be a mix of both. I would say there should be a steady cadence of growth throughout the year next year. And with the new projects we added online this quarter, that's adding capital backlog for us well into the third quarter of next year.

Got it. And then just on the lithium extraction news from the inter-quarter press release put out. Obviously, really exciting. But I was just curious to maybe get a sense of how many more opportunities you feel like you have across your portfolio? It seems like you've kind of been in some deeper discussions. Just was hoping to get any additional color on how to think about the opportunity set there.

Yeah. As we mentioned, obviously, we've got well north of 1 million barrels of water moving through our infrastructure every day, and that's going to continue to grow as we look forward into next year, like we talked about. We've spent a good bit of time looking at the content and the quality of the water and the minerals across the full portfolio. We've got leading positions in many basins here. But Mike, maybe hit on some of the more specific opportunities that are prioritized.

Yeah. I think coming on the heels of this, I think next year, you'll start to see some more tangible progress around our recycling facilities. And I think if you put 2030 as a goal out there, I think this total business can be somewhere in $10 million to $15 million of margin contribution.

And I think what's unique about it is often our partners are serving a very unique role for the offtakers. They're essentially a natural hedge with domestic lithium or iodine. So they're valued in the market. Often the contracts that we are signing LOIs around or signing commercial contracts around our partners are signing can be fixed price and fixed volume in nature.

So these royalty streams are obviously -- they're 100% margin and they're stable. So we think it's a really unique, low-risk, repeatable, predictable cash flow stream to add to the business.

And it's because of our infrastructure networks and our high concentrations of water that we can -- that we are uniquely positioned to be able to deliver this kind of business and this kind of value to our partners. So I hope that answers your question, Bobby.

Definitely does.

The next question is from Don Crist from Johnson Rice.

I wanted to start out by just asking a kind of more detailed question about how you're building out the Northern Delaware infrastructure. And as I appreciate it, your infrastructure is kind of built out to where with the flip of a valve, you can move between recycling and disposal.

And the genesis of my question is, how does that kind of play out when you're talking to potential customers on acreage dedication and whatnot? And how does that factor into contracts going forward? Does that give you a leg up over some of your competitors?

Yeah. Thank you for the question, Don. And you're exactly right. So we started our infrastructure in Lea County really in 2025. We've been expanding it into Eddy County. And in '26, we're going to be connecting our expansive systems in Lea County and Eddy County. They're all dual pipeline kind of large diameter systems, so we can move water in both directions in large quantities at high rate to really maximize optionality and expansion opportunities.

And this is in an area where completion water is scarce and where production water has a hard time finding disposal because the state of New Mexico is not permitting more disposal. You're undercapacity, you have all the seismicity and pore space issues that are becoming more and more talked about.

So the fact that we have large diameter dual pipes and significant storage in place is really critical in solving the solution. And where I think it gives us a leg up is we're able to take the water from the operator. They have a need to get rid of that water, and we can take it. And we're recycling first. We said that first to everyone, and that's well known. And the reason we're recycling first is we think it's a better economic model for us and for our customers.

And so we do better when they do better. So it really is kind of a true win-win. But to the extent that we can't recycle it across a very vast system spanning most of Lea and Eddy County, then we'll flip it to disposal. And that way, there's the surety that we can continue to take their water and be that commercial backstop and fully monetize the contract and the assets we put in the ground.

I do appreciate that color, and it seems like you do have a leg up over some that are just disposing of water, not recycling. Kind of along those lines on the disposal side, are you only disposing of water in New Mexico or do you have kind of pore space outside of New Mexico into Texas where you can move water if and when that becomes necessary?

We have disposal operations and pore space in both New Mexico and Texas. So we do have that optionality that you're alluding to Don.

Okay. And one final question for me. On the Haynesville, what kind of discussions are you having as we kind of move into kind of the back half of '26? I mean all of us energy analysts believe that there's going to be a whole lot more gas drilling, particularly in the Haynesville? And kind of what are you hearing on the customer front in that regard?

Yeah, that's a great question, Don. I think certainly, in the current market environment, there's definitely a strong optimism around the bull case on the gas side of the market. The LNG demand that's going to continue to ramp is very well suited for first volumes out to come out of the Haynesville.

As we've mentioned before, we're the largest commercial disposal provider in both the Haynesville and in the Northeast in the Marcellus Utica. And so we're very well-positioned to capitalize on any advancing activity growth in either of those basins. But I think in particular, in the Haynesville, you're going to see that first initial ramp to support that outlook.

And I think we're well-suited to satisfy that demand. But more importantly, many of our customers are already looking forward in terms of how they're going to meet not only their activity development cadence that they're planning for, but some of their obligations that are in place for that LNG offtake.

And we're in the middle of those discussions with kind of the market-leading position of disposal in the Haynesville. We're a part of those, and we've seen some strengthening in the Haynesville this year where other basins have seen some softness. And most of the research analysts or like yourself are getting more bullish on gas, and we're seeing that through the lens of our customers when we look into 2026.

The next question is from Scott Gruber from Citigroup.

I want to touch on the review that you're undertaking on the opportunity set in distributed power for your Peak business. What type of end markets are you contemplating? What type of assets could be required? Just some color on the potential growth avenues for Peak that you're contemplating, that would be great.

Yeah. Good question, Scott. So obviously, as we mentioned, that process is underway, and we'll certainly update you guys as we get further along here, but certainly looking to have a path forward by the end of the year. But we continue to see demand growth for those solutions, both on the nat gas generation side as well as the battery storage side.

We've continued to add to the backlog of the capital program there. And effectively, every unit we get delivered goes out, many of which under contract. And we've seen that both in support of Select infrastructure build-out in New Mexico as well as commercial counterparties on a number of different outlets. But John, do you want to speak to it?

Sure. Yeah. So on the market and what we are targeting, First of all, Select has been in this business a long time. It was on distributed power. It was diesel generated, and it was primarily in fairly large scale into the drilling and completion support. That's where that mechanism is. So the footprint that we have to support that is already in place.

What we have now took advantage of and start to develop is applying battery storage along with that distributed power and what you can do with peak powers and the clean application of electricity into certain pieces of equipment because of that battery system. That's going really well.

And then we also want to bridge with the same MSAs that we have in place for long periods of time that customer that we were doing business with on the drilling and completion side, we now are doing business with them on the production side. And a lot of that is the distributing natural gas generations that we're putting in place for production facilities, which is way longer-term application for that piece of equipment.

And we also believe that even though it's a larger power consumption, that battery solution will fit into that application in the production side as well. So that's the targeted position that we are executing on today.

All right. Interesting opportunity. As you think about deploying capital into the business? Obviously, there's some competition for capital within the portfolio given the growth opportunities on the produced water side and into recycling assets. Just how would you frame up that competition for capital within the portfolio across all these growth opportunities?

Yeah. So I mean, we are very focused on water infrastructures and contracted and our position in these networks and water balancing, real value-add long-term contractual, high gross margin, very good profile returns. We believe that thesis fits into the franchise of Peak with their distributed, electrical and battery storage.

But it is a different thesis than what's inside of Select, and we are very focused on making sure that both of it is answered. And that is the process that Chris talked about earlier when we first started to answer your question.

To kind of put a bow on that, Scott, I mean, at the end of the day, we think it's a great growth opportunity set within Peak and the distributed power side, but we don't want it to limit or compete for capital on the water infrastructure side where our primary growth opportunity set lies, and that's the reason we're undertaking the process to ensure that it has the ability to capitalize on its own market opportunity in the correct way within the portfolio.

And the others in the expanding in the power space have used their balance sheet to amplify growth and get in the queue for assets. Just how do you think about using the balance sheet on the power side? Would you limit yourself in that regard or would you put it to work?

Yeah. It's a good question. To date, it has not been a limitation for us. But obviously, the pace and the opportunity set at which that can grow is going to be, I would say, determined by the outcome of the undergoing review process we're taking. And so I think part of the outcome there is going to drive the pace at which capital can drive that growth as well.

So to the extent that the opportunity set comes at us differently or faster, we'll make that assessment. But our primary is to ensure that it has its own capital availability that's going to support that growth profile outside of the scope of the water business.

I think one thing to point out is a lot of the companies that are -- have high growth capital profiles going into the distributed power business, they're businesses that they're transforming from is not the same profile as our water infrastructure.

Our Water Infrastructure business is a very good, stable capital return, high gross profit, long-term contracts in a space that we are a value-add and recycle first profile. So we're very focused to make sure that we protect that and capitalize it properly.

But at the same time, we do recognize that, that distributed power and battery business has the same type of thesis in the profile of returns and long-term relationship to production facilities or compression facilities or water transfer facilities in an area that it's very valuable to the customer and to us of being able to use natural gas or peak power battery application.

The next question is from Derek Podhaizer from Piper Sandler.

Just wanted to ask a question about the water transfer and logistics service contract that you announced. You talked about water infrastructure paved the way to secure this new contract. So maybe just talk to us about the strength of this integrated approach that you have between infrastructure and services and how it's a differentiating factor for you versus your peers?

Sure. No, thanks for the question, Derek. So I mean Water Transfer is part of our Water Services business, and it's traditionally a call-out service. So the fact that we can get a multiyear contract for all of the water transfer services is new and unique and something that, as John mentioned, we're particularly excited about.

It was enabled by our water infrastructure contracts and the success we've had executing with that operator. I mean, without that, the contract would not have been available. And just because of that execution, the operator was happy to expand the scope of our relationship into that full custody and water [ delivered to ] location, which I think is reflective of the position we have on water transfer.

So we're the largest water transfer provider. We have automation capabilities and an asset base that is second to none. And with produced water jobs becoming more complex, longer, more highly engineered and the environmental sensitivities around that, I think we were a logical choice for this operator to really expand the scope of our relationship.

And as we kind of look specifically to the New Mexico, but more broadly, across our asset base, I think other operators will see it similarly and that you have a best-in-class water transfer provider who can provide care and custody of that barrel all the way to location at a fair market rate and reduce the liability and any uncertainties. And so we're hopeful we can continue to leverage that strength and that synergistic relationship.

Yeah. I think it's a great question, but it really does completely fit within the value add to both our company and our customers from water infrastructure, large containment to delivery to job site.

And we put together a Control Center that I want Mike Lyons to talk about a little bit because it really tells you why these things could work. It work together and bring a lot of value throughout the system. So Mike, you might walk through our efforts with the automation.

Yeah, sure enough. So we call it the [ ROC ]. It's our Remote Operating Center. It's staffed 24/7, covers all of our assets across all Lower 48 -- so every disposal well, every treatment facility and any active water transfer jobs are monitored by folks that often have worked in the field now are essentially board operators, and we have 2-way communication and monitoring of every job.

And that allows us to sense and interpret and find leaks often before they happen to prevent that leak. And as Michael was saying, I mean, the full care and custody of the barrel is of critical importance. And as we are still deploying a lot of layflat hose and doing a lot of water transfer, often 50, 60, 70 jobs at a time, that is a critical part of how we operate now.

And as we become, I would say, more focused and majority focused on infrastructure, we're putting hundreds of miles of pipe in the ground, and we have to be able to check and monitor and look after every foot of that network.

And that is a big priority for our operating partners knowing that, that water is safe and contained. And it's also, for us, a big value unlock because the network optimization piece of that as you build a bigger and bigger network, we can create value that others can't. It's because we watch the barrel every second of every day.

Got it. That's all very helpful color. And then maybe just on the Water Services, maybe the margin profile here. So I'm just trying to think about how we should think about these margins moving into 2026. So obviously, they came down quite a bit.

Maybe talk to us about that. I'm not sure if that was related to the recent divestiture within the segment. Top line is coming down in the fourth quarter, margins are improving. So if I think about 2026, do you expect to get back above that 20% level, same levels that we saw in the first three quarters of 2024?

Yeah. It's a great question, Derek. And obviously, with the rationalization efforts we've undertaken in Water Services, a fundamental part of that initiative is margin improvement over time. We've been able to continue to improve the consolidated gross margins with the continued growth in Water Infrastructure, great outcome in growing the margin profile in chemicals.

And so obviously, we have not yet executed on that in services, but that remains the, I would say, the #1 priority for that segment. We've got a market-leading position across generally everything we do in that segment. And so we've got, I think, a lot of opportunity to pull that margin profile up over time as we've divested and rationalized out of some of the more commoditized lower-margin operations.

And what we were just talking about in terms of the integrated water services contract with Water Infrastructure is a great example of how we can add efficiencies that benefits not only the customer but benefits us as well. If we can integrate that last mile logistics with our infrastructure, that's generally going to help save our -- save money for our customers, and it's going to improve the margin profile of our operations as well in Water Services.

But the short answer is we very much believe that segment needs to get back into the mid-20s in the near- to medium-term to generate an appropriate return on its capital. It's already generating a good free cash flow profile for us. And anything we can do to move that margin profile up over the next year or two is going to continue to benefit that cash flow profile.

The next question is from Derrick Whitfield from Texas Capital.

I wanted to start with the M&A environment. In the release, you guys are highlighting the success you're having with strategic infrastructure acquisitions during the quarter. As I think about the upstream sector, less M&A tends to occur in the $60 per barrel or lower price environment.

Having said that and understanding that E&P-owned assets could transact in a lower price environment, how would you guys characterize the A&D environment for water infrastructure at present?

Yeah. So Derrick, this is John. I would characterize it as -- as you put networks together and you find assets that fit that network, as a standalone, that asset earnings profile is considerably less than if you can incorporate that into a large network and move water and water balancing to a new level of application with the intensity that's happening in the marketplace right now.

We continue to find that. We continue to find either stranded assets or assets that as we put networks together, get more acreage under dedication, build more pipe, build more storage that the value of bringing those assets into that network is real. Even to the level that now some of the commercial agreements that the team has put together and negotiated, some of the operators that we're getting under contract in those negotiations actually give us some of their assets to bring in that network.

And we think there's going to be more of it. Some of it in one-off single assets and some of it potentially in large networks that fit together and can be utilized as well as customers' assets that are way underutilized because they were built for single application. That application is long past and this piece of pipe that goes from one area to another area can be incorporated and it's fully underutilized. So we think there's real value in that market to continue to build this out. Michael, you got any addition?

What I would say, Derrick, is we're looking at smaller accretive acquisitions off of our expansive network. And that's very different than kind of new projects or large organic step-outs.

And so what John is highlighting is whether it's replacement CapEx or an acquisition, if we can tie it into a larger system, it becomes very attractive to us. And you've seen us do a fair bit of that this year. And I think that we will continue to look for those opportunities going into next year.

Makes sense. And for my follow-up, I wanted to focus on the competitive landscape in the Delaware. During the quarter, you guys achieved exceptional success with signing new contracts. How would you characterize the competitive landscape post ARIS being acquired by WES and the opportunity you see to continue your third quarter momentum into 2026?

Yeah. So I mean, water is a hot topic, and the market is getting more competitive. We're aware of all of the people out there and what they're doing. We understand their strengths and weaknesses in their value proposition and how it fits with ours. I mean, fortunately, we're, as I mentioned, recycling first provider, and that's got a superior economic model.

And we think that's going to keep us to be very competitive in this market, kind of regardless of what happens. The system we built out, I mean, we were fairly early in building out a robust system across Lea and Eddy County, and that's helped us become the market-leader in total water management in the Northern Delaware.

And so I think that's going to be a real value add and something that will be attractive to our customers regardless of their consolidation and help us be competitive in the market regardless of what our competitors are doing.

The next question is from Jeff Robertson from Water Tower Research.

If I could go back to the beneficial reuse concepts. John or Michael, if you think about commercializing beneficial reuse, is that an arrangement between Select and the upstream customer who's putting water into your system or is it an arrangement between Select and a downstream customer, excuse me, who's taking water for beneficial reuse?

I think -- I mean, it's a market that hasn't fully formed, Jeff. And so we're going to have to see the way it plays out. I suspect overtime it will be both. But I can tell you that initially, my belief is it's going to be a direct relationship between Select or someone like Select and an operator partner.

I would add that ultimately, the first stage of that, that Michael is referencing, that's really alternative disposal. So finding a way to treat that barrel to a usable quality to discharge back into the environment as a form of alternative synthetic disposal or alternative disposal outside of typical injection.

That's going to be the first one. Longer term, those barrels do have a recognizable value in the marketplace that could go into other non-oil and gas markets. And I think that's where you're going with it, Jeff. And obviously, to the extent we get there, that's obviously alternative or additional revenue potential.

And it also provides the ability to solve water challenges in other markets as well. So the industry could be a net added contributor to the water supply chain versus a consumer. So that's ultimately where we think it goes long-term. But obviously, it's going to probably have a staged trajectory over the next couple of years.

I'll let Mike talk a little bit about it. But actually, it's very interesting. We're actually finding our customers that could be on both sides of your question. They have produced water as a waste stream. It actually is an area that they need water for other operations and we can put beneficial reuse application to work to convert a portion of that waste stream and replace freshwater sources they're using in their other operations. But Mike, you?

Yeah. I think John is referencing, I think, a couple of current real opportunities that we're chasing. And in both of those, we've worked very hard with our operator partners to find the right spots to apply this. And typically, the right spot will be an area where there is some waste heat available, where there is disposal or our own disposal or recycling solutions to take the concentrated brine, but then a natural home for the clean water.

It could be as a part of a chemical process in one example, it could be part of a cooling water need. All these systems require water and water is increasingly hard to come by, especially at the quality spec that you need for industrial and chemical applications. So I think -- and it is easier from a regulatory standpoint because that water can be used by an industrial or chemical customer out of the gates.

So those are the right now opportunities that we are chasing. Of course, we'll say more on them as they become commercially solidified. But we continue to even find opportunities where it's a chemical plant, a data center, gas plant, like these are the kind of customers that we're actively engaging in.

And then beyond that, as you think about land application, whether it's for irrigation or direct into -- on to land for tributary release, et cetera, I think those are the longer puts, but those are the puts that the industry needs to make, and we're playing actively in that space to make sure water quality specs are clear to make sure that we're aligned with regulators.

It's a big material shift for the industry, but it's a high priority, and it's absolutely a long-term goal to achieve that scale, and it fits exactly within our company and our networks. So I think we're very uniquely positioned in this space.

I go back to the Haynesville. I think, Chris, you and Michael talked about it, but you've talked about increasing utilization on your existing assets there in the past. At what point do you -- or are you starting to see opportunities for new growth projects in that basin over, say, '26, '27 type timeframe?

Yes. We -- Jeff, we had some growth opportunities when gas was higher a couple of years ago, and then it's cooled off the last two years, and those conversations have started back up with the outlook that we discussed earlier today. I mean we have a pipeline gathering and distribution system that can't be replicated, leading to the market-leading position in that basin.

And so we're logically the first conversation when operators are looking to expand their platform, the drilling completion schedule and looking to manage that water. And so those conversations are being had. We are talking about expanding our network, and it's a good time to be the market leader in the Haynesville.

The next question is from John Daniel from Daniel Energy Partners.

Thanks for keeping the call going. I want to dig a bit deeper into Don's earlier question. But I guess -- and it's a 2-part question. Just how much more incremental infrastructure do you think the Western Haynesville is going to require?

And then second, when we look at recent Select press releases, there are all sorts of awards and contracts for Permian projects. I'm just curious, do you think when we read your press releases 12 to 18 months from now, we're going to see a similar level of contracts awards in Haynesville development -- Western Haynesville development?

I'll maybe start on it, John. I think that the Haynesville has obviously seen a lot of consolidation and I would say, acreage shuffling and positioning here over the last couple of years.

And I think that you're going to continue to see folks try and figure out what the opportunity set looks like to continue to expand out from what was historically the Tier 1 acreage and the more mature parts of the basin into other areas that I think are proving to be expansively economically viable.

So I think there's definitely going to be continued application of need. I think that the benefit of our existing asset footprint is the challenges that are undertaken on disposal in Louisiana. And as you move Westward, that gets it into our network efficiently and into our system. I think the Western Haynesville is definitely underdeveloped compared to some of the other areas. And so it's going to have an additional need and ultimately an expansion effect on water as well.

And maybe, John, to address the second half of your question just more broadly. So as I look at the press releases, I think back on the press releases from this year, we've been more successful than I thought we would be coming into the year, particularly given that it's been a flat to down year.

So I'm really excited about the success we've had. Obviously, we can't continue to have this level of success indefinitely. I mean, there's a point where that rolls. Our backlog is still strong. We still announce some deals on a quarterly basis, seemingly every quarter. But at some point, that is going to roll and the CapEx will curtail materially and then the cash flow flips.

And so it's still a little unclear exactly what month or quarter that happens. But this -- the excitement we have right now with aggressively chasing the really intrinsic value proposition we have around recycling and building that out to support total water management disposal. I mean, there is a finite window there.

One thing I would maybe add is as that asset footprint gets developed and you move from those large greenfield chunky build-out footprint projects and get into the brownfield development opportunity set and the economics continue to improve over time as you benefit from that invested capital profile.

So we're already fairly mature in that investment in that traditional Haynesville area. And so I would say the return profile of incremental capital deployed in the basin is going to be very attractive compared to greenfield development.

This now concludes our question-and-answer session. I would like to turn the floor back over to John Schmitz for closing comments.

Yes. Thanks, everyone, for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions. We look forward to speaking to you again next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.