Select Energy Services, Inc. Class A Aktie

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.

Thank you, and welcome to the Select Water Solutions Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Garrett Williams. Please go ahead, sir.

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 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 via webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until August 20, 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, August 6, 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 Select's second quarter of 2025, we improved our profitability and cash flow while continuing to advance our strategic objectives around growing water infrastructure, scale and margin. I'd like to start with some of the key second quarter highlights, an overview of several large contracts and transactions we recently closed and other strategic and market updates. Then Chris will walk through the second quarter results and forward outlook in more detail.

In the second quarter, we increased net income by 22% and adjusted EBITDA by 13%. Importantly, we improved operating margins across each segment, leading to a consolidated gross margin gains of nearly 2 percentage points. Supported by our growth in both our recycling and disposal volumes, we achieved strong top line and bottom line growth in our Water Infrastructure segment while growing gross margins before D&A to 55%.

Since the start of the second quarter, we have signed several new long-term agreements for large gathering, recycling, distribution and disposal projects. These agreements continue to add scale to our contracted and dedicated acreage position in New Mexico and provide meaningful long-term revenue potential. We also have recently executed on are now underway with multiple strategic opportunities to rationalize our Water Services segment in support of our rapidly growing water infrastructure platform.

As we've previously indicated, we have been very focused on assessing our water service portfolio to allow us to focus our time and capital on the areas that deliver high gross margins, continued growth and full life cycle water solutions. During July 2025, we closed on a creative transaction with OMNI Environmental Solutions that allowed us to achieve multiple strategic goals at once.

In this one transaction, we were able to strategically grow our infrastructure business while monetizing and rationalizing certain noncore parts of our Water Service segment. As part of the deal, we acquired a special waste landfill, a processing and treatment plant, disposal facilities and an oil reclamation asset in the Bakken region. Now with 4 active landfills in the region and an expanded integration into solids liquid separation and enhanced oil reclamation, we have established a clear market-leading solids management footprint in the Bakken to pair with our sizable traditional wastewater disposal portfolio. We will spend the back half of the year getting the assets in the facility upgraded and expanded, but we are excited to add additional high gross margin growth potential for the infrastructure business in 2026 through this deal.

In exchange for these assets, OMNI acquired Select's trucking operation in the Northeast, Mid-Con and Bakken regions. We expect this deal will have improved our consolidated margins over time, reduced our operational risk profile and streamline our business in multiple basins. While the OMNI transaction is a strong step towards rationalization in the water service portfolio, we believe more opportunities remain to capitalize on certain strategic assets within our Water Services segment. Accordingly, we are now formally exploring financing and capital structure options to unlock value in Peak Rentals, our equipment rentals business within the Water Services segment.

As part of this effort, I am excited to partner with Scott McNeil, a highly respected and proven executive in the energy and power sector. Scott has been instrumental in the formation, leadership and monetization of multiple successful energy companies and brings deep experience in both operations and capital formation. Scott joins us as the CEO of Peak and will be leading the strategic development and transaction planning for the business. Pat Anderle continues his role as President of Peak, maintaining the operational leadership, execution discipline and customer focus that has long driven Peak success.

The Peak platform includes wellsite equipment, pressure and flow control systems and notably an emerging distributed power generation business. For more than 15 years, Peak has been a leader in deploying traditional diesel distributed power solutions into the energy markets. And more recently, Peak has capitalized on the rapidly growing demand for its natural gas generators and proprietary battery power systems. Demand for mobile off-grid power is surging as oilfield electrification accelerates. As the power grid build-out lags, these solutions ensure critical energy infrastructure stays online with resilient and reliable backup. We see the impact of this every day as we utilize Peak's distributed power solutions to support the rapid build-out of our own water infrastructure platform in remote regions of West Texas and New Mexico.

Peak is scaling into the distributed power sector with meaningful advantages, an established rental platform, a large base of operations and strong customer relationships across top-tier operators. Furthermore, Peak has secured a long-term exclusivity agreement with a critical supplier of proprietary battery storage solution, and we believe Peak is the first company to integrate battery power systems alongside generators in the field for both upstream and midstream applications.

In order to support Peak's momentum in the distributed power generation business and ensure the business has access to dedicated growth capital that does not compete with our water infrastructure growth needs, we are in the process of evaluating transactions that would establish a stand-alone capital structure. We completed the formal carve-out of Peak as a stand-alone operating company earlier this year, and we are well prepared for various potential outcomes.

While the ultimate outcome is still to be determined, we expect to preserve continued economic exposure to Peak's future growth and value creation in its distributed power space while maintaining long-term strategic alignment to support our core water infrastructure growth strategy. Ultimately, each of the OMNI and Peak initiatives are aimed at focusing Select's near-term priorities around our core strategy of building and promoting ratable, repeatable water infrastructure growth and more directly, the continued build-out of our large-scale Northern Delaware Basin infrastructure network in New Mexico. Now shifting back to our infrastructure build-out in New Mexico.

I am pleased to have executed multiple new long-term contracts in the Northern Delaware during the second quarter to expand on our current network in both Eddy and Lea counties, adding approximately 60,000 acres of additional leasehold dedication and 385,000 acres under right of first refusal agreements. These new contracts encompass the full water life cycle, including gathering, recycling, disposal and treated water distribution, and they underwrite the addition of multiple new recycling facilities and nearly 30 miles of additional dual-line large-diameter pipeline. But what I'm even more excited about is that in each of these deals, our E&P operator partners have agreed to directly convey the ownership or operations of their existing recycling and disposal infrastructure to Select. Select will continue to contractually support each of these customers' core operations, but we will have the opportunity to utilize the assets for a broader systems water balancing and commercialization as well. This is a very strong testament to the economic and operational value that Select provides in the marketplace with our full life cycle water balancing capabilities. We greatly appreciate the trust that our partners have in Select's reliability as a large water network operator and believe we are well positioned for more long-term contracts ahead.

We also continue to grow our disposal capacity and takeaway in conjunction with this large network build-out with plans to continue to grow this capacity over time to support long-term network optimization and efficiency. Upon the completion of these recently awarded projects in the Northern Delaware Basin alone, we will have approximately 1.8 million barrels per day of recycling throughput capacity and more than 1 million acres of combined leasehold and ROFR dedicated acres.

On a pro forma basis, New Mexico will have gone from contributing 0 to now more than 60% of our total fixed recycling capacity across the Permian in about a 2 years' time. To further reflect on this point, across the last 5 quarters, we have added on an average more than 77,000 dedicated leasehold acres and more than 140,000 ROFR acres per quarter, a tremendous pace of contract growth in a short period of time. In effect, we continue to add a significant backlog of contracted future revenues and cash flows underwritten by some of the best geology and lowest breakeven well inventory in the industry. I am confident we'll continue to add more contracts into the portfolio over time, and I am excited about the growth potential this will provide over the coming years.

Ultimately, we maintain a high level of confidence around our Water Infrastructure growth potential and believe the segment is poised to see strong 20% year-over-year growth in 2026, building on the double-digit growth we expect in 2025. While the macro activity environment may present challenges in the second half for more of the completions-oriented parts of our water services and chemical businesses, we maintain market-lea ding positions in each of these segments and expect them to continue to generate strong free cash flow while we focus on growing our Water Infrastructure segment.

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

Thank you, John, and good morning, everyone. In the second quarter, Select had a strong performance in light of varying activity levels and made great progress in advancing strategic objectives during the quarter. During the second quarter, we achieved 22% sequential growth in net income, 13% sequential growth in adjusted EBITDA, higher gross margins before D&A across each segment, growth in both our recycling and disposal volumes and continued water infrastructure long-term contract wins.

Looking at our second quarter in more detail. Water Infrastructure produced a strong quarter with revenues increasing 12% and gross profit before D&A growing 15%, well ahead of our expectations. The segment also generated a strong 55% gross margin before D&A during the period, up 1.5 percentage points from the prior quarter and more than 4 percentage points compared to the prior year.

Looking ahead for our Water Infrastructure segment, we expect overall activity in Q3 to be relatively steady with our anchor tenant customers with some modest variability in interruptible activity, resulting in revenues that are relatively steady to potentially slightly down low single-digit percentage points in the third quarter relative to what was a very strong Q2. We should also maintain gross margins before D&A above 50%. However, based on our current customer schedules and new projects coming online, we anticipate a strong Q4 for infrastructure with revenue and gross profit expected to increase double-digit percentages sequentially, resulting in a 2025 exit rate that remains in line with our prior guidance.

Importantly, with our latest contract awards, we are adding new capital projects that should continue to provide growth for this segment into 2026 and beyond, a testament to our water infrastructure strategy overall and the strength of its future earnings potential. While we will continue to closely monitor market conditions in partnership with our key customers with a strong 2025 exit rate and new projects expected to come online throughout 2026, we believe we are on track to deliver 20% growth in Water Infrastructure in 2026 compared to full year 2025.

We also remain on target to well exceed our previous goal of achieving 50% or more of our consolidated gross profit coming from water infrastructure on an exit rate basis in 2025, particularly in light of the OMNI transaction. While we've achieved much in the past 2 years, we anticipate this contribution trend to continue into 2026 and beyond.

Switching to the Water Services segment. In the second quarter, we saw revenues decrease by approximately 4% sequentially, driven primarily by weakening activity levels in the latter part of the quarter. This decrease, however, was below the low end of our prior revenue guide of an expected 5% to 10% decline, and our gross margins before D&A and services held relatively flat at around 20% during Q2. I believe the Water Services segment performed favorably compared to the market activity overall in the first half of 2025. However, we should experience further reductions in the second half of the year attributable to both activity and the larger rationalization efforts mentioned earlier.

Immediately after quarter end, Select closed on the aforementioned OMNI asset swap transaction that resulted in the divestiture of certain trucking and related operations in the Northeast, MidCon and Bakken regions, along with modest cash and stock consideration. Additionally, and separate to the OMNI transaction, Select also exited the remainder of its trucking operations in the MidCon and Haynesville regions for cash consideration. These combined actions significantly reduced our remaining trucking footprint to just the Permian, Rockies and Eagle Ford regions. To put that into context, for the trailing 12-month period ended June 30, 2025, the divested trucking operations represented more than 1/3 of the revenue and more than 1/5 of the gross profit before D&A of Select's trucking business unit and approximately 10% and 5% of the total revenue and gross profit for Water Services as a segment as a whole.

Additionally, as previously noted, and as part of our broader efforts to focus Select around our core infrastructure and full life cycle water solutions thesis, we recently stood up the Peak Rentals business within the Water Services segment of Select to be a stand-alone operating company and have begun evaluating strategic alternatives for this business.

As part of the structured carve-out, we have incurred certain incremental costs at both the cost of sales and SG&A levels in order to ensure that Peak is well positioned to operate independently, leading into any potential strategic opportunities. While we expect some impact from weakening activity levels, these rationalization efforts represent a sizable portion of the approximately 25% revenue decline we anticipate in the third quarter for Water Services. However, even with the meaningful expected revenue reduction, we expect margins to remain relatively flat to Q1 and Q2 levels of approximately 19% to 20% in the third quarter of 2025.

Moving on to the Chemical Technologies business. This segment saw a sequential revenue decline of approximately 11% during the second quarter in excess of our guided expectations, driven primarily by pullbacks in activity levels associated with some of our pressure pumping customers. However, gross margins before D&A of 17.5% in the second quarter exceeded our guided range of 14% to 16%, resulting in modestly higher gross profit before D&A in the second quarter of 2025 as compared to the first quarter.

During the third quarter, we expect revenue to decrease low to mid-single-digit percentages, outperforming the overall activity environment on the heels of continued success with new product development initiatives while holding relatively steady 15% to 17% gross margins.

Looking back on a consolidated basis, in the second quarter, SG&A increased to $39 million or just under 11% of revenue, partially impacted by incremental SG&A costs incurred as part of our Peak carve-out. We expect SG&A to hold relatively steady on a gross dollar basis during the second half of the year. Though over time, we will continue to look for opportunities to rationalize the cost structure of the business in conjunction with the ongoing rationalization efforts in Water Services. Altogether, we saw solid consolidated adjusted EBITDA of $73 million during the second quarter of 2025. above the high end of our previous guided range, largely resulting from the stronger-than-expected margin performance out of our Water Infrastructure segment.

For the third quarter of 2025, we expect consolidated adjusted EBITDA of $55 million to $60 million as softening activity in the U.S. Lower 48 impacts the more completions-oriented Water Services and Chemical Technologies segments, along with the immediate impact of the OMNI transaction.

While activity declines will impact the short-term outlook of our Water Services and Chemical Technologies businesses, we are confident in the continued long-term growth prospects for our Water Infrastructure segment and the additional resilience that our growing contract portfolio will bring over time.

And as we've outlined, with new projects coming online through the back part of the year and into 2026, -- the Water Infrastructure segment is poised for continued sequential growth with 10% quarter-over-quarter growth in Q4 of 2025 and 20% year-over-year growth during 2026.

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 first quarter, D&A increased approximately $3 million in Q2 to approximately $43 million. With additional growth CapEx, we expect D&A to see a similar increase in Q3 to approximately $45 million. Interest expense should remain relatively steady, and our effective book tax rate applied to pretax operating income should stay in the low 20% range, with cash taxes on the year remaining low at around $10 million or less.

While we need to conduct further analysis, given recent federal legislation, we would expect our cash tax obligations to remain relatively muted across the next couple of years as well. support of contracted infrastructure projects. During the second quarter, we also deployed $3 million to acquire bolt-on infrastructure assets in the Permian to strategically support our existing recycling and disposal networks. As demonstrated by our latest project awards, we are seeing our large backlog materializing into actionable contracts. Following the recent project wins, we still expect $225 million to $250 million of net CapEx in 2025 with a bias towards the higher end of the range, though we have now added to our growth CapEx backlog into 2026.

We maintain our expectation of $50 million to $60 million of this CapEx going towards ongoing maintenance and margin improvement initiatives in the near term. Absent the ongoing sizable growth capital outlays, our business maintains 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 operational performance.

While near-term cash flow will be impacted by reduced activity levels, we continue to generate very solid 70-plus percent free cash flow capture out of our base water services and chemicals profitability and are very well positioned to fund our water infrastructure growth projects while maintaining a healthy balance sheet overall in a challenging market.

In summary, we advanced our strategic initiatives in Q2 and remain confident in our overall strategic outlook. We are proud to have positioned the company with strong liquidity, resilient earnings streams 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] And our first question comes from Jim Rollyson with Raymond James.

Hey, good morning. Nice quarter. And John, you talked a bit about this, but you guys continue to sign new contracts. with duration, with acreage dedication and you even have customers giving you their assets now for you to run. Curious, as you look at the market and the opportunity set, what inning do you think we're in from an opportunity perspective as far as that goes? And is the macro on the oil side having any impact on kind of the pace of desire to do that? Or is just the magnitude of the water challenge really superseding that?

Yes. Thanks, Jim. As far as where we are in the inning of the build-out, I think our team has really put some major contracts in place and some dedication. And as far as the big projects, the 2 that we just announced and a few we still have in the that we haven't announced yet. I would tell you that we're pretty far into the build-out now. We have to physically put the plants and the pipe in place. But the major wins, I think we've got that done. What isn't done and what is starting to happen now is as you put this network together, you cross either that ROFR acreage or you cross undedicated position. And what we're having happen to us now is we're receiving the calls of add-ons, people that want to come into the network that it could service their acreage and be an economic value. in a meaningful way. And that's just starting to happen, Jim, right now. So big projects, we're pretty far on our way. We got to build them out, picking up the pieces as we go through the acreage. It's just starting, Jim.

Yes. And maybe to follow -- go ahead, Michael.

No, I was just going to maybe address part of your question on the backlog. I would say that the backlog is strong, and it's flat despite converting these projects from opportunities to signed contracts, and that removes it from the backlog, but we're continuing to backfill for them so that it's relatively flat. And I don't see the near-term macro headwinds changing that. I think we will be able to continue to deliver projects as we have on a quarterly basis going forward.

Got it. And as you guys kind of look at that acreage that isn't locked up that crosses pads, maybe just relative size of what you have locked up versus -- because obviously, your ROFR acreage currently is a bigger number than your dedicated acreage. But when you add that in plus the guys that aren't even involved yet, I'm just curious how much opportunity that still provides.

Yes, I might take a shot at that and kind of let John clean me up. I mean the first thing I'd point out is that the ROFR acreage is twice what we have under dedication. And so there's a meaningful growth impact there that hasn't been fully developed, but we certainly think we're well positioned to capture it. in terms of new acreage out there, I'd really look to kind of the expansion that we have in Eddy County, which the deals that we announced largely allow us to continue our expansion in Eddy County backed by long-term contract. And we're traversing a lot of acreage that is not tied into our system and much of which, frankly, isn't committed, which John alluded to. So I think there's a real opportunity there for us to connect it and tie it into the system. And I think that's what makes me so excited is we're really building a system of size and scale in New Mexico, and it uniquely positions us to solve the localized imbalance of produced water and completion water. And that's going to allow for continued growth, as you've seen over the last few quarters, but also stability across the system.

Got you. And then as a follow-up, John, quite interesting development on the Peak side of things. I would love to get -- and obviously, know Scott McNeil pretty well, but would love to get your view on just maybe framing the market opportunity as you guys see it for that business because it's going to be a unique strategy with trying to carve that out and still keep economic benefits, but just love to see maybe just put some brackets around where you think that economic opportunity is.

Yes. I think Peak because of where it's been since really the beginning of what is Select has a very unique position, but it always -- Peak always participated on the drilling and completion side of the business. So when you think about temporary housing, potable water, wastewater, communications and power generation, we were really around drilling rigs and completion frac crews. But the 350-plus MSAs we got are with companies that are in the production business as well.

So the lack of electrical grid generation and the way that continues to grow in length of time before it gets put in place, Jim, allows Peak to really have an opportunity of which it's now taking advantage of taking those MSAs and going into the production side of the business in a meaningful way. So I think it's got a really good position. What really advanced that position is Select and these contracts that Michael and the team have put together are in that same area and that same electric generation problem is real. And we had to start supporting ourselves in the midstream side of the business to power generate these recycling or transfer or disposal wells in areas there's not electricity.

The other thing I would tell you is that we were very early in establishing a relationship with a battery company. And we did our own investigation, if you will, of applying that battery technology along with our diesel power generation in the same application that we've been doing for many years now and the same kind of load. And what we found is that you could apply that battery and that generator will run roughly 20% of the time versus generator direct, and it will burn about 20% of the fuel. and you can size the battery for the peak demand position and you don't have to size the generator for the peak demand. You just have to size the generator for the job. And it's really an economic value. It really cleans up the electricity currency going into the job. It really allows a more quieter workplace, and it allows automation application around that electricity that is harder to do with full diesel power generation 24 hours. So we're excited about it.

And our next question comes from Derek Podhaizer with Piper Sandler.

Just to follow on Jim's question with Peak rentals. Maybe if you could just help us provide just some further details around the kit, maybe how much capacity Peak has right now from a megawatt perspective? What's owned, maybe what's deployed on an active megawatt perspective? -- types of units, are these the smaller sub-1 gigawatt units? Or are these more like the recips in that 2 to 3-megawatt range? Just maybe some more color on the actual fleet size and type of kits.

Yes. So this is John. So the current fleet size and the space we have participated in since we started peak back in '07 is the smaller portable diesel power generations. So definitely the smaller units. But even the units that we're deploying today, both in the midstream and the production side of what we're doing are still the smaller recip units. They're bigger than what we've done in the past. So they're 400 kW type stuff on electric submersible pumps or midstream application of water movement, but they definitely are still smaller portable recip units.

But on the growth side of it, Derek, the focus around the natural gas units, those are definitely growing to larger scale units and focus more on that production side and the infrastructure application to build-out. But regardless of the unit type, they fit within our existing production and refurbishment capabilities from the business to date. And so we've got a large legacy of being able to manage all different types of units, and we're going to continue to look at scaling up appropriately, particularly on the natural gas side.

Got it. That makes sense. And maybe just like total size of the fleet megawatt like today and where you think it can go next year?

We haven't put anything out specifically on the total fleet size, and we're investing in it, I would say, robustly this year. The ultimate, I would say, scale of the fleet over the next 12 to 24 months will probably be somewhat dependent upon the ultimate outcome of what we're able to accomplish here because there's clearly growth in demand. There's clearly opportunities to deploy units. We're focused on what the scale of that backlog can look like and what our order book can grow into.

Got it. That's helpful. And then just a follow-up, switching back over to infrastructure. Obviously, a lot of exciting growth opportunities as we think about 2026. You gave a 20% year-over-year growth number there. Maybe just an early look into 2026 CapEx budget. Maybe you could just put some guardrails around it, how we should think about it? What CapEx will be required to support that 20% growth? I'm just thinking through more of the -- all the moving pieces as far as seeing a cash flow inflection in infrastructure. But maybe just we'll start with the CapEx and what you think you'll need to in order to support that 20% growth number.

Yes. It's a good question, Derek. One thing to be clear on is that current outlook of 20% or so is based on the projects we have underwritten via contract today. So obviously, we've got a backlog of capital being deployed in the back half of '25, and we've now backlog some additional projects into the first half of next year. Between the second half of '25 and the first half of '26, we probably got about $225 million of capital deployment, probably about $75 million to potentially $100 million of which is in the first half of next year. So that 20% is underwritten by those current contracts and those current projects now under construction. Now that said, we certainly continue to feel optimistic about our ability to add new contracts into the portfolio over the back half of '25 and certainly across the full year '26. And so our expectation would be that we continue to add new projects under contract and that capital deployment over the course of 2026 has opportunity to look more like the capital deployment of 2025.

So we think that there's certainly upside to add to the backlog there with new contracts. And to the extent we're able to successfully do that, that add to the portfolio, and that would add growth opportunity beyond the 20% we're looking at already underwritten today. But from an operational standpoint, the current construction time line extends into the third quarter of next year.

Moving on to Bobby Brooks with Northland Capital Markets.

So the 12-year contract within Eddy County announced on today's release, it was specifically mentioned that it will connect to the ongoing Eddy County network expansion that was announced on the 1Q call. This would lead me to believe that this new contract announced would materially accelerate the payback on this capital project that is currently underway without much additional CapEx. Is my logic here fair? Or is there something maybe I'm missing?

I certainly appreciate the context of the question, Bobby. We are going to see additional capital deployed with the new projects recently announced, give or take, around $40 million. That said, any time you're adding on to kind of an anchor build-out asset, the economics do have the ability to improve off of that kind of base build-out. So both the capital economics around the interconnection between Eddy and Lea County as well as the expansion now into the second big contract off that system does give us the opportunity to further commercialize that, further reach additional acreage and to Michael and John's points earlier, now we've got access to significantly more uncontracted and/or commercial volumes that we feel like we can add on to that system and improve the overall economics.

Yes. We're really excited that the 2 systems match up together because, again, we think creating one large network is very important. As I mentioned, it helps us balance out longs and shorts and create stability -- but the 2 acreage positions are -- they're adjacent. They're not overlapping. And so it will be kind of expanding into new territory, which we just think creates more optionality and flexibility.

But one thing to add, obviously, as we mentioned, having our customers willing to convey some of their existing infrastructure to us as part of the network build-out is obviously a much more efficient capital deployment opportunity. You're not duplicating capital in the ground. You're not duplicating or conflicting assets with our customers or others in the basin. And we've seen obviously a willingness there from our customers to convey that operatorship and ownership over to us, which is a good outcome for both us and them. And maybe just one final point beyond the capital efficiency. I think it really just speaks to the value of the system and the network we've connected. I mean our customer realizes it's better off in our hands than in theirs. It will help us serve them better than if they owned it. And I think that's a very strong statement.

Really helpful color. And just to maybe follow up on that customers conveying assets to you. I get the rationale of them realizing Select can better operate than themselves. But is there any economic benefit for them doing that? Do you guys maybe give them a little bit of better pricing on these contracts? Or is it just, hey, we have this asset, you can do -- we know you can utilize it better?

I mean from a deal-making standpoint, it's clearly part of the discussion and negotiation when we think about terms and pricing and all of that. But the real value here is around the network effect that it creates. It's less about the assigned value of that asset and more about what putting it into our system allows us to do and how it allows us to serve them better than if they owned it.

Very helpful context there. And then I really found it helpful commentary on how you expect water infrastructure revenues to scale over the next 18 months. When I take your comments for 4Q '25 revenues up 10% to about $85 million, combine that with the comments on the expectation for 20% year-over-year growth in 2026, that implies water infrastructure revenues on a quarterly basis exiting '26 are above $100 million. So is it right for me to think that as you see it now, Water Infrastructure on a run rate revenue basis yearly is going to be $400 million plus exiting '26?

Yes. Certainly, from a trajectory standpoint, Bobby, you're thinking about it correctly based on the current projects and the schedules that we have in hand and the backlog opportunity. There will be a trajectory over the course of '26 with, as Michael mentioned, projects building out through the first half of the year and partly into Q3 as well. And so that should drive a continued trajectory with an exit rate in '26 materially above, obviously, where we're going to be in the first half of the year, like you outlined that.

The only thing, Chris, I'd add to that is the statement I made previously, which is we have been successful over the last 4 or 5 quarters at announcing kind of new long-term commitments that will have additional volumes on the system, and I would expect that to continue in the near future. So we're building for the back half of '26. But my hope is, Bobby, that when we talk again in 3 or 6 months that we're building for the front half of '27.

I think it's important, and Michael and Chris both really touched on it, Bobby, but as Michael said, these assets allowed us to put a network together. These contracts allowed us to put a network together the interconnect of this system travels through basically 3 pieces, the dedication piece, which is what we're talking about here in the volumes. It travels through the ROFR piece that, as Michael said, is twice the dedication and then it travels through the undedicated or not ROFR piece, but still it's logistically correct to bring value to us and our customers. And that is upside. And the network brings real value to that upside, and we expect that we will continue to get the calls on the upside.

And our next question comes from Don Crist with Johnson Rice.

I appreciate the asset rationalization and selling of some trucking assets. But as you kind of progress through, are there other assets in the portfolio besides Peak that you're currently looking at? I mean, would you sell the rest of the trucking assets? Would you kind of cut deeper and go towards chemicals or anything of that nature? Or is there anything else that we don't know about in the portfolio today that could be a divestiture candidate as we kind of move forward to offset some of the capital you're spending on the construction side?

Yes. Good question, Don. And I'll maybe start and let John add on. As we look at the Services segment here forward, obviously, with the OMNI transaction completing here in in July, we significantly rationalized that trucking footprint. We have 3 basins of trucking operations left. I would say those areas have more strategic interaction with our existing infrastructure portfolio and support, I would say, a steady state of produced water delivery to those assets. So we view that as having a good strategic relationship and a production base stability to it with a better margin profile than the assets that we've divested of to date.

Peak, obviously, with an ongoing process here represents a good opportunity to continue to rationalize the portfolio with about -- Peak represents about 20% of the Services segment P&L and about 10% of the consolidated P&L. So while obviously a good-sized business represents an opportunity for us to recapitalize it with growth capital opportunities and continue to help support the overall strategy. Either way, we have a very strong balance sheet. And so we have strong cash flow generative capabilities out of both the current services footprint even on a rationalized basis as well as the chemicals business that helps support that growth trajectory within Water Infrastructure. And we feel like we've got the opportunity to continue to invest in that growth trajectory with the current liquidity we have in hand.

We'll obviously maintain a disciplined balance sheet overall. But once you get beyond that, what you have left with -- in the services business really fits what we have in infrastructure and what we're trying to accomplish on a full life cycle basis as well. You've got large-scale, market-leading temporary water logistics capabilities. You've got large aboveground and temporary storage solutions. You've got capabilities of supporting your contracted underwritings with the infrastructure build-out, and we've actually seen some of the more recent contracts successfully integrate that last mile logistics piece as well.

So we feel like we've got a good portfolio approach with the business based on the decisions we've made today. And we look forward to figuring out what the ultimate outcome is on the peak opportunity here. But we continue to see new product development wins in the chemicals business, driven by some of the ongoing secular transitions around longer laterals, produced water reuse, the trends that generally support the water side of the business and the infrastructure demand as well. So we'll continue to assess over time, Don. I think what we'll be focused on more near term is how to rationalize the cost structure and the operational processing side of the business in conjunction with the decisions we've already made. But John, anything to add on top of that?

Don, I think what we think about all the time in rationalization with Peak, logically, there is a large opportunity in the power generation piece of Peak and the expansion into the production side and the midstream side. It's just -- it is a need of capital for a very attractive opportunity, and it really is not the full life water cycle thought process. The other one we think about all the time is we want to make sure that we can bring value to our infrastructure customers. And if we have pieces of our business that integrate in a manner that allows us to bring that value, both in utilization to us and revenue dollars and profits, but also in economic value to our customer, we are really focused on what fits with that infrastructure piece to do that, Don.

I appreciate all that color. And again, I applaud you for rationalizing some of the assets. Just one further one for me. You didn't talk about Colorado at all in this press release. I'm guessing that it's still kind of quiet and you're adding assets there, and we should expect big news out of there more in the kind of late '26. Is that still the right kind of time frame?

Mike can here we'll throw it over to Mike.

Yes. We continue to see great progress. I mean our mission ultimately is to develop a very reliable, efficient water network and banking system that will support all of the stakeholders in the region. So we're really committed to delivering that lasting value and really serve all the community stakeholders there. We have made material progress even in the last quarter. We've completed a landmark engineering study. I think that further indicates and provides justification of how unique our system already is and how unique it will become. So I think that will allow us to demonstrate how ratably and reliably across many years, across drought years that this system will be. And I think we're extremely excited about the demand we continue to see in the market. It's an area where Select can bring its cutting-edge automation, its operational capabilities to really bring this system to life. So that is something that the activities right now are working with local irrigators, developing the partnership into truly a unique large-scale lease fallow and water banking program. All of that makes the system very unique, and we continue to see great demand. And yes, we're pushing all the stakeholder engagement and pushing the commercial side as well, all actively every quarter.

And moving on to Jeff Robertson with Water Tower Research. Just John, a question on Peak, which you've discussed a lot. Would separating that out with its own structure and capital sources, would that allow the water infrastructure business to do anything different with respect to the types of projects that it could take on or the kind of capital commitments that it could make?

I don't think we have any limitations that right now, we're harvesting and closing the opportunities that exist to create that water infrastructure business that we continue to expand. And as Michael said, the backlog is strong. So I wouldn't say that it allows us to do anything different than what we're going to do. The one thing that it does allow and support is, again, the support of the electrification of that midstream water business that we put together in Eddy and Lea County and other areas, it needs electrical solution. And I believe that having the backbone of Peak to be able to do that is important in our execution there. So I do believe that's an interaction that allows it to make sure there's a strong ability on the electrification side of the business.

Michael, you got any. No, I think that's exactly right. I'd characterize anything we do with Peak as offensive rather than defensive, Jeff. I mean we feel like we're on our front foot on infrastructure, and we can continue to be whether we do something with Peak or not, Peak is just -- there's a tremendous opportunity there, and we'd like to capitalize on it.

If I could ask one quick question in the Bakken. John, with the expanded solids footprint that you have, is there growing demand for the services you provide? And are you working on continuing to tie that into a network maybe to replicate what you're doing in the Permian Basin?

Yes. I'll say a few things on the infrastructure side, and I believe that solids liquids management business is very similar in that you can bring a network capability of logistics value to the operators very similar to what we're doing in the infrastructure recycling and disposal space. But if you really look at infrastructure, the management of recycled water solids, liquid separation, landfills and disposal, oil reclamation is a really big piece of all 4 of those. And we think that, that really fits us well as we think about supporting the interaction between our infrastructure recycling water business and then the solids liquids build-out that we're doing, which includes the landfills. That oil reclamation piece is a very important part of that. Michael, would you..

Yes. No, I certainly agree, John. The only thing I'd say is just from the transaction standpoint, we had some trucking operations that we had deemed noncore that were core to the counterparty, and they had a landfill in an area where we were the largest provider of solids management. And so it was a logical swap, and we were strengthening our position and giving up assets that weren't central to kind of the ongoing infrastructure service thesis that we have.

Our next question comes from Josh Jain with Daniel Energy Partners.

Maybe just one quick one on the Chemical Technologies business. You talked about it falling a bit more than anticipated in Q2 and revenues down low to mid-single digits in Q3. Could you just offer your thoughts on this business moving forward, sort of early indications into '26? And do you think you can hold margins at the current levels where they are today?

Yes. Certainly, good question. On chemicals, we saw a pretty strong Q1. And while Q2 saw a little bit more revenue decline than we anticipated, I think Q3 is actually proving to be quite resilient in the current activity environment. We've been, I think, quite positively pleased with some of the outcomes we've had in recent product development. Some of the ongoing and recent trials we've executed on with customers have been quite successful. And so I think we feel pretty good about the opportunity to continue to grow market share in that business. That in-basin manufacturing capability we have in the Permian is really kind of a unique opportunity, both from a logistical standpoint as well as a product development turnaround testing and lab capability standpoint as well. And we've been adding some more vertical integration into the raw material side of the supply chain at that plant as well. So I think we feel good about the ability to hold and protect and see those margins sustain and maybe grow over time given some of that operational efficiency we've gotten and then the new product development are focused on the highest efficiency, highest margin products we've got, supporting the most complex and advanced completions out there on the longer laterals and larger simul trimul frac solutions. So I think it's been a good trajectory for the business overall over the last 12 months. And I think the continued demand on the operator side will help compensate for some of the challenges on the pressure pumping customer side more recently.

The one thing I'd add to, Josh, that's becoming very apparent now in the relationship of our chemistry business to our infrastructure business and our temporary last mile water transfer that's in services is as these fracs move to more complex, higher volume, more equipment running in a 24-hour period, our chemistry and the way they can support movement of water through pipe in and around its friction reducers or we call it DRA or drag reducers is becoming very important. And that product is a good high gross margin product for us, but it also brings a considerable amount of value to our customers.

If those product offerings and that efficiency can help the customer reduce the time it takes to drill and complete wells and do so more efficiently, it's a great win for us and a great win for the customer.

This now concludes our 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 I look forward to speaking to you again next quarter. Thank you.

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