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…

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…

[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.