Select Water Solutions, Inc.

Greetings and welcome to the Select Energy Services 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris George, Vice President, Investor Relations, and Treasurer. Thank you, Chris. You may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Select Energy conference call and webcast to review our financial and operational results for the second quarter of 2021. With me today are John Schmitz, our Founder, Chairman, President, and Chief Executive Officer, Nick Zweika, Senior Vice President and Chief Financial Officer, and Michael Scarkey, Executive Vice President and Chief Operating Officer. Before I turn the call over, 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 selectenergy.com. There will also be a recorded telephonic replay available until August 18th, 2021. 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 4th, 2021, 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 Selects 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 for the year ended December 31st, 2020, our current reports on Form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties, and contingencies. Also, please refer to our second quarter earnings announcement released yesterday for reconciliations of non-GAAP financial measures. And now I'd like to turn the call over to our founder, chairman, president, and CEO, John Schmitz.

Thanks, Chris. Good morning, and thank you for joining us. I'm excited to be discussing Select Energy with you today. We have been very active over the past few months, and I am pleased with the progress we've made on executing our strategy. We are continuing to strengthen our position as market leader in sustainable full life cycle water and chemical solutions. Since the first quarter, we realized notable achievements in each of our key strategic priority areas, which are, first, improving and bolstering the base business. Second, advancing our technology, ESGS initiatives, and diversification efforts. Third, executing on strategic M&A. First off, looking at the performance of the base business, The second quarter's financial results saw a notable growth in top line with a 12% revenue increase over the first quarter. This revenue growth was led by our oilfield chemicals at 23% and our water services with 19%. While our water infrastructure took a step back in the second quarter, driven partly by the Bakken seasonality, we anticipate a very strong third quarter from this segment. On a consolidated basis, margins held flat overall as cost pressures including labor, fuel, and raw materials continue to weigh in on the margins. Looking forward, we are continuing to engage with our customers and have had positive recent discussions around pricing improvements. As a result, we expect to see margin uplift in our base business during the third quarter. In the third quarter, we also expect to benefit from the increasing contributions from our recently announced recycling projects. The first two projects were completed late in the first quarter with a subsequent expansion of one of these projects just starting late in the second quarter. The next three projects should be completed by the end of the third quarter, though their financial impact to the third quarter will be minimal. These five projects total about 15 million of combined growth capital and provide more than 200,000 barrels a day of recycling capacity. They are supported by long-term contracts with key customers, which reinforces the strengths of Select's platform to provide integrated solutions that rely on our expertise in water and chemistry. These projects not only increase efficiency, reduce cost, and improve operational results for our customers, but they also help our customers achieve their sustainability goals and ESG targets by reducing their environmental impact through decreased freshwater usage and decreased waste disposal. With a solid commodity price and activity backdrop, a streamlined organization, and a strong technology platform anchoring a market-leading position, I feel very good about the continued growth prospects of these base businesses in the third quarter. In support of these base business improvements, we also continue to find new ways to diversify our capabilities and advance our initiatives around technology and sustainable solutions for our customers. Building on this, we have further enhanced our portfolio of sustainable technologies with the acquisition of Alt Recovery, and we also have signed an exclusive supply agreement with EmissionsRx. Alt Recovery is a provider of unique patented biotechnology solutions for production and EOR application and will complement our existing production chemical initiatives. Alt Recovery's Novel solutions are derived from biodegradable inorganic nutrients, which provides an attractive environmental-friendly solutions to our customer while increasing overall well performance and improving returns. We are also very focused on application for reducing emissions for our customers. Accordingly, I'm excited about the partnership with EmissionsRx. This is a part of Select's ongoing effort to help our customers increase well site efficiency and safety while reducing emissions to limit the overall environmental impact of oil and gas development. EmissionRx combustors help our customers capture, reduce, and ultimately eliminate methane generated during flowback and production. They do this in a more efficient and environmental friendly manner than traditional oil fill practices, such as vapor release or opal flaring at both the wellhead and production facilities. Whether it's through automation, data capture, or ESG oriented solutions, technology will continue to play a critical role in our ability to provide better and more cost effective solutions for our customers. Thinking about our diversification efforts more broadly, We continue to advance opportunities to deploy our assets and expertise in new areas for industrial applications. We are still developing a comprehensive long-term strategy, but a key part of that strategy includes our recent hiring of Walt Dell as Senior Vice President, Industrial Solutions. Reporting directly to Michael Scarkey, Walt will oversee our industrial solutions development efforts. He brings a strong 20-plus year background in building and growing business in the industrial water and chemical space, and I'm excited to be partnered with him to grow and execute on this opportunity for Select. Now I'd like to discuss our final key strategic area, M&A. As I emphasized on our last couple of calls, Select is in a very strong position to execute on strategic M&A. We are well positioned as a market leader in water and chemicals with significant operating leverage. We also have a debt-free balance sheet, a strong cash position, and a public currency. All of this provides a solid toolbox for us to work with. Consolidation continues to be a key theme in the industry, and it's one of the most effective ways we can look to improve profitability across the oil and gas industry, and particularly the services landscape. To that end, I am excited to have recently closed the acquisition of Complete Energy Services. Complete is a business I know very well, and I believe it is a good fit with Select from both a service line and geographic standpoint. We are getting a strong market-leading production service presence in the MidCon and the Rockies, a market-leading water transfer footprint in the DJ Basin and the Powder River Basin, and new key flowback customer relationships in the Permian Basin and the Northeast. Add on to that, we've acquired a sizable produced water infrastructure footprint with over 300,000 barrels per day of capacity, and you've got a very attractive portfolio of assets to build off of. Complete's existing disposal footprint provides Significant optionality for broader commercialization, whether it's through the development of incremental gathering pipelines, or more notably, taking that produced water barrel as an alternative source to freshwater and developing produced water recycling infrastructure to meet our customers' needs. On top of operational and strategic benefits, this deal provides attractive and immediate earning accretion with more than $100 million of annualized revenue and $10 to $12 million of annualized EBITDA expected in 2021. With more than 60% of that revenue coming from production-related services and infrastructure, we are also adding an attractive layer of revenue stability to our core completions-oriented base businesses. We anticipate revenue and cost synergies resulting from this transaction, but we will be deliberate about how we approach the integration in the coming quarters. Ultimately, I am very excited about our recent M&A execution, our recycling projects, and our other sustainability-focused investments. I also firmly believe we will continue to find additional opportunities ahead. With growing activity, stable commodity prices, and improved operational and financial performance in the third quarter and into next year, the future remains exciting. With that, I'll hand it over to Nick to discuss the financial performance and outlook in more detail.