Select Water Solutions, Inc.

Greetings and welcome to Select Energy 2022 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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. I would now like to turn the conference over to your host, Chris George, Senior Vice President. Please go ahead, sir.

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 2022. 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 Skarke, 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 17, 2022. 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 3rd, 2022, 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 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. Also, 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 our founder, chairman, president, and CEO, John Schmidt.

Thanks, Chris. Good morning, and thank you for joining us. I'm excited to be discussing Select Energy again with you today. The second quarter's results represent a meaningful step forward in the continued execution of our strategy of improving and bolstering our base business, advancing our technology, sustainability, and diversification efforts, and executing on our strategic M&A. The second quarter saw strong sequential revenue growth, increasing 14% quarter over quarter, with our chemical segment producing all-time record revenues during the quarter. Our water services segment saw quarterly revenues grow 20% during quarter two, getting back to levels not seen since quarter one of 2019, well before the pandemic began. Meanwhile, our infrastructure segments achieved quarterly revenues higher than the quarterly average of either 2018 or 2019, and within striking distance of all-time highs. Combine these revenue levels with our significant investments in technology, continued operational efficiencies, and consolidation benefits, and we generated strong 83% growth in net income and 48% growth in adjusted EBITDA. Pair it all together, and I believe we are demonstrating that the industry activity and pricing does not need to fully recover to pre-COVID levels for select to get back or exceed pre-downturn levels of financial performance. Even so, it has become clear that U.S. unconventional resources will be the primary growth driver to supply global energy needs over the next few years. As the market continues to tighten, we are well positioned to help meet that need through our advanced technology solutions, strong balance sheet, and the flexibility provided by our recent acquisitions. Our asset-light business model does not require large amounts of reactivation or maintenance capex, and we believe will generate substantial free cash flow through the cycle. As we advance our market leadership, we continue to make progress on the integration efforts of our recent acquisitions, and I believe we will continue to capture additional efficiencies and synergies in the second half of the year. These integration efforts and continued rapid revenue and working capital growth impacted cash flow during the second quarter. However, we are back to producing positive free cash flows, and I feel confident in our ability to generate meaningful free cash flow during the second half of 2022. On the sustainability front, during the second quarter, we issued our inaugural sustainability report And I encourage listeners to give the report a full read, which is available on our website. As a market leader in sustainable water and chemical solutions, we take our commitment to water stewardship seriously. We're proud of the accomplishments we've achieved to date and remain confident in our ability to set the bar high with ambitious targets to water stewardship in the future. To that end, we commenced operations at our two newest contracted fixed recycling facilities during the second quarter, adding an additional 75,000 barrels per day of capacity. This takes us to more than 600,000 barrels per day of recycling capacity and puts us well on our way to achieving our full year 2022 recycling targets. Additionally, we continue to find new and creative opportunities to expand on our existing infrastructure footprint. During the second quarter, we signed a five-year agreement to connect an operator's existing water distribution and gathering pipeline in Upton County, Texas with two of our existing recycling facilities. This interconnection will allow us to efficiently gather produced water, transport recycled volumes between our two existing facilities, and dispose of water when necessary. This significantly expands the commercialization opportunities of the facilities and allows for more efficient management of water needs across multiple operators in the area. We continue to see strong demand from our customers for the integration of our water and our chemistry solutions And I believe we will continue to build on our recent success with more long-term contracts and infrastructure development opportunities in 2022 and beyond. While the second quarter saw a meaningful double digit percentage increase in drilling activity, completion activity continued to modestly lag during the period with a single digit percentage growth. However, we believe this activity ratio is starting to normalize and we expect to see more completion activity during the third quarter supported by a continued strong overall commodity price environment. Underpinned by growing activity, strong commodity prices, further price increases, and continued operational efficiency gains, we expect to see further improvements to our financial performance including meaningful free cash flow during the second half of 2022. Substantial free cash flow supported by a strong balance sheet, healthy net income, and a growing stream of contracted and production-related cash flows will provide us with additional shareholder return options. With these financial conditions in place, we will continue to evaluate incremental shareholder returns in the coming quarters. This is a core priority to us and to many of our investors, and I look forward to expanding on this in the near future. With that, I'll hand it over to Nick to discuss the financial performance and outlook in more detail.