Select Water Solutions, Inc.

Greetings and welcome to the Select Energy Services Third 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, Senior Vice President, corporate development, investor relations, and sustainability. 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 operating results for the third quarter of 2022. With me today are John Schmitz, our founder, chairman, president, and CEO, Nick Zweika, senior vice president and chief financial officer, and Michael Skarkey, executive vice president and chief operating 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 selectenergy.com. There will also be a recorded telephonic replay available until November 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, November 3, 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. With that, 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 Selecta Energy again with you today. The third quarter's results, combined with our recent acquisitions, display our continued ability to execute on our core strategies of improving and bolstering our base business, advancing our technology, sustainability, and diversification efforts, and executing on strategic M&A. The third quarter saw strong sequential revenue growth, increasing 12% quarter over quarter, with all segments showing solid improvements during the quarter. Our water service segment saw quarterly revenues approach pre-pandemic peak levels, with gross margins increasing to 23%. Meanwhile, our infrastructure segment achieved record quarterly revenues, and our chemical segment achieved record high margins. Reinforced by steady activity levels, a challenging labor market, and a tight equipment supply environment, we continue to capture market share and see pricing improvements across each of our segments. Combined, these factors led to a strong 70% growth in net income and 32% growth in adjusted EBITDA. On the back of these strong financial improvements, I'm also pleased to have announced the acquisitions of Breakwater Energy Partners and the strategic infrastructure assets from Cypress Environmental Services, both of which closed this week. Select has a long and successful track record in M&A, and I continue to believe that consolidation remains an important way to drive efficiencies and further create value within our industry, and more importantly, for the select shareholders. Both of these acquisitions fit us extremely well and provide strategic growth opportunities at very attractive entry points. With these acquisitions, we are also bringing on skilled and experienced leadership and their strong operating teams who we are excited to partner with going forward. With Breakwater, we are acquiring one of the market leaders in advanced water recycling, infrastructure, disposal, and logistics solutions. Breakwater has broad capabilities across the entire Permian Basin with complementary water logistics operations in the Eagleford. With a core footprint of strategic commercial recycling facilities, serving the heart of the Midland Basin, Breakwater currently operates about 600,000 barrels per day of active recycling capacity at its four primary fixed facilities with an additional 1.4 million barrels per day of permitted capacity available for development. Breakwater also operates nine active modular recycling facilities with 1.5 million barrels per day of throughput capacity. Breakwater's facilities are supported by 46 miles of gathering and distribution pipelines, 70,000 barrels per day of disposal capacity, and 4.7 million barrels of storage capacity with an additional 3.7 million barrels of permitted storage capacity available for development. This footprint expands Select's recycling capabilities to nearly 3 million barrels of total daily capacity across fixed and mobile capabilities, while adding a number of new strategic customer relationships and strengthening existing relationships with new recycling opportunities. Through the Cypress acquisition, we added a portfolio of strategic wastewater disposal facilities in North Dakota and at attractive value. Further consolidating the Bakken region following our recent acquisition of Aqua Libre Midstream and Nevera, we believe there is meaningful opportunity to expand and network these assets with our existing infrastructure footprint. In addition to these strategic benefits, both transactions provide clear and immediate financial benefits as well. On a full year 2022 combined basis, the acquired operations from Breakwater and Cypress are expected to generate approximately $110 to $115 million of revenue and more than $30 million of adjusted EBITDA. The businesses have seen a strong trajectory through the year, and there remains meaningful opportunity for growth and network expansion in 2023. Importantly, both of these acquisitions further complement Select's rapidly growing portfolio of contracted and production-related revenues, adding incremental stability to our revenue base. Breakwater's recycling facilities and infrastructure operations are supported by a number of long-term customer contracts. while more than 60% of Cypress volumes are currently delivered by pipeline with long-term contracts. Supported by our strengthening revenue and earnings profile and recent acquisitions, we are also pleased that our board has initiated a regular quarterly dividend program during the third quarter, with the first dividend payment set to be made this month. Initiating a regular quarterly dividend program reflects our confidence and selects operating performance and strong balance sheet, as well as our commitment to generate multiple avenues of shareholder returns over time. These factors, along with our capital-wide business model and growing portfolio of contracted infrastructure and production-related revenue streams, enable us to return capital to our shareholders while maintaining a disciplined capital structure to support the growth of our business and continued expansion of our water recycling and infrastructure incentives. We strongly believe in the long-term earnings and free cash flow generating capabilities of our business and are excited to share the benefits of this cash generation with our shareholders. While the third quarter saw the U.S. onshore rig count increase by about 7%, completions activity continued to modestly lag during the quarter with low single-digit percent growth. Even with this disparity, we continued to accelerate our revenue wallet share on per completion basis as we saw strong demand from our customers for the integration of our comprehensive water and chemistry solutions. anticipate some modest seasonality during the fourth quarter, customer activity remains steady overall, underpinned by a solid commodity price environment. These two recent acquisitions, and breakwater especially, add additional scale and experience, further advancing Select's ability to offer innovative, integrated water and chemistry solutions. I believe we will continue to build on our recent success with more integrated offerings, along with additional long-term contracts and infrastructure development opportunities in 2023. We anticipate continual operational efficiency gains and growth opportunities from our acquisitions. And we expect to see further improvements to our financial performance, including meaningful free cash flow generation next year. 2023 is shaping up to be a very strong year for Select. With that, I'll hand it over to Nick to discuss the financial performance and outlook in more detail.