Select Water Solutions, Inc.

Greetings, and welcome to the Select Energy Services First 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. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Chris George, Senior Vice President of 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 Select's conference call and webcast to review our financial and operational results for the first quarter of 2023. With me today are John Schmitz, our Founder, Chairman, President, and CEO, Nick Zweika, Senior Vice President and Chief Financial Officer, and Michael Starkey, 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 May 17, 2023. 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 3, 2023, 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 today. 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 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 Schmitz.

Thanks, Chris. Good morning, and thank you for joining us. I am excited to be discussing Select again with you today. The first quarter saw a strong recovery from a challenging fourth quarter, with revenues growing 9% and adjusted EBITDA growing 29% sequentially during the quarter. We benefited from a solid quarter contribution from our recent acquisitions and also saw organic revenue growth during the quarter across every segment. This successful combination of factors led to a company record quarterly revenue of $417 million for the first quarter. Additionally, we nearly doubled net income to $14 million while adjusted EBITDA increased to $67 million. Across our individual segments, we once again achieved record revenues in both our water infrastructure and chemical segments, while our water service segment continued to improve margin through operational efficiency improvements and technology initiatives. Water infrastructure was especially strong, seeing revenue growth of 32% for the first quarter. This segment benefited meaningfully from a mix of factors including our recent acquisitions, the increased utilization of existing assets, and new greenfield and brownfield organic project contributions. Water services also saw a solid 5% revenue growth in a flat activity environment and continues to find efficient ways to improve its operations and grow market share. As importantly, we increased gross margins across the board, with each segment seeing at least a 200 basis point increase in margins, relative to the fourth quarter, and nearly 500 basis points of improvement in each segment related to the first quarter of the prior year. Looking forward, while natural gas has seen some challenges, we continue to believe that the current commodity price outlook remains supportive of a productive activity environment for our customers, with mobile service assets leading technology and strategic infrastructure across every basin, we expect to see modest revenue growth across the business and a lot of opportunity to generate incremental operating efficiencies, driving margin improvements across the board in coming quarters. We continue to have great success at further developing the broad infrastructure asset base we've built and acquired over the last couple of years. This quarter was no different and we've advanced a number of highly accretive projects in recent months. During the first quarter alone, we've added, through acquisitions, about $10 million of additional infrastructure that integrates seamlessly into our core Midland Basin assets. We also contracted or commenced more than $34 million of greenfield and expansion projects across the Midland and Delaware Basins and the MidCon, Hainesville, and Rockies regions. These projects are each backed by long-term contracts supported by minimum volume commitments and acreage and wellbore dedications. We continue to see strong interest from our customer base around contracting new additional infrastructure projects, particularly around full lifecycle recycling and reuse solutions And we see a number of opportunities for additional growth this year. Our unique ability to provide integrated water and chemical solutions in tandem with contracted infrastructure continues to bring value to our customer and differentiates our value proposition from our competitors. Our recent development successes and deep project backlog should provide for continued growth not only in the second half of 23, but well into 24. The additional stability provided by these initiatives, acquisitions, projects, and contracts gives us a great optionality in our capital allocation strategy. Accordingly, I am pleased the Board of Directors has reactivated our share repurchase program with an additional $50 million authorization. This gives us a total authorization of $58.5 million when taking into account the remaining $8.5 million left on the prior authorization. I believe this targeted repurchase program provides an attractive incremental return opportunity for our shareholders and great supplement to our existing base dividend program. We will continue to build and enhance our solid track record of returning capital to our shareholders as a component of our overall capital allocation framework. Our revenue and profitability continue to improve during the first quarter, and I'm very excited about the growth capital projects and shareholder return opportunities. Another extremely large opportunity for the company at this point and one that we are extremely focused on addressing is the excess networking capital that has resulted from the pace of our recent opportunistic M&A activity. We have dedicated significant internal and external resources to our ongoing systems integration efforts and our ERP project implementation. I'll let Nick speak to this in a bit more detail, but we are firmly focused on these initiatives and others to unlock a meaningful amount of cash during the second half of 23 that has otherwise been backlogged on the balance sheet in recent quarters. Converting this excess working capital from accrued revenue assets into cash is capable of fully repaying our recent ABL borrowings and funding our new projects and shareholders' returns. Our business is clearly capable of producing significant free cash flow, and we remain committed in our belief that we should harvest two-thirds of our adjusted EBITDA into free cash flow. On the rebranding front, We continue to make progress in our efforts and anticipate fully doing business under the new brand this summer. As a reminder, during the first half of 23, Select intends to change its name to Select Water Solutions, Inc. We will remain traded on the New York Stock Exchange under the stock ticker WTTR, embracing our heritage as Water First Company. For now, our corporate and financial segment reporting structures are not changing, but we will continue to evaluate how we best simplify our communications with our customer and our external reporting with our investors to ensure that we are conveying our message efficiently and receiving maximum value and brand recognition for our capabilities and technologies across the entire platform of our operations. This exercise will also support our concentrated working capital improvement efforts by significantly streamlining our brand architecture and improving our customer billing process and capabilities. Importantly, this initiative also prepares Select for the years ahead as we continue to advance our strategy to become the leader in sustainable water solutions within traditional energy while also supporting the new energy transition and accessing diversification opportunities in water sustainability and full water waste stream management down the road. Select is uniquely positioned to provide the critical solution at advanced water sustainability efforts for our customers and the energy industry as a whole. We are well suited to drive emissions reduction and reduce the environmental impact of the industry through further pipeline infrastructure development, which reduces truck-based fluid transportation. However, more critically, Select is focused every day on solving the highly localized and tangible problems of clean water access and waste stream management in our local communities in which we operate through our water recycling capabilities. Last year, we recycled more than 7 billion gallons of water, and with our recent and ongoing investments in new recycling facilities, we anticipate these recycled produced water volumes to meaningfully increase again during 23. Importantly, these recycling activities meaningfully reduce the waste disposal needs required and increase the fresh water availability to our local communities that need it. As we continue to progress these key initiatives, I encourage listeners to be on the lookout in the coming weeks for SELECT's 2022 Sustainability Report for additional details on Select's commitment to sustainability in support of all our stakeholders. And thanks to our recent acquisitions, advanced chemical technologies, organic infrastructure growth opportunities, and our other strategic investments, I expect to see continued revenue, EBITDA, and net income growth in 2023 and beyond. I am very excited about what the future holds for Select and look forward to further executing on this vision through additional profitability growth, shareholders return, and strategic execution in the coming quarters. Now I'd like to turn it over to Nick to provide more details on our first quarter financial performance, our second quarter and 2023 outlook, and other ongoing initiatives. Nick?