Select Water Solutions, Inc.

Greetings and welcome to Select Water Solutions first quarter 2026 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, Mr. Garrett Williams, Vice President of Finance and Investor Relations. Thank you, Mr. Williams. You may begin.

Thank you, operator, and good morning, everyone.

We appreciate you joining us for Slidewater Solutions conference call and webcast to review our financial and operational results for the first quarter of 2026. With me today are John Smith, our Founder, Chairman, President, and Chief Executive Officer, and Chris George, Executive Vice President and Chief Financial 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 selectwater.com. There will also be a recorded telephonic replay available until May 20, 2026. 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 6, 2026, and therefore, time-sensitive information may no longer be accurate at 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. Listeners are 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 10Q to understand those risks, uncertainties, and contingencies. Please refer to our earnings announcement released yesterday for reconciliation 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. The first quarter of 2026 was a strong start to the year for Select. I'd like to start with some of the key first quarter highlights and other strategic and market updates. Then I'll hand it to Chris to discuss the first quarter financial results and forward outlook in more detail. The first quarter was a great start for the year for us. We executed within or ahead of our expectations across all parts of our business. continue to add new contracts to the portfolio and are well-positioned for a strong rest of the year. During the first quarter, on a consolidated basis, we increased revenue by $19.5 million, increased adjusted EBITDA by $13.5 million, and increased net income by $11.5 million as compared to the fourth quarter of 2025. Our water infrastructure segment performed very well in the first quarter, meaningfully outpacing our guidance for the period. During the first quarter, we increased our water infrastructure revenues by 19% relative to the fourth quarter of 2025. Additionally, water infrastructure gross margins before DNA increased to 56%, driving consolidated gross margins before DNA above 30% for the first time, and to a new all-time high for the company. Across our water infrastructure network, we managed approximately 1.4 million barrels per day of produced water during the first quarter of 2026, with increases to both our recycling and disposal volumes. This resulted in a record quarterly segment revenue of approximately $97 million. Supported by the strong outperformance during the first quarter, our water infrastructure segment is well on track to exceed the high end of our previous full-year guidance. We continue to focus on maximizing the value out of our invested capital across the system with increased commercialization and contracted service offering expansion. Since year end, we have executed several new contracts across multiple basins, leveraging our existing networks to provide incremental committed volumes, tie-in opportunities, or increased produced water flows and utilization throughout our system. For example, During the first quarter of 2026, we leveraged our market-leading disposal position in the Northeast region to sign a new multi-year disposal dedication agreement with a core customer while concurrently becoming the preferred water transfer provider for this customer. In total, since the start of the first quarter of 2026, we have added three new MVCs, two additional acreage dedications, two new roper dedications, and eight new interruptible agreements to our network across the Permian, the Northeast, Bakken, and MidCon regions. While we still have a number of sizable growth capital expansion opportunities that we are targeting around our core network, I am very excited to see the progress in adding these low to no capital required commercialization opportunities. These opportunities leverage the strength of the expanding networks we have already have in place, add incremental revenue through the enhanced utilization, and further bolster the flexibility and the water balancing capabilities of the network overall. More recently, here in May, we also closed on multiple acquisitions in the Northern Delaware Basin, adding approximately 4,000 acres of surface and minerals, 30,000 barrels per day of disposal capacity, 1,800 acre feet of annual water rights, and 500,000 barrels of storage across Texas and New Mexico. We expect these acquisitions to integrate efficiently and bolster the operational and economic development potential of our Northern Delaware network, and we will continue to look for opportunities to tactically add to our footprint in the region. Elsewhere in our water service segment, we outperformed our expectation in the first quarter with a 7% top-line revenue increase compared to the fourth quarter. and remain very well positioned to capitalize on any activity uplift in the market associated with the current commodity price environment. Our chemical technology segments continue to see strong demand for new product development, both in our core friction reducer product lines, as well as our specialty surfactant product offering, which should drive strong double-digit percent revenue growth and margin uplift for the second quarter ahead. On the macro side of things, the recent geopolitical tension in the Middle East has changed the commodity outlook in a big way since the start of the year. While it is not yet clear what the long-term impacts or for the energy markets, what is very clear is that the U.S. energy industry will remain a critical stabilizer of a diversified global energy supply chain for many years to come. While we have yet to see any major behavioral changes from our customers' activity or pricing perspective, we are closely monitoring the commodity and the activity outlook with our customers and are well positioned to support any uplift in demand, whether over the short term or the long term. In the meantime, on the revenue side, we expect to benefit from higher skim oil pricings within our water infrastructure segment. Separately, on the cost side, we will work to mitigate any impacts from higher commodity prices or supply chain disruptions. Overall, I am very pleased with the performance of the business year today, and I believe we are well positioned to drive incremental growth in the quarters ahead. At this point, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Thank you, John, and good morning, everyone. Select made great strides in the first quarter, which included strong consolidated revenue, net income, and adjusted EBITDA growth. record consolidated gross margins before DNA, record water infrastructure revenue and continued commercialization wins across our water infrastructure platform, strong outperformance in water services, and a successful equity offering enhancing the company's liquidity and balance sheet flexibility. Looking at our first quarter segment performance in more detail, as I mentioned earlier, water infrastructure posted a great first quarter. We grew both our recycled and disposed volumes in the first quarter, driving revenue growth of 19% compared to the fourth quarter of 2025, and more than 33% growth on a year-over-year basis relative to Q1 of 2025. This led to record revenues of $97 million and very strong 56% gross margins before DNA, meaningfully outpacing our guided expectations. While we expect a relatively steady second quarter for the segment, with the strength of the first quarter growth and with additional projects coming online over the course of the second and third quarters, we are well positioned to exceed our original full-year guidance for the second. Accordingly, we are increasing our full-year guidance to 25% to 30% year-over-year growth for the segment in 2026, up from the 20% to 25% growth previously forecasted. We still have a strong organic business development backlog for this segment, and I'm confident in our ability to add additional contract wins across the year, both for greenfield expansion and ongoing commercialization opportunities. Switching over to water services, this segment saw revenues grow by about 7% sequentially, outpacing our guidance of steady revenues, driven by improved activity levels, strong gains in our water transfer business unit, and increased spot market water sales. Gross margins before DNA and services increased to 21.8% during Q1, a solid improvement compared to 19.6% in the fourth quarter and our guided margins in the 19 to 21% range. While we forecast a modest low single digit percentage revenue decline in the second quarter for water services, this decline is largely attributable to the non-recurrence of certain sizable spot market water sales we've benefited from during Q1. We anticipate margins to remain relatively steady at the 20 to 22% range in Q2. Overall, this segment is well positioned to participate in any activity upside and pricing opportunities that may arise with elevated commodity prices in the near term. In the chemical technology segment, both revenue and gross margins in the first quarter of 78 million and 19% were in line with our vetted expectations. Looking ahead to the second quarter, we expect strong sequential revenue growth of 10% to 15% as the business continues to see increased demand for both its core friction reducer and specialty surfactant product offerings. Additionally, margins for the segment should move upwards into the 20% to 21% range as well. We are excited about the initial results of a number of our surfactant projects, and looking at full year 2026, we do see the potential for upside to our original full year guidance for the segments. Looking back on a consolidated basis, in the first quarter, we decreased SG&A by more than 6% to $40.6 million, or approximately 11% of revenue, showing good progress on our cost reduction efforts. Altogether, we saw a consolidated adjusted EBITDA of $77.6 million during the first quarter of 2026, significantly above the high end of our guidance. largely resulting from the stronger than expected performance in our water infrastructure and water services segments. Looking forward into the second quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $77 to $80 million. Overall, we are very pleased with how our business has performed year-to-date in 2026, and with the current commodity price levels are encouraged by the potential tailwinds that could benefit our business as we look ahead to the remainder of the year. We continue to advance the commercialization and earnings potential of our water infrastructure business, and with the additional projects slated to come online in late Q2 and Q3, we expect to drive continued growth in the back half of 2026 and well into 2027 for the water infrastructure segment, which should support continued improvement and consolidated revenue and margin profile for the business. Looking at our other costs, D&A expense should remain fairly steady in Q2 at approximately $47 to $50 million before modestly ticking up throughout the year in the low 50s as new capital projects are completed. Following the recent equity offering, we were able to fully repay our outstanding borrowings on the revolver and ended the quarter with $196 million of net debt outstanding and more than $300 million of total available liquidity. Relatedly, net interest expense decreased sequentially in conjunction with reduced borrowings, and we expect interest to remain in the $4 to $6 million range per quarter in the near term. On the operating cash flow side, we had a relatively meaningful short-term drag on operating cash flow driven by increased accounts receivable. However, we expect this to largely cycle through during the year and convert back into cash in the near term. On the investing side, We spent $78 million of CapEx in the first quarter, primarily in support of infrastructure projects, with an expectation that CapEx spend accelerates during the second quarter as the bulk of our ongoing capital projects target late Q2 and early Q3 completion. As John mentioned, we also closed on multiple acquisitions subsequent to quarter end, totaling approximately $29 million. These acquisitions can be integrated into our existing networks while adding accretive cash flows, attractive asset diversification, and enhanced future development potential. Following the recent project wins and acquisition integration expectations, we now expect $200 to $250 million of net CapEx in 2026, up from $175 to $225 million. We maintain our expectation of $50 to $60 million of this CapEx going towards ongoing maintenance and margin improvement initiatives this year, While we continue to capitalize on the growth opportunities in front of us, we believe we are setting the stage for strong long-term free cash flow generation as we look into 2027 and beyond. Outside of the sizable growth capital outlays, our business maintains a very maintenance-like capital model, and we have significant free cash flow generating capabilities and flexibility to manage this maintenance spin in accordance with market conditions without impacting our operational performance. In summary, The financial, operational, and strategic results of the first quarter of 2026 demonstrated significant progress in our ongoing business evolution, and we are excited to continue building on these financial results and strategic successes. With that, I'll hand it over to the operator for any questions. Operator?

Thank you. We will now begin conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question from the line of Jim Rolison with Raymond James. Please go ahead.

Hey, good morning, guys, and congrats on a really nice quarter. I guess not to take the spotlight away from water infrastructure, but as we've seen this oil market kind of turn pretty remarkably post-Iran conflict here, obviously I've heard a lot of commentary from other U.S. land OSS providers about prospects for getting things getting better. And you guys have kind of suffered through going on four years of impact there, especially in water services and to some extent chemical technology. So we'd kind of love to hear your thoughts about, you know, what you see out there for prospects of that ramping up over the back half of this year, just kind of given the market shift here.

Yeah, Jim, this is John Schmitz.

I would, you know, logically, most of water services now have a big exposure to completion activity. It really relates to our water infrastructure, but, you know, moving water to the completion job is a big piece of our capture as well as the, you know, the friction reducers or surfactants that we're building for the frac chemistry. in the chemical side. We are having conversation now and we are hearing from the market that the commodity price that we all watch ramp and the effects of that, they are pulling both the intensity of which they're completing the wells or bringing new oil online uh, starting to, uh, have those conversations or see that effect as well as we would also say that, uh, we're, you know, we're also seeing, uh, you know, customers that, let's say they had four frack crews running, they were going to drop one in the second quarter. They're not dropping it now. They're keeping four running or, you know, uh, Whether it's through the horsepower of the frac company or through our customer base in the E&P side, we are hearing of adding more frac crews. We do believe we'll have some intensity from the macro, probably first to see something pull forward, get it to market faster, or the intensity of adding to the volume. or repairing the volume and refracting or just making sure the oil is still being produced and sold.

And maybe to just add on top of that, Jim, I'd say from a financial perspective, we're certainly going to be, I would say, looking for a close dialogue with our customers on an ongoing basis here to see what the outlook looks like and whether that, if activity gets pulled forward, whether it stabilizes on a through cycle basis through the end of the year and what the impact is on, you know, customer budgets and the outlook. I'd say for, you know, the chemicals business, you know, we're guiding the, you know, pretty strong, you know, double-digit growth in the second quarter here. And that's, you know, absent, I would say, any material uplift in activity. It's really driven by the intensity of what's going on in that business. And so, you know, based on the numbers we're putting out in front of you, we're not, you know, we're not taking an aggressive outlook on the activity framework here. But, you know, whether it's services, whether it's chemicals, or whether it's the pull forward of volumes getting onto the infrastructure side, you know, we're taking, I would say, a pretty sober approach to what the macro outlook looks like. But we're well positioned to capitalize on any uplift in activity or any pull forward or hopefully, you know, also the potential to stabilize or look at pricing opportunities as well, particularly on the services side.

Yeah, it would certainly be amazing to see everything move in the same direction for a change. Um, maybe Chris, this is a follow-up. I don't, I don't want to get too far ahead of things here, but if I kind of take your first quarter numbers, your second quarter guidance, and obviously the implied pickup from incremental projects that start up in the second half, it kind of seems like you're on a pace to maybe have a exit run rate, even DA somewhere approaching the mid 300 million range. Am I doing my math right there?

Well, you know, we're certainly not putting in any formal guidance out yet on, you know, on the back half or into 27. But what I would say, Jim, is that with the strength of Q1, you know, the opportunity set in front of us, you know, we certainly see growth in the second half of the year. You know, it would be good to see how some of the macro settles out every day as a new day right now as you see this morning. But the projects, they're going to come online in late Q2, Q3, are definitely going to provide uplift into the third quarter. A little unclear what Q4, you know, is going to look like. But as we put a run rate on that heading into 27, I mean, you're well positioned to see good, solid, you know, additional double-digit growth on an infrastructure basis looking into 2027. And depending upon the outlook on the services and chem side, are going to be well positioned to see that You know, that EBITDA push, you know, push towards, you know, levels like you're describing. The earnings capacity of the business is certainly pushing towards that. And we're going to continue to hopefully add to that with new contracted opportunities over the next couple of quarters as well.

Appreciate all your thoughts.

Thank you. Thank you. Next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Hey, good morning, guys, and thank you for taking my question. First, I wanted to ask on the new Northern Delaware Water Supply and Takeaway Agreement, you know, reading the presser and listening to the prepared remarks, it sounds like a highly accretive bolt-on opportunity that you probably want given your footprint that you already had existing there. Am I thinking of that right? And if so, could you just give some more framework of how to think about how accretive this could be and maybe a little bit more color on how that win came about?

Yeah, certainly good read through on that, Bobby. I think the thing about the first quarter was most of the commercial opportunities we brought to bear around the infrastructure side of the business are pretty low capital to some of them even no capital opportunities in terms of adding incremental you know, volume flow through the system over time, whether it's on an NBC basis, a dedication basis, or just adding additional commercial potential around interruptibles. So, you know, from a capital deployment perspective, we're talking about, you know, something less than likely $5 million on an aggregate basis across all of those commercial arrangements. So it's very much leveraging the existing invested capital or ongoing build-out that's already been underwritten for that footprint. And we're pretty excited about adding on to that with these additional commercial development opportunities. There still are some larger capital projects that are in the backlog and some on a more greenfield basis. But to the extent we can start rolling into the ROFR cycle here or adding on on a brownfield basis or a tie-in basis and underwrite those with committed capacity, it's a great outcome from an accretive you know, add on to the system.

Got it. And then just one follow up there is, I think you guys have talked about the cash on cash returns of kind of greenfield opportunities, like three to five years, maybe is the number you said, I think what you've put out before. Is that a shorter timeline on these more tie-in opportunities?

I'd say on the tie-in side, Bobby, it can certainly have an accelerated timeline given the strength of the existing footprint in the capital we've already invested. From a Greenfield project underwriting framework, you're correct. Generally targeting that four-year cash on cash is still kind of the base framework. And we do still have some of those chunkier opportunities ahead of us that we're looking to get to the finish line. But as we continue to roll new capacity onto the system or new volumes onto the system, every barrel is an incremental accretive barrel from a margin standpoint and a return on capital standpoint. And so some of these ROFR executions could look like something more in between what you're describing, Bobby, and a traditional greenfield buildout where you are adding capital to the system to build out, grab new geography, but doing it under a base dedication or base row for dedication within the current footprint.

Got it. That's super helpful. And just other one last for me is obviously there's been a ton of news and movement about data center developments in West Texas and most facilities. And if those facilities use evaporative cooling, they're going to need a ton of water, which is obviously a specialty of yours. And so with that in mind, was just curious to hear your thoughts about how your business and expertise might lead to opportunities within that build out in West Texas and if that's something on your radar and just general thoughts there. Thank you.

Yeah, it's a great question, Bobby. It's very much something on our radar. I don't have anything specific to convey today, but we do have a number of active and ongoing dialogues in that space. both on a water solution side in terms of the source water needs for some of these projects, as you described, but there's also application of support around services, rentals, power, other things that all are part of the core business or ancillary to the business. There's a waste stream application of management as well. So we're pretty active and engaged in understanding the marketplace, and there will be, I'd say, a critical need for water solutions because water can be a gatekeeping item to getting some of these projects to the finish line. And so I think folks are pretty focused on it.

Terrific to hear. Thank you for the time and congrats on the great quarter.

Thanks, Bobby.

Thank you. Next question comes from the line of Derek Podhazer with Piper Sandler. Please go ahead.

Hey, good morning. Maybe to kind of keep going on that line of questioning, just coming at it from a different angle, just overall M&A and looking at your portfolio and thinking about optimization. First off, peak rentals, right? You kind of mentioned power in your response, and I know you stood this thing up, your ring fenced it, you're feeding it a bit of capital. So first, maybe let's start there on an update of how we should think about peak rentals moving ahead. And then maybe just Separately, the portfolio optimization and feeding growth projects like, you know, your friction reducers and surfactants, and if you have the right footprint today to capture those growth tailwinds, or could we see some potential bolt-on opportunities for that as well?

Yeah, this is John. Yeah, I appreciate the conversation around peak and the question, but, you know, what we would say is there was really no material change yet that we – that we're ready to express here. But we're still very actively evaluating all opportunities around it. The course of direction has not changed. The efforts in which we're applying has not changed. And so that's still very much like the last time is where it would be. On the opportunity set, I think some of the Some of the acquisitions we just announced tells you the opportunity sense in some sort, which is really what asset base is there out there that is an enhanced value to that asset base if it's part of this network. And the network is very different than any other network because it's really built around recycling first. So if you just think of the ability to have dual lines, so a a distributing line to be able to get fracked fluids to where it's going to be needed, or a gathering system to bring that barrel into the recycling facility or expose it to the ability to dispose of that barrel. There's assets that really fit that network in a meaningful way, and the way that thing is dual-purposed and built of size, it really enhances the value of that asset when we bring it into our network. It's got a big effect.

And I'd add to that, if you look over the last year, we've continued to focus on what adds value, what helps us drive incremental return profile to the footprint. So we've looked at things that might have historically been a bit more tangential around the solids management side with the landfill opportunities and solids treatment opportunities last year, looking at the surface application of what's underneath the infrastructure we're deploying. and building out, looking to add disposal capacity to both ask risk management profile and additional growth and committed capacity potential to the system. So anything that fits the profile of how we're approaching growth around the asset, full life cycle and waste stream management, supporting the customers on their needed solutions, we're going to focus on all of those things. And I think there's still a good opportunity set around them. To your question on the chemical side, There's, I would say, Derek, a very good opportunity set in front of us, and we can execute an action upon that in a pretty meaningful way with what we've got, whether that's the existing manufacturing base that we have in base in the Permian, the existing R&D and lab capabilities, the product lines, and the pilot efforts that are already underway, and some of these new projects and product development wins we've had. I think we feel pretty good about the opportunity set to drive further growth there. And even if we get to the point where capacity becomes a consideration, we've got ability to flex up and add capacity to our existing footprint out in the Permian or alternatively supplement out in East Texas and do so in a way that's pretty capital efficient given the current footprint we've already got in place.

The other thing that I would add to the chemical side of it is As Chris expressed, we can expand the throughput in a meaningful way in our plant capacity, but we also have a very unique position to be able to service the customer in the delivery of that chemistry and the management of that chemistry throughout the fracking process. That is localized. It is a very good footprint around a local manufacturing plant. So it really gives a value to the customer or a leverage to us to be able to win more business or, you know, expand that throughput capacity that Chris talked about.

I really appreciate the color, guys. Maybe switching just through to just, I guess, really the capital outlook here for the business, right? I mean, you upped CapEx this year, completely understand, just given some of the acquisitions you made and some of the needs for capital. But Chris, I think in your prepared remarks, you talked about the company really being set up for free cash flow generation 2027 and beyond, just given the growth outlook. So maybe just help us understand the interplay of You did the equity raise. You have, I think, $300 million of total liquidity. You're getting pretty good free cash regeneration out of services and chemicals. How should us and investors really think about the long-term free cash regeneration of the business, thinking about capital and maybe conversion down from EBITDA? Just help us understand that a little bit more, just given that's an exciting growth outlook for you guys.

Sure. It's a great question and obviously something we think about every day from a capital allocation framework perspective. You know, I think importantly the base maintenance needs on the business are pretty light. So, you know, looking at something like $60 million of maintenance capital on the system with a solid weighting towards the services side of the business there is a pretty a pretty effective position for us to be able to reinvest in the business efficiently. Obviously, last year and this year, we're focused more on the reinvestment side, and we continue to have a good profile of backlog opportunities that we're excited about getting to the finish line. So we think that the build cycle is ongoing and has an opportunity to continue, and we'd be excited to add to that. So the base CapEx guide and the uptick here this quarter could that translate into something that looks more like last year from a capital deployment profile than that current guide if we execute on additional contracts? That's very well a possibility here. As we look forward into 2027, we think we're driving solid incremental growth, as Jim questioned on, and what that earnings power is going to also do to drive incremental free cash flow generation. So as we look forward into 2027, we think the opportunity sets Still got some backlog opportunity to it. The growth of the earnings profile continues to move upwards as well. So, you know, both of those moving in tandem is still going to generate excess, you know, free cash flow opportunities. The margin profile of that infrastructure business is very well suited to generate very strong free cash flow on a through cycle basis over the longevity of these contracts we're putting in place. And so as we look forward to the back half of this year, I think it's more likely than not we continue to get opportunities to the finish line as we look forward into 2027. We think that capital deployment program is probably going to have a bit more maturation to it, particularly in New Mexico. But even if we're able to continue to add on opportunities, you're going to grow the earnings profile, grow the free cash flow profile, and start to generate those incremental dollars that you can make good discrete choices with. But, you know, as we've said before, the services and chemicals businesses generate, you know, solid 70% to 80% free cash flow generation out of the gross profit in those businesses. And infrastructure on a, you know, stable, you know, low growth basis should provide something, you know, similarly competitive. Right now, we're just focused on how to continue to reinvest and drive that growth like we saw in Q1, and we're expecting to see them back after the year.

Great. Appreciate all the comments. I'll turn it back. Thank you.

Next question comes from the line of Don Crist with Johnson Weiss. Please go ahead.

Good morning, guys. I know you've answered this in a couple different ways, but I'm hearing specifically in New Mexico that the EMP operators were going to drop frac crews because of natural gas takeaway issues and the lack of flaring opportunities. And I just wanted to explore that a little bit and see if, number one, you're hearing that, but number two, if those operators are now keeping those frack crews because of higher oil prices and that could set up a significant uplift in volumes across your system once the natural gas takeaway pipelines come on, you know, in the fourth quarter or first quarter of next year and and that could drive significant higher volumes across your system. Just any comments around that? Because I'm hearing that more and more lately over the past couple weeks.

You know, Don, obviously we're all looking at the new capacity coming online later this year, looking into next year as a needed solution. You know, I would say based on the customer dialogues we're having, nothing's given us any indication that we've got any meaningful changes change in outlook expected due to NatGas takeaway concerns. The capital programs that we're talking to our customers about, the schedules that we have that we're building into to bring assets online over the next couple of quarters, there's nothing that gives us any indication there's any change expected there. If anything, there's probably more of a question around what's the commodity profile look like and how do you address the opportunity to maximize the potential around that current commodity outlook. So not to say that we're not thinking about it and focused on it and paying attention to what the customers are looking at out there, but that's the current lay of the land. But, John, anything to add? You know, Don, I would mention a few things.

One is those interruptible opportunities that keep ringing the phone. That's in that area. So that has really turned into a strategic ability to capture that work because of this network we put together. We thought it showed now, and it's pretty meaningful. The other one I would tell you that one of the things we do get out of the operators is what can they do with that gas differently than what they're doing today, whether it's in the movement, whether it's in heat-related application, whether it's in power generation application, is help us think about what we can do with it differently than what is being, you know, what we're challenged with as it sits, but not to the tune that we're hearing from our operators that they're going to slow down their programs.

I appreciate that. And I know you don't like to talk about things before they are fully baked and ready to go into guidance. But on this data center opportunity, you know, obviously one of your main competitors is talking about how big it could be. Do you see the data center opportunity on the water side being a significant opportunity for many years to come, signing long-term contracts, et cetera, like some of your competitors are seeing it?

What we do see is our position in the Permian we think is a very unique position. And our relationship between our service business units and our infrastructure business unit is a very positive way to address what they're asking us to address. And yes, we are having the conversations around water. But we would also tell you that we're having conversations that this company was really built on the skill set and the knowledge base of how you procure water, treat water, move water, store water, recycle water. But it's also built on doing intense operations in remote areas. We've been pulling off stuff. in meaningful ways and take us for a long time, well, Pampa ain't much different. It just really came to the fore that we can support the efforts in a different manner because of the way this company was built and the skill set that's in it, Don.

I appreciate all the color. I'll turn it back. Thanks, John and Chris. Thanks, Don.

Thank you. Next question comes from the line of Nick Armato with Texas Capitol. Please go ahead.

Good morning, all, and congrats on the strong quarter.

On the disposal and service agreements in the Northeast, can you provide some color on the structure of the agreements and the potential revenue uplift you are expecting? Additionally, could you provide maybe a brief overview of water handling needs in the basin and how they compare with the broader Permian complex? as well as potential for additional agreements similar to this going forward?

Yeah, I'll jump on that, Nick. So very good question. We're actually quite excited about the opportunity set in the Northeast. We are the largest traditional disposal provider in the basin. It is a challenging market environment to operate in, just given the regulatory complexities across multiple states and the geography. That contract that you mentioned was a very good one for us on the back of one that we executed on late last year where we added a large transfer dedication on top of an infrastructure relationship. This was another great one to add on that water transfer relationship scope in tandem with negotiating a commercial framework around a sizable disposal dedication. So we were pretty excited to get that one to the finish line. able to leverage the strength of that leading disposal position and the asset and market share capacity we have in that basin to continue to engage in dialogues like that. We're pretty excited about the opportunity to continue to add that relationship between services and infrastructure in any of these areas where we've got strength of service and infrastructure scope overlapping. I would say in the Northeast more broadly, that's a basin we really like the potential around. We've talked about the gas markets a little bit in the Permian, but I think more traditionally, our leading footprint in both the Haynesville and the Northeast provide pretty meaningful upside to us for gas market demand over time. And so we feel very good about that Northeast position. We've added assets to the basin. over the last year as well, and it's one that we think that there's good opportunities set on to continue to grow and enhance that already market-leading position. Similarly, you know, in the Hainesville. I'd say from a market dynamics perspective relative to the Permian, it's a different type of need of solution versus the Permian. The scale of the problem in the Permian is just fundamentally different, given the size of the production scope, the size of the water problem in terms of the volumes and the intensity of of the fracks and the bench depths and everything else that comes with the Permian. But we very much are going to continue to focus on the opportunity set across all of our footprint. And as you saw here, we added new contract scope across four basins. And so you'll continue to see our capital priorities wade toward the Permian, but we think there's a good opportunity set elsewhere. John, anything to add?

Yeah, just a couple. It's not necessarily just directly to the Northeast, but if you look at the history of Select, where we've been able to apply the last mile logistics or water transfer along with our water infrastructure for quite a few years now, we've always gotten better margins out of the service side of it. And the reason is because those two things together brings real value to our customers. And the ability to share some of that value is meaningful to us in the service side. The other side, I'd tell you, if you ask the relationship to the Permian that Chris was talking about, the Permian is really very focused on recycle first, the value add, how can they balance water. And if you're recycling produced water, that means your water transfer has to be built around transferring that produced water to the frac site. And that is a different skill set than transferring fresh water to the frac site. And selects tidelines, selects automation, selects interaction with that infrastructure, brings meaningful value to our customers, and we should be able to pull a portion of that value as we bring that along by bringing those two segments together.

Perfect. Maybe shifting over to the municipal business, could you offer some color on how that project's progressing? And then also in light of the stronger commodity environment, how do you think about opportunities like this relative to some of the more traditional oil and gas related ones?

Yeah, I'd say on the base project up in Colorado on the municipal space, no material updates at this point other than we continue to see good progress in marching that towards the original expectation of getting contracts in hand by 2027 and putting that incremental capital to work. So still feel like we're moving the right direction. It's a slower development cycle working with municipal counterparties than traditional oil field counterparties. And similarly with some of the other industrial opportunities in the region as well. But still feel very good about the position and the potential to get something moving by 2027 and and we'll keep working on that. As it relates to capital allocation choices between that diversification opportunity set versus the core potential in the energy industry, I don't think our view has really changed. We want to continue to focus on the right return profile, how we add stability and contracted stability to the business over time. We're going to focus on the competitive return profile amongst all of our growth opportunities, but, you know, we're definitely focused on getting this one done. There definitely are other opportunities that we're going to be spending time on along the way, but we're not going to have them, you know, conflict or limit our ability to develop what is a very attractive opportunity set in the core business today, and we're continuing to see that, you know, you saw here in q1 and some of the larger opportunities we're looking to get to the finish line over the course of the next uh next couple of quarters this year so very much a growing opportunity set um you know across the business whether that's industrial or municipal uh opportunities around that that colorado project data centers or elsewhere as we look at beneficial reuse as another technology application that's going to bring fresh water to market over time, you know, that's something that lends itself towards a diversity of potential, you know, consumers, whether that's the base, you know, industrial demand around the oil field or whether that's other opportunities. So, you know, either way, they should move in tandem, particularly as beneficial reuse progresses over the next couple of years, and we'll be focused on the right return profile across that full opportunity set.

Perfect. Thanks for taking my questions. I'll turn it back to the operator. Thanks, Nick.

Thank you. Next question comes from the line of Jeff Robertson with Water Tower Research. Please go back.

Thank you. John, given some of the comments around free cash flow growing into 2027, can you just talk a little bit about your thought process around returning cash to shareholders through the repurchase program and the common stock dividends?

Yeah, I do believe, I think Chris leaned into this, what we are building is really a low maintenance capital required business. And as the growth capital matures, the systems, the networks, the growth show, we do have a very strong opinion that we are building a company that is built around repeatable predictable and dividends will be a part of the capital allocation and the growth of that dividend. We're probably by nature more of value takers when it comes back to stock buybacks. If you look at when we really spent the money, it's when the stock got you know, affected by the banking crisis out on the West Coast, and we took advantage of that. But we do believe we are building a company that will be able to focus on regular way dividend and capital allocation decisions. We also believe that, yeah, the – the infrastructure growth that we're building in Eddie and Lee and different places across the United States as we come up with opportunities that are very attractive in building these networks in the oil and gas space. We actually believe that our skill sets in and around water really open up opportunities in addition to that. So I don't think the growth is going to disappear on us. I think those opportunities are still going to be there. And, you know, the contractual nature and the high gross margin and the, you know, the good rate of return, I believe, will show up within our skill sets around water.

Yeah, and maybe just wrap on that, Jeff. You know, whether it's looking at the base dividend and the potential to grow that over time, whether it's adding stability through cycle in a historically cyclical industry, or whether it's thinking about diversification of industry scope. I mean, all of those things lend themselves towards more repeatable, predictable, you know, cash flows over time. Whether that's looking at the balance sheet structure or shareholder returns, either way, you're going to have different choices as we continue along this strategic transition, and we're focused on what that right, you know, right structure looks like over time. As John said, we'll continue to be tactical in our view around the ability to repurchase shares in and out of excess free cash flow. But as we look forward to generating incremental free cash, we're going to make the right choices and have the right balance between growth and shareholder returns. But obviously, for now, we've got a great growth opportunity set in front of us, and that's what we're focused on in the immediate term.

Thanks, Chris. One question on the assets. The Black River Ranch and the surface acreage in New Mexico, can you talk about how that fits into your Delaware Basin system, John or Chris?

Yeah, I'll start and John, feel free to add on top. When we're looking at the full footprint build out of what we're doing in New Mexico, we look at all the opportunities to get value out of that footprint. So the That surface position is effectively overlapping with our existing infrastructure build-out. So the ability to utilize right-of-way and easement access across a piece of owned surface is obviously accretive to the cost structure of the business. The ability to utilize that surface to develop incremental capacity, whether it's storage, whether it's disposal, whether it's recycling, all provides opportunity to the footprint if we can add accretive returns through some some royalty structures or mineral structures along with that surface, that's a good high margin opportunity for us as well. So when we're looking at what best fits the profile of the build out of the system, we're looking at all these opportunities and we're going to continue to find these along the way. And if we can do so in a manner that provides very clear strategic benefit to the build out of the core strategy or gives us leverage and

Opportunity to develop something new and we'll continue to look at opportunities like that John anything that I you know the the one thing I'd add is that whether it's a in opportunities we're finding by buying surface and and Being able to harvest royalty or position out of that surface What we are for sure finding in a meaningful way is is that the asset base of the company, whether it's the water itself, whether it's the location, whether it's surface owned, whether it's the network of pipe, we're finding ways now that we can take repeatable high gross margin or full gross margin loyalty type revenue into our existing company today to increase the margins or have a different type of of income stream than a typical service company had. And it's becoming more and more apparent as we build out this network or buy this surface or create the relationship between waste stream management and fluids management.

Thank you. Thank you.

Next question comes from the line of John Daniel with Daniel Energy Partners. Please go back.

Hey, John and Chris. Not sure if this has been addressed or not, but I'm just curious, with the market getting heating up a bit, what are the opportunities right now for you guys to talk to customers about incremental pricing opportunities? Are you having those yet?

Yeah, first of all, you know, John, as you mentioned, you know very well. There are certain conversations that you have to have because there's an effect on your business as it relates to the procurement side. And some of that's built in, some of it's not. But I would say those conversations are very active, they're not lagging, and they're well received. I would not say they get a lot of pushback. Okay. As it relates to price, What we find is that while we can bring value and we can demonstrate value, that the price conversations with the customers that are trying to do more with less with better results are conversations they love to have and they will give you price and they will share in that value that you bring. And we find very good success there, John.

Yeah, and I'd add to that, as John mentioned earlier, when you can integrate that service capability with the infrastructure relationship around the contracted barrel, it's always a more productive outcome for us on a margin profile basis, and it can also have a benefit on the revenue basis as well. And then furthermore, if you're thinking about something like chemicals, the push into some of the higher margin specialty application of product, whether it's on the FR side around the intensity of what's demanded right now, or whether it's the, I would say, the more specialty application of surfactant development around the reservoir rock, the matching of that with the chemistry and the quality of the water along with it. That's just a fundamentally different solution, and we're going to be able to price that in a manner that's more effective because at the end of the day, it's helping the customer create more oil production out of their reservoir, and we can share in the benefit of that uplift.

Can you remind me roughly what percent of your business you would characterize as spot and therefore opportunities to incremental pricing later this year?

On the services side, John, you're going to have some integrated pricing relationships with your infrastructure contracts. You're going to have some relationships that are more medium or kind of Pat or well program defined, but I wouldn't say there's any expectation that there's not going to be an ability to be responsive to the market conditions and the need of the industry's application for service. So nothing that's going to be limiting in our ability to capitalize on the market opportunity set in any meaningful respect. And so obviously on the infrastructure side of the business, you've got more defined long-term contracted structures there with with frameworks that get us great outcome and great return profile regardless of market conditions. But John, anything to add to that?

I guess the one thing I'd say, John, is we have experienced, we've all experienced this, that the market has become such intensity and 24-hour operations that a schedule and planning and engineering of jobs have become more and more important. So even our call-out business, one, it's probably going to have pricing arrangements around it. It's going to have MSAs around it. It's going to have contractual relations to our infrastructure around it. So that's changed some. But I would tell you the biggest thing that changed in the industry, it's just become mission critical. in what we do and how we do it now that brings value to the customer. The ability to take the phone call and execute a call, I mean, execute a job inside this business is still very much intact, John, and if it torques up, we can take the call and we can make the money. But, boy, it has really changed in planning and engineering and execution and, you know, the ability of not having that downtime.

And one thing I might add further on the infrastructure side of the business, the real, I would say, mover there is really in this type of market environment is something like skim oil. We generate a good amount of skim oil out of that infrastructure footprint. And so any uplift in the commodity price in the short term or medium term, if it becomes more stabilized is something that gives us upside opportunities. We continue to extract incremental oil barrels out of that footprint, whether it's through recycling, disposal, or solids. Either way, you're in a position to capture oil, and that's a good opportunity set for us to move up with the spot market oil pricing. And then I'd say, furthermore, the ability to be responsive to the market's need for reused barrels versus disposed. You know, the more we can reuse that barrel versus put it down whole and get rid of it, the more opportunity we have to maximize the revenue and the value stream out of that, you know, barrel potential. And so, you know, obviously it's a good market environment to potentially do that.

Got it. Okay. Well, thank you for including me.

Thank you.

Thanks, John.

Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to John Schmidt for closing comments.

Thanks to everyone for joining the call. We appreciate your continued support and interest in learning more about select water solutions.

We look forward to speaking to you again next quarter. Thank you.

This concludes our today's teleconference. You may disconnect your lines.