Select Water Solutions, Inc.

Greetings. Welcome to the Select Water Solutions 2026 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. Please note this conference is being recorded. I will now turn the conference over to Garrett Williams, Vice President of Corporate Finance and Investor Relations. Thank you, Garrett. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for SelectWire Solutions conference call and webcast to review our financial and operational results for the second quarter of 2026. With me today are John Schmitz, our founder, chairman, president, and chief executive officer, Chris George, executive vice president and chief financial officer, Michael Skarke, executive vice president and chief commercial officer, and Mike Lyons, executive vice president and chief strategy and technology 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 August 19, 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, August 5, 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 Selects Management. However, various risks, uncertainties, and contingencies could cause our actual 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. 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 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 second quarter of 2026 was a very strong quarter for Select. I'd like to start with some of the key second quarter highlights and other strategic and market updates. Then I'll hand it over to Chris to discuss the second quarter financial results and the forward outlook in more detail. In the second quarter, Select delivered strong overall performance across all three operating segments, with both our water infrastructure and our chemical technology segments producing record revenue and gross profit in the quarter. During the second quarter, on a consolidated basis, we increased revenue by 8 percent, increased adjusted EBITDA by 19 percent, and more than double net income as compared to the first quarter of 2026. Our water infrastructure segment outpaced our guidance for the period, delivering another quarter of revenue growth and margin improvement. Increased produced water volumes and improved skim oil recovery drove record quarterly revenue of 102 million for the segment in the second quarter. This results in 26% year-over-year growth in revenue for the segment relative to the second quarter of 2025, demonstrating the significant progress we've made with our water infrastructure growth strategy. We expect to see further growth in the third quarter, and we are well on track to achieve the upper end of our 25 to 30% full-year growth guidance for the segment. setting the stage for additional run rate growth looking into 2027. While much has been accomplished, we continue to find new opportunities, both large and small, to further enhance the long-term potential value of our Northern Delaware network. We added several MVCs, acreage dedications, and interruptible tie-in agreements during the quarter. while also executing a new mineral extraction agreement with a new strategic partner for iodine extraction across the portfolio. Importantly, during the second quarter, we executed a new seven-year agreement with a large public operator in the Northern Delaware Basin supported by a sizable 128 million barrel MVC contract. This agreement also includes included the conveyance of a portfolio of underutilized but strategic SWDs across Eddy and Lee Counting, New Mexico. We intend to tie these SWDs into our existing water infrastructure network, and the full project associated with the large NVC award is expected to cost approximately $25 to $30 million and to be operational within the next 12 months. The conveyance of these SWDs was largely enabled by the historical success of the full lifecycle water management solutions we've developed in collaboration with this operator, which increased their recycling volumes and decreased the utilization of their own operated disposal wells in the Northern Delaware. This reduced the operator's need for owning disposal wells in the region. This speaks to the value our integrated recycling and disposal infrastructure network brings to our customers, and more broadly, to the Northern Delaware region. Ultimately, the customer views this disposal capacity as more valuable to them as part of Select's broader commercial platform than part of their own internal system. Select's comprehensive water management framework allows us to take a basin-wide approach to produce water disposal, treatment, and supply to unlock value across the Northern Delaware Basin, and I believe there will continue to be opportunities to acquire existing assets that are scalable and synergistic with Select's ongoing organic infrastructure build-out. Water Management is mission critical to the energy industry and disposal remains an essential part of a comprehensive water management solution. We are proud of the increasing collaboration and commitment from our customers to grow our full lifecycle and cost advantage solution in partnership together. Elsewhere in our chemical technology segment, we saw significant sequential and year-over-year improvement coming in well above our expectations. Our chemical technology segment, in base and manufacture, rapid new product development pace and steady field execution has driven market share gains. Furthermore, increased completion intensity and complexity and the growing interest in surfactant technology has driven increased demand for our higher spec and higher margin product offerings. This contributed to record setting chemical technologies revenue in the second quarter, and despite increases to oil-based raw material input costs, we delivered margin gains in the quarter as well. Looking at our water services segment, we outperformed our expectations in the second quarter and have been pleased with the year-to-date performance of our last mile water logistics and delivery business. Looking at the macro outlook more broadly, the geopolitical and commodity price environment remains fluid. We believe the customer activity environment will remain supportive of continued solid performance and the more direct activity correlated offerings within our water services and chemical technology segments. While our water infrastructure segment will continue to benefit from the strong secular tailwinds, a steady pace of new projects and a growing portfolio of contracted future inventory in the core of the Permian Basin. Overall, I am very pleased with the performance of the business year today. With the support of a healthy balance sheet, we are well positioned to continue to invest in attractive growth opportunities in front of us in order to deliver long-term value to our customers, employees, and stakeholders as we look 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. Blount made great strides in the second quarter, which included strong consolidated revenue, net income, and adjusted EBITDA growth, another quarter of record adjusted EBITDA and consolidated gross margins before DNA, record water infrastructure and chemical technology revenues, and ongoing strong performances in water services. Looking at our second quarter segment performance in more detail, we grew consolidated revenues to $396 million Nett, net income to $23 million, and adjusted EBITDA to $93 million. As John mentioned earlier, the water infrastructure segment delivered another positive quarter marked by top-line revenue growth, margin expansion, and incremental contract awards. We increased our produced water volumes handled to 1.5 million barrels per day and improved our skim oil capture alongside higher pricing, contributing to record revenues of $102 million and very strong 58% gross margins before DNA, outpacing our guided expectations. This represents a 5% increase in revenue and a 9% increase in gross profit before DNA as compared to the first quarter of 2026. Importantly, this equates to year-over-year growth in revenue and gross profit before DNA of 26% and 27%, respectively, relative to Q2 of 2025. John noted in the second quarter, we bolstered the outlook for our infrastructure business with the addition of several new infrastructure contracts, including a sizable MVC award and multiple dedications and interruptible tie-in opportunities across the Permian, Bakken, MidCon, and Northeast regions. In addition to the 14 SWDs conveyed as part of the larger contract John outlined, we also acquired two separate SWDs in the Delaware Basin during the second quarter, for a total of 16 new active SWDs added in the region. Separately, we also closed on the previously announced strategic surface acquisition of the Black River Ranch during the quarter. This multipurpose surface acquisition in Eddy County, New Mexico adds future infrastructure development opportunities, high margin surface and mineral cash flows, and long-term cost synergies to our existing network. Looking ahead to the third quarter, We anticipate 5% to 10% revenue growth for the segment and expect to sustain gross margins in the 56% to 58% range during Q3. This ongoing execution, coupled with the outperformance in the first half of the year, leaves us well-positioned to come in on the high end of our already increased full-year guidance of 25% to 30% year-over-year growth for the segment. Switching over to water services, This segment saw revenues grow by approximately 4% sequentially, outpacing our guidance of a modest decline, driven by slightly improved activity levels and continued strength in our last mile logistics and rental offerings. Gross margins before DNA and water services increased to 23% during Q2, a solid improvement compared to 21.8% in the first quarter. We anticipate generally steady revenue levels for water services in the third quarter. and forecast margins before DNA in the 20 to 22% range in Q3. Overall, we believe this segment is poised to participate in any activity upside and pricing opportunities that may arise if elevated commodity prices are sustained in the near term. Elsewhere, the chemical technology segment posted a stellar second quarter with significant sequential revenue gains and meaningful outperformance relative to our prior forecast. Revenue of $96 million increased by 23% relative to Q1 of 2026 and gross margins before DNA of 20% combined to deliver 35% sequential growth in gross profit before DNA to $19.4 million in the second quarter of 2026. While we forecast a modest retracement to $85 to $90 million of revenue based on current customer schedules forecasted for the third quarter, we continue to see healthy demand for our high spec Schmitz, higher margin friction reducer and specialty surfactant product offerings. Accordingly, margins for the segment should remain in the 20% to 21% range. Overall, we remain very excited about the future opportunity set for this segment. On a consolidated basis, supported by meaningful gross profit gains and relatively steady SG&A, altogether we generated consolidated adjusted EBITDA of $93 million during the second quarter of 2026. Significantly above the high end of our guidance range of $77 to $80 million, resulting from outperformance across all three segments. Looking forward into the third quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $90 to $94 million as water infrastructure growth is balanced against our near-term outlook for water services and chemical technology. While we may see some modest seasonal impacts in the fourth quarter across parts of the business, we believe we are poised for continued year-over-year growth in 2027. Looking at our other costs, DNA expense should climb slightly in the third quarter to the $48 to $52 million range as several capital projects are expected to be completed in the quarter. 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 saw a meaningful improvement compared to Q1 with $87 million of operating cash flow generated in the quarter as we steadied our working capital management compared to the prior build in Q1. On the investing side, we deployed $112 million towards a combination of CapEx and acquisitions in the second quarter, primarily in support of our water infrastructure business. In addition to the $70 million of net capex, as I mentioned earlier, we closed on $42 million of strategic bolt-ons for the water infrastructure business in the quarter, as well as the buyout of several long-term facility leases for key operating locations. While the maintenance needs of the business remain steady around the $60 million range, in support of our latest infrastructure contract awards and growth opportunities, We now expect net capital expenditures to increase to $250 to $290 million in 2026, up from the $250 million high end of our prior guidance. As we continue to scale our core Northern Delaware water infrastructure network, the opportunity set in front of us has expanded with it, and we are confident in our ability to keep delivering accretive growth projects in the quarters ahead that will drive significant long-term value for our shareholders. Our leading customers in the Permian Basin continue to grow through consolidation, lease sales, and successful exploratory well results, and Select is geographically and operationally well-positioned to benefit and participate in this growth with our customers. Overall, our business maintains a maintenance-like capital model, which has the ability to generate strong discretionary cash flow. We expect this discretionary cash flow to provide increasing optionality, especially as our Northern Delaware build-out matures over time. While this ongoing build phase will limit our free cash flow potential this year, we are establishing a tremendous portfolio of long-term contracted cash flows. We have an actively scaling infrastructure platform which possesses room for significant utilization enhancement over time. Even with the potential for additional growth capital investment in 2027 resulting from a strong backlog of opportunities, this platform and our steadily growing earnings profile Schmitz, and Michael Schmitz. Overall, we are very pleased with the strong year-over-year trajectory across all parts of the business so far in 2026. While there is much left to do, I'm especially encouraged by the significant progress we've made with our water infrastructure growth strategy, and the opportunity set in front of us remains robust. With that, I'll hand it over to the operator for any questions. Operator?

Thank you. We will now be 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 question 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. Our first question is from Jim Rollison with Raymond James. Please proceed with your question.

Hey, good morning, everybody, and fabulous results again, as usual. I don't know if this is for John or Chris, but if you kind of take the run rate y'all are on in water infrastructure to now hit the high of the revised range of 30% growth and top line this year, and you kind of look at the momentum of projects you already have in hand, some of the recent deals you've done, How do you handicap the rate of growth we should be thinking about going into next year? It clearly seems like it's a double-digit number, but I kind of want to make sure we don't get the cart too far in front of the horse here as we think about the run rates.

Yeah, Jim, good morning. So I think you're certainly thinking about it correct. As we sit here today looking at the additional projects we've added to the recent Wendlandt, as we think about what the opportunity set looks like for the rest of the back half of the year. Obviously, we're adding to the capital program in 26. I think we're pretty confident that we're going to continue to add to it for 2027. I think on a base case, as we sit here today, on a run rate, you're looking to execute on another year of double-digit growth into 2027. And I think we've got an opportunity set to continue to add to that profile with additional Wendt, and or both on acquisitions over the next couple of quarters. So we're pretty excited about the continued growth and the backlog of the opportunity set. We're pretty excited about the recent execution, the projects we have coming online here in Q3 that's setting up the stage for continued growth into 2027. And so hopefully we can execute on that, build upon it, and certainly as we sit here today, something that starts With double-digit growth in the next year is how we would think about it. Appreciate that, Chris.

Yeah, that's Chris. And this is John. So the only thing I add to Chris's position is, you know, in the quarter, we announced what Michael and his team did with that operator. And for that operator to give us the amount of disposal wells because of, you know, the really game-changing application of Recycle First. This network has become very important to the industry and to that area. And I think that it says a lot to the other piece of the system that we always talked about that we thought would get filled up with either commercial as the way we described it or now we're describing it as interruptible. and that call volume and that action by that operator to give us those disposal to network this thing and continue to build it out is very powerful.

Yeah, it's not an insignificant investment they made in those 14 SWDs, I suppose. As a follow-up, you know, maybe this is one for John, but kind of longer-term picture question that I'm going to take a shot at here. You know, you're kind of on this run rate now, second quarter and third quarter guide of this low to mid 90 million EBITDA run rate, you know, puts you well on track for the numbers that people had for next year and beyond. If you start adding up some of the smaller wins that aren't contributing today, like the different minerals extraction royalty stream and your You know, municipal water transaction that starts maybe late next year in Colorado, surfactant opportunities, etc. If you start stacking those up, what kind of incremental EBITDA should we be looking at, you know, two, three, four years out that kind of adds to what you've built in the water infrastructure and rest of your business on a current run rate basis?

Yeah, it's a great question, Jim. You know, certainly, as we think about some of the other opportunities around the portfolio, I think at the end of the day, the core focus remains, how do we build upon the core build out of the infrastructure platform? How do we maximize value out of the return or the investments we are making to improve returns over time? You know, something like the mineral extraction, you know, opportunity set that we added on to this quarter with with Iodine in addition to the previously announced lithium projects. All of that we view as margin enhancing and return enhancing to the existing investments we're consistently making. So how do we continue to focus on maximizing that return profile over time, whether it's adding the interruptibles and increasing that utilization over time? So it's very fair to say the earnings power capability of the asset base is much higher than it sits today. Some of that will take time. We're certainly expecting to get, you know, dollars flowing on the mineral side in 2027, but it'll take time to scale it up over a period of time to, you know, multiple facilities in multiple regions and some of the other, you know, tangential opportunities. But, you know, as we sit here today, you know, building upon the growth that we already are executing on, pulling effectively forward a full year of earnings into this year, you know, we think it sets us up great. Obviously, you know, There's components of the business that will need to see continued strength and outlook of the macro environment. But whether it's the services or the chemicals side, in addition to infrastructure, the asset base is capable of significantly more, and the activity profiles that the market is setting the stage for, we're in a position to continue to execute on without meaningful capital investment, particularly on the services and the chem side.

I look forward to seeing the ramp. Thanks. Thank you.

Our next question is from Bobby Brooks with Northland Capital Markets. Please proceed with your question.

Hey, good morning, team, and thank you for taking my question. I wanted to get an update on your ROFR acres within the Permian. Obviously, as those flip to active sites, they can represent very accretive deals. So I was just curious to hear, have those in your year-to-date results Do your year-to-date results benefit from any of those row-for-acres slip into active sites that maybe you initially didn't plan for? And just more broadly, how should investors be thinking about the uplift from them?

Michael Skarke Thank you, Bobby, for the question. This is Michael Skarke. The row-for-acres are a big part of the way that we're constructing deals. We love the dedicated acres. That aligns us well with our customer. We underwrite the geology. We feel great about the rock in the northern Delaware. and a row for acres really give us that option value that as the operator starts to expand, as our system starts to expand, those are acres that we expect to pick up. In our year-to-date results, we have not seen a material conversion of the row for acres into dedicated acres, although that's something that we still expect to see going forward and are working hard to secure as the operator's plans start to move that direction as our system gets built out. But when we look at what the system can do, and John addressed this a little bit with Jim's question, we size our expansions around an anchor tenant, but we upsize the system, whether it's the throughput or the pipes, by about 50% or doubled to get 50% underutilized capacity. It's that excess capacity, that commercialization, is really where I think you'll see the big win over the next couple of years as we build the system out and fully commercialize it with interruptibles, but also with MVCs, smaller MVCs, dedicated acres just to lesser operators, smaller operators, not lesser, smaller operators. So that's really what we're excited about.

And I think importantly, Bobby, the position we've built, the system we have in place, as our customers continue to grow, as we mentioned, whether that's through consolidation, whether that's through new exploration or new acreage additions, We're extremely well positioned to support them in that growth and establish the contract frameworks that allow us to effectively and efficiently convert that into tactical growth over time.

And I think the new acreage position is particularly important because we're seeing operators push the boundaries of how we have traditionally defined the Northern Delaware. They're stepping out further and further and getting really good results.

And as they do that,

Our network is best positioned to support them in those expansions. So as you continue to see new exploratory wells become core and operators expand their positions beyond what we classically defined as the core northern Delaware, I think that's going to be a really good fit for us.

Really appreciate that, Collar. There's been a lot of talk today of the growth of opportunity sets for infrastructure and the pipeline of that. Could you maybe just help frame that growth in some way? Is the pipeline maybe, is it 20% larger than it was a year or is it 20% larger than what it was at year end, 25? Just trying to frame how that pipeline has grown.

So I'll start and let Chris clean me up. I had a comment in March on our Q4 about the pipeline. And really what I was talking about is we had a couple of really large opportunities out there, one of which we just announced on this earnings call. But we were seeing more and more of the small commercialization opportunities. So the number of projects in our backlog, in our pipeline, continues to grow. and really as we expand our market leading large diameter network, you're accessing new acreage and we are the most logical solution from a cost perspective to continue to expand with them. What we're seeing right now is we're seeing more interest in recycling today than we ever have before and I think in part is because of the size and scale of our system, the flexibility of our system. Schmitz, and so on. Operators have more comfort in the longevity and sustainability, the reliability of that recycling solution. And so it's kind of a self-fulfilling prophecy. The bigger you get, the more customers you bring on, the more reliable you are and the more you're able to expand. I do think going forward, you're going to see us do more deals that require less capital than maybe you have in the past. I'm going to send these bigger, chunkier deals.

Yeah, still very fair, though, to say there's still a A couple of chunky opportunities out there, but there is a point at which the white space in the map gets filled in some regard. And so we wanted to be clear in our view that there is still some larger opportunity sets out there as we look forward into 2027 and think about the capital profile. We do think there is another year of meaningful build opportunity in 2027, probably a larger size than we might have otherwise anticipated, but importantly, As we've accelerated the earnings growth so far this year, we're doing so in a manner that's allowing us to continue to backfill that investment opportunity set into next year in addition to supporting the earnings growth meaningfully beyond where we came into the year. And so we do think that even if we were able to replicate another year of the growth capital in 27 like we're seeing in 26, that's still creating an opportunity to Schmitz, and Brian Szymanski.

You know, five, six, seven, ten years after that.

And importantly, what that means is you've got a view on continued growth looking into 28 on top of the run rate growth we're already executing on into 27. Yes.

Very helpful, Colin. And then just last one for me is on that, the 128 million barrel minimum volume commitment project announced yesterday. Obviously, that was great to hear and nice to hear that was like something that was in the pipeline that you executed on. But just curious to hear a deeper discussion on how this deal might contrast to the past deals, because it does seem like there's some key differences. Obviously, the scale, the 14 SWDs that they handed over to you. But are there other pieces that are important to be thinking about of how this might be different from past ones we've seen?

I think there's a couple of things, and we kind of hit on it, Bobby, but I'll reiterate. We're really excited about those 14 SWDs in New Mexico. We think that's a big deal that our system rendered those underutilized to where the operators saw very little value in them. And when you tie them into our network, that allows us to provide increased firm takeaway and really make sure that our recycling-first solution can weather Schmitz, whether the highs and lows of a cyclical business. So we get really excited about that piece. The other thing I thought was interesting is it really speaks to the values of our pipeline network. This operator, we traditionally do things on a dedicated acreage basis, and we like that. This was a large MVC because they really wanted to reserve capacity on a specific piece of pipe that they wanted us to build. and it takes our system down into Texas, which is going to be a geographic expansion for us. But the fact that they were willing to sign up for an MVC, they believe they need it, they're going to use it, and we're going to size it appropriately so that other operators can benefit from this expansion as well.

Yeah, you know, this certainly wasn't the first time we've been directly conveyed assets. You know, we've now done this multiple times over the last year or two where we've had customers directly convey assets, whether that's disposal, recycling, storage, or pipe. And so I think what you continue to see is the value of having interconnectivity to our network creates more value to the customer than standalone assets and the commercial ability to monetize those and utilize those effectively. So we think that that's something that we've continued to execute on. And then, you know, furthermore, as Michael mentioned, our ability to continue to add MVCs, whether of real size like this one or some of the smaller ones we tactically added on over the last couple of quarters. The bigger the system gets, the more surety folks want to have access to the system. And so I think that that ability to translate those from dedications into MVCs on a secondary and a tertiary basis, we'll continue to see opportunities around. Appreciate the call in.

Hey Bobby, this is John. Michael made a very good point. The network is very valuable to putting the 14 SWDs in place to get that ability to add capacity of disposal to the system. And then Michael said it gets us to the Texas line. Every time we move another contract into another area, It gives this system a very unique position because this system is dual aligned. It collects and distributes for a ReSoccle first program. It's really the only one out there. But every time it has an extension, the thesis itself, the network value gets extended into a different area and gets an ability to hook up to more pipe and more assets.

Very helpful, Kyler. Thank you for the time, and congrats on the great quarter. Thank you. Thanks, Bobby.

Our next question is from Derek Whitfield with Texas Capital. Please proceed with your question.

Good morning, all, and great update across all three segments. Good morning, Derek. I wanted to start with your chemicals segment for my first question. How would you characterize the demand you're seeing in the market today for surfactants? How broad-based is it, and what could it grow to be within your portfolio?

Go ahead, Michael. I'll take off. Yeah, no, Derek, this is Michael. So I appreciate the question. As we've mentioned in the past, we're seeing increased demand for surfactants, and it's really completions and workovers and a little bit of EORs. We're expecting this to continue to grow into 2027, but I think it's important to start with the market. We think less than 10% of the new well completions today are using subtractants, and of the ones using it, it's 95% out of the Permian. There's a lot of room for this market to grow. It's just going to take some time to get there, and what I mean by that is we've developed 26 new formulas for just one customer. This is the kind of specialty chemistry that really required for surfactants to be worth it, to add the value that they can add. This is also where our chemistry team really excels. I guess to answer the last part of your question, surfactants are still a fairly small percent of our chemicals revenue. It's consistent with it being 10% of the market, but it's increasing quickly. We've seen it grow 50% year over year, and we see that growth continuing into 2027.

Yeah, the only thing I was going to add to it is, you know, Paul and his team has a great team, but it also has a very unique position in the marketplace with the lab position we have, the reactive plant we have in Midland, you know, the relation to water and produce water as part of this. And Michael said, you know, just for that one, we did all this formulas and we can do that very quickly. with a great team and great assets. But if you ask the team today, they're saying everybody's still working with formulas and applying and coming up with new thoughts around surfactants. So we think this year has been a lot of testing, a lot of developing, a lot of what-if forward for our customers, and we get to participate in that. We think that's going to turn into a great opportunity for us, but the volumes that we think it'll turn into are probably more 27 volumes.

And maybe just to clarify on part of your response, with the fact that it's in their application towards EOR, is that in an unconventional sense? Because that does have tax implications associated with that. That's something that Diamondback spoke to. during their call. And I think, again, that has pretty significant implications for industry as they start to latch onto that and potentially get on that path.

That is correct. That's what I was speaking to. And, you know, a great company and a great customer, but they're not the only ones. There are a lot of people very focused on it, but that is the place that they're focused on.

Terrific. And maybe just following up on the Mineral Extraction Opportunity. Are you guys seeing greater imbalance from industry following your announcements for applications for mineral extraction outside of iodine, outside of lithium?

When you say industry, I would say we are seeing certainly more imbalance in general. The potential off-takers is a pretty diverse group. I mean, we're seeing The offtake ranging from glass manufacturers to battery manufacturers. I think the offtake is diverse, which gives us good confidence in being able to place all of the minerals. I think what was most important to us and remains important is the fact that we did a lot of work around characterizing our asset base. Thanks to Michael and the team, that asset base continues to grow. and the merging of our knowledge of pretreatment, getting large volumes of water treated and available and really the recycling component of our network really unlocked for us and I think for the industry the ability to do this at scale. So yes, we and our partners are both getting inbounds and I think the fact that we can create a domestic supply is also very important. You're seeing Defense and other folks that really care about the supply chain end-to-end also inbound. I think we remain very, very excited about the opportunity. As we said earlier, it's pick and shovel work. We've got to make sure the land is ready and that the water bonds are there. It's completely first of kind on all of these. I think We will take some time to get the flywheel running, but then we'll have really a widget that we can go out and it'll start to accelerate. And so you'll see the financial impact over time that'll be in our forecasts and we'll talk about facilities and so on as they get up and running.

And then maybe just one clarification. Part of what I was thinking about was with the success that you guys have had with these mineral extraction opportunities, For iodine and lithium specifically, have there been other critical minerals, whether it be magnesium or other components that are starting to create opportunities or inbounds right now for you guys?

Yes. So we've looked at magnesium as one option. Frankly, I think it's pretty hard economics, so we haven't focused very much on that versus just doing it with seawater or other sources. We have one of our partners is looking at strontium as an option. It's a very unique mineral. And there's others. So again, that's part of our ongoing characterization of our asset base. And not all mineral concentrations are created equal across the network. And frankly, it's one of the great things about being a multi-basin or all-basin player. that gives us that access. So I think as we were speaking before, I mean, this is just a, I think it's a phenomenal way to get every last dollar and drop of value out of our water.

And one thing I might add to it, you know, Michael said it earlier, as you continue to expand the bounds of what the geology looks like, what the opportunity set looks like in a specific region, the quality of that water, the interaction of that water to the system changes. One of the things you can continue to do is just make the mineral content review part of your core expansion opportunity set. As you move, the water changes, and as the water changes, what's the right opportunity set? It's effectively just something that can layer onto the system over time and the growth opportunity set over time.

Makes sense. Great update, guys.

Thank you.

Our next question is from Jimmy Larkin with Bank of America. Please proceed with your question.

Hi, Jonathan. Thanks for taking my question. I guess my first question is really starting on the guidance for water infrastructure next quarter. Five to 10% seems, even if, you know, assuming a strong skim oil pricing environment, seems that volumes are going to have to pick up pretty significantly next quarter. So I was wondering if you could just kind of talk through, you know, what you're seeing for volumes growth maybe into next quarter, and the fourth quarter and then, you know, how much of that is primarily related to kind of the startup of your next recycling facility in the third quarter? Thanks.

Yeah, thanks for the question, Jimmy. So, you know, the skim oil, you know, component of this is certainly part of the growth we saw in Q2 and is a strong, you know, potential continued tailwind for, you know, the outlook into Q3. To put some specific context, you know, around that, obviously, You saw the uplift starting in March on the skim oil pricing. In the second quarter, you saw that hold through for the majority of the period. So if you think about the variability between something like a $65 spot pricing environment and a $95 spot pricing environment, that can reflect give or take around a million dollars a month of variability. So that is something that will be a component of the outlook In one form or fashion, depending upon where the commodity sits at any point in time. But as we think about the volume side, we do expect to see recycling growth from a volumetric standpoint in the third quarter with new facilities coming online. We do have new disposals that have been added to the portfolio here as well, both organically and through acquisition that will drive growth in the disposal side of our volume framework. Our expectation would be to see volumes grow generally in line with that 5% to 10% growth framework that we guided to for the top line in Q3, assuming generally a fairly steady commodity pricing environment to what we see today.

The only thing I'd add to that is it's not all new facilities coming online. There's a heavy portion of just commercialization and kind of seasoning facilities and getting them operational. So getting back to my comments earlier, As you think about this going forward, I think this platform will support continued growth without having to add more capital along the way.

Great. Thank you. And I guess my second question, you know, just, you know, going back to data centers is obviously a big theme still. And just, you know, we had a data center in West Texas that was announced that announced that it would use produce water in the future. and, you know, seemingly there's more data centers in West Texas to come. I was just kind of, you know, can you remind us how you guys would be set up to benefit from this and if you're seeing any kind of discussions pick up on that side? Thanks.

You know, thanks for the question, Jimmy. I'd start off by saying just if you think about SELECT, our core competency is sourcing water, moving it, treating it and disposing of it and doing so in very large quantities in a cost-efficient manner. And so that That really aligns us well with data centers and developers and EPC firms and we're involved in multiple conversations in West Texas and frankly outside of West Texas on just that. The water needs are going to vary depending on the project and where it is and how they're operating, but we've established Select as an expert in water and water logistics. and that puts us really as one of the premier service providers, solutions providers around water. So we're having the conversations, we're a part of them and certainly hopeful that we can continue to grow as that segment of the market increases.

Yeah, I think one thing to add to your question on reusing produced water, I mean beneficial reuse is part of the overall kind of opportunity set around comprehensive produce water management. At the end of the day, it's going to be a core part of long-term solutions for the Permian Basin to manage the core application of produce water management in the oil field. So what you do with that water on the backside of that data center is certainly a very potential and sizable part of that opportunity set to deploy those barrels. But there's also going to be short-term need for other application of source as well. And then I'd also add, there's also a picks and shovels aspect of the data center opportunity set that supports the build-out phase, the construction timelines of these projects over the next couple of years as well that our services business is very well positioned to support in addition to the long-term opportunity set around the water logistics and water management.

Our next question is from Don Christ with Johnson Rice. Please proceed with your question.

Good morning. Thanks for letting me in here at the end. Continuing on the data center side, obviously you have PEAK out there, and they have a very specific skill set. Are you seeing inbounds on the data center side, not necessarily from the water and beneficial use on water, but from the PEAK side as well and the growth there?

Yeah, it's a great question, Don. As I kind of alluded to a second ago, we do see opportunity on the services side of the business, and that's coming out of both the peak side of our business on the power solutions on a distributed basis, as well as some of the other rentals and support solutions, storage solutions, and logistics. So as an example, in the second quarter, we did have about $6 million of revenue come out of the services side of the business in support of those construction projects for for data center projects. So that's obviously going to be a variable opportunity set, but it's something that we've got real tangible existing revenue from, and PEAK is a component of that, primarily on the power solutions basis. So it's been a good opportunity set to see that. We're not necessarily looking to scale that into the large behind-the-meter solutions in support of those projects, but during the build-out phase, talking about the The distributed needs of those solutions in support of these projects is something we've already seen success with, and I think we'll continue to see success with in the coming quarters as we think about how the water side of the business can further enhance that relationship over time.

Okay. And I wanted to ask about customer behavior, because obviously there's been some rigs added to the industry up to 50 or 60, but we haven't really seen too much on the completion side, which is obviously more impactful for y'all. But as you kind of get schedules for the next six to nine or 12 months, are you seeing, generally speaking, a pickup, whether it be from the startup of the natural gas pipelines out of New Mexico or just from The answer is in two segments. They're both really good answers as it comes to Select and the opportunity for Select, Don, and this is John.

I would tell you that the intensity of the completion cycle of these wells and the lateral length continue to be a really good tailwind for us. We fit in that so well as these operators continue to do more with less and get better results. We really like that space and we are surprised how much Bush, there is from the operator to do that. On the industry itself, as far as you're correct, we've added drilling horsepower now. We're drilling wells. There's going to be a ramp in the amount of frac fleets running. How they complete those wells are going to be higher intensity. It's going to be a really good opportunity for pretty well all points of select. If you look across chemicals, water service, our last mile logistics, or what they're doing with those drilling rigs, where they're going, you just look at the Hainesville. It's doubled in drilling rigs, and we have a very unique position and takeaway for the Hainesville. I think we've set up really well on both sides of the dump.

Yeah, and that was going to be my next question, was going to be, you know, all the discussion's been around the Permian, but your positions in probably the Bakken are probably doing pretty well from a workover perspective and in the Haynesville and Marcellus as well.

Yes, Select is very unique in that sense. I mean, what Michael and his team has put together in the Upper Delaware and that dual value system We think that's some of the best rock in the United States. It has the most challenge to produce water management and track water management. But if you go to the Northeast, we probably have the number one position in disposal. If you go to the Hainesville, that is a very unique piece of pipe that's coming out of the Soda Parish in the Joaquin. Our concentration in the Bauckham we really do like. We got a lot of wellboards. So I think we're set up to bring value to our customers across the place in a very unique way. Of course, we can't talk enough about that Delaware position because it's very, very unique though.

Just to put some specificity to what John said, I mean, again, he's exactly right, but We have infrastructure assets in every U.S. onshore basin, and we've executed contracts this year in most of those basins. Now, they all compete with capital. The Permians get the bulk of it, but we're still getting deals done in other basins, and I think that will certainly continue, Don.

I appreciate the color. I'll turn it back. Good job on the quarter. Thank you.

Our next question is from Jeff Robertson with Water Tower Research. Please proceed with your question.

Thank you. Good morning. Michael, you talked about the way you all have built the Northern Delaware system with embedded capacity available for future utilization. Can you share any color on how the take-up of the utilization on the system and how having the capacity with the New SWD wells that were conveyed could affect margins over the next couple of years?

Sure. No, it's a great question, Jeff. So it's an infrastructure asset. So the more volumes you flow through, the higher your margin is going to go because it's a high incremental margin for every incremental barrel. The key around the disposal is it increases the reliability and it allows you to get closer to a maximum utilization around your recycling first network because when you get close to that recycling limit, If you go over it, you can always just send those barrels to disposal. So you can operate at a higher sustained utilization over a longer period of time. And that's one of the reasons we get excited about it. The other reason is there still are, I mentioned we have more customers interested in recycling today than ever before. There still are some customers who are very fixated on firm capacity and making sure that you can provide firm capacity through good times and bad times. Really, you have to count on some level of disposal. So tying in more disposal to our system kind of helps us with that as well. Across the system, there's various constraints, but we've really tried to do a very good job of oversizing the pipe and having two lines in every ditch so that we can send water north, south, east, west, all at the exact same time for maximum flexibility to really drive utilization as high as it can go. But I tell you that if we put no more capital in the system, just through continued commercialization, With operator's drilling plans, you're going to see utilization continue to climb up. What we've seen here on recycling, if you look at our earnings over the last few quarters or last few years, disposals increased some, but it's been fairly consistent, which you love the consistency of the produced water. Recycling has been a lot of the growth, and it's through increased utilization across that expansive network.

And you mentioned that the customer wanted a pipeline to extend, I think you said, down to the Texas-New Mexico border. Is that a strategic decision on their part because they have other assets that could be added to the system in the future, or was there some other motivation behind that?

You're exactly right. It was strategic on their part, and they were very specific as to where they wanted the pipeline to go and how much capacity they wanted to reserve on the pipeline. I would add that it's also strategic on our part. I mean, we want to make sure that we're developing an asset that will solve that customer's need, but it's also something that we can use as part of a bigger opportunity to solve the patient's need. And so this was one of those, you know, really fun transactions that allows us to do both.

Thank you. Thank you, Jeff.

Our next question is from John Daniel with Daniel Energy Partners. Please proceed with your question.

Hey, thank you all. Michael, I believe in an earlier response to a question, you talked about 26 formulas designed for one customer. I'm curious, when you do that, do you own the formula? And once you have that formula, if it's working, can you take that and provide that to other operators?

Yeah, so I'll answer your question generally, and the answer is it depends, depending on the operator you're working for. We will take specific formulas from operators and fine-tune them for them or manufacture those for them, and we're happy to do that. That puts volume through our manufacturing plant. It gives us kind of that preferred relationship with the operator. However, there are a lot of opportunities where customers say, Work on a formula for us. Design something for us. Design something for the region. And we're doing the design work. And in most cases, we end up owning that formula. And it's not uncommon for an operator to come say, hey, I want what XYZ has over there. Now, it's not that simple. It's not portable. You want to go through the testing phase. And I thought John did a really good job of explaining kind of we're in that testing phase. We're excited about it. And we really think we're investing a lot of time and effort. And we think it's going to bear fruit. or some in 26, but largely in 27. But it is good to see operators say, hey, what are you doing? What would work here? And then we can bring those 26 formulas or others to that solution.

Okay, got it. And then going over to the SOEDs that were conveyed to you guys, I know you also mentioned you've had that happen multiple times over the years. I'm just curious, when those are conveyed, is it the customer coming to you With the idea, are you proactively going out there and sourcing these opportunities? And how many inbound calls from other operators do you have with similar conveyance ideas?

Yeah, no, it's an interesting question, and I hadn't thought of it that way. It's actually both. We've had customers come to us and say, we want you to take these assets. We're not using them. You're going to use them more. It's going to tax up your performance for us. We want you to take them. which is a great feeling. It's really the strongest endorsement I can think of of kind of what we've built. There are other scenarios where we've brought it up and said, hey, we've looked online and you're not putting many volumes through these wells. This would be really fit our system and help us better serve you. I think the key, whether it's their idea or our idea, is at the end of the day we get to the same point. which is the asset is more valuable to the customer under our control as part of our network.

Okay.

Got it. And so if you were to put someone's third-party volumes into that SWD that was conveyed to you, I'm assuming that's allowed and then there's ultimately a benefit to the person that conveyed it to you? Sorry for not asking a dumb question.

No, it's not a dumb question at all. It is allowed and it would be to our benefit if we did that.

Okay.

Got it. Thanks, guys. Thank you, John.

We have reached the end of the question and answer session. I would like to turn the floor back over to John Schmitz for closing comments.

Thanks to everybody for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions, and we look forward to speaking to you again next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.