Select Water (WTTR) Q1 2026 Earnings Transcript

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DATE

Wednesday, May 6, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Founder, Chairman, President, and Chief Executive Officer — John Schmitz
• Executive Vice President and Chief Financial Officer — Chris George

TAKEAWAYS

• Consolidated Revenue -- Increased by $19.5 million sequentially from Q4 2025, reflecting broad operational gains.
• Adjusted EBITDA -- Rose by $13.5 million sequentially to $77.6 million, exceeding the high end of management's prior guidance.
• Net Income -- Grew by $11.5 million sequentially compared to Q4 2025.
• Water Infrastructure Revenue -- Advanced by 19% sequentially and over 33% year over year, reaching a segment record of $97 million for the quarter.
• Gross Margins Before D&A -- Achieved 56% in Water Infrastructure and exceeded 30% on a consolidated basis, marking an all-time high.
• Water Infrastructure Managed Volumes -- Handled about 1.4 million barrels per day of produced water, including increased recycling and disposal volumes.
• Guidance Update: Water Infrastructure Growth -- Management raised 2026 full-year growth guidance to 25%-30% from the previous 20%-25%.
• New Contracts and Commercial Agreements -- Added 3 new MVCs, 2 acreage dedications, 2 ROFR dedications, and 8 interruptible agreements since the start of the year across several basins.
• Recent Acquisitions -- Closed on multiple properties in the Northern Delaware Basin, acquiring 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 for $29 million.
• Water Services Revenue -- Increased 7% sequentially, outperforming guidance, boosted by water transfer and spot market water sales.
• Water Services Gross Margins Before D&A -- Improved to 21.8%, up from 19.6% in Q4 2025 and above the guided 19%-21% range.
• Chemical Technologies Segment -- Reported $78 million in revenue and 19% gross margin, in line with guidance; expects 10%-15% sequential revenue growth and margins increasing to 20%-21% in Q2.
• SG&A Expense -- Lowered by more than 6% to $40.6 million, representing approximately 11% of revenue.
• Q2 Adjusted EBITDA Guidance -- Management guides to $77 million–$80 million adjusted EBITDA for the next quarter.
• Net Debt and Liquidity -- Ended the quarter with $196 million of net debt and over $300 million total available liquidity after fully repaying the revolver.
• Operating Cash Flow -- Temporarily impacted by higher accounts receivable, with management expecting conversion to cash in the near term.
• CapEx -- Spent $78 million in the quarter; total 2026 CapEx guidance increased to $200 million–$250 million, with $50 million–$60 million earmarked for maintenance and margin improvement.
• Interest Expense -- Decreased sequentially; guidance for $4 million–$6 million per quarter due to reduced borrowings.
• Commercialization and Contract Wins -- Management highlighted several recent low-to-no-capital incremental agreements driving asset utilization.
• Commodity Price Sensitivity -- Skim oil pricing increases expected to benefit Water Infrastructure segment revenues.

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RISKS

• Management forecasts a "modest low single-digit percentage revenue decline in the second quarter" for the Water Services segment, "largely attributable to the nonrecurrence of certain sizable spot market water sales."
• Operating cash flow experienced a relatively meaningful short-term drag in Q1 2026, driven by increased accounts receivable, which management expects to largely cycle through during the year and convert back into cash in the near term.

SUMMARY

Management stated they raised full-year growth guidance for the Water Infrastructure segment, reflecting significant quarterly outperformance and incremental capacity from acquisitions in the Northern Delaware Basin. Executives detailed the closure and rapid integration plans for new bolt-on assets, citing highly accretive characteristics leveraged by their existing network. Leaders indicated continuing industry dialogue on both macro commodity shifts and data center water demand, positioning Select Water Solutions (WTTR 3.61%) to pursue diverse, commercialized opportunities in both traditional E&P markets and emerging sectors. Management highlighted a shift in capital allocation, emphasizing that stable maintenance spending and contract structures are expected to enable increasing free cash flow generation into 2027 and support future shareholder returns.

• Chris George directly explained that "the base maintenance needs on the business are pretty light," enabling capital flexibility as incremental growth projects mature.
• John Schmitz highlighted that "dividends will be a part of the capital allocation and the growth of that dividend," and management plans to balance growth investment with shareholder return as free cash flow expands.
• Executives described the Northeast U.S. market as "just given the regulatory complexities," but recent large-dedication contracts and transfer agreements have improved margin potential and near-term opportunity set in that region.
• Management discussed ongoing active engagement with data center operators in West Texas, noting water solutions may become a "gatekeeping item" for such projects, but no direct contract announcements were made.
• Multiple questions addressed the opportunity for further price increases; John Schmitz said, "where 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," indicating readiness to capture incremental margin if market conditions allow.

INDUSTRY GLOSSARY

• MVC: Minimum Volume Commitment — contractually specified volumes a customer must provide over a given period.
• ROFR: Right Of First Refusal — the contractual ability to match any third-party offer for an asset or service within a given scope.
• Skim Oil: Hydrocarbon recovered from water handling or disposal processes, sold separately to generate incremental revenue.
• Frac Crew: Operational team and equipment that perform hydraulic fracturing ("fracking") activities at an oil or gas well site.

Full Conference Call Transcript

John Schmitz, 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 as of the time of the replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. 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 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.

John Schmitz: 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, continued 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 D&A increased to 56%, driving consolidated gross margins before D&A 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 multiyear 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 3 new MVCs, 2 additional acreage dedications, 2 new ROFR dedications and 8 new interruptible agreements to our network across the Permian, the Northeast, Bakken and MidCon regions.

While we still have another 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 Technologies segment 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 are 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-to-date, 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?

Chris George: 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 D&A, 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 '25. This led to record revenues of $97 million and very strong 56% gross margins before D&A, 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 segment.

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 am 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 D&A 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 nonrecurrence of certain sizable spot market water sales we 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 Technologies segment, both revenue and gross margins in the first quarter of $78 million and 19% were in line with our guided 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 upward 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 segment.

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 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 million 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 in 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 million 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 million 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 million to $250 million of net CapEx in 2026, up from $175 million to $225 million. We maintain our expectation of $50 million 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-light capital model, and we have significant free cash flow generating capabilities and flexibility to manage this maintenance spend 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?

Operator: [Operator Instructions] The first question from the line of Jim Rollyson with Raymond James.

James Rollyson: 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 OFS providers about prospects for getting things getting better. And you guys have kind of suffered through going on 4 years of impact there, especially in water services and to some extent, chemical technologies. So I would kind of love to hear your thoughts about 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.

John Schmitz: Yes, Jim, this is John Schmitz. I would -- logically, most of water services now have a big exposure to completion activity. It really relates to our water infrastructure, but moving water to the completion job is a big piece of our capture as well as 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 watched ramp and the effects of that, they are pulling both the intensity at which they're completing the wells or bringing new oil online, starting to have those conversations or see that effect as well as we would also say that we're also seeing customers that, let's say, they had 4 frac crews running, they were going to drop in the second quarter. They're not dropping it now. They're keeping 4 running or 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.

So 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 refracking or just making sure the oil is still being produced and sold.

Chris George: 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 customer budgets and the outlook. I'd say for the chemicals business, we're guiding to pretty strong double-digit growth in the second quarter here, and that's 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 based on the numbers we're putting out in front of you, we're not taking an aggressive outlook on the activity framework here. But whether it's services, whether it's chemicals or whether it's the pull forward of volumes getting on to the infrastructure side, 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, also the potential to stabilize or look at pricing opportunities as well, particularly on the services side.

James Rollyson: Yes. It would certainly be amazing to see everything moving in the same direction for a change. And maybe, Chris, just as a follow-up. 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 pick up from incremental projects that start up in the second half, it kind of seems like you're on a pace to maybe have an exit run rate EBITDA somewhere approaching the mid-$300 million range. Am I doing my math right there?

Chris George: Well, we're certainly not putting in any formal guidance out yet on the back half or into '27. But what I would say, Jim, is that with the strength of Q1, the opportunity set in front of us, we certainly see growth in the second half of the year. It would be good to see how some of the macro settles out. Every day is 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 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 additional double-digit growth on an infrastructure basis looking into 2027. And depending upon the outlook on the services and chemi side are going to be well positioned to see that EBITDA push towards 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.

Operator: Next question comes from the line of Bobby Brooks with Northland Capital Markets.

Robert Brooks: First, I wanted to ask on the new Northern Delaware water supply and takeaway agreement. Reading the presser and listening to the prepared remarks, it sounds like a highly accretive bolt-on opportunity that you probably won 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 like how that win came about?

Chris George: Yes. Certainly, good read-through on that, Bobby. The -- I think 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 volume growth through volume flow through the system over time, whether it's on an MVC basis, a dedication basis or just adding additional commercial potential around interruptible. So from a capital deployment perspective, we're talking about 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 a brownfield basis or a tie-in basis and underwrite those with committed capacity, it's a great outcome from an accretive add on to the system.

Robert Brooks: 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 3 to 5 years maybe is the number you said, I think, what you put out before. Is that a shorter time line on these more tie-in opportunities?

Chris George: I'd say on the tie-in side, Bobby, it can certainly have an accelerated time line given the strength of the existing footprint and the capital we've already invested. From a greenfield project underwriting framework, you're correct, generally targeting that 4-year cash-on-cash is still the 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, in a traditional greenfield build-out where you are adding capital to the system to build out grab new geography, but doing it under a base dedication or base ROFR dedication within the current footprint.

Robert Brooks: 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 those 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, I 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.

Chris George: Yes. 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 solutions side in terms of the source water need 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.

Operator: Next question comes from the line of Derek Podhaizer with Piper Sandler.

Derek Podhaizer: 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, you're ring-fenced it, you're feeding in 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 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?

John Schmitz: Yes, this is John. Yes, I appreciate the conversation around peak and the question. But what we would say is there was really no material change yet that we -- that we're ready to express here. And -- but we're still very actively evaluating all opportunities around that. 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 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 line, so a distributing line to be able to get frac 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.

Chris George: 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 asset 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 and action upon that in a pretty meaningful way with what we've got, whether that's the existing manufacturing base that we have in basin 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.

John Schmitz: The 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 and the delivery of that chemistry and the management of that chemistry throughout the fracking process. And 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 expand that throughput capacity that Chris talked about.

Derek Podhaizer: Got it. 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 in 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 flow generation out of services and chemicals.

Just how should us and investors really think about the long-term free cash flow generation 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.

Chris George: Sure. It's a great question. And obviously, something we think about every day from a capital allocation framework perspective. I think importantly, the base maintenance needs on the business are pretty light. So 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 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 '27, we think the opportunity set still got some backlog opportunity to it.

The growth of the earnings profile continues to move upwards as well. So both of those moving in tandem is still going to generate excess 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 and grow the free cash flow profile and start to generate those incremental dollars that you can make good discrete choices with. But as we've said before, the services and chemicals businesses generate solid 70% to 80% free cash flow generation out of the gross profit in those businesses and infrastructure on a stable low growth basis should provide something 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 in the back half of the year.

Operator: Next question comes from the line of Don Crist with Johnson Rice.

Donald Crist: I know you've answered this in a couple of different ways, but I'm hearing specifically in North -- sorry, in New Mexico that the E&P 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 frac 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 in the fourth quarter or first quarter next year, 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 of weeks.

Chris George: Don, obviously, we're all looking at the new capacity coming online later this year, looking into next year as a needed solution. I would say based on the customer dialogues we're having, nothing has given us any indication that we've got any meaningful change in outlook expected due to nat gas 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, it's probably more of a question around what's the commodity profile look like and how do you address the opportunity to maximize 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?

John Schmitz: 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 movement, whether it's in heat-related application, whether it's in power generation application, it's help us think about what we can do with it differently than what it being -- 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.

Donald Crist: 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, 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?

John Schmitz: 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 in a long time -- for a long time.

Well, PAMPANK much different. It just -- it really came to the fore fight 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.

Operator: Next question comes from the line of Nick Armato with Texas Capital.

Nicholas Armato: Congrats on the strong quarter. On the disposal and service agreements in the Northeast, can you provide some color on the structure of the agreement 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 the potential for additional agreements similar to this going forward?

Chris George: Yes. 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 is 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 and 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 dialogue 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 opportunity set on to continue to grow and enhance that already market-leading position. Similarly, in the Haynesville. 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 the fracs 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 4 basins. And so you'll continue to see our capital priorities weighed towards the Permian, but we think there's a good opportunity set elsewhere. John, anything to add?

John Schmitz: Yes. 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 2 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, what -- how can they balance water. And if you're recycling produced water, that means your water transfer has to be built about 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 2 segments together.

Nicholas Armato: Perfect. Maybe shifting over to the municipal business. Could you offer some color on how that project is 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?

Chris George: Yes. 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 I still feel like we're moving in the right direction. It's a slower development cycle working with municipal counterparties than traditional oilfield 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 we'll keep working on that.

As it relates to kind of 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 -- 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 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 as 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 couple of quarters this year. So very much a growing opportunity set across the business, whether that's industrial or municipal opportunities around that Colorado project, data centers or elsewhere. As we look at beneficial reuse as another technology application that's going to bring freshwater to market over time, that's something that lends itself towards a diversity of potential consumers.

Whether that's the base industrial demand around the oilfield or whether that's other opportunities. So 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.

Operator: Next question comes from the line of Jeff Robertson with Water Tower Research.

Jeffrey Robertson: 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 dividend?

John Schmitz: Yes. 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 affected by the banking crisis out on the West Coast, and we took a big -- 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, yes, the infrastructure growth that we're building in Eddy and Lea in 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 the contractual nature and the high gross margin and the good rate of return, I believe, will show up within our skill sets around water.

Chris George: And maybe just wrap on that, Jeff, 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 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 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.

Jeffrey Robertson: One question on the assets, the Black River Ranch and the surface acreage bought in New Mexico. Can you talk about how that fits into your Delaware Basin system, John, or Chris?

Chris George: Yes, I'll start, and John, feel free to add on top. But 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 that surface position is effectively overlapping with our existing infrastructure build-out. So the ability to utilize right away and easement access across the 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 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 opportunities to develop something new, we'll continue to look at opportunities like that. But John, anything to add?

John Schmitz: The one thing I'd add is that whether it's opportunities we're finding by buying surface and being able to harvest royalty or position out of that surface, what we are, for sure, finding in a meaningful way 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 royalty type revenue into our existing company today to increase the margins or have a different type 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 the surface or create the relationship between waste stream management and fluids management.

Operator: Next question comes from the line of John Daniel with Daniel Energy Partners.

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

John Schmitz: Yes. First of all, John, as 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're getting a lot of pushback.

As it relates to price, what we find is that where 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.

Chris George: Yes. 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, we're off 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 the reservoir, and we can share in the benefit of that uplift.

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

Chris George: On the services side, John, I mean, 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 pad 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 frameworks that get us a great outcome and great return profile regardless of market conditions. But John, anything to add to that?

John Schmitz: 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 in 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 the ability of not having that downtime.

Chris George: 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 as 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 reuse barrels versus dispose. The more we can reuse that barrel versus put it down hole and get rid of it, the more opportunity we have to maximize the revenue and the value stream out of that barrel potential. And so obviously, it's a good market environment to potentially do that.

Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to John Schmitz for closing comments.

John Schmitz: 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.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time.