Q2 2023 Select Water Solutions Inc Earnings Call
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As a reminder, this conference is being recorded its now my pleasure to introduce your host Chris.
George.
You may begin.
Thank you operator, and good morning, everyone.
We appreciate you joining us for select water solutions conference call and webcast to review, our financial and operational results for the second quarter of 2023.
With me today are John Schmitz, our founder Chairman, President and Chief Executive Officer, <unk>, <unk>, Senior Vice President and Chief Financial Officer, and Michael <unk> Executive Vice President and Chief operating Officer.
Before I turn the call over to John I have a few housekeeping items to cover a replay of today's call will be available by webcast and accessible from our website at select water Dot com.
There will also be a recorded telephonic replay available until August 17, 2023. The access information for this replay was also included in yesterday's earnings release.
Please note that the information reported on this call speaks only as of today August three 2023, and therefore time sensitive information may no longer be accurate as of the time of the replay listening or transcript reading.
In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities laws. These forward looking statements reflect the current views of <unk> management, however, various risks uncertainties and contingencies could cause our actual results.
Performance or achievements to differ materially from those expressed in the statements made by management.
The listener is encouraged to read our annual report on Form 10-K, our current reports on form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks uncertainties and contingencies.
Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Additionally.
Additionally, as was outlined in our earnings release, starting on June one 2023, the company made certain changes to its segment reporting structure. These changes were driven by several factors, which John and Nick will discuss in more detail.
Changes in segment reporting have no impact on the Companys historical consolidated financial position.
Results of operations or cash flows. However, prior periods have been recast to include the water sourcing and temporary water logistics operations within the water services segment and remove the results of those operations from the water infrastructure segment.
Historical segment information recast to conform to the new reporting structure as available as supplemental financial information in the investors section of the company's website at www dot investors select water dot com.
Please refer to the company's current report on form 8-K filed with the SEC concurrent with our earnings release for additional information.
Now I'd like to turn the call over to our founder Chairman President and CEO John Schmitz.
Thanks, Chris and good morning, and thank you for joining us I am pleased to be discussing select water solutions again with you today.
The second quarter saw a strong margin improvements.
Meaningful free cash flow generation and higher net income and adjusted EBITDA.
Our continued focus on operational integration and improved efficiency across the business, along with the strength and resilience of our infrastructure and specialty care.
Chemistry solutions led to a 4% sequential growth in our gross profit before D&A.
While we saw a modestly declining rig and completion activity environment over the course of the second quarter.
We still were able to grow net income by 65% sequentially to $23 million and increased adjusted EBITDA to $70 million, a 4% increase relative to the first quarter 'twenty three.
On the cash flow side of things I am pleased with the progress we made during the second quarter, Nick can touch on the components in a bit more detail about our focused effort to reduce our working capital are paying off and help deliver a $102 million of cash flow from operations.
During the second quarter.
Adjusting for the $36 million of net Capex spent during the quarter, we were able to pull through about $66 million of free cash flow nearly matching our adjusted EBITDA for the period, we continued to make additional strides in this working capital reduction effort.
But still have a meaningful room for improvement.
I expect to see more progress on reducing working capital over the back half of the year, providing a significant opportunity for generating outside sized free cash flow.
Strong free cash flow provides us with many attractive options for capital allocation during the second quarter, we returned about $44 million to shareholders through dividends and buybacks.
Funded $36 million of net capex heavily weighted toward our contracted recycling and pipeline infrastructure projects.
And closed on a small bolt on $4 million water containment asset acquisition.
And ultimately we were still able to reduce our outstanding borrowings by $10 $5 million.
We already have repaid a meaningful portion of our remaining outstanding borrowings during the third quarter to date and I fully expect to have a debt free balance sheet.
With a growing cash position again by year end.
Replenishes, our cash war chest will provide us with ample opportunities to review our capital allocation priorities, including additional shareholder returns.
During the second quarter alone, we were able to repurchase 5% of the outstanding shares.
In addition to paying our third quarterly dividend.
And we will continue to weigh capital returns against other growth projects and M&A opportunities.
We remain steadfast in our vision to be the recognized leader and trusted partner in sustainable water management solutions and we believe our continued dedication to achieving operational excellence across the entire organization will further enhance that vision.
Operationally 2023 is a very important year for us having closed on more than a dozen acquisitions over the last two years combined with the rapid pace of market activity growth coming out of the pandemic, we needed to prioritize first and foremost safety.
Employee retention satisfying customers and job and project execution.
However, as the pace of activity growth has abated and the deal activity has slowed we have transitioned our.
Our strategic efforts.
Our focus for 2023 is on acquisition integration.
Improving efficiencies and operational excellence across the organization and executing on infrastructure projects and free cash flow generation.
We look closely at the entire scope and scale of the company and where appropriate made determinations to consolidate facilities or relocate assets across our areas of operations from certain non core service locations.
We remain attentive to every dollar of capital, we deploy and we'll prioritize capital allocation to the most strategic areas of the business, especially where we have the most opportunity to add proprietary applications of automation chemistry or recycling.
<unk> and integrate full lifecycle water infrastructure and chemistry solutions around our existing asset base.
We also continue to think hard about who we work for and where we work for them.
We must continue to bring value to our customers at all times.
But we will continue to prioritize investing and those customers that are seeking long term value added partnerships versus call out services.
With our strategic infrastructure footprint.
We are well positioned to strengthen the contractual relations, we have with our customers and expand the scope of integrated water and chemical solutions that we are able to provide around the infrastructure base.
While there is still more to accomplish we are seeing these efforts pay off across the company and our customer base with gross margins improving by 160 basis points on a consolidated basis during the second quarter, even with the modest revenue declines that resulted from the macro activity.
Adjustments and limited yard closures.
In a similar manner, we continue to think about what makes the most sense from a segment leadership and reporting standpoint accordingly during the second quarter, we made the determination to reallocate our legacy water sourcing business and certain temporary water logistics operations.
From our water infrastructure segment into our water services segment.
These changes will allow us to better manage our operation and more efficiently deploy capital across the organization.
For water services. These changes add operations that are more closely aligned with that segment's core completions oriented service offerings and job execution excellence around the well site.
For the water infrastructure segment. This change will further focus the segment. So that all of its revenues are now being derived from core infrastructure solutions, namely recycling and reuse facilities contracted.
Contracted pipelines and production Levered disposal facilities.
Importantly, these solutions are nearly all <unk>.
Under long term contracts are production related in nature generating high gross margins and adding more severe stability and duration to the segment's operations than ever before.
Additionally, this realignment will free up our water infrastructure leadership to fully dedicate their efforts to our highest priority growth areas around brownfield pipeline and disposal projects and greenfield recycling facilities.
We have already had tremendous success in 2023 with $34 million of contracted projects underwritten so far this year.
The project backlog remains very strong and we expect to close on multiple additional projects in the back half of 2023.
With our recent projects expected to come online during the late third quarter and fourth quarter I am excited about the growth prospects of this segment looking in to 2024.
There were many reasons for us to implement the segment realignment.
And I believe the changes made will provide clear visibility over time into the financial performance of the business.
And to the key components that drive the business.
We will continue to review what makes sense for the business, but ultimately I think these changes will provide a better alignment to implement additional operational kpis that can be tracked and reported against.
Providing for additional transfer transparency and accountability.
Select has always been at the forefront of driving the advancement of automation and other technology developments within the water solutions industry.
As our evolution toward produced water reuse continues to take hold it is clear that selects sustainable water and specialty chemical solutions.
Will be a critical part of driving the industry transition importantly.
Importantly, select is uniquely positioned to deploy these technology and chemistry solutions around a growing contracted infrastructure footprint.
Long term, having care custody and control over an increased portfolio of produced water barrels.
Regardless of the ultimate use.
We will provide a strategic advantage specifically to advance the commercialization and technology advancement of recycling and reuse towards sustainable full lifecycle are beneficially reuse solutions.
As we continue to progress these key initiatives I encourage listeners to review select 2022 sustainability report for additional details on <unk> commitment to sustainability and support of all our stakeholders, our achievements to date and our targets for the <unk>.
<unk>.
This report was published earlier this month that it can be found in the sustainability section of our website.
Additionally, as our rebranding efforts continue successfully across the organization. It is becoming more and more clear that there are a significant amount of opportunities to create additional value across <unk>.
An integrated water and chemistry business.
The more we can highlight the consistent message and visibility to our customers around the entire scope of select capabilities and the value add potential that our solutions create the more opportunity we will have to.
To get paid for the full value we provide.
To earn long term contracts and to become better aligned as strategic partners with our customers.
When we think about our growth priorities water infrastructure will certainly remain front and center supported by our recent acquisitions and business development projects, we have seen a rapid pace of growth in our core recycling business and fac water infrastructures gross profit.
During the first half of 2023 on a re casted basis already matched its full year total for 2022.
Put it in perspective has a percentage of consolidated gross profit before D&A water infrastructure has grown from about 7% of the total company gross profit in 2018 to about 25% expected for the third quarter of 2023 on a recast.
Basis.
When combined with our specialty chemistry business.
I expect that by 2020 for more than 50% of the profitability of the company will be earned from sustainable recycling solutions.
Tractor pipelines.
Production weighted disposal facilities and specialty chemistry manufacturing that is a significant evolution in select business that provides a lot of optionality when looking at the future growth opportunities.
Financing considerations and shareholder return potential.
I am very excited about what the future holds for select and look forward to further executing on this vision through additional profitability growth.
Shareholder returns and strategic execution in the coming quarters.
At this point I'll, let Nick speak to our second quarter results and second half outlook in a bit more detail.
But we are firmly focused on the initiatives I've discussed and I look forward to unlocking a meaningful amount of cash during the second half of 'twenty three and beyond Nick.
Thank you John and good morning, everyone. Our focus on cash generation and operational efficiency paid off in the second quarter with a strong free cash flow yield and higher gross margins for the company.
Net income and adjusted EBITDA of both advanced quarter over quarter, even as the surrounding macro environment softened during the quarter.
Our business model meets the market's need for advanced sustainable water solutions benefited by proprietary chemistry technology, and we expect to continue growing our profitability, even at today's lower rig count and completions activity.
Streamline our operations and investment decisions, we've pruned legacy freshwater sourcing and temporary water logistics operations from the water infrastructure segment moving into water services and focused our water infrastructure segment purely on the full water lifecycle through fixed assets.
We invest in contracted water networks around our multi basin fixed infrastructure connected by gathering and distribution pipelines recycling and treatment facilities and disposal solutions.
While this segment realignment doesn't impact our consolidated historical financials or represent a major overhaul of our day to day operations. We expect it will provide additional transparency and accountability for investors around the impact of our growth investments in water infrastructure.
The bulk of our growth capital investments remain targeted towards this reconstituted segment with an advantageous margin profile that should grow as these investments reached their operational go live dates.
As John mentioned, we made tremendous progress on cash collections during the quarter reflected in the $102 million operating cash flow benefit to the company.
This is the result of the dedicated team work across multiple select departments to integrate our recent acquisitions implement new technologies and consolidate a rebranding of our various businesses into select water solutions.
Accounts receivable declined by $62 million during the quarter and our previous target of reducing <unk> by $75 million between first quarter and year end has now been raised to $100 million.
With this target we expect to repay the remaining credit facility borrowings prior to year end and have ample liquidity to act on a range of potential strategic opportunities.
Furthermore, the strong cash flow momentum. We currently enjoys should continue as the rebranding leg work is completed and new technology continues to be deployed.
With this robust free cash flow, we executed over $38 million of open market share repurchases on top of our regular quarterly dividend, leaving around $10 million of remaining authorization we.
We approach share buybacks opportunistically to maximize shareholder value in parallel with market dislocations like the recent regional bank reversal.
With that philosophy in mind, we don't plan on repeating that level of buyback activity during the third quarter. However.
However November marks the one year anniversary of the initiation of a regular <unk> <unk> per share quarterly dividend.
We plan to reevaluate that level following our upcoming August payout.
With our expectation of ample free cash flow over the back half of the year, a growing stream of contracted and production Levered high margin revenue and our robust liquidity profile, we hope to further our commitment to consistent and growing shareholder returns over time.
Now looking at the income statement slick water solutions second quarter revenue declined sequentially by 3% to $405 million.
However, our efficiency efforts and further business and product optimization carried additional dollars to the bottom line through higher gross margins net income increased from $13 7 million to $22 6 million sequentially and adjusted EBITDA increased to nearly $70 million from $67 million in the first quarter.
While declines in completions activity, along with rig count through the second quarter presents some macro headwinds. We believe we can continue to advance the overall profitability of the company into the back half of the year <unk>.
Quality prices have recently strengthened and our consumer customers generally remain highly profitable and well capitalized.
We have seen pricing remained steady and we do not anticipate any material pricing movement based on activity levels.
Additionally, some of the projects, we announced last quarter will begin to make an impact in the third and fourth quarters, though the bulk of the growth will come early in 2024 sustain.
Sustainable and reliable produced water management remains a core priority for our customers and supported by selects uniquely positioned multi basin solutions with a massive volumetric footprint, we have a number of potential incremental infrastructure projects in various phases of development that we expect to announce in coming quarters.
Now I'll walk you through the updated segments water services revenue declined by $10 million sequentially or a little less than 4%.
Prioritized higher profitability over topline growth targeting a limited rationalization of underperforming locations and a lower completions activity environment.
We still have opportunities to integrate overlapping locations and are likely to continue closing or consolidating certain locations that have not fully benefited from the recovery over the course of the year and redeploy those assets or sell them to generate cash that can be more efficiently deployed elsewhere.
With this strategy in mind to maximize return on investment we expect a low to mid single digit percentage revenue decline, but higher profitability with an improvement to gross margins before DNA of up to 100 basis points.
Our recalibrated water infrastructure segment delivered steady performance from the base for a very strong first quarter.
We believe the third quarter should see gains in both revenue by mid single digit percentages as well as gross margins before DNA of 200 to 400 basis points.
We're moving the water sourcing and logistics operations from this segment provides a clearer view of the margins and scale of our water reuse and recycling infrastructure.
As expected gross margins moving above the 40% range for the third quarter. We expect continued accretive margin progression as previously announced projects and future projects come online later this year and into 2024.
Chemical technologies segment reached another all time high gross margin level exceeding 20% with continued success in specialty chemistry sales.
We expect steady results in the third quarter as market share gains offset lower industry activity relative to the second quarter.
Yes.
Consolidated SG&A decreased sequentially to $34 3 million from $35 8 million due primarily to a $1 million decrease in transaction and rebranding costs.
I expect the back half of the year will deliver around $35 million per quarter of SG&A given the ongoing rebranding efforts that conclude at the end of the year.
We have broken ground on most of the various infrastructure projects, we announced on our last call and second quarter net Capex of $36 3 million increase from the $21 2 million in the first quarter.
Our 2023 net capex forecast remains within its previous range with a tightening of that range to $100 million to $130 million after giving.
<unk> to roughly $20 million in expected full year asset sales.
I am pleased with our heightened cash flows we were able to pay down our sustainability linked credit facility by a little over $10 million, while executing these critical organic growth investments as well as the $44 million of shareholder returns during the quarter.
We expect depreciation and amortization expense to continue at around $35 million per quarter and tax expense to remain minimal through 2023.
We added $27 million of liquidity during the quarter to finished with $193 million of total liquidity.
Select is accomplishing our core 2023 priorities, including boosting our operating margins generating substantial free cash flow.
After several years of accretive acquisitions in dynamic growth, we're now extracting additional margin and profitability out of our existing market, leading footprint, while deploying enhanced cash flow into long lives high return infrastructure investments and increase shareholder returns.
We're ideally positioned to achieve these goals and enter 2024 is stronger than ever.
Thank you and with that we'll open it up to questions operator.
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At this time Keith.
Our first question comes from Jim Rollyson Raymond James.
Good morning, guys.
Good morning, Jim.
Great to see the progress this quarter and kind of across all the fronts on margins.
Cash flow generation and free cash flow generation.
Kind of circling back to something you said a minute ago, Nick R&D, when we think about margins for water infrastructure.
As bill classified now, which it looks like you'll be able to actually show the growth.
A little more isolated than maybe the way it was reported before but so we're north of 40% margins kind of guiding obviously pretty stout growth sequentially up two 2% to 400 basis points.
As I think about that business.
And the new projects start hitting late <unk>, <unk> and really impact next year.
Just maybe some sense of where can that low 40% margin go to.
Or is that something that as these projects hit I know, you've said margin accretive but is that something thats in the mid <unk> in the high 40 is just maybe some sense of how that looks in and any color you might provide just on how you are thinking about incremental revenue opportunity for that business just based on what you have already underway.
Sure Jim. Thank you so as we look forward in that water infrastructure segment.
I would like to be at a 50% run rate.
Some points late 2024, now how do we get there we announced $34 million of infrastructure projects in our last call.
As you know, we like to underwrite contracted projects with.
A three year payback window with.
With additional upside potential from third parties or expansions.
Do a little bit of math, there and that gives you a.
Pretty healthy.
10 to 12 plus million just from those projects alone we do expect to come back in detail some additional projects.
Over the next quarter and into the.
Back half of the year here that will add to that and add to it at accretive margins of 50% or better.
So thats the real growth engine here of when we look forward, taking that segment from around 40% where it is today.
To an exit rate of around 50%.
With additional Optionality as we continue to expand its networks as we continue to bring recycling.
In the Permian, but in other basins.
Developed many of the assets that we've acquired over the past couple of years and Jim. This is Michael just to expand on something that Nic said in terms of timing, which is part of your question.
When you think about it when we execute a contract to underwrite and infrastructure build out most of our build out youre going to take and it varies in the project of seven to nine months and then once construction is complete and then you have to work through the operational and promotional issues.
And that can take a little bit of time as well and then at that point youre going to really start to see the full run rate of that of that project contribution.
Kind of a steady absent new projects that are kind of like sounds like steady ramp as we go through the next few quarters.
You, obviously highlighted there's still opportunity out there.
In Permian and elsewhere are we talking kind of similar sized projects to what you guys have been on.
Your writing over the last 18 months or so or are there any larger more material projects on top of it was just kind of been hitting.
Hitting singles doubles, and obviously, great margins on top of that but just curious as you have rebranded and people are starting to see what you guys are capable of if there is actually any larger sized opportunities as well.
And as John mentioned.
We are pretty confident that we're going to be able to deliver more projects in the back half of the year.
Getting a lot of interest whether it's through the rebrand or just extra.
Executing for our customers, who are getting a lot of interest on projects really in all basins across our footprint.
Range from small deals to quite large deals bigger than anything that we've announced I would say the average is still kind of within the range of what we're talking about something that looks like a $6 million to $10 million buildup, but there are definitely things that are smaller and larger and it's my hope and expectation that.
We will be deliberate be able to deliver on both.
Fantastic and just one last question.
John on that on the M&A front you guys were.
Busy consolidating a bunch of things that are pretty attractive.
Rice's and then you've kind of spent a good chunk of this year focused on integrating everything overhaul of the business and the rebranding efforts curious just what the outlook our opportunity set is for for M&A as you kind of get past the integration phase given that you guys are obviously going to be generating a lot of free cash flow in.
Probably can't re buy your shares.
All your shares back forever, given your market cap today. So just curious kind of the opportunity set here over the next couple of years.
Yeah, No Greg Great question.
We were busy.
And we did put a lot of transactions together a lot of companies, but most importantly, what we've put together a footprint with this asset base.
Across really across the lower 48.
In some areas really number one position.
And the opportunity around them that asset base that we've put together Jim is the opportunity, we're really really focused on.
If you ask me if there's M&A.
As long as it fits within that asset base and that opportunity.
In handset.
As a way to expand or add volumes or.
Bring something to the table that is a very good.
Uh huh.
The opportunity for capital both for our customers and us.
We're all for it but right now we are very focused on this infrastructure asset base that we put together because it's very unique and to Michael's point. There is a lot of conversation there is a lot of.
Opportunity outside of the ones, we've announced already and they are.
Some of them are large in size, but a lot of them are small in the small.
Either pipelines to bring water to the to the asset base that we have in place.
Hook up the asset base to each other to become.
More of our network versus a singular.
Some of them things are very quick paybacks, they're not 36 month paybacks.
There is a large quantity of that and.
I would also add to yes. The rebranding is very important because it tells us pills or customer base, our investors some one ourselves.
Who we are and what we are but.
Really the network and the asset base, we put together is really what's driving the opportunities of either just pipeline infrastructure are overlaying water recycling facilities, along long term contracts over this concentrated water position, we put together now.
Yes sounds like a great place to deploy capital in a great great progress. Thank you guys.
Thanks, Jim.
Our next question comes from Lucky Boy with pipeline.
Hey, good morning.
Luke.
Good morning, Jim tackle the water infrastructure margin question I guess on water services nice margin improvement there.
Even with reps ticking down.
And <unk> is the same outlook with rationale modestly but margins up.
Can you talk about some of the operational improvements and efficiencies, you're seeing and maybe where margins could go even.
Even in a flattish environment it sounded like some of this might have been closing down unprofitable locations continue to kind of rationalize the asset base.
Any commentary around that.
<unk> be helpful.
Sure. So just directly to hit the margins our near term goal for water services of the mid Twenty's with longer term in the high <unk> really the drivers and that is further integration and <unk>.
Part of that further integration is the consolidation and potentially elimination.
Some of the yards that are one not strategic to our integrated water and chemical thesis and two unprofitable or moderately profitable.
And as we as we look to consolidate or rationalize that it could have some downward pressure on on revenue, but we're expecting margins to be.
Flat or even improve by that activity.
So that was the other piece.
The integration is really just operational efficiency.
We will remove from Covid now far enough, we've built back the organization to where it needs to be.
And we need it really burning in the discipline required to execute a services business every day and get efficiencies. So we're doing a number of things.
One of the things that we brought on a robust supply chain group to help us leverage the buying power across all segments.
But theres a number of just everyday blocking and tackling things that we need to do better across services to hit those medium and long term.
Long term service margins and the one final thing I would say and add to kind of.
Improving margins is really around technology.
Been very committed to automation.
And implementing technology to provide a safer more certain and more cost effective solution for our customers.
We've done a pretty good job of that in some areas, but theres still a number of places that we can implement from good technology, which will.
Drive profits to the bottom line.
So those are really what we'll focus on our services.
Okay got it perfect. Thanks, a bunch.
The next question is from Tom Curran with Seaport Global Securities.
Thank you good morning, guys.
For water infrastructure Division entered this year with 15 sites online and operating will you provide us with a quantified estimate of how close those 15 are now to having maxed out their structural revenue generation potential through adding customers and tying in new branches just.
For those existing 15 or are we at 80%, 90% how far along are they.
So on the site it really comes down to individual points in time, and we can have some sites that are there.
Pull out at for a period of time, but thats typically not sustained if you were to just supply of butter knife across them I would say that we still have meaningful excess capacity.
So I would say somewhere in the $50 to 60% range in terms of utilization and those are a lot of the projects that we're working on is looking to.
Tie in more customers. So that we can leverage that capacity into the extent that we start to bump up against capacity. Many of them are modular in nature. So that we can expand that and.
And we have expanded and will continue to expand it to meet the needs of our customers in the market.
Yes, Tom.
This is John one thing I would add to that is.
As we've been able to continue to develop this asset base.
Overlay these projects on top of this asset base.
It's really turned into an opportunity of individual asset to a more broad based system and that system has a major effect on capacity increase as you think about moving water to needed places are removing water from <unk>.
<unk> places and across recycling or disposal assets. So the actual.
Putting them together.
Allows for capacity to increase meaningfully.
Because youre not limited by the single system utilization. So that you are able to work through kind of the highs and lows in peak shape somewhat.
Tom One last thing.
It's really becoming.
<unk> itself really well now.
But because of these systems are assets are overlaying recycling on top of large produced water volumes that we've been able to do.
It's also allowed US now to think about how we go to market or how we really.
Have a relationship between the water services business and the specialized chemistry business.
Through this footprint of infrastructure. It is it's very different and.
We think there's great opportunities, whether it's margin expansion or added services or <unk>.
Bringing specialized chemistry into the mix.
That all makes sense and then.
Two more questions.
And the line of inquiry hereon on water infrastructure opportunity.
I believe you had been pursuing a total of 12 projects as of your last update you gave us.
Could you.
Date us on that number has it held the same increased.
Have any dropped out and then of the current.
Total number that youre chasing how many of those entail full lifecycle recycling facilities.
So the number is obviously fluid deals can can come and go and you never really know what that's going to cross the finish line until you get to signature on the piece of paper.
<unk> speaking the opportunity said some are falling out but the opportunity set has increased from where it was last time, so we would be above that today.
At least half.
Or better would be kind of full lifecycle water projects.
That's what we're focused on everything around our existing footprint as it ties into the infrastructure and the water chemistry components that we've talked about from big to small, but really what we're getting a lot of interest in us that full lifecycle solution and again, it's a source in the Permian because thats, where so much the produce.
Water is.
But we're having those conversations across our footprint.
Wow.
Not surprising, but it sounds hot.
Very promising.
I'll return to the queue.
Tom.
The next question.
He is from John Daniel.
With Daniel Energy partners.
Good morning.
Few completely random questions sure.
I guess the first one would be if all of the projects that you're evaluating where it can be realized what type of capex could that look like next year.
Yes, John .
Certainly we hope to get better.
Handle on that heading into next year's kind of budget for you.
If they were all realized it would be a number that's much larger than today.
Or more mature than 2023 certainly.
We do have opportunities that are larger as Michael mentioned and ones that are similar to the ones. We've been in we've announced most recently with.
What's important to us it will be within cash flow.
So are we.
We pursue high return projects, we pursue it.
With knowing that select we control with care and custody over to mince volume of water nationwide. We can recycle that water. We can dispose of it we can move it across basins across customers.
Ultimately, we hope to be able to use that water and beneficial reuse.
It's really with all of these projects are furthering is that goal of that system.
And the ability to.
Drive greater economics through better connectivity so.
We do have potential to expand we also potential to.
<unk> some of our solutions.
Beyond oil and gas and beyond what we've traditionally done we're going to be very thoughtful and judicious about that of course, but.
A lot of exciting things on the horizon.
To get into more in future calls.
Got it really was driving the question I'm trying to get a sense for whether you think the demand for all of your services is actually accelerating.
Relative to growth you might have experienced in <unk>.
Last year or so.
So as Michael mentioned, we have certainly more more projects under discussion.
Months ago.
Yes.
Long term contracted projects when we talk about those.
Yes.
Before we get off that subject because I don't know if it's a direct to your question, but I believe it's on.
And the answer.
Related to what we are finding is that as we build out this opportunity set in that water infrastructure. It adds to the ability for us to do more services.
And that more services could be around that actual facility as well as the interaction between the facility in the job.
So it is driving something different there.
Then what we had before as we develop that John and the same thing would be true for the chemistry component.
Really around the recycling piece, but as you put in more recycling facilities, and you're managing that produced water and making it into a usable frac water again.
Flying select chemistry to that which really focuses and specialize on matching complex water with the right chemistry.
Augment augmentation effect, there as well so it surfaces and the chemistry piece.
Fair enough.
Interesting I'll have to follow up the offline.
On that to learn more the on the projects at this point or I know you said you are there in all the various different different geographic basins, but im curious if youre seeing any new potential projects and new areas outside of where you are presently operate.
Short answer is yes, okay.
The distribution is still largely focused on the Permian because thats, where so much of the activity in the produced water is.
<unk>.
We are seeing in areas, where we've been in the past like the DJ as well as in new areas, where we haven't we don't have projects or haven't announced them. So I think youre seeing other basins continue to.
Wrestle with some of the produced water challenges and the reuse opportunity or challenge. However, you want to think about it.
And kind of catch up on that front and so we get really excited about it one because it presents an infrastructure opportunity for us.
Really often times.
Brownfield around our existing asset base and the newly acquired asset base, but also on the chemistry side as you start to embrace more of the reuse.
There is more complex chemistry, that's associated with that and Thats kind of our bread and butter and John typically will have operations in those areas, but just we may not yet have recycled.
<unk> or major infrastructure projects in those areas, we have or not.
Looking at go into Alaska, or offshore or anything here I should've specified within our existing footprint.
John before before we get off that subject because again I believe it.
It adds to your your question Eric.
Has appointed.
Of effect to your question.
You take.
Our position in the Haynesville shale with what we got out of the Nomura transaction.
That pipeline system and that disposal network that we continue to hook together and add to.
It has probably a big piece of the backlog that Mike was talking about but.
And they are really projects continue to hook, it together or add disposal or lay a pipe to more.
More produced water, that's being called and it's it's a good backlog.
The interesting thing is the Haynesville contracted.
But we actually are adding to and the Haynesville right now.
And if that Haynesville got active and it become an opportunity for recycle we have a large quantity of water that centralized with a network that you can deliver back out to second okay.
Okay.
Kristin.
I'll go to my final question.
Which is admittedly a bit of a nerdy question, but.
When you think back to like the old water business gone back a lot of the fluid hauling trucks I'm just curious how many trucks are running on the road today versus what you might have had four to five years ago.
And then.
On that fleet, what's the opportunity set maybe.
CMG powered.
Our electric that's it for me.
John and I are looking at each other on this one John .
I told you I was just kind of.
No. It's a great question I haven't thought about it in a while I mean, yeah, probably need to follow up with you to get you something that you can really since your teeth in but when.
When I think about it.
All of the Frac water was being delivered by truck back in the day.
So now granted the frac sizes are smaller but that is a lot of trucks and the pipeline infrastructure for the produced water and flowback was limited or nonexistent as well.
And so you have taken.
All of the all of the Frac water today is being delivered by <unk>.
Hoser pipe.
And a majority.
At least in most patients if not all is except for the northeast is going to be the flowback and produced is going to come through pipe.
The amount of trucks that we've eliminated as an industry is substantial and theres still a lot of trucks out there and theres always going to be a need for them in certain aspects, but the reduction is pretty dramatic.
In terms of <unk>, we've looked at <unk> and LNG over the years.
Part of the challenge as you're well aware of there is the economic piece, but there's also just the logistics.
You really have to kind of put that infrastructure in yourself, but your yard to make it work.
And just make sure that yearly disciplined and thoughtful about your route planning.
John Yes.
Yes, when we get off that subject I think it's really important.
Very clear.
<unk> trucks in the oilfield has a place in that place is still getting executed today and they will continue to have a place there a service component and they haul produced water in a meaningful way does not have the pipe today right.
Alright.
Answer and it would not be compressed natural gas to answer directly to you, but we believe select believes that the technology and advancement of automation.
And technology through the cab or through the motor of those trucks.
<unk> been advanced to the position it is going to be advantaged.
And that will bring a different type of truck application as we go forward.
Fair enough. Thank you for indulging my questions. This morning.
Thank you.
The next question is from Jeff Robertson with water tolerant research.
Thank you good morning.
Just a question as operators continue to push where those game for longer laterals and larger completion jobs does that present an opportunity.
And obviously on the volume side for what you will can do for customers. But this was also presented an opportunity for you to provide higher margin.
Solutions to customers.
Yeah. This is John I'll take it and try to answer it.
Longer laterals and <unk>.
Activity is around completion, whether it's Simon frac.
Hi.
Longer laterals or more complicated water.
Opportunities to the well side multiple sources recycling man automated manifolds automated pumps those jobs are getting very technical now.
And that is a very good position for select to be in as those jobs continue to get more technical because of use of water.
The disease.
Utilization or the efficiency that is demanded by our customer and a 24 hour period and the complexity of that so it's of course for us, but yes, it complicates things.
Does that play into your hand, or your strength just with what <unk>.
<unk> can deliver to the customers for <unk>.
Site management.
Yes.
It plays into select thesis.
But it also plays into select history, because if you look back for us.
The last 10 years of slick water or large quantity water fracs have developed and Simon <unk> developed in pad drilling and longer lateral.
The complexity of that job is what we really built our technology around so aqua view automation pump technology.
No.
Eight sources for a big job that needs to be brought into.
The solution of delivery.
It's really what R. R.
Our backbone is about.
Thank you for taking my questions.
This concludes our question and answer session I would like to turn the floor back over to John Smith for closing comments.
Thank you operator.
Thanks for everybody for.
Joining the call today and given that the interest in learning more about select water solutions and we definitely look forward to speaking to you again next quarter.
Okay.
Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.