Q2 2025 Select Water Solutions Earnings Call
Please stand by.
Thank you and welcome to the select water solution. Second quarter 2025 earnings conference call.
At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now like to turn the conference over to Garrett Williams. Please go ahead sir.
Thank you operator and good morning everyone. We appreciate you joining us for select Water Solutions conference call and webcast review our financial and operational results for the second quarter of 2025.
With me today are John Smith, our founder chairman president and chief executive officer, Chris George Executive, Vice President, and Chief Financial Officer. Michael skari Executive, Vice President and chief offer operating officer and Mike Lyons Executive Vice President and chief strategy and Technology officer.
Before I turn the call over to John, I have a few housekeeping items to cover a replay of today's call will be available by webcast and accessible from our website at selected.com.
There are also be a recorded, telephone group of August 20th, 2025 the access information for this. Free play was also included in yesterday's earnings release.
Please note that the information reported on this call speaks only as of today, August 6, 2025, and is 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 Law.
These 4 looking statements, reflect the current views of selects management. However, various risks uncertainties and continues could call their 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 10K. Our current reports on Form 8K as well as our quarterly reports on form. 10 Q to understand those risks, and certainties and contingencies.
Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Now, I'd like to turn the call over to John.
Thanks Garrett.
Good morning and thank you for joining us.
I am pleased to be discussing select Water Solutions again with you today.
During select second quarter of 2025, we improved our profitability and cash flow while continuing to advance our strategic objectives around growing water infrastructure, scale and margins.
I'd like to start with some of the key second quarter highlights, an overview of several large contracts, and transactions.
We recently closed and other strategic and market updates.
Then Chris will walk through the second quarter results and forward Outlook in more detail.
In the second quarter, we increased net income by 22% and adjusted ibida by 13%.
Importantly, we improved operating margins, across each segment leading to a Consolidated gross margin, gains of nearly 2 percentage points.
Supported by our growth in both our recycling and disposal volumes, we achieved strong top-line and bottom-line growth in our water infrastructure segment, while growing gross margins before DNA to 55%.
Since the start of the second quarter, we have signed several new long-term agreements for large Gathering recycling, distribution, and Disposal projects.
These agreements continue to add scale to our contracted and dedicated acreage position in New Mexico and provide meaningful long-term Revenue potential.
We also have recently executed on our now underway with multiple strategic opportunities, to rationalize our water services segment and support of our rapidly growing. Water infrastructure platform.
Have.
Folio to allow us to focus our time and capital on the areas that deliver high gross. Margins continued growth and full life cycle, Water Solutions.
During July, 2025.
We closed on a creative transaction with Omni Environmental Solutions, that allowed us to achieve multiple strategic goals at once.
In this 1 transaction, we were able to strategically grow our infrastructure business while monetizing and rationalizing, certain non-core parts of our water service segment.
As part of the deal, we acquired a special Waste landfill a processing and treatment plant, disposal facilities, and an oral Reclamation asset in the bakan region. Now, with 4 Active, landfills in the region and an expanded integration, into solids liquid separation and enhance oil, Reclamation, we have established a clear Market leading solids management footprint in the bachan to pair with our sizable traditional Wastewater disposal portfolio.
We will spend the back half of the Year, getting the assets and the facility upgraded and expanded. But we are excited to add additional high gross margin growth potential for the infrastructure business in 2026 through this deal.
In exchange for these assets Omni acquired selects Trucking operation in the Northeast midcon and bachan regions. We expect this deal will have improved our Consolidated margins over time reduced our operational, risk profile and streamline our business in multiple basins.
While the Omni transaction is a strong step towards rationalization in the Water Service portfolio, we believe more opportunities remain to capitalize on certain strategic assets within our water services segment.
Accordingly, we are now formally. Exploring financing and capital structure options to unlock value in Peak. Rentals, our equipment rentals business within the water services segment.
As part of this effort, I'm excited to partner with Scott McNeil, a highly respected and proven executive in the energy and power sector.
Scott has been instrumental in the formation leadership, and monetization of multiple successful energy companies and brings deep experience in both operations and capital formation.
Scott joins us as the CEO of peak and will be leading the Strategic development. And transaction planning for the business. Pat, anderle continues his role as president of peak, maintaining the operational, leadership, execution, discipline, and customer focus. That has long driven Peak success.
The peak platform includes wellsite, equipment, pressure and flow, control systems and notably an emerging distributed power generation business.
For more than 15 years Peak has been a leader in deploying traditional diesel. Distributed Power Solutions into the energy markets and more recently PC has capitalized on the rapidly growing demand for its natural, gas generators and proprietary battery Power Systems demand for mobile off-grid power is surging as oil field. Electrification accelerates
Has the power grid built out. Lags these Solutions ensure critical energy infrastructure stays online with resilient and reliable backup.
We see the impact of this every day. As we utilize Peaks Distributive Power Solutions to support the rapid buildout of our own water infrastructure platform in remote regions of West Texas and New Mexico.
Peak is scaling into the distributed, power sector with meaningful advantages and established rental platform, a large base of operations, and strong customer relationships across top tier operators.
furthermore Peak has secured a long-term exclusivity agreement, with a critical supplier of proprietary battery storage solutions,
For both upstream, and Midstream application.
In order to support Peaks momentum in the distributed power, generation business, and ensure the business has access to Dedicated growth Capital that does not compete with our water infrastructure growth needs. We are in the process of evaluating transactions that would establish a standalone capital structure.
We completed the formal carveout. A peak as a standalone operating company earlier this year and we are well prepared for various potential outcomes.
While the ultimate outcome is still to be determined, we expect to preserve continued economic exposure to Peaks, future growth and value Creation in. Its distributed power space. While maintaining long-term strategic alignment to support our core water infrastructure growth strategy.
Ultimately each of the Omni and Peak initiatives are aimed at focusing selects near-term priorities around our core strategy of building and promoting radical repeatable water, infrastructure growth and more directly the continued buildout of our large scale. Northern Delaware Basin infrastructure Network in New Mexico,
Now shifting back to our infrastructure build out in New Mexico. I am pleased to have executed, multiple new long-term contracts in the northern Delaware. During the second quarter to expand on our current Network in both Eddie and Lee counties, adding approximately 60,000 Acres of additional leasehold dedication. And 385,000 acres under right of first refusal agreements,
These new contracts encompass the full water life cycle, including gathering, recycling, disposal, and treated water distribution. They underwrite the addition of multiple new recycling facilities and nearly 30 miles of additional dual-line, large-diameter pipeline.
But what I am even more excited about is that in each of these deals, our NP operator Partners have agreed to directly convey the ownership or operations of their existing Recycling and Disposal infrastructure to select.
Select will continue to contractually support. Each of these customers core operations, but will have the opportunity to utilize the assets for a broader systems, water balancing, and commercialization as well.
This is a very strong Testament to the economic and operational value that select provides in the marketplace with our full life. Cycle water balancing capabilities. We greatly appreciate the trust that our partners have in selects reliability, as a large water Network operator, and believe, we are well, positioned for more long-term contracts ahead.
We also continue to grow our disposal capacity and take away, in conjunction with this large network buildout.
With plans to continue to grow this capacity over time to support long-term network optimization and efficiency.
Upon the completion of these recently awarded projects in the northern Delaware Basin alone, we will have approximately 1.8 million barrels per day of recycling throughput capacity and more than 1 million acres of combined leasehold and rover dedicated acres.
On a performer basis. New Mexico will have gone from contributing zero to now, more than 60% of our total fixed recycling capacity across the puran and about a 2 years time.
To further reflect on this point. Across the last 5 quarters. We have added on an average more than 77,000, dedicated lease, hold acres and more than 140,000 roofer acres per quarter, a tremendous pace of contract growth and a short period of time.
In effect, we continue to add a significant backlog of contracted future revenues and cash flows underwritten by some of the best geology and lowest break. Even and, well, inventory in the industry. I am confident.
The coming years.
Ultimately, we maintain a high level of confidence around our water infrastructure growth potential and believe the segment is poised to see strong 20%, year-over-year growth in 2026 building on the double-digit growth. We expect in 2025
While the macro activity, environment may present challenges in the second half for more of the completions oriented parts of our water services and chemical businesses. We maintain Market leading positions in each of these segments and expect them to continue to generate strong free cash flow. While we focus on growing, our water infrastructure segment.
At this point, I'll hand it over to Chris to speak about our financial results and the Outlook and a bit more detail Chris.
Thank you, John. And good morning, everyone.
and the second quarter, select had a strong performance in light of varying activity levels, and make great progress in advancing strategic objectives during the quarter,
during the second quarter we achieved 22% sequential growth in net income, 13% sequential growth and adjusted evida
Higher gross margins before DNA across each segment.
Growth in both our Recycling and Disposal volumes and continued water infrastructure. Long-term contract lines.
Looking at our second quarter in more detail.
Water infrastructure. Produced a strong quarter with revenues, increasing, 12% and gross profit. Before DNA growing 15%. Well ahead of our expectations
The segment also generated a strong 55% growth margin for DNA during the period.
Up 1 and a half percentage points from the prior quarter and more than 4 percentage points compared to the prior year.
Looking ahead for our water infrastructure segment. We expect overall activity in Q3 to be relatively steady with our anchored tenant customers. With some modest variability and interruptible activity resulting in revenues, that are relatively steady to potentially slightly down low single digit percentage points in the third quarter relative to what was a very strong Q2.
We should also maintain gross margins before DNA above 50%.
However, based on our current customer schedules and new projects coming online. We anticipate a strong Q4 for infrastructure with revenue and gross profit. Expected to increase double digit, percentages, sequentially, resulting, in a 2025, exit rate that remains in line with our prior guidance.
Importantly, with our latest contract Awards, we are adding new capital projects that should continue to provide growth for this segment into 2026 and Beyond a testament to our water infrastructure strategy overall, and the strength of its F future earnings potential.
While we will continue to closely monitor market conditions in partnership with our key customers, we expect a strong exit rate in 2025, with new projects coming online throughout 2026.
We believe We are on track to deliver 20% growth in water infrastructure, in 2026 compared to full year 2025.
We also remain on target to well exceed our previous goal of achieving 50% or more of our consolidated gross profit coming from water infrastructure on an exit rate basis in 2025, particularly in light of the Omni transaction.
While we've achieved much in the past two years, we anticipate this contribution trend to continue into 2026, and we are.
Switching to the water services segment. And the second quarter we saw revenues decrease by approximately 4% sequentially driven. Primarily by weakening activity levels in the latter part of the quarter.
This decrease, however, was below the low end of our prior Revenue, guide of an expected 5 to 10% Decline, and our gross margins before DNA and services held relatively flat at around 20% during Q2.
I believe the water services segment performed favorably compared to the market activity overall.
in the first half of 2025,
However, we should experience further reductions in the second half of the Year attributable to both activity and the larger rationalization efforts mentioned.
Medially after quarter end.
Select close on the aforementioned on the asset swap transaction that resulted in the Devastator of certain Trucking, and related operations, in the Northeast, midcon and bachan regions along with modest cash in stock consideration.
Task consideration.
These combined actions significantly reduce our remaining trucking footprint to just the Puran Iraqis and Eagle Ford regions.
To put that into context for the trailing 12-month period into June 30th.
In 2025, the domestic trucking operations represented more than a third of the revenue and more than a fifth of the gross profit before DNA of Select's trucking business unit. These operations accounted for approximately 10% and 5% of the total revenue and gross profit for the water services segment as a whole.
Additionally, as previously noted, and as part of our broader efforts to focus on select areas around our court infrastructure and full life cycle, Water Solutions thesis.
We recently stood up the peak rentals business within the water services segment of Select to be a standalone operating company and have begun evaluating strategic alternatives for this business.
As part of the structured carve-out, we have incurred certain incremental costs, both in the cost of sales and SG&A levels. In order to ensure that Peak is well positioned to operate independently, we are leaning into any potential strategic opportunities.
While we expect some impact from weakening activity levels. These rationalization efforts represent a sizeable portion of the approximately 25% Revenue, decline, we anticipate in the third quarter for water services.
however, even with the meaningful expected Revenue reduction, we expect margins to remain relatively flat to q1 and Q2 levels of approximately 19 to 20% in the third quarter of 2025
Moving on to the chemical Technologies business. This segment saw sequential Revenue decline of approximately 11% during the second quarter in excess of our guided expectations, driven, primarily by pullbacks and activity levels. Associated with some of our pressure pumping customers,
However, gross margins before DNA of 17 and a half percent in the second quarter, exceeded our guided range of 14 to 16% resulting in modestly, higher gross profit before DNA in the second quarter of 2025 as compared to the first quarter.
During the third quarter, we expect Revenue to decrease low to mid single-digit. Percentages outperforming the overall activity environment on the heels of continued success with new product development, initiatives, but holding relatively steady 15 to 17% gross margins.
Looking back on a Consolidated basis and the second quarter sgna increased to 39 million or just under 11% of Revenue, partially impacted by incremental. Sgna costs incurred as part of our Peak car out.
We expect SG&A to hold relatively steady on a gross dollar basis during the second half of the year. So, over time, we will continue to look for opportunities to rationalize the cost structure of the business in conjunction with the ongoing rationalization efforts in water services.
Altogether. We saw solid Consolidated, adjusted Eva of 73 million during the second quarter of 2025.
Above the high, end of our previous guided range, largely resulting from the stronger than expected margin before months.
Out of our water infrastructure sector.
For the third quarter of 2025, we expect consolidated adjusted EBITDA of $55 to $60 million. As softening activity in the U.S. lower 48 impacts the more completions-oriented water services and chemical technology segments, along with the immediate impact of the Omni transaction.
All activity, declines will impact the short-term Outlook of our water services and chemical Technologies businesses. We are confident in the continued long-term growth prospects for our water infrastructure, segments, and the additional resilience that are growing. Contract portfolio will bring over time
And as we outlined with new projects coming online through the back part of the year and into 2026, the water infrastructure segment is poised for continued sequential growth with 10% quarter-over-quarter growth in Q4 2025 and 20% year-over-year growth during 2026.
I'll now hit on a few below, the line items and cash flow details before we wrap up.
looking at our other costs for the first quarter DNA increased approximately 3, million dollars in Q2 to approximately 43 million
With additional growth capex, we expect DNA to see a similar increase in Q3 to approximately 45 million dollars.
Interest expense should remain relatively steady and are effective. Book tax rate applied to pre-tax operating income should stay in the low of 20% range.
The cash taxes on the year, remaining low at around 10 million dollars or less.
All we need to conduct further analysis given recent Federal legislation, we would expect our cash tax obligations to remain relatively muted across the next couple of years as well.
We generated more than 10 million dollars of free cash flow during Q2 even with the significant ramp to 79 million of capex, during the quarter.
Primarily in support of contracted infrastructure projects.
During the second quarter, we also deployed $3 million to acquire infrastructure assets in the Permian to strategically support our existing recycling and disposal networks.
As demonstrated by our latest project Awards, we are seeing our large backlog of materializing in actionable contracts.
Allowing for the recent project lines, we still expect $225 million to $250 million of net capex in 2025.
With a bias towards the higher end of the range. Though, we have now added to our growth, capex backlog in the 2026
We maintain our expectation of $50 to $60 million of this capex going towards ongoing maintenance and margin improvement initiatives in the near term.
Absent the ongoing sizable growth capital outlays,
Our business maintains a very maintenance light Capital model.
Our operating assets have significant free cash flow generating capabilities and flexibility to manage maintenance spending in accordance with market conditions, without impacting our operational performance.
Near-term. Cash flow will be impacted by reduced activity levels. We continue to generate very solid 70 plus percent free cash flow capture out of our base, water services and chemicals profitability.
We are very well positioned to fund our water infrastructure growth projects while maintaining a healthy balance sheet overall in a challenging market.
In summary, we Advanced our strategic initiatives in Q2 and remain confident in our overall strategic Outlook.
We are proud to position the company, with strong liquidity, resilient earning streams, and growing contract coverage, and we look forward to continuing to deliver on our strategy.
With that, I'll hand it over to the operator for any questions.
Operator.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. If you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Thank you. And our first question comes from Jim Rowley with Raymond James.
Hey, good morning, guys. Uh, nice quarter and, and John, you talked a bit about this, but you guys continue to sign new contracts with duration with acreage dedication and you even have customers giving you their Assets. Now for you to run, um, curious, you know, as you look at the market and the opportunity set, what inning do you think we're in from a from an opportunity perspective as as far as that goes and is the macro on the oil side having any impact on kind of the pace of of desire to do that? Or is just the magnitude of the water challenge really superseding that
Yeah. Thanks Jim. Good morning. Um,
You know, as far as where we are in the, the inning of the of the bill that I think.
you know, our team is, uh,
really put some major contracts in place and some dedication.
And as far as the big projects,
uh, the 2 that we just announced and and, and a few we still have in the
That we haven't announced yet. I would tell you that we're pretty far into the the buildout now. We have to you know physically put
The plants and the pipe uh in place.
Uh, but you know the the major wins, I think we we've got that done.
What?
What isn't done in? What is starting to happen now is
As you, you know.
Put this network together; you cross.
Either that Row for acreage or you cross Undead position. And and what we're having
Happened to us. Now is
you know, we're receiving the calls of of
Of the add-ons, you know, uh, people that want to come into the network, uh, that it, you know, could Service uh, their acreage and be an economic value.
Uh, in a meaningful way, and that's just starting to happen. Jim, right now.
Uh, so big projects were pretty far along our way. We got to build them out.
Uh,
picking up the pieces as we go through the acreage. It's just starting you
Like to follow.
Go ahead. Michael know, I was just going to maybe address part of your question on the backlog, I would say that the backlog is is strong and it's it's flat. Despite converting these projects from opportunities to sign contracts and that removes it from the backlog. But we're continuing to to back fill for them, so that it's relatively flat and I and I don't see the near-term macro headwinds changing that. I think we will be able to continue to deliver projects and I have as we have on a quarterly basis going forward.
Got it. Thanks for that, Michael. As you guys kind of look at that, ...
Acreage. That isn't locked up that crosses paths, maybe just relative size of what you have locked up versus because obviously your roofer acreage currently is a bigger number than your your dedicated Acres but but when you add that in plus the guys that aren't even involved yet, I'm just curious how much opportunity that still provides.
Yeah, I might take a shot at that and kind of let John clean me up. I mean, the first thing I'd point out is that the row for acre just twice what we have under dedication and so there's a meaningful growth impact there that that hasn't been fully developed. But we certainly think we're well positioned to capture it in terms of new acreage out there. I'd really love to kind of the expansion that we have in Eddie County, which the deals that we announced largely allow us to continue our expansion in Eddy, County, backed by long-term contract and we're traversing a lot.
A lot of acreage that is not tied into our system and and much of which frankly isn't committed which John alluded to. So I think there's a real opportunity there for us to connect it and and tie it into the system. And I think that's what makes me so excited is. We're really building a, a system of size and scale in New Mexico and it uniquely positions us to solve the localized imbalance of produced water, and completion water. And that that's going to allow for continued growth as you've seen over the last few quarters, but also stability across the system.
Got you. And then as a, as a follow-up, John quite interesting development. On the, the peak side of things I would love to get and, and obviously, know, Scott McNeil pretty well, but would love to get your view on. Just maybe framing the market opportunity. As you guys see it for that business because, you know, is going to be a unique strategy with trying to carve that out and, and still keep economic benefits. But, you know, just love to see, maybe, just put put some brackets around, where you think that that Economic Opportunity is
Yeah. Um you know what I think Peak because of where it's been since really the
The beginning of what is select um has a very unique position but it always you know Peak always participated on the drilling and completion side of the business. Uh so when you think about temporary housing, potable water waste water, Communications and power generation.
We were really around drilling rigs and completion frackers.
But you know, the 350 plus msas. We got are with companies that are in the production businesses as well.
so, the lack of Electrical, uh,
You know, grid generation and, and the way that continues to grow in length. Uh,
Of time before it gets you know put in place. Jim allows Peak to really have an opportunity of which it's now taking advantage of of of taking those msas and going into the production side of the business. Uh
In a meaningful way. So, uh, I think it's got a really good position, uh, what really Advanced that position is, you know, select and these contracts that Michael and and the team has put together are in that same area and that same electric generation problem is real. And we, you know, had to start supporting ourselves uh in the Midstream side of the business to to, you know, power generate these uh
Recycling or transfer or disposal wells in areas where there's no electricity.
uh, the other thing I would tell you is that we, we were very early in establishing a relationship with, uh,
ah, ah, battery company and
We?
You know, we did our own investigation, if you will, of...
Is that?
you know, you could
Uh, apply that battery, and that generator will run roughly 20% of the time.
Uh, versus generator direct. And it'll burn about 20% of the fuel.
And you can size the battery for the peak demand position, uh, and you don't have to size the generator for the peak demand, you just have to size the generator for the job.
Uh and it it it's really an economic value, it really cleans up the electricity currency going into the job. Uh, it really allows
A.
More quieter workplace. And it allows automation.
application around that electricity that is harder to do with, you know, full uh, you know, Diesel power generation 24 hours. So we're we're excited about it.
It's got it. Appreciate the all the color. Thank you guys.
Thank you, Jim.
And our next question comes from Derek Pazer with Piper Sandler.
Hey uh good morning just to follow on, Jim's question with Peak rentals. Maybe if you could just help us provide um just some further details around the kit uh maybe how much capacity pcas right now from a megawatt perspective you know what let's own maybe what's deployed on an active megawatt uh perspective uh types of units are these, the smaller sub 1 gigawatt units or are these more like the recepts in that you know 2 to 3 megawatt range, just maybe some more color on the actual Fleet size and type of kit.
yeah, so the this is John, so the uh current Fleet size and the you know, the space we have participated in since we started Peak
Back in 07 is the smaller portable diesel power. Generation's, uh, so definitely the smaller units. But even the units that were deploying today. Both in the Midstream and the production side of what we're doing, are still, uh, the smaller, uh, recip units. Uh, they're they're bigger than what we've done in the past, so they're 400 KW type stuff, uh, in on electric submersible pumps or mid-stream application of water, uh, movement. Uh, but they, they definitely are still smaller portable recipients. But, but on the, the growth side of it, Derek the focus around the natural gas units. Uh, those are definitely growing to to larger scale units and, and focus more on that production, side and the infrastructure.
Application to build out.
um but but regardless of the the unit type they you know, they fit within our existing um
You know, production and refurbishment capabilities from the the business to date. And so we've got a, you know, a large Legacy of of being able to manage um you know all all different types of units and and you know, we're going to continue to look at scaling up appropriately, particularly on the natural gas side.
Yeah, that makes sense. And maybe just like total size of the fleet megawatt, and like today and where you think it can go next year.
We haven't put anything else specifically on the total Fleet size and we're investing in it. I would say, you know, we're busy this year um the the ultimate you know, I would say scale of the fleet over the next you know 12 to 24 months will probably be somewhat dependent upon the ultimate outcome of what what we're able to accomplish here um because there's you know, clearly growth in demand there's clearly opportunities to to deploy units. Um, we're focused on what the scale of that backlog can look like and and what our order book can can grow into.
Got a cell phone um and then just a follow-up switching. Um, back over to to infrastructure obviously, a lot of exciting growth opportunities. As we think about 2026, you gave a 20% year-over-year growth number there. Maybe just an early look into 2026, capex budget, maybe you could just put some, you know, guard rails around it. I wish we should think about it. What capex will be required to support? That 20% growth? I'm just thinking through more of the all the moving pieces as far as seeing it. You know, cash flow and flexion in infrastructure, but maybe just we'll start with the with the capex and what you think you'll need just then or to support that 20% growth number
Yeah, it's a good question, Derek. You know, 1 thing to to be clear on is that, you know, current Outlook of, you know, 20% or so is based on the projects we have underwritten via contract today.
Type of next year.
Um, between, you know, the second half of 2025 and the first half of 2026, you probably got about $200 million, you know, $25 million of capital deployment, probably about $75 million to, you know, potentially $100 million of which is in the first half of next year.
Um so that 20% is is you know underwritten by you know those current contracts and those current projects now under construction.
Now that said, we certainly continue to feel optimistic about our ability to add new contracts, into the portfolio, over the back half of 25 and certainly across the full year of 26.
And so, you know, our expectation will be that we continue to add new projects under contract and and that, you know, Capital, you know, deployment over, you know, the course of 2026.
And it has the opportunity to look more like the capital deployment of 2025.
Uh, so we think that there are certainly upside to add to the backlog there with new contracts and to the extent, we're able to successfully do that, you know, that add to the portfolio and that would add growth opportunity beyond the 20% where, you know, looking at under already underwritten today, but from an operational standpoint, the, the current construction timeline extends into the third quarter of next year.
Got it. Okay, that makes sense. Um, thanks, guys. I'll turn it back.
Thank you.
Moving on to Bobby Brooks with Northland Capital Markets.
Hey, good morning guys. Thank you for taking my question. Uh, so the 12-year contract, uh, within Eddie County announced on today's release, it was specifically mentioned that it'll connect to the ongoing Eddie County Network expansion, that was announced on the 1q call. This would lead me to believe that this new contract announced uh, would materially accelerate the payback on this Capital project that is currently underway without much additional. Uh capex is my logic here fair, or is there something? Maybe I'm missing.
Uh, certainly appreciate the context of the question, Bobby. We are going to see additional Capital deployed with the the new projects, uh, recently announced. You know, give or take around 40 million dollars, you know that said, you know, anytime you're adding on to kind of an anchor, you know, build out asset. You know, the economics do have the the ability to improve, um, you know, off of that kind of Base buildout. So, both the, the capital economics around the interconnection between Eddie and Lee County as well as the expansion now, you know, into the, you know, the the second big contract off that system does give us the opportunity to further commercialize that further, reach additional acreage and to, you know,
Michael and John's points earlier. Now, we've got access to significantly more, um, uncontracted and or commercial volumes, that that we feel like we can add on to that system and improve the overall economics. Yeah, we're we're really excited that the 2 systems match up together because it again, it we think creating 1 large, network is very important. As I mentioned, it a, it helps us balance out Longs and shorts and create stability. Um, but but the 2 Acres positions are, um, they're adjacent. They're not, they're not overlapping. And so, it will be kind of expanding into new territory, which we just think creates more optionality and flexibility. But, you know, 1 thing to add. Obviously, as we mentioned, you know, having having our customers, you know, willing to convey, some of their existing infrastructure to us as part of the, you know, network buildout is is obviously a much more efficient, you know, Capital deployment opportunity, you're not duplicating, you know, capital in the ground. You're not um, duplicating or, or conflicting. Um,
You know, assets with our customers or others in in the Basin, and we've seen a, you know, obviously a willingness there, from our customers to um, to convey that operator ship and ownership over to us, which is a good outcome for both Us and Them and maybe just 1 final Point beyond the the capital efficiency. I think it really just speaks to the value of the system and the network we've we've connected. I mean our customer realizes it's better off in our hands than in theirs. It will help us serve them better than if they owned it and I think that's a very strong statement.
Really helpful caller just to maybe follow up on that uh customer's conveying assets to. I get I get the rationale of them, realizing you got uh select can better operate them than themselves but is there any economic benefit for them doing that? Do you guys do you guys? Maybe give them a little bit of better pricing on these contracts or is it just hey, we have this asset. We know, you can do, we know, you can utilize it better.
Um, it's less about the the...
The assigned value of that asset, and more about what putting it into our system allows us to do, and how it allows us to serve them better than if they owned it.
very helpful context there and then uh,
I really found it helpful commentary on how you expect water infrastructure revenues to scale over the next 18 months. When I, when I take your comments for 425 revenues up 10% to to about 85, 85 million combined, that with the comments on the expectation for 20% year-over-year growth in 2026, that implies water infrastructure revenues on a quarterly basis. Exiting 26 are above 100 million. So is it right for me to think that think that as you see it now water infrastructure on a run rate Revenue basis yearly is going to be 400 million plus exiting 26.
Yeah, certainly from a trajectory standpoint Bobby, you're thinking about it correctly based on the current you know, the current projects and and the schedules that we have in hand in the backlog opportunity. Um you know there will be a trajectory over the course of 26. Um with you know as Michael mentioned projects you know building out through the first half of the year and and and partly into Q3 as well. And so that should drive a continued trajectory with an exit rate in
26, uh, you know, materially above, you know, obviously where we're going to be in the first half of the year, like you outlined there. The only thing that Chris had to add to that is, is the statement I made. For I previously, which is we have been successful, the last 4 or 5 Quarters at announcing kind of new long-term commitments that will have additional volumes on the system and, and I would expect that to continue in the near future. So we're we're building for, for the back half of 26, but my hope is Bobby that when we talk again and, and 3 or 6 months that we're building for, you know, the front half of 27,
and I think it's important and I but Michael Chris, both really touched on it about you but
you know, uh,
As Michael said, you know, these assets allowed us to put a network together. These contracts allowed us to put a network together.
uh,
they interconnected to this system.
Travels through, basically 3 pieces that dedication piece, which is what we're talking about here in the volumes.
It travels through the roofer piece that, as Michael said, is twice the dedication, and then it travels through the UN dedicated or not roofer piece. But still, it's logistically correct to bring value to us and our customers.
That is upside and and the network brings real value to that upside, and we expect that we will continue to get the calls on the upside.
Super helpful caller. Congrats on a nice quarter. I'll return to the queue.
Thank you, Bobby.
Thank you. Our next question comes from Don Crist with Johnson Rice.
Good morning, guys. Um, I appreciate the asset rationalization and selling of some trucking assets. But as you kind of progress through, are there other assets in the portfolio besides Peak that you're currently looking at? I mean, would you sell the rest of the trucking assets? Would you kind of cut deeper and go towards chemicals or anything of that nature? Or is there anything else that we don't know about in the portfolio today that could be the best candidate as we kind of move forward to offset some of the capital you're spending?
On the construction side.
Yeah, good question, Don. And I'll maybe start and let John.
As we look at the services segment, you know, um...
You know, here forward, obviously, with the Omni transaction, you know, completing here.
In in July, you know, we've significantly rationalized that Trucking footprint. Um, you know, we have 3 basins of the trucking operations left. Um you know I would say those areas have more strategic interaction with our existing infrastructure portfolio and and support, you know, I would say a steady state of of produced water delivery to those assets. So we view that as as having a, you know, a good strategic relationship and a and a production base, you know, stability to it um with a better margin profile than the assets that we've diverted up to date.
Realize, uh, the portfolio with about 20 peaks represents about 20% of the services segment, um, you know, P&L, and about 10% of the consolidated P&L. So, you know, while obviously a good-sized business, um, you know, it represents an opportunity for us to recapitalize it with growth capital, you know, opportunities and continue to help, you know, support the overall strategy.
Um, either way, you know, we have a very strong balance sheet and so we have, you know, strong cash flow, generative capabilities out of both the current Services footprint even on a rationalized basis as well as the chemicals business that helps support that growth trajectory within water infrastructure. And we feel like we've got
the opportunity to continue to invest in that growth trajectory, you know, with the, you know, the current liquidity, we have in hand. We'll obviously maintain a disciplined balance sheet overall, but once you get beyond that, what you have left with, uh, in the services business, really fits what we have in infrastructure and what we're trying to accomplish on a full life. Cycle basis as well, you've got large scale Market, leading temporary, water, Logistics capabilities. Um, you've got large above ground and temporary storage solutions.
Um you've got um capabilities of supporting your contracted underwriting with the the infrastructure build out and we've actually seen some of some of the more recent contracts successfully integrate that last mile Logistics piece as well. So we feel like we've got a good you know, a good portfolio approach with the business uh based on the decisions we've made today. And, you know, we look forward to figuring out what the ultimate outcome is on on the peak opportunity here. But you know we continue to see new product development wins in the chemicals business D driven by some of the ongoing secular transitions around.
You know, longer laterals produce water reuse, the trends that generally support the water side of the business and the infrastructure demand as well.
Um, you know, we'll we'll continue to assess over time Don. I think what we'll be focused on more near-term is out of rationalize. The, the uh, you know, the cost structure and the operational processing side of the business and, you know, in conjunction with the decisions we've already made but John anything to add on top of that, all right, Don, I think uh, what we think about all the time.
and and rationalization, you know, with Peak logically there is a
A large opportunity in the power generation.
Piece of peak and the expansion into, you know, the production side and the Midstream side. Uh, it's just uh you know, it is a need of capital.
For a very, uh, attractive opportunity—and it really is not.
The full life water cycle of thought process. The other 1. We think about all the time is we want to make sure that
We can bring value to our infrastructure customers. And if we have pieces of our business that integrate...
In a manner that allows us to bring that value and both the utilization to us and, and, and revenue dollars and profits, but also in e, e, economic value to our customer.
We we are really focused on what fits with that infrastructure piece to do that on.
Uh, I appreciate all that color. And again, I applaud you for, uh, rationalizing some of the assets. Um, just one further question for me. You didn't talk about Colorado at all in this press release. I'm guessing that it's still kind of quiet and you're adding assets there, and we should expect big news out of there more in the kind of late 2026. Is that still the right kind of time frame?
Yeah, I can hear. I'll throw it over to Mike.
Yeah, we can send you to see great progress. I mean, our mission ultimately is to develop a very reliable and efficient water network and banking system that will support all of the stakeholders in the region.
Um, so we're, you know, really committed to delivering that lasting value and, you know, really serve all the community stakeholders there. Um, we have made material progress even in the last quarter. We've completed a landmark engineering study. I think that further,
Capabilities to really bring this system to life.
So, you know, that is something that, you know, the activities right now are working with local irrigators developing the partnership into truly a unique large-scale lease follow and water banking program, all of that makes this system very unique and uh we continue to see great demand and yeah, we're pushing uh all the stakeholder engagement and pushing the commercial side as well, all actively every quarter.
I appreciate the color. I'll turn it back. Thanks.
Thank you, Don.
And moving on to Jeff Robertson with Water Tower Research.
Thank you. Just a kind of a question on Peak. Would you discuss a lot about separating that out with its own structure and capital?
Capital sources would allow the water infrastructure business to do anything different with respect to the types of projects that it could take on or the kind of capital commitments that it could make.
um, I don't think we have any limitations uh, that right now we, you know, we're we're
Uh, harvesting and closing the opportunities.
Uh, that exists to create that water infrastructure business that we continue to expand. As Michael said, the backlog is strong, so I wouldn't say that it allows us to do anything different than what we're going to do. The one thing that it does.
allow and support is
Again, you know, the support of the
Electoral cation of that Midstream water business that we put together and Eddie and Lee County and other areas, it needs electrical solution and I believe that having the backbone of peak to be able to do that, uh, is is, is important in our in our execution there. So I I do believe that's an interaction that allows it to make sure uh, you know, there's a, a a strong ability on the electrical application side of the business. Michael you got any know I think that's exactly right. I I'd characterize anything we do with Peak is offensive rather than defensive yet. I mean, we, we feel like we're on our front foot on infrastructure and we can continue to be whether we do something with Peak or not Peak is just there's a tremendous opportunity there and we'd like to capitalize on it.
Then if I could ask 1, quick question in the box and John with the, with the expanded solids footprint that you have.
Is there is there growing demand for the services? You provided, you know, are you working on continuing to tie that into a network maybe to replicate what you're doing in the invasion?
Uh, yeah, I'll say a few things on the infrastructure side, and I believe that's solids and liquids management businesses, very...
very similar in that you can bring, uh,
A network capability of logistics value to the operators, very similar to what we're doing in the infrastructure recycling and disposal space. Uh, but you know, if you really look at infrastructure, the management of recycled water.
uh, you know, solids, uh
Liquid separation landfills.
Uh, and Disposal.
All reclamation is a really big piece of all for those, and we think that that really fits us well.
Uh, as we think about supporting.
The interaction between our infrastructure, recycling water business, and then the solids and liquids build-out that we're doing, which includes the landfills, uh, that oil reclamation piece is a very important part of that.
Michael, would you thank you? Yeah, no. I I certainly agree John. The only thing I'd say is just from the transaction standpoint. We had some Trucking up operations that we had deemed non-core that were poor to the counterparty and they had a landfill uh, in an area where we were the largest uh provider of of, you know, Sales Management. And so it was a logical Swap and we were strengthening our position and uh, and and giving up assets, that weren't Central to kind of the uh, ongoing infrastructure service thesis that we have.
Thanks Michael.
Our next question comes from Josh Jane with Daniel Energy Partners.
Uh, maybe just one quick one on the Chemical Technologies business. Um, you talked about it.
Falling a bit more than anticipating Q2, and, uh, revenues down low to mid single digits in Q3. Could you just offer your thoughts on, um, this business moving forward, sort of, uh, early indications into 26. And do you think you can hold margins at the current levels at where they are today?
Yeah, certainly good question, on on chemicals. You know, we, we saw a pretty strong q1, um, and, and while, you know, Q2 saw a little bit more Revenue decline than we anticipated, I think Q3 is actually proving to be quite resilient, um, in the current activity environment.
Um, we've been, I think quite, you know, positively, um, pleased with some of the outcomes. We've had in recent product development, uh, some of the ongoing and recent, you know, trials, we've uh, executed on with customers have been quite successful. And so, I think we feel pretty good about the opportunity to continue to grow market. Share in that, uh, in that business that, you know, in Bas and Manufacturing capability. We have in the Permian is, you know, is really a kind of a, a unique opportunity. Both from a logistical um standpoint as well as a, you know, product development, turnaround, you know, Testing Lab capability, standpoint it as well. Um, and we've been adding some more vertical integration into the raw material side of of the supply chain at that plant, as well.
Also I think we feel good about the the ability to, you know, hold and protect and um, you know, see those margins, you know, sustain and maybe grow over time, given some of that, you know, operational efficiency, we've gotten and then the new product development are focused on the the highest efficiency, you know, highest, you know, margin products. We've got supporting the most complex and advanced, you know, completions out there on the longer laterals and and and larger simultaneous Solutions. So I think it's been been a good, you know, trajectory for the business overall over the last 12 months. Um and I think the continued Demand on the operator side um will help you know compensate for some of the uh the challenges on the pressure pumping customer side more recently.
Yeah, the the the 1 thing I'd add to Josh that's becoming very apparent now.
In the relationship of our chemistry business uh to our infrastructure business and our our temporary uh, Last Mile, water transfer. That's in Services is has these fracks moved to more complex, higher volume. More equipment. Running in a 24-hour period. Uh,
Our chemistry is in the way they can support the movement of water.
Uh, through pipe in in and around its friction reducers. Are we, we call it dra or drag reducers? Is is becoming very important. And that, that product is a is a good high gross margins product for us, but it also brings a considerable amount of value to our customers.
If those product offerings and that efficiency can help the customer reduce.
The, the time it takes to drill and complete Wells and, and do so more efficiently. It's a, it's a great win for us and a great win for the customer.
Great, thanks for taking the question. I appreciate it.
Thank you.
This now concludes our question and answer session. I would like to turn the floor back over to John Schmitz for closing comments.
Thanks to everybody for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions, and I look forward to speaking to you again next quarter. Thank you.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and I wish you a wonderful day.