Q2 2026 Select Water Solutions Inc Earnings Call

August 5, 2026

Speaker #1: Greetings. Welcome to the Select Water Solutions 2026 second quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Operator: Greetings. Welcome to the Select Water Solutions 2026 Q2 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Garrett Williams, Vice President of Corporate Finance and Investor Relations. Thank you, Garrett. You may begin.

Operator: Greetings. Welcome to the Select Water Solutions 2026 Q2 Earnings Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Garrett Williams, Vice President of Corporate Finance and Investor Relations. Thank you, Garrett. You may begin.

Speaker #1: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Garrett Williams, Vice President of Corporate Finance and Investor Relations.

Speaker #1: Thank you, Garrett. You may begin.

Speaker #2: 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 2026.

Garrett Williams: Thank you, operator. Good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for Q2 2026. With me today are John Schmitz, our Founder, Chairman, President, and Chief Executive Officer, Chris George, Executive Vice President and Chief Financial Officer, Michael Skarke, Executive Vice President and Chief Commercial Officer, and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer. Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until 19 August 2026. The access information for this replay was also included in yesterday's earnings release.

Speaker #2: With me today are John Schmitz, our founder, chairman, president, and chief executive officer; Chris George, executive vice president and chief financial officer; Michael Starkey, executive vice president and chief commercial officer; and Mike Lyons, executive vice president and chief strategy and technology officer.

Speaker #2: Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com.

Speaker #2: There will also be a recorded telephonic replay available until August 19, 2026. The access information for this replay was also included in yesterday's earnings release.

Speaker #2: Please note that the information reported on this call speaks only as of today, August 5, 2026, and therefore time-sensitive information may no longer be accurate as the time of the replay listening or transcript reading.

Garrett Williams: Please note that the information reported on this call speaks only as of today, 5 August 2026, and therefore, time-sensitive information may no longer be accurate at the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties, and contingencies could cause our actual 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.

Speaker #2: 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.

Speaker #2: These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties, and contingencies could cause our actual performance or achievements to differ materially from those expressed in the statements made by management.

Speaker #2: 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.

Speaker #2: 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.

Garrett Williams: I'd like to turn the call over to John.

Speaker #3: Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. The second quarter of 2026 was a very strong quarter for Select.

John Schmitz: Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. The Q2 of 2026 was a very strong quarter for Select. I'd like to start with some of the key Q2 highlights and other strategic and market updates. Then I'll hand it over to Chris to discuss the Q2 financial results and the forward outlook in more detail. In Q2, Select delivered strong overall performance across all three operating segments with both our Water Infrastructure and our Chemical Technologies segments producing record revenue and gross profit in the quarter. During Q2, on a consolidated basis, we increased revenue by 8%, increased adjusted EBITDA by 19%, and more than doubled net income as compared to Q1 of 2026.

Speaker #3: I'd like to start with some of the key second-quarter highlights and other strategic and market updates. Then I'll hand it over to Chris to discuss the second-quarter financial results and the forward outlook in more detail.

Speaker #3: In the second quarter, Select delivered strong overall performance across all three operating segments, with both our water infrastructure and our chemical technology segments producing record revenue and gross profit in the quarter.

Speaker #3: During the second quarter, on a consolidated basis, we increased revenue by 8%, increased adjusted EBITDA by 19%, and more than doubled net income as compared to the first quarter of 2026.

Speaker #3: Our water infrastructure segment outpaced our guidance for the period, delivering another quarter of revenue growth and margin improvement. Increased produced water volumes and improved skimmable recovery drove record quarterly revenue of $102,000,00 for the segment in the second quarter.

John Schmitz: Our Water Infrastructure segment outpaced our guidance for the period, delivering another quarter of revenue growth and margin improvement. Increased produced water volumes and improved skim oil recovery drove record quarterly revenue of $102 million for the segment in Q2. This results in 26% year-over-year growth in revenue for the segment relative to Q2 of 2025, demonstrating the significant progress we've made with our Water Infrastructure growth strategy. We expect to see further growth in Q3, and we are well on track to achieve the upper end of our 25% to 30% full-year growth guidance for the segment, setting the stage for additional run rate growth looking into 2027. While much has been accomplished, we continue to find new opportunities, both large and small, to further enhance the long-term potential value of our Northern Delaware network.

Speaker #3: This results in 26% year-over-year growth in revenue for the segment relative to the second quarter of 2025, demonstrating the significant progress we've made with our water infrastructure growth strategy.

Speaker #3: We expect to see further growth in the third quarter and we are well on track to achieve the upper end of our 25 to 30 percent full-year growth guidance for the segment.

Speaker #3: Setting the stage for additional run-rate growth looking into 2027. While much has been accomplished, we continue to find new opportunities both large and small to further enhance the long-term potential value of our Northern Delaware network.

Speaker #3: We added several MVCs, acreage dedications, and interruptible tie-in agreements during the quarter, while also executing a new mineral extraction agreement with a new strategic partner for iodine extraction across the portfolio.

John Schmitz: We added several MVCs, acreage dedications, and interruptible tie-in agreements during the quarter, while also executing a new mineral extraction agreement with a new strategic partner for iodine extraction across the portfolio. Importantly, during Q2, we executed a new seven-year agreement with a large public operator in the Northern Delaware Basin, supported by a sizable 128 million barrel MVC contract. This agreement also included the conveyance of a portfolio of underutilized but strategic SWDs across Eddy and Lea County, New Mexico. We intend to tie these SWDs into our existing Water Infrastructure network, and the full project associated with the large MVC award is expected to cost approximately $25 to $30 million and to be operational within the next 12 months.

Speaker #3: Importantly, during the second quarter, we executed a new seven-year agreement with a large public operator in the Northern Delaware Basin subordinate supported by a sizable $128 million barrel MVC contract.

Speaker #3: This agreement also includes included the conveyance of a portfolio of underutilized but strategic SWDs across 80 and Lee County, New Mexico. We intend to tie these SWDs into our existing water infrastructure network and the full project associated with the large MVC award is expected to cost approximately $25 to $30 million and to be operational within the next 12 months.

Speaker #3: The conveyance of these SWDs was largely enabled by the historical success of the full lifecycle water management solutions we've developed in collaboration with this operator.

John Schmitz: The conveyance of these SWDs was largely enabled by the historical success of the full lifecycle water management solutions we've developed in collaboration with this operator, which increased their recycling volumes and decreased the utilization of their own operated disposal wells in the Northern Delaware. This reduced the operator's need for owning disposal wells in the region. This speaks to the value our integrated recycling and disposal infrastructure network brings to our customers and more broadly to the Northern Delaware region. Ultimately, the customer views this disposal capacity as more valuable to them as part of Select's broader commercial platform than part of their own internal system.

Speaker #3: Which increased their recycling volumes and decreased the utilization of their owned operated disposal wells in the Northern Delaware. This reduced the operator's need for owning disposal wells in the region.

Speaker #3: This speaks to the value our integrated recycling and disposal infrastructure network brings to our customers. And more broadly, to the Northern Delaware region. Ultimately, the customer views the this disposal capacity as more valuable to them as part of Select's broader commercial platform than part of their own internal system.

Speaker #3: Select's comprehensive water management framework allows us to take a basin-wide approach to produce water disposal treatment and supply to unlock value across the Northern Delaware Basin and I believe there will continue to be opportunities to acquire existing assets that are scalable and synergistic with Select's ongoing organic infrastructure build-out.

John Schmitz: Select's comprehensive water management framework allows us to take a basin-wide approach to produced water disposal, treatment, and supply to unlock value across the Northern Delaware Basin. I believe there will continue to be opportunities to acquire existing assets that are scalable and synergistic with Select's ongoing organic infrastructure build-out. Water management is mission-critical to the energy industry, and disposal remains an essential part of a comprehensive water management solution. We are proud of the increasing collaboration and commitment from our customers to grow our full lifecycle and cost-advantage solution in partnership together. Elsewhere in our chemical technology segment, we saw significant sequential and year-over-year improvement coming in well above our expectations. Our chemical technology segment in basin manufacture, rapid new product development pace, and steady field execution has driven market share gains.

Speaker #3: Water management is mission-critical to the energy industry and disposal remains an essential part of a comprehensive water management solution. We are proud of the increasing collaboration and commitment from our customers to grow our full lifecycle and cost-advantaged solution in partnership together.

Speaker #3: Elsewhere, in our chemical technology segment, we saw significant sequential and year-over-year improvement coming in well above our expectations. Our chemical technology segment, in basin manufacture, rapid new product development pace, and steady field execution has driven market share gains.

Speaker #3: Furthermore, and complexity and the growing interest in surfactant technology has driven increased demand for our higher-spec and higher-margin product offerings. This contributed to record-setting chemical technologies revenue in the second quarter and despite increases to oil-based raw material input costs, we delivered margin gains in the quarter as well.

John Schmitz: Furthermore, increased completion intensity and complexity and the growing interest in surfactant technology has driven increased demand for our higher spec and higher margin product offerings. This contributed to record-setting Chemical Technologies revenue in Q2. Despite increases to oil-based raw material input costs, we delivered margin gains in the quarter as well. Looking at our water services segment, we outperformed our expectations in Q2 and have been pleased with the year-to-date performance of our last-mile water logistics and delivery business. Looking at the macro outlook more broadly, the geopolitical and commodity price environment remains fluid. We believe the customer activity environment will remain supportive of a continued solid performance in the more direct activity correlated offerings within our water services and chemical technology segments.

Speaker #3: Looking at our water services segment, we outperformed our expectations in the second quarter and have been pleased with the year-to-date performance of our last-mile water logistics and deliveries business.

Speaker #3: Looking at the macro outlook more broadly, the geopolitical and commodity price environment remains fluid. We believe the customer activity environment will remain supportive of a continued solid performance in the more direct activity correlated offerings within our water services and chemical technology segments.

Speaker #3: While our water infrastructure segment will continue to benefit from the strong secular tailwinds, a steady pace of new projects and a growing portfolio of contracted future inventory in the core of the Permian Basin.

John Schmitz: While our water infrastructure segment will continue to benefit from the strong secular tailwinds, a steady pace of new projects and a growing portfolio of contracted future inventory in the core of the Permian Basin. Overall, I am very pleased with the performance of the business year-to-date. With the support of a healthy balance sheet, we are well-positioned to continue to invest in attractive growth opportunities in front of us in order to deliver long-term value to our customers, employees, and stakeholders as we look ahead. At this point, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Speaker #3: Overall, I am very pleased with the performance of the business year to date. With the support of a healthy balance sheet, we are well-positioned to continue to invest in the attractive growth opportunities in front of us in order to deliver long-term value to our customers, employees, and stakeholders as we look ahead.

Speaker #3: At this point, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Speaker #2: Thank you, John, and good morning, everyone. Select made great strides in the second quarter, which included strong consolidated revenue net income and adjusted EBITDA growth.

Chris George: Thank you, John. Good morning, everyone. Select made great strides in Q2, which included strong consolidated revenue, net income, and adjusted EBITDA growth, another quarter of record adjusted EBITDA and consolidated gross margins before D&A, record Water Infrastructure and Chemical Technologies revenues, and ongoing strong performances in water services. Looking at our Q2 segment performance in more detail, we grew consolidated revenues to $396 million, net income to $23 million, and adjusted EBITDA to $93 million. As John mentioned earlier, the Water Infrastructure segment delivered another positive quarter, marked by top-line revenue growth, margin expansion, and incremental contract awards. We increased our produced water volumes handled to 1.5 million barrels per day and improved our skim oil capture alongside higher pricing, contributing to record revenues of $102 million and very strong 58% gross margins before D&A, outpacing our guided expectations.

Speaker #2: Another quarter of record adjusted EBITDA and consolidated gross margins before DNA. Record water infrastructure and chemical technology revenues and ongoing strong performances in water services.

Speaker #2: Looking at our second quarter segment performance in more detail, we grew consolidated revenues to $396 million net income to $23 million and adjusted EBITDA to $93 million.

Speaker #2: As John mentioned earlier, the water infrastructure segment delivered another positive quarter marked by top-line revenue growth, margin expansion, and incremental contract awards. We increased our produced water volumes handled to 1.5 million barrels per day and improved our skim oil capture alongside higher pricing.

Speaker #2: Contributing to record revenues of $102 million and very strong 58% gross margins before D&A, outpacing our guided expectations. This represents a 5% increase in revenue and a 9% increase in gross profit before D&A as compared to the first quarter of 2026.

Chris George: This represents a 5% increase in revenue and a 9% increase in gross profit before D&A as compared to Q1 2026. Importantly, this equates to year-over-year growth in revenue and gross profit before D&A of 26% and 27%, respectively, relative to Q2 2025. As John noted, in the second quarter, we bolstered the outlook for our Water Infrastructure business with the addition of several new infrastructure contracts, including a sizable MVC award and multiple dedications and interruptible tie-in opportunities across the Permian, Bakken, MidCon, and Northeast regions. In addition to the 14 SWDs conveyed as part of the larger contract John outlined, we also acquired 2 separate SWDs in the Delaware Basin during the second quarter for a total of 16 new active SWDs added in the region. Separately, we also closed on the previously announced strategic surface acquisition of the Black River Ranch during the quarter.

Speaker #2: Importantly, this equates to year-over-year growth in revenue and gross profit before D&A of 26% and 27%, respectively, relative to Q2 of 2025. As John noted, in the second quarter, we bolstered the outlook for our infrastructure business with the addition of several new infrastructure contracts, including a sizable MVC award and multiple dedications and interruptible tie-in opportunities across the Permian, Bakken, Midcon, and Northeast regions.

Speaker #2: In addition to the 14 SWDs conveyed as part of the larger contract John outlined, we also acquired two separate SWDs in the Delaware Basin during the second quarter, for a total of 16 new active SWDs added in the region.

Speaker #2: Separately, we also closed on the previously announced strategic surface acquisition of the Black River Ranch during the quarter, this multipurpose surface acquisition in Eddie County, New Mexico, adds future infrastructure development opportunities.

Chris George: This multipurpose surface acquisition in Eddy County, New Mexico, adds future infrastructure development opportunities, high-margin surface and mineral cash flows, and long-term cost synergies to our existing network. Looking ahead to Q3, we anticipate 5% to 10% revenue growth for the segment and expect to sustain gross margins in the 56% to 58% range during Q3. This ongoing execution, coupled with the outperformance in H1, leaves us well-positioned to come in on the high end of our already increased full-year guidance of 25% to 30% year-over-year growth for the segment. Switching over to Water Services, this segment saw revenues grow by approximately 4% sequentially, outpacing our guidance of a modest decline, driven by slightly improved activity levels and continued strength in our last mile logistics and rental offerings.

Speaker #2: High-margin surface and mineral cash flows and long-term cost synergies to our existing network. Looking ahead to the third quarter, we anticipate 5 to 10% revenue growth for the segment and expect to sustain gross margins in the $56 to $58% range during Q3.

Speaker #2: This ongoing execution coupled with the outperformance in the first half of the year leaves us well positioned to come in on the high end of our already increased full-year guidance of $25 to $30% year-over-year growth for the segment.

Speaker #2: Switching over to water services, this segment saw revenues grow by approximately 4% sequentially, outpacing our guidance of a modest decline driven by slightly improved activity levels and continued strength in our last-mile logistics and rental offerings.

Speaker #2: Gross margins before DNA and water services increased to $23% during Q2, a solid improvement compared to 21.8% in the first quarter. We anticipate generally steady revenue levels for water services in the third quarter and forecast margins before DNA in the 20 to 22% range in Q3.

Chris George: Gross margins before D&A and Water Services increased to 23% during Q2, a solid improvement compared to 21.8% in Q1. We anticipate generally steady revenue levels for Water Services in Q3 and forecast margins before D&A in the 20% to 22% range in Q3. Overall, we believe this segment is poised to participate in any activity upside and pricing opportunities that may arise if elevated commodity prices are sustained in the near term. Elsewhere, the Chemical Technologies segment posted a stellar Q2 with significant sequential revenue gains and meaningful outperformance relative to our prior forecast. Revenue of $96 million increased by 23% relative to Q1 2026, and gross margins before D&A of 20% combined to deliver 35% sequential growth in gross profit before D&A to $19.4 million in Q2 2026.

Speaker #2: Overall, we believe this segment is poised to participate in any activity upside and pricing opportunities that may arise if elevated commodity prices are sustained in the near term.

Speaker #2: Elsewhere, the Chemical Technology segment posted a stellar second quarter with significant sequential revenue gains and meaningful outperformance relative to our prior forecast. Revenue of $96 million increased by 23% relative to Q1 of 2026, and gross margins before D&A of 20% combined to deliver 35% sequential growth in gross profit before D&A to $19.4 million in the second quarter of 2026.

Speaker #2: While we forecast a modest retrenchment to $85 to $90 million of revenue based on current customer schedules forecasted for the third quarter, we continue to see healthy demand for our high-spec higher-margin friction reducer and specialty surfactant product offerings.

Chris George: While we forecast a modest retrenchment to $85 million to $90 million of revenue based on current customer schedules forecasted for Q3, we continue to see healthy demand for our high-spec, higher-margin friction reducer and specialty surfactant product offerings. Accordingly, margins for the segment should remain in the 20% to 21% range. Overall, we remain very excited about the future opportunity set for this segment. On a consolidated basis, supported by meaningful gross profit gains and relatively steady SG&A, altogether, we generated consolidated adjusted EBITDA of $93 million during Q2 2026, significantly above the high end of our guidance range of $77 million to $80 million, resulting from outperformance across all three segments.

Speaker #2: Accordingly, margins for the segment should remain in the 20 to 21% range, overall we remain very excited about the future opportunity set for this segment.

Speaker #2: On a consolidated basis, supported by meaningful gross profit gains and relatively steady SG&A, altogether we generated consolidated adjusted EBITDA of $93 million during the second quarter of 2026, significantly above the high end of our guidance range of $77 to $80 million.

Speaker #2: Resulting from outperformance across all three segments. Looking forward into the third quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $90 to $94 million as water infrastructure growth is balanced against our near-term outlook for water services and chemical technologies.

Chris George: Looking forward into Q3, we expect continued strong performance across the business, resulting in adjusted EBITDA of $90 million to $94 million as Water Infrastructure growth is balanced against our near-term outlook for Water Services and Chemical Technologies. While we may see some modest seasonal impacts in Q4 across parts of the business, we believe we are poised for continued year-over-year growth in 2027. Looking at our other costs, D&A expense should climb slightly in Q3 to the $48 million to $52 million range, as several capital projects are expected to be completed in the quarter. Net interest expense decreased sequentially in conjunction with reduced borrowings, and we expect interest to remain in the $4 million to $6 million range per quarter in the near term.

Speaker #2: While we may see some modest seasonal impacts in the fourth quarter across parts of the business, we believe we are poised for continued year-over-year growth in 2027.

Speaker #2: Looking at our other costs, DNA expense should climb slightly in the third quarter to the $48 to $52 million range as several capital projects are expected to be completed in the quarter.

Speaker #2: Net interest expense decreased sequentially in conjunction with reduced borrowings and we expect interest to remain in the $4 to $6 million range per quarter in the near term.

Speaker #2: On the operating cash flow side, we saw a meaningful improvement compared to Q1, with $87 million of operating cash flow generated in the quarter, as we steadied our working capital management compared to the prior build in Q1.

Chris George: On the operating cash flow side, we saw a meaningful improvement compared to Q1, with $87 million of operating cash flow generated in the quarter as we steadied our working capital management compared to the prior build in Q1. On the investing side, we deployed $112 million towards a combination of CapEx and acquisitions in Q2, primarily in support of our Water Infrastructure business. In addition to the $70 million of net CapEx, as I mentioned earlier, we closed on $42 million of strategic bolt-ons for the Water Infrastructure business in the quarter, as well as the buyout of several long-term facility leases for key operating locations.

Speaker #2: On the investing side, we deployed $112 million towards a combination of CapEx and acquisitions in the second quarter primarily in support of our water infrastructure business.

Speaker #2: In addition to the $70 million of net CapEx, as I mentioned earlier, we closed on $42 million of strategic bolt-ons for the water infrastructure business in the quarter as well as the buyout of several long-term facility leases for key operating locations.

Speaker #2: While the maintenance needs of the business remain steady around the $60 million range, in support of our latest infrastructure contract awards and growth opportunities, we now expect net capital expenditures to increase to $250 to $290 million in 2026, up from the $250 million high end of our prior guidance.

Chris George: While the maintenance needs of the business remain steady around the $60 million range, in support of our latest infrastructure contract awards and growth opportunities, we now expect net capital expenditures to increase to $250 to $290 million in 2026, up from the $250 million high end of our prior guidance. As we continue to scale our core Northern Delaware Water Infrastructure network, the opportunity set in front of us has expanded with it, and we are confident in our ability to keep delivering accretive growth projects in the quarters ahead that will drive significant long-term value for our shareholders. Our leading customers in the Permian Basin continue to grow through consolidation, lease sales, and successful exploratory well results, and Select is geographically and operationally well-positioned to benefit and participate in this growth with our customers.

Speaker #2: As we continue to scale our core Northern Delaware water infrastructure network, the opportunity set in front of us has expanded with it, and we are confident in our ability to keep delivering accretive growth projects in the quarters ahead that will drive significant long-term value for our shareholders.

Speaker #2: Our leading customers in the Permian Basin continue to grow through consolidation, lease sales, and successful exploratory well results, and select as geographically and operationally well positioned to benefit and participate in this growth with our customers.

Speaker #2: Overall, our business maintains a maintenance-light capital model which has the ability to generate strong discretionary cash flow. We expect this discretionary cash flow to provide increasing optionality especially as our Northern Delaware buildout matures over time.

Chris George: Overall, our business maintains a maintenance light capital model, which has the ability to generate strong discretionary cash flow. We expect this discretionary cash flow to provide increasing optionality, especially as our Northern Delaware build-out matures over time. While this ongoing build phase will limit our free cash flow potential this year, we are establishing a tremendous portfolio of long-term contracted cash flows. We have an actively scaling infrastructure platform which possesses room for significant utilization enhancement over time. Even with the potential for additional growth capital investment in 2027, resulting from a strong backlog of opportunities, this platform and our steadily growing earnings profile reinforces our confidence in improved free cash flow potential in 2027 and beyond. Overall, we are very pleased with the strong year-over-year trajectory across all parts of the business so far in 2026.

Speaker #2: While this ongoing build phase will limit our free cash flow potential this year, we are establishing a tremendous portfolio of long-term contracted cash flows.

Speaker #2: We have an actively scaling infrastructure platform which possesses room for significant utilization enhancement over time. Even with the potential for additional growth capital investment in 2027, resulting from a strong backlog of opportunities, this platform and our steadily growing earnings profile reinforces our confidence in improved free cash flow potential in 2027 and beyond.

Speaker #2: Overall, we are very pleased with the strong year-over-year trajectory across all parts of the business so far in 2026. While there is much left to do, I am especially encouraged by the significant progress we've made with our water infrastructure growth strategy, and the opportunity set in front of us remains robust.

Chris George: While there is much left to do, I'm especially encouraged by the significant progress we've made with our Water Infrastructure growth strategy and the opportunity set in front of us remains robust. With that, I'll hand it over to the operator for any questions. Operator?

Speaker #2: With that, I'll hand it over to the operator for any questions. Operator?

Speaker #1: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Jim Rollyson with Raymond James. Please proceed with your question.

Speaker #1: 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.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Speaker #1: Our first question is from Jim Rollinson with Raymond James. Please proceed with your question.

Speaker #3: Hey, good morning, everybody, and fabulous results again. As usual, I don't know if this is for John or Chris, but if you kind of take the run rate, y'all are on in water infrastructure to now hit the high end of the revised range of 30% growth and top line this year, and you kind of look at the momentum of projects you already have in hand, some of the recent deals you've done, how do you handicap the rate of growth we should be thinking about going into next year?

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

Speaker #3: It clearly seems like it's a double-digit number, but kind of want to make sure we don't get the cart too far in front of the horse here as we think about the run rates.

Speaker #4: Yeah, Jim, good morning. So I think you're certainly thinking about it correct. As we sit here today looking at the additional projects we've added to the recent win list as we think about what the opportunity set looks like for the rest of the back half of the year, obviously we're adding to the capital program in '26.

Chris George: Yeah. Jim, good morning. I think you're certainly thinking about it correct. As we sit here today, looking at the additional projects we've added to the recent win list, as we think about what the opportunity set looks like for the rest of the back half of the year. Obviously, we're adding to the capital program in 2026. I think we're pretty confident that we're going to continue to add to it for 2027. I think on a base case, as we sit here today on a run rate, you're looking to execute on another year of double-digit growth into 2027. I think we've got an opportunity set to continue to add to that profile with additional project wins and/or bolt-on acquisitions over the next couple of quarters. We're pretty excited about the continued growth in the backlog of the opportunity set.

Speaker #4: I think we're pretty confident that we're going to continue to add to it for 2027. I think on a base case as we sit here today on a run rate, you're looking to execute on another year of double-digit growth into 2027.

Speaker #4: And I think we've got an opportunity set to continue to add to that profile with additional project wins and/or bolt-on acquisitions over the next couple of quarters.

Speaker #4: So we're pretty excited about the continued growth in the backlog of the opportunity set. We're pretty excited about the recent execution, the projects we have coming online here in Q3 that's setting up the stage for continued growth into 2027.

Chris George: We're pretty excited about the recent execution projects we have coming online here in Q3 that's setting up the stage for continued growth into 2027. Hopefully we can execute on that, build upon it, and certainly as we sit here today, something that starts with double-digit growth into next year is how we would think about it.

Speaker #4: And so, hopefully, we can execute on that, build upon it, and certainly, as we sit here today, something that starts with double-digit growth in the next year is how we would think about it.

Speaker #3: Appreciate that, Chris.

Jim Rollyson: Appreciate that. Chris?

Speaker #5: Yeah, that's Chris. And this is John. So the only thing I'd add to Chris's position is in the quarter, we announced what Michael and his team did with that operator.

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

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

Speaker #5: And for that operator to give us the amount of disposal wells because of the really game-changing application of recycle first, this network has become very important to the industry.

Speaker #5: And to that area. And I think that it says a lot to the other piece of the system that we always talked about that we thought would get filled up with either commercial is the way we described it, or now we're describing it as interruptible.

Speaker #5: And that call volume and that action by that operator to give us those disposal to network this thing and continue to build it out is very powerful.

Speaker #3: Yeah, that's not an insignificant investment they made in those 14 SWDs, I suppose. As a follow-up, maybe this is a one for John, but kind of longer-term picture question that I'm going to take a shot at here.

Jim Rollyson: Yeah, that's not an insignificant investment they made in those 14 SWDs, I suppose.

John Schmitz: That is correct.

Jim Rollyson: As a follow-up, maybe this is one for John, but kind of longer-term picture question that I am going to take a shot at here. You are on this run rate now, Q2 and Q3 guide of this low to mid $90 million EBITDA run rate, puts you well on track for the numbers that people had for next year and beyond. If you start adding up some of the smaller wins that are not contributing today, like the different minerals extraction royalty stream and your municipal water transaction that starts maybe late next year in Colorado, surfactant opportunities, et cetera. If you start stacking those up, what kind of incremental EBITDA should we be looking at, 2, 3, 4 years out that adds to what you have built in the Water Infrastructure and rest of your business on a current run rate basis?

Speaker #3: You're kind of on this run rate now, second quarter and third quarter guide of this low to mid-90 million, EBITDA run rate. Put you well on track for the numbers that people had for next year and beyond.

Speaker #3: If you start adding up some of the smaller wins that aren't contributing today, like the different minerals extraction, royalty stream, and your municipal water transaction that starts maybe late next year in Colorado, surfactant opportunities, etc.

Speaker #3: If you start stacking those up, what kind of incremental EBITDA should we be looking at two, three, four years out that kind of adds to what you've built in the water infrastructure and rest of your business on a current run rate basis?

Speaker #4: Yeah, it's a great question, Jim. Certainly, as we think about some of the other opportunities around the portfolio, I think at the end of the day, the core focus remains how do we build upon the core build-out of the infrastructure platform?

Chris George: Yeah, it is a great question, Jim. Certainly, as we think about some of the other opportunities around the portfolio, I think at the end of the day, the core focus remains how do we build upon the core build-out of the infrastructure platform? How do we maximize value out of the return or the investments we are making, to improve returns over time? Something like the mineral extraction opportunity set that we added on to this quarter with iodine, in addition to the previously announced lithium projects. All of that we view as margin enhancing and return enhancing to the existing investments we are consistently making. How do we continue to focus on maximizing that return profile over time, whether it is adding the interruptibles and increasing that utilization over time.

Speaker #4: How do we maximize value out of the return or the investments we are making to improve returns over time? Something like the mineral extraction, opportunity set that we added onto this quarter with iodine in addition to the previously announced lithium projects.

Speaker #4: All of that we view as margin-enhancing and return-enhancing to the existing investments we're consistently making. So how do we continue to focus on maximizing that return profile over time, whether it's adding the interruptibles and increasing that utilization over time?

Speaker #4: So, it's very fair to say the earnings power capability of the asset base is much higher than it sits today. Some of that will take time.

Chris George: It is very fair to say the earnings power capability of the asset base is much higher than it sits today. Some of that will take time. We are certainly expecting to get dollars flowing on the mineral side in 2027, but it will take time to scale it up over a period of time to multiple facilities in multiple regions. Some of the other tangential opportunities. As we sit here today, building upon the growth that we already are executing on, pulling effectively forward a full year of earnings into this year, we think it sets us up great. Obviously, there are components of the business that we will need to see continued strength and outlook of the macro environment.

Speaker #4: We're certainly expecting to get dollars flowing on the mineral side in 2027, but it'll take time to scale it up over a period of time to multiple facilities and multiple regions.

Speaker #4: And some of the other tangential opportunities. But as we sit here today, building upon the growth that we already are executing on, pulling effectively forward a full year of earnings into this year, we think it sets us up great.

Speaker #4: Obviously, there's components of the business that we'll need to see continued strength and outlook of the macro environment. But whether it's the services or the chemical side in addition to infrastructure, the asset base is capable of significantly more and the activity profiles that the market is setting the stage for.

Chris George: Whether it's the Services or the Chemical side, in addition to Infrastructure, the asset base is capable of significantly more and the activity profiles that the market is setting the stage for, we're in a position to continue to execute on without meaningful capital investment, particularly on the Services and the Chem side.

Speaker #4: We're in a position to continue to execute on without meaningful capital investment, particularly on the services and the chem side.

Speaker #3: I look forward to seeing the ramp. Thanks.

Jim Rollyson: I look forward to seeing the ramp. Thanks.

Speaker #5: Thank you.

Chris George: Thank you.

Speaker #2: Our next question is from Bobby Brooks with Northland Capital Markets. Please proceed with your question.

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

Speaker #3: Hey, good morning, team, and thank you for taking my question. I wanted to get an update on your rofor acres within the Permian. Obviously, as those flip to active sites, they can represent very accretive deals.

Bobby Brooks: Good morning, team, and thank you for taking my question. I wanted to get an update on your ROFR acres within the Permian. Obviously, as those flip to active sites, they can represent very accretive deals. I was just curious to hear, do your year-to-date results benefit from any of those ROFR acres flipping to active sites that maybe you initially didn't plan for? Just more broadly, how should investors be thinking about the uplift from them?

Speaker #3: So I was just curious to hear have those in your year-to-date results do your year-to-date results benefit from any of those rofor acres flipping to active sites that maybe you initially didn't plan for?

Speaker #3: And just more broadly, how should investors be thinking about the uplift from them?

Speaker #5: Yeah, no, thank you, Bobby, for the question. This is Michael Scharke. The rofor acres are a big part of the way that we're constructing deals.

Michael Skarke: Yeah. No, thank you, Bobby, for the question. This is Michael Skarke. The ROFR acres are a big part of the way that we're constructing deals. We love the dedicated acres. That aligns us well with our customer. We underwrite the geology. We feel great about the rock in the Northern Delaware. The ROFR acres really give us that option value that as the operator starts to expand, as our system starts to expand, those are acres that we expect to pick up. In our year-to-date results, we have not seen a material conversion of the ROFR acres into dedicated acres, although that's something that we still expect to see going forward and are working hard to secure as the operator's plans start to move that direction as our system gets built out.

Speaker #5: We love the dedicated acres that align us well with our customer. We underwrite the geology. We feel great about the rock in the Northern Delaware.

Speaker #5: And the rofor acres really give us that option value. That is the operator starts to expand as our system starts to expand. Those are acres that we expect to pick up.

Speaker #5: In our year-to-date results, we have not seen a material conversion of the rofor acres into dedicated acres. Although that's something that we still expect to see going forward and are working hard to secure as the operators' plans start to move that direction as our system gets built out.

Speaker #5: But when we look at what the system can do, and John addressed this a little bit with Jim's question, we size our expansions around an acre tenant, but we upsize the system, whether it's a throughput of the pipes by about 50% or double to hit 50% underutilized capacity.

Michael Skarke: When we look at what the system can do, John addressed this a little bit with Jim's question. We size our expansions around an acreage tenant, but we upsize the system, whether it's the throughput or the pipes, by about 50% or double to hit 50% underutilized capacity. It's that excess capacity, that commercialization is really where I think you'll see the big win over the next couple of years as we build the system out and fully commercialize it with interruptibles, but also with MVCs, smaller MVCs, dedicated acres, just to lesser operators, smaller operators, not lesser, smaller operators. That's really what we're excited about.

Speaker #5: It's that excess capacity that commercialization is really where I think you'll see the big win over the next couple of years as we build the system out and fully commercialize it with interruptibles, but also with NVCs, smaller NVCs, dedicated acres just to lesser operators, smaller operators, not lesser, smaller operators.

Speaker #5: So that's really what we're excited about.

Speaker #4: And I think importantly, Bobby, the position we've built and the system we have in place as our customers continue to grow, as we mentioned, whether that's through consolidation, whether that's through new exploration or new acreage additions, we're extremely well-positioned to support them in that growth and establish the contract frameworks that allow us to effectively and efficiently convert that into tactical growth over time.

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

Speaker #5: And I think the new acreage positions particularly important because we're seeing operators push the boundaries of how we have traditionally defined the Northern Delaware.

Michael Skarke: I think the new acreage position is particularly important because we're seeing operators push the boundaries of how we have traditionally defined the Northern Delaware. They're stepping out further and further and getting really good results. As they do that, our network is best positioned to support them in those expansions. As you continue to see new exploratory wells become core and operators expand their positions beyond what we've classically defined as the core Northern Delaware, I think that's going to be a really good fit for us.

Speaker #5: They're stepping out further and further and getting really good results. And as they do that, our network is best positioned to support them in those expansions. So as you continue to see new exploratory wells become core, and operators expand their positions beyond what we've classically defined as the core Northern Delaware, I think that's going to be a really good fit for us.

Speaker #3: Really appreciate that color. And then there's been a lot of talk today of the growth of opportunity sets for infrastructure and the pipeline of that.

Bobby Brooks: Really appreciate that color. Then there's been a lot of talk today of the growth of opportunity sets for infrastructure and the pipeline of that. Could you maybe just help frame that growth in some way? Is the pipeline, maybe, is it 20% larger than it was a year, or is it 20% larger than what it was at year-end 2025? Just trying to frame how that pipeline has grown.

Speaker #3: Could you maybe just help frame that growth in some way? Is the pipeline maybe is it 20% larger than it was a year, or is it 20% larger than what it was a year-end '25?

Speaker #3: Just trying to frame how that pipeline has grown.

Speaker #5: So I'll start and let Chris clean me up. I had a comment in March on our Q4 about the pipeline and really what I was talking about is we had a couple of really large opportunities out there, one of which we just announced on this earnings call.

Michael Skarke: I'll start and let Chris clean me up. I had a comment in March on our Q4 about the pipeline, and really what I was talking about is we had a couple of really large opportunities out there, one of which we just announced on this earnings call. We were seeing more and more of the small commercialization opportunities. The number of projects in our backlog, in our pipeline, continues to grow. Really, as we expand our market-leading large diameter network, you're accessing new acreage, and we are the most logical solution from a cost perspective to continue to expand with them. What we're seeing right now is we're seeing more interest in recycling today than we ever have before. I think in part it's because of the size and scale of our system, the flexibility of our system.

Speaker #5: And what we're seeing more and more of are small commercialization opportunities. So, the number of projects in our backlog, in our pipeline, continues to grow.

Speaker #5: And really, as we expand our market-leading large diameter network, you're accessing new acreage and we are the most logical solution from a cost perspective to continue to expand with them.

Speaker #5: What we're seeing right now is that we're seeing more interest in recycling today than we ever have before. And I think, in part, it's because of the size and scale of our system, and the flexibility of our system.

Speaker #5: Operators have more comfort in the longevity and sustainability of the reliability of that recycling solution. And so it's kind of a self-fulfilling prophecy. The bigger you get, the more customers you bring on, the more reliable you are, and the more you're able to expand.

Michael Skarke: Operators have more comfort in the longevity and sustainability, the reliability of that recycling solution. It's kind of a self-fulfilling prophecy. The bigger you get, the more customers you bring on, the more reliable you are, and the more you're able to expand. I do think, going forward, you're going to see us do more deals that require less capital than maybe you have in the past on some of these bigger, chunkier deals.

Speaker #5: I do think going forward, you're going to see us do more deals that require less capital, then maybe you have in the past, I mentioned these bigger chunkier deals.

Speaker #4: Yeah, still very fair though to say there's still a couple of chunky opportunities out there, but there is a point at which the white space in the map gets filled in some regard.

Chris George: Yeah. Still very fair, though, to say there's still two chunky opportunities out there. There is a point at which the white space in the map gets filled in some regard. We wanted to be clear in our view that there is still some larger opportunity sets out there as we look forward into 2027 and think about the capital profile. We do think there is another year of meaningful build opportunity in 2027. It's probably a larger size than we might have otherwise anticipated. Importantly, as we've accelerated the earnings growth so far this year, we're doing so in a manner that's allowing us to continue to backfill that investment opportunity set into next year, in addition to supporting the earnings growth meaningfully beyond where we came into the year.

Speaker #4: And so we wanted to be clear in our view that there is still some larger opportunity sets out there. As we look forward into 2027 and think about the capital profile, we do think there is another year of meaningful build opportunity in 2027.

Speaker #4: It probably a larger size than we might have otherwise anticipated, but importantly, as we've accelerated the earnings growth so far this year, we're doing so in a manner that's allowing us to continue to backfill that investment opportunity set into next year.

Speaker #4: In addition to supporting the earnings growth, meaningfully beyond where we came into the year. And so we do think that even if we were able to replicate another year of the growth capital in '27 like we're seeing in '26, that's still creating an opportunity to increase the free cash flow generative potential of the business that can really accelerate as we look forward another year into 2028.

Chris George: We do think that even if we were able to replicate another year of the growth capital in 2027 like we're seeing in 2026, that's still creating an opportunity to increase the free cash flow generative potential of the business that can really accelerate as we look forward another year into 2028.

Michael Skarke: Bobby, I know you understand this, it's probably worth just reiterating, like the project we just announced, and we announced it today, it's going to be operational in 12 months. We're probably going to need two months to really make it efficient and start to optimize it. An announcement today is spend over 12 months in cash flow, in month kind of 13 through five, six, seven, 10 years after that.

Speaker #5: And Bobby, I know you understand this. There's probably worth just reiterating the project we just announced. I mean, we announced it today. It's going to be operational in 12 months.

Speaker #5: We're probably going to need a couple of months to really make it efficient and start to optimize it. And so, an announcement today is, spend over 12 months in cash flow in months, kind of 13 through 5, 6, 7, 10 years after that.

Speaker #4: Yeah. And importantly, what that means is you've got a view on continued growth looking into '28 on top of the run rate growth we're already executing on into '27.

Chris George: Yeah. Importantly, what that means is you've got a view on continued growth looking into 2028 on top of the run rate growth we're already executing on into 2027.

Speaker #5: Yes.

Michael Skarke: Yes.

Speaker #3: Very helpful call. And then just last one for me is on that, the 128 million barrel minimum volume commitment project announced yesterday, obviously, that was great to hear and nice to hear that was something that was in the pipeline that you executed on.

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

Speaker #3: But just curious to hear a deeper discussion on how this deal might contrast to the past deals because it does seem like there's some key differences obviously, the scale, the 14 SWDs that they gave handed over to you but are there other pieces that are important to be thinking about of how this might be different from past ones we've seen?

Speaker #5: I think there's a couple of things. And we kind of hit on it, Bobby, but I'll reiterate. We're really excited about those 14 SWDs in New Mexico.

Michael Skarke: I think there's a couple of things, and we kind of hit on it, Bobby, but I'll reiterate. We're really excited about those 14 SWDs in New Mexico. We think that's a big deal that our system rendered those underutilized to where the operator saw very little value in them. When you tie them into our network, that allows us to provide increased firm takeaway and really make sure that our Recycle First solution can weather the highs and lows of a cyclical business. We get really excited about that piece. The other thing I thought was interesting is it really speaks to the value of our large diameter pipeline network. This operator, we traditionally do things on a dedicated acreage basis, and we like that.

Speaker #5: We think that's a big deal that our system rendered those underutilized to where the operator saw very little value in them. And when you tie them into our network, that allows us to provide increased firm takeaway and really make sure that our recycling-first solution can weather the highs and lows of a cyclical business.

Speaker #5: So we get really excited about that piece. The other thing I thought was interesting is it really speaks to the values of our large diameter pipeline network.

Speaker #5: This operator, we traditionally do things on a dedicated acreage basis, and we like that. This was a large NBC because they really wanted to reserve capacity on a specific piece of pipe that they wanted us to build.

Michael Skarke: This was a large MBC because they really wanted to reserve capacity on a specific piece of pipe that they wanted us to build. It takes our system down into Texas, which is going to be a geographic expansion for us. The fact that they were willing to sign up for an MBC, they believe they need it, they're going to use it, and we're going to size it appropriately so that other operators can benefit from this expansion as well.

Speaker #5: And it takes is going to be a geographic expansion for us. But the fact that they were willing to sign up for an NBC, they believe they need it, they're going to use it, and we're going to size it appropriately so that other operators can benefit from this expansion as well.

Speaker #4: Yeah. This certainly wasn't the first time we've been directly conveyed assets. We've now done this multiple times over the last year or two where we've had customers directly convey assets, whether that's disposal, recycling, storage, or pipe.

Chris George: Yeah. This certainly wasn't the first time we've been directly conveyed assets. We've now done this multiple times over the last year or two where we've had customers directly convey assets, whether that's disposal, recycling, storage, or pipe. I think what you continue to see is the value of having interconnectivity to our network creates more value to the customer than standalone assets and the commercial ability to monetize those and utilize those effectively. We think that that's something that we've continued to execute on. Furthermore, as Michael mentioned, our ability to continue to add MBCs, whether of real size like this one or some of the smaller ones we've tactically added on over the last couple of quarters. The bigger the system gets, the more surety folks want to have access to the system.

Speaker #4: And so I think what you continue to see is the value of having interconnectivity to our network creates more value to the customer. Then standalone assets and the commercial ability to monetize those and utilize those effectively.

Speaker #4: So we think that that's something that we've continued to execute on. And then furthermore, as Michael mentioned, our ability to continue to add NBCs, whether of real size like this one or some of the smaller ones we've tactically added on over the last couple of quarters, the bigger the system gets, the more surety folks want to access to the system.

Speaker #4: And so I think that ability to translate those from dedications into NBCs on a secondary and a tertiary basis will continue to see opportunities around.

Chris George: I think that that ability to translate those from dedications into MVCs on a secondary and a tertiary basis, we'll continue to see opportunities around.

Speaker #3: Appreciate the coloring.

John Schmitz: Yes.

John Schmitz: Appreciate the color.

Speaker #5: Hey, Bobby, this is John. Michael made a very good point. I mean, the network is very valuable to putting the 14 SWDs in place to get that ability to add capacity of disposal to the system and then Michael said it gets us to the Texas line this every time we move another contract into another area, it gives this system a very unique position because this system is dual lined.

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

Speaker #5: It collects and distributes for a recycle-first program. It's really the only one out there. But every time it has an extension, the thesis itself, the network value gets extended into a different area and gets an ability to hook up to more pipe.

Speaker #5: And more assets.

Speaker #3: That's very helpful color. Thank you for your time, and congrats on a great quarter.

Bobby Brooks: That's very helpful color. Thank you for the time, and congrats on the great quarter.

Speaker #5: Thank you.

John Schmitz: Thank you.

Speaker #4: Thanks, Bobby.

Michael Skarke: Thanks, Bobby.

Speaker #1: Our next question is from Derek Whitfield with Texas Capital. Please proceed with your question.

Operator: Our next question is from Derrick Whitfield with Texas Capital. Please proceed with your question.

Speaker #5: Good morning all. And great update across all three segments.

Derrick Whitfield: Good morning, all, great update across all three segments.

Speaker #4: Morning, Derek.

John Schmitz: Morning, Derrick.

Speaker #5: I wanted to start with your chemicals segment for my first question. How would you characterize the demand you're seeing in the market today for surfactants?

Derrick Whitfield: Wanted to start with your chemicals segment for my first question. How would you characterize the demand you're seeing in the market today for surfactants? How broad-based is it, and what could it grow to be within your portfolio?

Speaker #5: How broad-based is it? And what could it grow to be within your portfolio? Yeah. Go ahead, Michael. I'm sorry. Go ahead, John. I'll take off.

John Schmitz: Yeah. Go ahead, Michael.

Michael Skarke: I'll let you go.

John Schmitz: I'll take off.

Speaker #5: Yeah. No, Derek, this is Michael. So appreciate the question. As we mentioned in the past, we're seeing increased demand for surfactants and it's really a completions and workovers and a little bit of EORs.

Michael Skarke: Yeah, no, Derrick, this is Michael. Appreciate the question. As we mentioned in the past, we're seeing increased demand for surfactants, and it's really completions and workovers and a little bit of EORs. We're expecting this to continue to grow into 2027, but I think it's important to start with the market. We think less than 10% of the new well completions today are using surfactants. Of the ones using it's 95% out of the Permian. There's a lot of room for this market to grow. It's just going to take some time to get there. What I mean by that is we've developed 26 new formulas for just one customer. This is the kind of specialty chemistry that really required for surfactants to be worth it, to add the value that they can add. This is also where our chemistry team really excels.

Speaker #5: We're expecting this to continue to grow into 2027, but I think it's important to start with the market. We think less than 10% of the new well completions today are using surfactants and of the ones using it, it's 95% of the Permian.

Speaker #5: There's a lot of room for this market to grow. It's just going to take some time to get there. And what I mean by that is we've developed 26 new formulas for just one customer.

Speaker #5: And this is the kind of specialty chemistry that is really required for surfactants to be worth it—to add the value that they can add.

Speaker #5: This is also where our chemistry team really excels. I guess to answer the last part of your question, surfactants are still a fairly small percent of our chemicals revenue.

Michael Skarke: I guess to answer the last part of your question, surfactants are still a fairly small percent of our chemicals revenue. I mean, it's consistent with it being 10% of the market, but it's increasing quickly. We've seen it grow 50% year over year, and we see that growth continuing into 2027.

Speaker #5: I mean, it's consistent with it being 10% of the market, but it's increasing quickly. I mean, we've seen it grow 50% year-over-year, and we see that growth continuing into 2027.

Speaker #5: Yeah, the only thing I was going to add to it is Paul on their team has a great team, but it also has a very unique position in the marketplace.

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

Speaker #5: With the lab position we have, the reactive plant we have in Midland, the relation to water and produce water as part of this and Michael said just for that one, we did all this formulas and we can do that very quickly with a great team and great assets.

Speaker #5: But if you ask the team today, they're saying everybody's still working with formulas and applying and coming up with new thoughts around surfactants. So we think this year is been a lot of testing a lot of developing a lot of what-if forward for our customers and we get a participate in that.

Speaker #5: We think that's going to turn into a great opportunity for us, but the volumes that we think it'll turn into are probably more 27 volumes.

John Schmitz: The volumes that we think it'll turn into are probably more 2027 volumes.

Speaker #4: And maybe just to clarify on part of your response, with the surfactants and their application towards EOR, is that in an unconventional sense? Because that does have tax implications associated with it.

Derrick Whitfield: Maybe just to clarify on part of your response with the surfactants and their applications towards EOR. Is that in an unconventional sense? Because that does have tax implications associated with that. That's something that Diamondback spoke to during their call. I think, again, that has some pretty significant implications for industry as they start to latch onto that and potentially get on that path.

Speaker #4: That's something that down in back spoke to during their call and I think, again, that has pretty significant implications for industry as they start to latch onto that and potentially get on that path.

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

Speaker #5: That is correct. That's what I was speaking to. And a great company and great customer, but they're not the only ones. There are a lot of people very focused on it.

Speaker #5: And, but, that is the place that they're focused on.

Speaker #4: Terrific. And maybe just following up on the mineral extraction opportunity, are you guys seeing greater imbalance from industry following your announcements for applications for mineral extraction outside of iodine and outside of lithium?

Derrick Whitfield: Terrific. Maybe just following up on the mineral extraction opportunity, are you guys seeing greater imbalance from industry following your announcements for applications for mineral extraction outside of iodine and outside of lithium?

Speaker #5: So when you say industry, I would say we are seeing certainly more imbalance in general. The potential off-takers is a pretty diverse group. I mean, we're seeing the off-take ranging from glass manufacturers to battery manufacturers.

Mike Lyons: When you say industry, I would say we are seeing certainly more inbounds in general. The potential off-takers is a pretty diverse group. We're seeing the off-take ranging from glass manufacturers to battery manufacturers. I think the off-take is diverse, which gives us good confidence in being able to place all of the minerals. I think what was most important to us, and remains important, is the fact that we did a lot of work around characterizing our asset base. Thanks to Michael and the team, that asset base continues to grow. The merging of our knowledge of pretreatment, getting large volumes of water treated and available, and really the recycling component of our network really unlocked for us, and I think for the industry, the ability to do this at scale.

Speaker #5: So I think the off-take is diverse, which gives us good confidence in being able to place all of the minerals. And I think what was most important to us and remains important is the fact that we did a lot of work around characterizing our asset base and thanks to Michael and the team, that asset base continues to grow.

Speaker #5: And the merging of our knowledge of pretreatment, getting large volumes of water, treated and available, and really the recycling component of our network really unlocked for us.

Speaker #5: And I think for the industry, the ability to do this at scale. So yes, we and our partners are both getting inbounds and I think the fact that we can create a domestic supply is also very important.

Mike Lyons: Yes, we and our partners are both getting inbounds, and I think the fact that we can create a domestic supply is also very important. You're seeing defense and other folks that really care about the supply chain end to end also inbound. I think we remain very excited about the opportunity. As we said earlier, it's pick and shovel work. We've got to make sure the land is ready and that the water bonds are there. It's completely first of kind on all of these. I think we will take some time to get the flywheel running, we'll have really a widget that we can go out and it'll start to accelerate. You'll see the financial impact over time that'll be in our forecasts and we'll talk about facilities and so on as they get up and running.

Speaker #5: You're seeing defense and other folks that really care about the supply chain end to end also inbound. So I think we remain very, very excited about the opportunity.

Speaker #5: As we said earlier, I mean, it's pick and shovel work. I mean, we've got to make sure the land is ready and that the water bombs are there.

Speaker #5: So, I mean, we will, and it's completely first-of-its-kind on all of these. So I think we will take some time to get the flywheel running, but then we'll have, really, a widget that we can go out with, and it'll just start to accelerate.

Speaker #5: And so you'll see the financial impact over time. It'll be in our forecasts and we'll talk about facilities and so on as they get up and running.

Speaker #4: And then maybe just one clarification. Part of what I was thinking about was with the success that you guys have had with these mineral extraction opportunities for iodine and lithium specifically, have there been other critical minerals whether it be magnesium or other components that are starting to create opportunities or inbounds right now for you guys?

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

Speaker #5: Yes. So we've looked at magnesium as one option frankly, I think it's pretty hard economic. So we haven't focused very much on that for just doing it with seawater or other sources.

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

Speaker #5: We have one of our partners is looking at strontium as an option. It's very unique mineral and there's others. So again, that's part of our ongoing characterization of our asset base.

Speaker #5: And not all mineral concentrations are created equal across the network. And frankly, it's one of the great things about being a multi-basin or all-basin player—that gives us that access.

Speaker #5: So I think as we were speaking before, I mean, this is just a I think it's a phenomenal way to get every last dollar and drop of value out of our water.

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

Speaker #4: And one thing I might just add to it, Michael said it earlier, as you continue to expand the bounds of what the geology looks like, what the opportunity set looks like in a specific region, the quality of that water, the interaction of that water to the system changes.

Speaker #4: And so one of the things you can continue to do is just make the mineral content review part of your just core expansion opportunity set.

Speaker #4: As you move, the water changes and as the water changes, what's the right opportunity set? So it's effectively just something that can layer onto the system over time and the growth opportunity set over time.

Speaker #5: Makes sense. Great

Derrick Whitfield: Makes sense. Great update, guys.

Speaker #4: update, guys.

Speaker #5: Thank you.

Mike Lyons: Thank you.

Chris George: Thank you.

Speaker #2: Our next question is from Jimmy Larkin with Bank of America. Please proceed with your question.

Operator: Our next question is from James Larkin with Bank of America. Please proceed with your question.

Speaker #6: Hi John and team. Thanks for taking my question. I guess my first question is really starting on the guidance for water infrastructure next quarter.

James Larkin: Hi, John and team. Thanks for taking my question. My first question is really starting on the guidance for Water Infrastructure next quarter. 5% to 10% seems, even if assuming a strong skim oil pricing environment, seems that volumes are going to have to pick up pretty significantly next quarter. I was wondering if you could just talk through what you're seeing for volumes growth maybe into next quarter and Q4, and then how much of that is primarily related to the startup of your next recycling facility in Q3? Thanks.

Speaker #6: 5 to 10 percent seems even if assuming a strong skim oil pricing environment seems that volumes are going to have to pick up pretty significantly next quarter.

Speaker #6: So, I was wondering if you could just kind of talk through what you're seeing for volumes growth, maybe into next quarter and the fourth quarter, and then how much of that is primarily related to, kind of, the startup of your next recycling facility in the third quarter.

Speaker #6: Thanks.

Speaker #5: Yeah, thanks for the question, Jimmy. So,

Chris George: Yeah. Thanks for the question, Jimmy. The skim oil component of this is certainly part of the growth we saw in Q2 and is a strong potential continued tailwind for the outlook into Q3. To put some specific context around that, obviously you saw the uplift starting in March on the skim oil pricing. In Q2, you saw that hold through for the majority of the period. If you think about the variability between something like a $65 spot pricing environment and a $95 spot pricing environment, that can reflect give or take around $1 million a month of variability. That is something that will be a component of the outlook in one form or fashion, depending upon where the commodity sits at any point in time.

Speaker #4: the skim oil component of this is certainly part of the growth we saw in Q2 and is a strong potential continued tailwind for the outlook into Q3 to put some specific context around that.

Speaker #4: Obviously, you saw the uplift starting in March on the skim oil pricing. In the second quarter, you saw that pulled through for the majority of the period.

Speaker #4: So if you think about the variability between something like a $65 spot pricing environment and a $95 spot pricing environment, that can reflect, give or take, around $1 million a month of variability.

Speaker #4: So that is something that will be a component of the outlook in one form or fashion depending upon where the commodity sits at any point in time.

Speaker #4: But as we think about the volume side, we do expect to see recycling growth from a volumetric standpoint in the third quarter with new facilities coming online.

Chris George: As we think about the volume side, we do expect to see recycling growth from a volumetric standpoint in Q3 with new facilities coming online. We do have new disposals that have been added to the portfolio here as well, both organically and through acquisition, that will drive growth in the disposal side of our volume framework. Our expectation would be to see volumes grow generally in line with that 5% to 10% growth framework that we guided to for the top line in Q3, assuming generally a fairly steady commodity pricing environment to what we see today.

Speaker #4: We do have new disposals that have been added to the portfolio here as well, both organically and through acquisition, that will drive growth in the disposal side of our volume framework.

Speaker #4: So our expectation would to see would be to see volumes grow generally in line with that 5 to 10 percent growth framework that we guided to for the top line in Q3, assuming generally a fairly steady commodity pricing environment to what we see today.

Operator 2: The only thing I'd add to that is it's not all new facilities coming online. There's a heavy portion of just commercialization and kind of seasoning facilities and getting them operational. Getting back to my comments earlier, as you think about this going forward, I think this platform will support continued growth without having to add more capital along the way.

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

Speaker #5: The only thing I'd add to that is it's not all new facilities coming online. There's a heavy portion of just commercialization and kind of seasoning facilities and getting them operational.

Speaker #5: So getting back to my comments earlier, as you think about this going forward, I think this platform will support continued growth without having to add more capital along the way.

Speaker #6: Great, thank you. And I guess my second question, just going back to data centers, which is obviously still a big theme. We had a data center in West Texas that was announced, and it said it would use produced water in the future.

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

Speaker #6: And seemingly, there's more data centers in West Texas to come. I was just kind of—can you remind us how you guys would be set up to benefit from this, and if you're seeing any kind of discussions pick up on that side?

Speaker #6: Thanks.

Speaker #5: No, thanks for the question, Jimmy. I'd start off by saying just if you think about Select, our core competency is sourcing water, moving it, treating it, and disposing of it.

Mike Lyons: Thanks for the question, Jimmy. I'd start off by saying just if you think about Select, our core competency is sourcing water, moving it, treating it, and disposing of it, and doing so in very large quantities in a cost-efficient manner.

John Schmitz: Thanks for the question, Jimmy. I'd start off by saying just if you think about Select, our core competency is sourcing water, moving it, treating it, and disposing of it, and doing so in very large quantities in a cost-efficient manner.

Speaker #5: And doing so in very large quantities in a cost-efficient manner. And so that's really aligns us well with data centers and developers and EPC firms and we're involved in multiple conversations in West Texas and frankly outside of West Texas on just that.

John Schmitz: That really aligns us well with data centers and developers and EPC firms. We're involved in multiple conversations in West Texas and frankly, outside of West Texas on just that. The water needs are going to vary depending on the project and where it is, and how they're operating. We've established Select as an expert in water and water logistics, and that puts us really as one of the premier service providers, solution providers around water. We're having the conversations, we're a part of them, and certainly hopeful that we can continue to grow as that segment of the market increases.

Speaker #5: The water needs are going to vary depending on the project and where it is, and how they're operating. But we've established Select as an expert in water and water logistics.

Speaker #5: And that puts us really as one of the premier service providers, solution providers around water. So we're having a conversations. We're a part of them.

Speaker #5: And certainly hopeful that we can be continue to grow as that segment of the market increases.

Speaker #4: Yeah, I think one thing to add to your question on reusing produced water, I mean, beneficial reuse is part of the overall kind of opportunity set around comprehensive produced water management.

Chris George: Yeah, I think one thing to add to your question on reusing produced water, beneficial reuse is part of the overall, kind of opportunity set around comprehensive produced water management. At the end of the day, it's going to be a core part of long-term solutions for the Permian Basin to manage the core application of produced water management in the oil field. What you do with that water on the backside of that data centers is certainly a very potential and sizable part of that opportunity set to deploy those barrels. There's also going to be short-term need for other application of source as well.

Speaker #4: At the end of the day, it's going to be a core part of long-term solutions for the program in basin. To manage the core application of produced water management in the oil field.

Speaker #4: So, what you do with that water on the backside of that data center is certainly a very potential and sizable part of that opportunity set to deploy those barrels.

Speaker #4: But there's also going to be short-term need for other applications of source as well. And then I'd also add there's a "picks and shovels" aspect of the data center opportunity set that supports the build-out phase, the construction timelines of these projects over the next couple of years as well, that our services business is very well positioned to support, in addition to the long-term opportunity set around the water logistics and water management.

Chris George: I'd also add, there's also a picks and shovels aspect of the data center opportunity set that supports the build-out phase, the construction timelines of these projects over the next couple of years as well, that our services business is very well positioned to support, in addition to the long-term opportunity set around the water logistics and water management.

Speaker #2: Our next question is from Don Christ with Johnson Rice. Please proceed with your question.

Operator: Our next question is from Don Crist with Johnson Rice. Please proceed with your question.

Speaker #4: Good morning, Jimmy. Thanks for letting me in here at the end. On continuing on the data center side—obviously you have PEAK out there and they have a very specific skill set. Are you seeing imbalance on the data center side, not necessarily from the water and beneficial use on water, but from the PEAK side as well and the growth there?

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

Speaker #6: Yeah, it's a great question, Don. As I kind of alluded to a second ago, we do see opportunity on the service side of the business and that's coming out of both the peak side of our business on the power solutions on the distributed basis as well as some of the other rentals and support solutions, storage solutions, and logistics.

Chris George: Yeah, it's a great question, Don. As I kind of alluded to a second ago, we do see opportunity on the services side of the business, and that's coming out of both the Peak side of our business on the power solutions on a distributed basis, as well as some of the other rentals, support solutions, storage solutions, and logistics. As an example, in Q2, we did have about $6 million of revenue come out of the services side of the business in support of those construction projects for data center projects. That's obviously going to be a variable opportunity set, but is something that we've got real tangible existing revenue from, and Peak is a component of that, primarily on the power solutions basis. It's been a good opportunity set to see that.

Speaker #6: So as an example, in the second quarter, we did have about $6 million of revenue come out of the services side of the business in support of those construction projects for data center projects.

Speaker #6: So that's obviously going to be a variable opportunity set, but is something that we've got real tangible existing revenue from. And peak is a component of that primarily on the power solutions basis.

Speaker #6: So, it's been a good opportunity set to see that. We're not necessarily looking to scale that into the large behind-the-meter solutions in support of those projects, but during the build-out phase, talking about the distributed needs of those solutions in support of these projects is something we've already seen success with.

Chris George: We're not necessarily looking to scale that into the large behind-the-meter solutions in support of those projects. During the build-out phase, talking about the distributed needs of those solutions in support of these projects is something we've already seen success with, and I think we'll continue to see success with in the coming quarters as we think about how the water side of the business can further enhance that relationship over time.

Speaker #6: And I think we'll continue to see success with in the coming quarters as we think about how the water side of the business can further enhance that relationship over time.

Speaker #4: Okay. And I wanted to ask about customer behavior because obviously there's been some rigs added to the industry upwards of 50 or 60, but we haven't really seen too much on the completion side, which is obviously more impactful for y'all.

Don Crist: Okay. I wanted to ask about customer behavior, because obviously there's been some rigs added to the industry up as of 50 or 60, but we haven't really seen too much on the completion side, which is obviously more impactful for you all. As you get schedules for the next 6 to 9 or 12 months, are you seeing, generally speaking, a pickup, whether it be from the startup of the natural gas pipelines out of New Mexico or just from the lack of additions to completion activity so far? Just any kind of color around that, because in my opinion, it feels like we're underestimating the completion activity in 2027 as of right now.

Speaker #4: But as you kind of get schedules for the next 6, 9, or 12 months, are you seeing, generally speaking, a pickup—whether it be from the startup of the natural gas pipelines out of New Mexico, or just from the lack of additions to completion activity so far?

Speaker #4: I mean, just any kind of color around that, because in my opinion, it feels like we're underestimating the completion activity in '27 as of right now.

Speaker #5: Yeah. The answer isn't two segments. They're both really good answers as it comes to Select and the opportunity for Select, Don. And this is John.

John Schmitz: Yeah. The answer is in 2 segments. They're both really good answers as it comes to Select and the opportunity for Select, Don. This is John. I would tell you that the intensity of the completion cycle of these wells and the lateral link continue to be a really good tailwind for us. We fit in that so well as these operators continue to do more with less and get better results. We really like that space, and we are surprised how much push there is from the operator to do that. On the industry itself, as far as you're correct, we've added drilling horsepower now. We're drilling wells. There's going to be a ramp in the amount of frack fleets running. How they complete those wells are going to be higher intensity. It's going to be a really good opportunity for pretty well all points of Select.

Speaker #5: I would tell you that the intensity of the completion cycle of these wells and the lateral link continue to be a really good tailwind for us.

Speaker #5: I mean, we fit in that so well as these operators continue to do more with less and get better results. We really like that space, and we're surprised how much push there is from the operator to do that.

Speaker #5: On the industry itself, as far as you're correct, we've added drilling horsepower now. We're drilling wells there's going to be a ramp in the amount of frack fleets running how they complete those wells are going to be higher intensity it's going to be a really good opportunity for pretty well all points of Select.

Speaker #5: If you look across chemicals, water service, our last mile logistics are what they're doing with those drilling rigs where they're going. You just look at the handful.

John Schmitz: If you look across chemicals, water service, our last mile logistics, or what they're doing with those drilling rigs, where they're going, you just look at the Haynesville. It's doubled in drilling rigs, and we have a very unique position and takeaway for the Haynesville. I think we're set up really well on both sides of it, Don.

Speaker #5: It's doubled in drilling rigs, and we have a very unique position and takeaway for the handful. So I think we're set up really well on both sides of it, Don.

Speaker #4: Yeah. And that was going to be my next question was going to be all the discussions been around the Permian, but your positions in probably the Bakken are probably doing pretty well from a workover perspective and in the Haynesville and Marcellus as well.

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

Speaker #5: Yes, Select is very unique in that sense. I mean, what Michael and his team have put together in the Upper Delaware in that dual value system—we think that's some of the best rock in the United States that also has the most challenge to produce, with water management and track water management.

John Schmitz: Yes, Select is very unique in that sense. What Michael and his team has put together in the Upper Delaware in that dual-value system, we think that's some of the best rock in the United States. It has the most challenge to produce water management and track water management. If you go to the Northeast, we probably have the number one position in disposal. If you go to the Haynesville, that is a very unique piece of pipe that's coming out of the DeSoto Parish into Joaquin. Our concentration in the Bakken, we really do like. We got a lot of well bores. I think we're set up to bring value to our customers across the plays in a very unique way. Of course, we can't talk enough about that Delaware position because it's very, very unique, Don.

Speaker #5: But if you go to the Northeast, we probably have the number one position in disposal. If you go to the Haynesville, that is a very unique piece of pipe that's coming out of DeSoto Parish in the Joaquin.

Speaker #5: Our concentration in the Bakken, we really do like. We got a lot of wellbores. So I think we're set up to bring value to our customers across the plays in a very unique way.

Speaker #5: Of course, we can't talk enough about that Delaware position because it's very, very unique, Don.

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

Speaker #4: Just to add some specificity to what John said—I mean, again, he's exactly right—but we've executed, we have infrastructure assets in every U.S. onshore basin, and we've executed contracts this year in most of those basins.

Speaker #4: Now, they all compete with capital. The Permian is getting the bulk of it, but we're still getting deals done in other basins. And I think that will certainly continue, Don.

Speaker #4: I appreciate the color. I'll turn it back. Good job on the quarter.

Don Crist: I appreciate the color. I'll turn it back. Good job on the quarter.

Speaker #5: Thank you.

Michael Skarke: Thank you.

Speaker #1: Our next question is from Jeff Robertson with Water Tower Research. Please proceed with your question.

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

Speaker #2: Thank you. Good morning. Michael, you talked about the way you all have built the Northern Delaware system with embedded capacity available for future utilization.

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

Speaker #2: Can you share any color on how take-up of the utilization on the system, and how having the capacity with the new SWD wells that were conveyed, could affect margins over the next couple of years?

Speaker #4: Sure. No, it's a great question, Jeff. So, it's an infrastructure asset. The more volumes you flow through, the higher your margin is going to go because of the high incremental margin for every incremental barrel.

Michael Skarke: Sure. No, it's a great question, Jeff. It's an infrastructure asset. The more volumes you flow through, the higher your margin's going to go because of the high incremental margin for every incremental barrel. The key around the disposal is it increases the reliability, and it allows you to get closer to a maximum utilization around your Recycle First network. When you get close to that recycling limit, if you go over it, you can always just send those barrels to disposal. You can operate at a higher sustained utilization over a longer period of time. That's one of the reasons we get excited about it. The other reason is there still are. I mentioned we have more customers interested in recycling today than ever before.

Speaker #4: The key around the disposal is to increase the reliability, and it allows you to get closer to a maximum utilization around your recycling-first network, because when you get close to that recycling limit, if you go over it, you can always just send those barrels to disposal.

Speaker #4: So you can operate at a higher sustained utilization over a longer period of time. And that's one of the reasons we get excited about it.

Speaker #4: The other reason is there still are—I mentioned we have more customers interested in recycling today than ever before. There still are some customers who are very fixated on firm capacity.

Michael Skarke: There still are some customers who are very fixated on firm capacity and making sure that you can provide firm capacity through good times and bad times. Really, you have to count on some level of disposal. Tying in more disposal to our system kind of helps us with that as well. Across the system, there's various constraints, but we've really tried to do a very good job of oversizing the pipe and having two lines in every ditch so that we can send water north, south, east, west, all at the exact same time for maximum flexibility to really drive utilization as high as it can go. I tell you that if we put no more capital in the system, just through continued commercialization and with operators' drilling plans, you're going to see utilization continue to climb up.

Speaker #4: And making sure that you can provide firm capacity through good times and bad times, really, you have to count on some level of disposal.

Speaker #4: Adding more disposal capacity to our system kind of helps us with that as well. Across the system, there are various constraints, but we've really tried to do a very good job of oversizing the pipe and having two lines in every ditch so that we can send water north, south, east, and west all at the exact same time for maximum flexibility—really driving utilization as high as it can go.

Speaker #4: But I tell you that if we put no more capital in the system, just through continued commercialization, and with operators' drilling plans, you're going to see utilization continue to climb up.

Speaker #4: I mean, what we've seen here on recycling, if you look at our earnings over the last few quarters or last few years, disposal has increased some, but it's been fairly consistent, which you love the consistency of the produced water.

Michael Skarke: What we've seen here on recycling, if you look at our earnings over the last few quarters or last few years, disposals increased some, but it's been fairly consistent, which you love the consistency of the produced water. The recycling's been a lot of the growth. It's through increased utilization across that expansive network.

Speaker #4: The recycling has been a lot of the growth, and it's through increased utilization across that expansive network.

Speaker #2: And you mentioned that the customer wanted a pipeline to extend. I think you said down to the Texas and Mexico border. Is that strategic decision on their part because they have other assets that could be added to the system in the future, or was there something some other motivation behind that?

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

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

Speaker #4: You're exactly right. It was strategic on their part, and they were very specific as to where they wanted the pipeline to go and how much capacity they wanted to reserve on the pipeline.

Speaker #4: Now, I would add that is also strategic on our part. I mean, we want to make sure that we're developing an asset that will solve that customer's need but is also something that we can use as part of a bigger opportunity to solve the basin's need.

Speaker #4: And so, this was one of those really fun transactions that allows us to do both.

Speaker #2: Thank you.

Jeff Robertson: Thank you.

Speaker #4: Thank you, Jeff.

Michael Skarke: Thank you, Jeff.

Speaker #1: Our next question is from John Daniel with Daniel Energy Partners. Please proceed with your question.

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

Speaker #5: Hey, thank you all. Michael, I believe in an earlier response to a question, you talked about 26 formulas designed for one customer. I'm curious, when you do that, do you own the formula and once you have that formula, if it's working, can you take that and provide that with to other operators?

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

Speaker #4: Yeah, so I'll answer your question generally. The answer is: it depends on the operator you're working for. We will take specific formulas from operators and fine-tune them for them, or manufacture those for them.

Michael Skarke: Yeah. I'll answer your question generally, and the answer is it depends, depending on the operator you're working for. We will take specific formulas from operators and fine-tune them for them or manufacture those for them, and we're happy to do that. That puts volume through our manufacturing plant. It gives us kind of that preferred relationship with the operator. However, there are a lot of opportunities where customers say, Work on a formula for us. Design something for us, design something for the region. We're doing the design work, and in most cases, we end up owning that formula, and it's not uncommon for an operator to come say, Hey, I want what XYZ has over there. Now it's not that simple. It's not portable.

Speaker #4: And we're happy to do that. That puts volume through our manufacturing plant. It gives us kind of that preferred relationship with the operator. However, there are a lot of opportunities where customers say, "Work on a formula for us."

Speaker #4: “Design something for us. Design something for the region.” And we're doing the design work, and in most cases, we end up owning that formula. It's not uncommon for an operator to come and say, “Hey, I want what X, Y, Z has over there.” Now, it's not that simple.

Speaker #4: You can't just it's not portable. You want to go through the testing phase and I thought John did a really good job of explaining kind of we're in that testing phase, we're excited about it, and we really think we're investing a lot of time and effort and we think it's going to bear fruit or some in '26, but largely in '27.

Michael Skarke: You want to go through the testing phase, and I thought John did a really good job of explaining we're in that testing phase. We're excited about it, and we really think we're investing a lot of time and effort, and we think it's going to bear fruit for some in 2026, but largely in 2027. It is good to see operators say, Hey, what are you doing? What would work here? We can bring those 2026 formulas or others to that solution.

Speaker #4: But it is good to see operators say, "Hey, what are you doing? What would work here?" And then we can bring those 26 formulas or others to that solution.

Speaker #5: Okay, got it. And then, going over to the SWDs that were conveyed to you guys—I know you also mentioned you've had that happen multiple times over the years.

John Daniel: Okay. Got it. Going over to the SWDs that were conveyed to you guys, I know you also mentioned you've had that happen multiple times over the years. I'm just curious, when those are conveyed, is it the customer coming to you with the idea, or are you proactively going out there and sourcing these opportunities? How many inbound calls from other operators do you have with similar conveyance ideas?

Speaker #5: I'm just curious, when those are conveyed, is it the customer coming to you with the idea, or are you proactively going out there and sourcing these opportunities?

Speaker #5: And how many inbound calls from other operators do you have with similar conveyance ideas?

Speaker #4: Yeah. No, it's an interesting question. And I hadn't thought of it that way. It's actually both. We've had customers come to us and say, "We want you to take these assets that we're not using them.

Michael Skarke: Yeah, no, it's an interesting question. I hadn't thought of it that way. It's actually both. We've had customers come to us and say, We want you to take these assets. We're not using them. You're going to use them more. It's going to tax up your performance for us. We want you to take them. Which is a great feeling. It's the strongest endorsement I can think of what we've built.

John Schmitz: Yeah, no, it's an interesting question. I hadn't thought of it that way. It's actually both. We've had customers come to us and say, We want you to take these assets. We're not using them. You're going to use them more. It's going to tax up your performance for us. We want you to take them. Which is a great feeling. It's the strongest endorsement I can think of what we've built.

Speaker #4: You're going to use them more. It's going to backstop your performance for us. We want you to take them, which is a great feeling.

Speaker #4: It's the strongest endorsement I can think of for what we've built. There are other scenarios where we've brought it up and said, "Hey, we've looked online and you're not putting many volumes through these wells."

John Daniel: Okay.

John Daniel: There are other scenarios where we've brought it up and said, Hey, we've looked online, you're not putting many volumes through these wells. This would really fit our system and help us better serve you. I think the key, whether it's their idea or our idea, is at the end of the day, we get to the same point, which is the asset is more valuable to the customer under our control as part of our network.

John Schmitz: There are other scenarios where we've brought it up and said, Hey, we've looked online, you're not putting many volumes through these wells. This would really fit our system and help us better serve you. I think the key, whether it's their idea or our idea, is at the end of the day, we get to the same point, which is the asset is more valuable to the customer under our control as part of our network.

Speaker #4: This would really fit our system and help us better serve you. I think the key—whether it's their idea or our idea—is that, at the end of the day, we get to the same point, which is the asset is more valuable to the customer under our control as part of our network.

Speaker #5: Okay. Got it. And so if you were to put someone's third-party volumes into that SWD that was conveyed to you, that I'm assuming that's allowed and then there's ultimately benefit to the person that conveyed it to you, or sorry if you're not asking a dumb question.

John Daniel: Okay. Got it. If you were to put someone's third-party volumes into that SWD that was conveyed to you, I'm assuming that's allowed. There's ultimately a benefit to the person that conveyed it to you. Sorry for asking a dumb question.

Speaker #4: No, it's not a dumb question at all. It is allowed. And it would be to our benefit if we do that.

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

Speaker #5: Okay, got it. Thanks, guys. Thank you, John.

John Daniel: Okay. Got it. Thanks, guys.

Michael Skarke: Thanks, John. Thank you, John.

John Schmitz: Thanks, John.

Michael Skarke: Thank you, John.

Speaker #1: We have reached the end of the question-and-answer session. I would like to turn the floor back over to John Schmitz for closing comments.

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

Speaker #4: Thanks to everybody for joining the call. We appreciate interest in learning more about Select Water Solutions. And we look forward to speaking to you again next quarter.

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

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

Q2 2026 Select Water Solutions Inc Earnings Call

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