Select Water Solutions, Inc. (WTTR) Earnings

Management highlights

### Overall Performance - All three operating segments outperformed guidance, with water infrastructure and chemical technology delivering record quarterly revenue and gross profit in Q2 2026. - The company has a healthy balance sheet positioned to continue investing in long-term growth opportunities. ### Water Infrastructure Updates - Added multiple minimum volume commitments (MVCs), acreage dedications, and interruptible tie-in agreements during the quarter. - Executed a new 7-year agreement with a large public operator in the Northern Delaware Basin, supported by a 128 million barrel MVC contract. As part of the deal, 14 underutilized saltwater disposal wells (SWDs) across Eddy and Lee Counties, New Mexico were conveyed to Select; 2 additional SWDs were acquired separately in the Delaware Basin, for a total of 16 new active SWDs added in the region. - Closed on the strategic acquisition of Black River Ranch in Eddy County, New Mexico, adding future development opportunities, high-margin surface and mineral cash flows, and long-term cost synergies. - Secured a new strategic partnership for iodine extraction across the company's infrastructure portfolio, adding to existing lithium extraction opportunities. ### Chemical Technology Updates - Drove market share gains through rapid new product development and steady field execution, with growing demand driven by increased completion intensity and complexity, and rising interest in surfactant technology. - Delivered margin gains despite higher oil-based raw material input costs. ### Strategic Positioning - The integrated Northern Delaware water network (built for full lifecycle water management with a recycling-first framework) creates unique value for customers, enabling accretive acquisition of underutilized existing assets that align with organic build-out plans. - The company holds infrastructure assets across all major U.S. onshore basins, with exposure to growing activity in regions beyond the Permian including the Bakken, Haynesville, Marcellus, and Northeast.

Guidance

- **Full-year 2026 water infrastructure segment**: Management reaffirms 25% to 30% YoY revenue growth guidance, and now expects to deliver at the upper end of this range driven by Q2 outperformance. - **Q3 2026 water infrastructure segment**: 5% to 10% QoQ revenue growth, with gross margins before DNA expected to hold between 56% and 58%. - **Q3 2026 water services segment**: Generally steady sequential revenue, with gross margins before DNA forecast between 20% and 22%. - **Q3 2026 chemical technology segment**: Revenue expected to moderate to $85 million to $90 million, with gross margins holding between 20% and 21%. - **Q3 2026 consolidated**: Adjusted EBITDA is guided between $90 million and $94 million; DNA expense is expected to be $48 million to $52 million; net interest expense is projected to remain between $4 million and $6 million. - **2026 full-year capital expenditure**: Net CapEx guidance increased to $250 million to $290 million, up from the prior guidance high end of $250 million, to support new contract awards and expanded growth opportunities. - **2027 outlook**: Management expects another full year of double-digit revenue growth for the company, with a robust opportunity set that could support 2027 growth capital spending similar to 2026's elevated level. Continued year-over-year growth is expected even with potential moderate seasonal impacts in Q4 2026.

Segment performance

1. Water Infrastructure Segment: Record Q2 2026 revenue of $102 million, representing 26% year-over-year (YoY) revenue growth and 5% sequential (QoQ) revenue growth against Q1 2026. Gross margin before depreciation and amortization (DNA) was 58%, with 27% YoY gross profit growth and 9% QoQ gross profit growth. Produced water volumes handled reached 1.5 million barrels per day. This segment contributed 25.8% of total consolidated Q2 2026 revenue. 2. Water Services Segment: Q2 2026 revenue grew 4% sequentially, outperforming guidance that projected a modest sequential decline. Gross margin before DNA increased to 23% from 21.8% in Q1 2026. This segment contributed approximately 50.0% of total consolidated Q2 2026 revenue (calculated as remaining revenue after the other two segments). 3. Chemical Technology Segment: Posted record Q2 2026 revenue of $96 million, representing 23% sequential revenue growth. Gross margin before DNA was 20%, delivering 35% sequential gross profit growth to $19.4 million. This segment contributed 24.2% of total consolidated Q2 2026 revenue. Consolidated results: Total Q2 2026 revenue was $396 million, net income was $23 million, and adjusted EBITDA was $93 million. YoY consolidated revenue grew 8%, adjusted EBITDA grew 19%, and net income more than doubled compared to Q1 2026.

Risks & headwinds

- Commodity price and geopolitical environments remain fluid, which could impact customer activity levels and create variability in skim oil revenue that impacts quarterly results. - New mineral extraction and alternative use opportunities (such as data center water supply) are first-of-a-kind, and will take time to scale, with financial impacts expected to materialize gradually over multiple years rather than in the near term. - Actual results could differ materially from forward-looking statements due to inherent business and market risks, as detailed in the company's SEC filings.

Analyst Q&A

• Q: Given current momentum in water infrastructure, what 2027 growth rate should investors expect? /

  A: Management confirms that the base case expectation is another full year of double-digit revenue growth for 2027. The opportunity set has expanded alongside recent contract wins, and management expects to continue adding new projects and acquisitions over the coming quarters, putting the company on track to deliver this growth. Recent customer conveyance of underutilized SWDs validates the value of Select's integrated recycling-first network and supports future upside from incremental commercial volumes.

• Q: What is the current status of ROFR (right of first offer) acreage conversion in the Permian, and how should investors think about pipeline growth? /

  A: No material conversion of ROFR acres to dedicated contracted acres has occurred year-to-date, but management expects ongoing conversion as customer activity expands. Select intentionally upsizes its network by 50% when building for anchor tenants, leaving excess capacity that will be filled by smaller MVCs, interruptible volumes, and new dedicated acres over time, driving margin upside without significant additional capital. The growth pipeline is larger than it was 12 months ago, driven by growing operator demand for recycling and geographic expansion of the Northern Delaware play, with multiple large and small opportunities remaining in the pipeline for 2027.

• Q: How broad is surfactant demand today, and how large can this opportunity become for the chemical segment? /

  A: Currently, less than 10% of new U.S. well completions use surfactants, with 95% of current adoption concentrated in the Permian, leaving substantial room for long-term growth. Surfactants currently represent a small single-digit percentage of chemical segment revenue, but demand has grown 50% YoY, and growth is expected to continue through 2027. Most activity in 2026 has focused on custom formulation testing and development; material volume increases are expected to materialize primarily in 2027, leveraging Select's in-house lab and local manufacturing capabilities that allow rapid custom development for customers.

• Q: What upside can incremental utilization of existing water infrastructure capacity deliver to margins over time? /

  A: Water infrastructure has high incremental margins, so margin expands directly as utilization of existing capacity increases. Additional SWD capacity improves the reliability of Select's recycling-first model, allowing the company to operate the recycling network at higher sustained utilization by providing overflow disposal capacity when recycling volumes exceed targets. Additional SWD capacity also helps win new contracts by meeting customer demand for firm guaranteed capacity. Even without additional capital investment, continued commercialization of existing excess capacity will drive steady utilization and margin growth over the next several years.