Select Water Solutions, Inc. Q3 FY2024 earnings call

• During Q3, Select delivered continued margin improvement and profitability gains, with revenue growth, improved gross margins, and increased net income. • Water Infrastructure segment grew revenues 20% QoQ and 40% YoY, with gross profit before D&A up 33% QoQ and 99% YoY. • Entered multiple new long-term contracts in Q3, adding 25,000 acres under long-term dedication in Permian Basin and 57,000 acres under right of first refusal, plus 2 pipeline connection agreements in Bakken. • Completed a small disposal acquisition in Northern Delaware Basin, adding 10,000 bpd disposal capacity. • SG&A reduced in Q3, supporting net income growth of 26% QoQ. • Water Infrastructure segment had 57% gross margin before D&A this quarter due to increased base utilization.

The Water Infrastructure segment saw 20% QoQ revenue growth to $82 million, with gross profit before D&A improving to $47 million (a 33% QoQ increase and 99% YoY growth). Gross margin before D&A for the Water Infrastructure segment was 57% this quarter. The Water Services segment saw revenue growth of about 2% in Q3 but expects a 10%-15% sequential decline in Q4 due to seasonality and asset-specific activity reductions. The Chemical Technologies segment had revenue impacted by decreased activity with legacy pressure pumping customers in Q3 but anticipates revenue and margin recovery in Q4 with new product development and E&P customer wins.

• For Q4, expects consolidated adjusted EBITDA between $60 million to $62 million, with Water Infrastructure revenue expected to decline 10%-15% sequentially due to planned operational downtime, while Chemical Technologies segment anticipates revenue and margin recovery. • Full year 2024 expected to see recycling and disposal volumes grow over 30% YoY. • Water Infrastructure segment on track to be the largest segment component of profitability by first half of 2025 and account for over 50% of company's profitability by end of 2025. • Anticipates strong rebound in Water Infrastructure segment in Q1 2025 with new projects online, leading to further growth in 2025.

• Temporary headwinds in Q4 due to seasonal activity slowdown in Water Services segment and planned operational downtime in Water Infrastructure segment. • Macro environment and industry activity challenges impacting Water Services and Chemical Technologies segments. • Regulatory uncertainties at state, local, and federal levels that could potentially impact operations, though currently focused on localized regulatory applications related to water management.

Q: Jim Rollyson asked about margin trajectory for Water Infrastructure over next quarters.

A: John Schmitz and Chris George responded that the infrastructure business operates in a 50%-60% margin range, driven by asset utilization, efficient asset integration, and new contract underwriting.

Q: Bobby Brooks inquired about 4Q EBITDA decline and sources.

A: John Schmitz explained that majority of decline in Water Infrastructure is from asset-specific downtime, with disposal and solid management volumes remaining steady, while Services segment has more seasonal impact.

Q: Tom Curran asked about 2025 EBITDA outlook and completions activity.

A: Chris George stated industry activity expected to be neutral to slightly down year-over-year, with Chemical Technologies margin aiming for mid-high teens and Services segment correlated to activity environment.

Q: Don Crist asked about Northern Delaware expansion utilization.

A: Michael Skarke responded that the system has room to run, with oversized pipe supporting multiple customers and ample capacity for other operators, and investments will continue without immediate need for major upgrades.

Q: Jeff Robertson asked about regulatory impact and long-term contracts.

A: John Schmitz and Chris George discussed that regulatory support for the industry benefits customers, and operators are inclined to long-term agreements due to Select's water balancing capability and asset certainty.