Select Water Solutions 2026 Third Quarter Earnings Conference Call - SELECT WATER SOLUTIONS INC

Explicit Guidance:

• Q4 2026 Revenue: Water Infrastructure segment expected to report $150–$160 million (35–45% growth YoY); Water Services segment expected at $150–$160 million; Chemical Technology segment expected at $75–$80 million.
• Q4 2026 Margins: Water Infrastructure gross margins expected in the 52–56% range (impacted by integration/seasonality); Water Services gross margins (pre-DNA) expected at 21–24%; Chemical Technology gross margins (pre-DNA) expected at 17–18%.
• Q4 2026 EBITDA: Adjusted EBITDA guidance of $95–$100 million.
• Q4 2026 Expenses: SG&A expected at 11–12% of revenue; DNA (Depreciation, Amortization, Accretion) expected at $50–$55 million; Net interest expense expected at $15–$17 million.
• FY 2026 Net CapEx: Revised guidance of $300–$310 million, driven by Pilot Water acquisition.
• FY 2027 Outlook (Pilot Water): Expected Adjusted EBITDA of $120–$130 million; full-year 2027 outlook for the combined entity to be provided on the year-end call.
• FY 2027 Margins: SG&A expected to normalize to 10–11% of revenue; Water Infrastructure maintenance CapEx projected at $80–$90 million on a go-forward basis.
• FY 2027 CapEx Direction: Base case expects a capital program "fairly similar" to 2026, with modest increases in maintenance CapEx and continued growth CapEx for new projects.

Business-Segment Outlook:

• Water Infrastructure: Anticipates a "strong finish" to 2026 and a "strong growth profile" in 2027 driven by new MVCs (Maximum Volume Commitments) and capitalized projects. Expect significant incremental revenue growth of >40% in Q4 2026 from Pilot inclusion; long-term potential for combining recycling (Select) and disposal (Pilot) to maximize value per barrel.
• Pilot Water Integration: On track to achieve 2027 underwritten outlook; customer outreach and integration planning underway; expects to accelerate revenue synergies in 2027, potentially faster than previously anticipated.
• Water Services: Deconsolidation of Peak Rentals (55% sold, 45% retained) reduces Q4 and future financials; however, segment positioned to "surpass original full-year 2026 guidance" despite loss of Peak's 21% revenue contribution; aims to protect market share and improve margin profile over time.
• Chemical Technology: New product development showing "great results" and strong customer interest; surfactant suite grew to >10% of portfolio YoY; anticipates adoption acceleration in 2027 as well-test results (12–18 month horizon) validate efficacy; expects a modest Q4 pullback before 2027 growth.
• Strategic Projects: Northern Delaware Basin contract expansion adds >250,000 acres and converts >100,000 acres from ROE to base dedication with a 12-year extension; integrating Northern and Southern Delaware systems to create the "largest system" in the footprint over the next 12–18 months.

Market and Competitive Outlook:

• Win Rates & Commercials: Win rates expected to increase due to expanded acreage and ability to balance "longs and shorts"; previously losing bids on inability to provide firm disposal capacity (now resolved via Pilot).
• Pricing Power: Contractual "change-in-law" provisions allow passing of regulatory costs/fees to customers; disposal capacity viewed as premium assets in tightening regulatory environments.
• Competition: Focus on "recycling first" solution combined with firm disposal capacity creates a unique, non-duplicative competitive moat; expecting win rates and hit rates to continue increasing.
• Minerals/Byproducts: Active projects with LibertyStream Infrastructure (two in construction, two in pipeline); expects several lithium and iodine facilities operational in 2027; Pilot acquisition expected to expand total mineral recovery potential.

Macro / Industry Outlook:

• Regulation: Not expecting material business changes from potential Texas regulatory tightening; stringent environments viewed as creating opportunities for "solutions-oriented service companies"; disposal capacity premium anticipated if constraints increase.
• Economic/Geopolitical: Acknowledges evolving broader macro/geopolitical environment but maintains high confidence in the company's future; believes "secular tailwinds" support organic growth.
• Industry Trends: Expecting adoption of advanced chemical surfactants to accelerate in 2027 as large operators publicly validate well results; 2027 viewed as the inflection point for commercial scaling.

Strategic Initiatives:

• M&A (Pilot Water): Acquisition closed; integration underway; expects to drive >40% revenue growth in Q4 2026; synergies (revenue and cost) expected to be harvested by end of 2027/2028, with possibility of acceleration.
• Divestiture (Peak Rentals): Completed recapitalization and divestment of 55% majority interest; retains 45% minority equity and long-term exposure; proceeds ($42M cash + $35M note) contribute to liquidity; allows Select to focus on core while Peak independently funds growth.
• Financing: Completed $900 million senior unsecured notes offering (7.58% coupon, 8-year term) and $500 million cash flow revolving credit facility; leverage ratio approx. 2.0x net debt to EBITDA pro forma.
• Infrastructure Expansion: Ongoing development of large-diameter pipelines to interconnect Northern and Southern Delaware systems; evaluation of "long-distance disposal" (southeast/north) as a value-harvesting option for barrels not recycled.

Risks and Headwinds to Outlook:

• Integration Costs: Q4 2026 margins in Water Infrastructure expected to be depressed (52–56% vs higher prior runs) due to "integration-related costs" and seasonal expenses associated with bringing Pilot assets online immediately.
• Pilot Ramp: November/December 2026 performance for Pilot expected to be slightly below full-year run rate due to upfront integration costs and seasonality.
• Seasonality: Anticipates standard Q4 seasonality impacting Water Services and Chemical Technology segments.
• Permitting: Pilot permits have a "shelf life" requiring future renewal/extension, though not currently a restriction.
• CapEx: Modest increase in CapEx anticipated in Q4 2026 for Pilot network upgrades; future CapEx tied to earnings trajectory and growth projects.
• Equity Method: Deconsolidation of Peak Rentals removes revenue/EBITDA from the income statement (previously ~21% of Water Services revenue), though upside remains via equity investment.

Management Tone on the Future:

• Confidence: Describes Q3 2026 as "another strong quarter" and "record year" trajectory; expresses "increasing excitement" and "high conviction" regarding the combined network.
• Outlook: Uses language like "well positioned," "active year for commercialization," and "superior end-to-end water management."
• Strategic Shift: Confident that the combination of recycling and disposal creates a "truly unique system" that resolves previous competitive limitations, with a tone of accelerated opportunity compared to prior 2027 expectations.

Miscellaneous:

• Replay Availability: Recorded telephonic replay available until November 23, 2026.
• Forward-Looking Statement Disclaimer: Standard caution regarding risks, uncertainties, and contingencies materializing differently than projected.
• Peer Collaboration: Views success of partners (e.g., LibertyStream's new off-take deal) as positive, validating the market demand for their shared mineral recovery projects.