WTTR — Select Water Solutions, Inc.

Summary of Select Water Solutions Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Revenue: Water Infrastructure revenue decreased by 2.5% to $XX million with margins at 53%. Water Services revenue fell by 23% due to divestitures, while Chemical Technologies saw a 13% sequential revenue increase.
• Adjusted EBITDA: Reported at just under $60 million, at the high end of guidance. Expected to grow to $60 million to $64 million in Q4.
• Cash Flow: Cash flow from operations was $72 million, exceeding adjusted EBITDA for the second consecutive quarter.
• Growth CapEx: Increased to $95 million, primarily for infrastructure projects, leading to negative free cash flow of $19 million.
• SG&A: Increased to $42 million due to severance and deal costs but expected to return to approximately $40 million in Q4.

2. Strategic Updates and Business Highlights

• Water Infrastructure: Continued growth with new long-term contracts, adding over 65,000 acres under dedication in the Permian Basin. Nearly 1 million barrels of water recycled daily.
• Chemical Technologies: Achieved strong market share gains and improved margins, driven by new product developments.
• Mineral Extraction: Groundbreaking on Texas' first commercial produced water lithium extraction facility, expected to generate $2.5 million in annual royalties starting in 2027, ramping to $5 million at full capacity.
• Water Services: Focused on consolidation and divestment efforts to enhance long-term margins and efficiencies.

3. Forward Guidance and Outlook

• Water Infrastructure: Expected to grow by 10% in Q4 and over 20% in 2026, maintaining gross margins above 50%.
• Water Services: Anticipated sequential revenue declines in Q4 with margins improving to 19-20%.
• Chemical Technologies: Expected steady revenue with gross margins of 18-20% in Q4.
• Overall Strategy: Committed to delivering predictable and stable long-term earnings, with a focus on enhancing shareholder value.

4. Challenges and Points of Concern

• Market Environment: Declining activity levels in the industry impacting Water Services revenue and margins.
• Divestiture Impact: The divestment of legacy trucking operations contributed significantly to revenue declines in Water Services.
• Competitive Pressures: Increased competition in the water management space, particularly following the acquisition of ARIS by WES.
• Cost Structure: Rising SG&A costs and ongoing rationalization efforts in Water Services could impact profitability.

5. Notable Q&A Insights

• Disposal Capacity: Management emphasized the importance of balancing recycling and disposal capabilities, particularly in the Permian Basin.
• Beneficial Reuse: Discussions highlighted the potential for beneficial reuse of produced water, with both upstream and downstream customer relationships being explored.
• Haynesville Development: Positive sentiment regarding future growth opportunities in the Haynesville Basin, with expectations for increased infrastructure needs.
• Distributed Power Business: Management is evaluating growth avenues for the Peak business, focusing on natural gas generation and battery storage without compromising capital for water infrastructure.

Overall, Select Water Solutions demonstrated resilience in Q3 2025 despite a challenging market environment, with strategic initiatives in place to drive future growth while navigating competitive pressures and operational challenges.