Greetings, and welcome to Select Energy Services 2020 Fourth 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to Chris George, VP, Investor Relations and Treasurer.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Select Energy Services conference call and webcast to review our financial and operational results for the fourth quarter of 2020. With me today are John Schmitz, our Chairman and Chief Executive Officer; and Nick Swyka, Senior Vice President and Chief Financial Officer. Before I turn the call over, 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 selectenergy.com. There will also be a recorded telephonic replay available until March 10, 2021. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, February 24, 2021, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during the conference call may contain forward-looking statements within the meaning of the United States 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 results, 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 for the year ended December 31, 2019, our subsequent quarterly reports on Form 10-Q and our current reports on Form 8-K as well as our annual report on Form 10-K for the year ended December 31, 2020, which we expect to file this week to understand those risks, uncertainties, and contingencies. Also, please refer to our fourth quarter earnings announcement released yesterday for reconciliations of non-GAAP financial measures. With that, I'd like to turn the call over to our Founder, Chairman and CEO, John Schmitz.

Thanks, Chris. Good morning, and thanks, everybody, for joining today. I am pleased to be discussing Select with you again as the CEO. As many of you are aware, I founded the company nearly 15 years ago, and I'm excited to be back on the job full time. Since stepping back into the CEO role, I have visited many of the regions in person, and I will meet all of them very soon. I have had a lot of meetings with customers and employees, discussing our company and ongoing business. These meetings made a few things very clear to me. First, we have a strong leading position in all things around water and chemical solutions and are very focused on improving and growing this position through value-add solutions for our customers. Second, our integrated solutions, technology, and research and development continue to strengthen our position and advance the water market towards a sustainable reuse lifecycle. And third, we have deep customer relationships across our operational footprint covering all active basins. This puts Select in an excellent position to expand and execute our integrated water and chemical solutions in this recovery and changing market. To advance and capture share, we have integrated our sales team, focused our marketing efforts, and reorganized our operational execution to drive cross-selling and most importantly, provide real value on water and chemical solutions to our customers. These are what drive the near-term growth of our existing business in the oil and gas space. We are also focused on what possibilities for the long-term future hold. With our knowledge and know-how of how to capture the leading water and chemical solutions position, we believe we can expand this into new areas of energy transition in the industries outside the oil and gas. As we all know, water is vital to the health, economy, and social well-being of our communities that we all work and live in. Select is focused directly on developing sustainable water solutions with a commitment to conserve and reuse. We have a team inside Select that works at this every day, developing innovative water treatment solutions that we can make an unusable water source that is in the right place logistically and turn that into a usable source, which is where the value-add is. We then couple that known water quality to the right chemistry to get the best results for our customers and communities alike. If you step back and look at it, our customers have to manage around 20 billion barrels of produced water a year. We are focused on that volume and the cost of operations to bring effective solutions to reduce cost, repurpose to reuse, and bring environmental-positive outcomes. In short, Select will play an important role in building the water and chemical solutions that are designed to meet the sustainability goals of all our stakeholders, including our customers, employees, shareholders, and local communities. Now I'm going to turn the floor over to Nick to walk you through some of Select's financials and provide some thoughts on the go forward. And then before we take your questions, I'll spend some time discussing some thoughts around our longer-term strategy and opportunity for us to capture dollars and grow profitability. Nick?

Thank you, John, and good morning, everyone. The fourth quarter marked the continued progression of the monthly improvements we've seen since June and a return to solidly positive adjusted EBITDA territory. Adjusted EBITDA of $10.2 million finished just above our previously forecast range of $8 million to $10 million provided in our press release dated February 1, while revenues of $133 million and net loss of $21.2 million finished within the ranges provided. Q4 incremental margins were around 40% or more, both on a consolidated basis and across each segment. While water services and chemicals saw revenue grow along with market activity, the biggest driver was the water infrastructure segment with revenue growing 125% and gross margins getting back above 30% for the first time since the third quarter of 2018. As activity returned, our key pipelines serving core Tier 1 acreage in both the Northern Delaware and the Bakken saw large recoveries in volume throughput. Our fixed pipelines have significant operating leverage and strong margins, which positively impacted the quarter's results, while allowing us to pull through other related logistics work at very good margins. Looking at free cash flow, while a 32% revenue increase quarter-on-quarter led to some working capital headwinds in Q4, we generated $103 million of free cash flow for the year, exceeding our original 2020 target stated on this call last year, even after all the difficulties that impacted the year. For the last three years, through drastically different environments, we've generated nearly $290 million of free cash flow, allowing us to pay off our revolver balance, make a number of significant investments in the business, maintain our assets, and return capital to shareholders while still building a sizable cash balance. We finished the year with $169 million of cash, no debt, and approximately $250 million of liquidity, providing us with a very strong balance sheet to approach the opportunities we see in front of us. Usually, I spend more time covering the individual segment drivers that impacted our quarter. And while the fourth quarter was certainly a big step forward that I'd be happy to talk more about, I think our investors and research analysts will be better served using this time to hear more from John about our vision for the company and getting into the Q&A around that vision. Given that, Chris and I would be happy to follow up with everyone on the call here who'd like to dive deeper into the quarter if you'll call or e-mail one of us. I would like to mention that we finished the year with some of our best safety metrics ever as a company, and this resulted in significant savings at year-end of roughly $2 million relative to our insurance and workers' comp accruals. We're proud of our safety programs and our employees' relentless focus on operating ever more safely, especially through such a challenging year. Now I'll cover some of the forward-looking guidance and trends we see in our businesses. We have a good deal of momentum coming into Q1 and the rest of the year. In Q4, we increased revenue and margins across our segments, pulling through attractive 40% incrementals. And while from a purely operational perspective, Q1 continues to advance over Q4, there are a couple of factors that may limit overall Q1 adjusted EBITDA to modestly below the Q4 number. First, the recent severe polar vortex has had a tremendous impact on so many of our employees and communities, especially in Texas, but also in many of the other areas we operate, including Oklahoma, Louisiana, North Dakota, and New Mexico. Our priorities last week were primarily around ensuring the safety of our employees and their families as well as our customers' well integrity. This weather event has demonstrated some of the challenges around our country's legacy infrastructure and the importance of maintaining a diversified energy supply chain, in particular, the essential role natural gas will need to play as a base and transition fuel. Looking to the immediate impact, the severe weather significantly limited our ongoing commercial activities around the well site. While a bit early to project the full impact of the recent event, we saw a temporary shutdown of activity in many areas we operate in. Generally, for an event like this, our cost structure doesn't change much on a weekly basis, given many of the challenges our employees face on location and across the organization, but the revenue in the affected areas effectively skips a week, and this will have a meaningful but temporary impact on the quarter's financial results. Looking to the first quarter now, currently, we believe revenues will still be up somewhere between 5% to 10%, so margins will likely see a modest compression. In water services and water infrastructure, this is primarily due to the recent weather impacts, along with the nonrecurrence of some of the positive Q4 factors. While in Oilfield Chemicals, recent rapid increases in oil-linked raw materials costs will have a near-term lagging impact before the pass-through pricing adjustments are realized in Q2. Looking at SG&A, through our rapid cost-cutting efforts, SG&A levels were down 33% year-on-year from 2019 to 2020 and the Q4 2020 run rate is 40% below that of Q1 2020. Even after the one-off impact of executive severance hitting the first quarter, we're still unlikely to grow SG&A on a year-on-year basis in 2021 relative to 2020, and we aim to get SG&A as a percentage of revenue back in the single digits by the end of 2021. As we look out at some of the key metrics over the entirety of the year, we forecast $20 million to $30 million for maintenance CapEx and already announced projects with another $10 million to $20 million targeted for potential growth opportunities similar to the recycling projects we announced recently. We expect to continue to generate positive free cash flow in 2021. Though if the market recovers faster than we anticipate, working capital will build and could be a headwind for a period of time, particularly in the first half of the year. Speaking to our market expectations, we believe that a WTI price near $60 a barrel provides attractive economics for our customers to deliver positive free cash flow to their investors, delever balance sheets and continue to add drilling and completions activity in a disciplined way. There are many factors outside of our control over the course of the year, such as future oil prices, the containment of COVID-19 worldwide and an overall economic recovery, but as we sit here today, we see continued positive monthly operational progression, setting aside the recent weather issues impacting February. With the current forward curve and assumed present economic recovery, we expect active frac crews to advance toward the 180 to 200 crew count range in the back half of the year and believe the remainder of 2021 will see a significant progression from our Q4 and Q1 adjusted EBITDA levels. We anticipate these earnings will come from not only our existing businesses but a number of exciting new initiatives. For more on those, I'll turn it back over to John to talk about our strategy and vision.

Thanks, Nick. Before we talk about where we can take our company, let's make sure we understand where we are today with our base business. 2020 was a tough year for the oil and gas space. We all know that. But with that said, Select has rightsized and will continue to focus on cost out or doing more with less. We're always thinking about operational leverage. Select is a leader in sustainable water and chemical solutions for the oilfield, and we are fully focused on finding synergies between these water and chemical positions to bring value-add solutions to our customer base and capture market share, both in number of jobs but also in dollar capture per job. This focus is what will allow Select to get back to run rates and profitability that we had in the past. It might be a smaller market, but we're going to have more of it. Select is a capital, asset-light business. We built it that way, and it has performed well to generate free cash flow. We have no major deferred maintenance issues unlike so many others out there with challenged balance sheets. This asset base and our service skills are flexible and do not care if customers are developing oil or gas. Also, it's largely mobile on wheels, meaning we will go to where the activity is. We feel strongly that these assets and skills can and will be part of the energy transitions for our current customers and new customers alike. Looking forward, our growth path is focused on advancing our strategy as a sustainable water and chemical solutions company through three primary ways. First, we will continue to focus on growing and improving our base business that is already in place to create value for our customers and profitable revenue for us through advancing our integrated services, technology, and experience to outcomes that are positive for ESG and energy transition strategies. Second, we will use our extensive water and chemical expertise to expand our footprint through the energy value chain and into industrial applications. Third, we will pursue strategic and accretive M&A in a prudent and disciplined way. As a market leader, Select works for majors, large independents and private companies. Just as investors are looking for companies that can deliver ESG solutions internally, our customers are looking for partners that can help them in meeting their ESG targets. Select checks those boxes. Select is one of the few companies that can deliver on the industry's demand for a fully integrated and sustainable water and chemical solution, which allows our customers to address and execute around the critical and growing need to reduce their environmental impact and deliver on ESG. The number one priority is to capitalize on our leading position in sustainable water and chemical solutions. This is who we are and what we do. To this point, Select just recently announced partnerships for recycling facilities with two blue-chip operators with core Permian positions, which allows streamlined water logistics, reduce cost and improves ESG capture through reduced environmental impact. This is Select's core, and we believe more customers and projects will come our way to achieve the sustainability targets needed in the industry today. Select has also performed well on carbon reduction through our automation and specialized flowback technology, capturing and reducing methane and emissions on-site. If we look back on the innovative temporary and fixed pipeline solutions we brought to the industry over the last decade, we have reduced gasoline and diesel exhaust by reducing trucking operations, increasing safety, and decreasing traffic congestions. We believe from where the industry was to where we are today, Select has the effect of reducing CO2 in an amount that would equal the effect of more than 150,000 acres of forest annually over the same time period. Select's automation, monitoring, data capture, and real-time analytics have provided and continue to provide spill controls, less fuel consumption, safety improvements, and cost reduction or more with less. We are helping our customers reduce risk, optimize water, and control quality and match chemistry to that water, allowing for better planning that produces the best results. As our customers focus on vendors that can deliver solutions to their ESG and energy transition efforts, we will take profitable market share. Select already deploys solar power on the majority of our automation fleet, and we continue to look for ways to build solutions to replace diesel with natural gas, electric or solar-powered solution. Our chemicals team is developing uses of renewable raw materials and biodegradable chemistry, while always focusing on water reuse solutions. So we have a lot of good things related to where we are in the oil and gas space today, but I fully believe that our people, knowledge, chemistry, technology, and assets can be taken into other industries. To focus on this opportunity, we formed the Industrial Solutions group in 2020. There is a large addressable industrial market for what we've learned and developed in the oilfield for sustainable water and chemical solutions. I believe it fits and is needed in more industries. For example, last year, we won a contract to provide a range of sustainable water solutions with an industrial paper company that ultimately became a top 10 revenue generator for 2020. Given this success, we will continue to use our expertise and knowledge in water logistics, chemical manufacturing, automation, research and development, and fluid management to advance new opportunities across a large industrial market. This leads me to our final strategic piece, M&A. Select is very focused on M&A, and we have a strong M&A track record. We are now receiving a lot of inbound opportunities given our balance sheet and public currency. But again, what is important is the real strength of our position of sustainable water and chemical solutions. We believe there is a massive inefficiency in the market given that there are 80% less rigs running today than in 2014 and only 8% fewer public oilfield service companies. There needs to be consolidation. But to be clear, we will be focused and disciplined. Select is always focused on technology as you can see with our recent investment in deep imaging technology, which we believe allows us to learn more through real-time reservoir evaluation on how our water and chemical solutions can advance and improve. So our M&A focus is centered on: doing more with less; advanced technology; cost and revenue synergies; contracted, predictable, and protected revenue streams; and energy transition and ESG solutions. All of this should lead Select in our effort to create stability in our shareholder return profile. With that, my primary focus is to drive value, smart value. The market is always changing, so we have to change with it to create more value, first, with what we got and where we got it and then expanding into new areas. To simplify: number one, grow the base business; number two, use our expertise in water and chemicals to drive and create new value-add opportunity; number three, execute on strategic, accreted, and protected M&A. So I'll leave you with this. As shareholders or potential shareholders, I own approximately 6 million shares of this company and have never sold a share. I am your partner, and my primary focus is to drive real value to the shareholders, customers, and employees. It's the right platform with the right people. We got what we need today in our base business and footprint, but very importantly, we believe we can take this into other areas of opportunity. Exciting times lie ahead. And with that, let's just open it for questions.

Our first question comes from Sean Meakim with JPMorgan. Please go ahead.

So I want to start with a little bit of context in the fourth quarter and really how it helps us think about the infrastructure business going forward. So I was a little bit surprised to see the magnitude of the improvement in volumes there. I found it's been a little bit of a difficult business to model, but there's obviously been a lot of external factors the last couple of years that have influenced that. So how should we think about the capacity for that business today relative to what utilization looked like, and maybe we could distinguish between the Bakken versus the Delaware, just what that delta looked like over the course of the fourth quarter? How that should influence our expectations for '21 and beyond in terms of what the existing infrastructure, what can the business do today versus what is it doing?

Sure, Sean. So as you know, the second and third quarter had very low demand for completions and very few frac crews. So the fourth quarter really represented an upturn in that activity level, but you saw it outsized in our business due to the locations of our pipeline in the real core Tier 1 acreage. And so our pipelines and the related logistics services of those pipelines were the major driver of the gain there. We do expect that performance to continue, especially in a macro environment that continues to improve. Second quarter typically is a little weaker in the Bakken. You see the breakup season there and typically, operators slow down a little bit. So second quarter and adjacent months, probably you'll see less volumes on our Bakken pipeline system. But the Permian continues to go strong, absent the weather issues of the past week. We have both the anchor customer there and other big customers that are increasing their volumes. And so that should continue to drive results going forward here.

And then in terms of these new revenue opportunities you're pursuing, and you mentioned an industrial customer becoming a top 10 contributor to revenue last year. Clearly, there's a lot of questions for us here to understand what those opportunities look like, but I'll just start that dialogue here. So can you just talk about how that transpired, that specific customer as an example? In other words, I didn't quite catch, was that part of the chemicals business? If you're providing water sourcing, how does that engagement shape compared to your traditional upstream services? I'd like to understand a little bit more about how that specific example transpired and how that can help us understand better these less traditional opportunities that you're pursuing.

Sure, Sean. I'll take that one. No, it wasn't a chemical application. It was a water synergy, and we participated in the ability to bring value to an industrial paper mill plant in the manner that we managed their water forum. So we performed various things that we do every day in the oilfield, whether it's movement of water, containment of water. All the various things that we do every day, we did that in a meaningful way for an outside oil and gas industry for it. And how we got it is because we actually had the ability with equipment, the skill set, the know-how to be able to step into that situation and bring that value to them. So that's how we landed the customer, if you will.

And so just to clarify. So I mean, we're using traditional lay flat hose and where a lot of your operations looks a lot like your existing business, but you're just delivering it to a different type of customer.

That is correct. We, first of all, brought various skill sets and the pieces of equipment that we use every day in the oil and gas industry in a manner that brought the solution to the customer. But yes, it was centrifugals, lay flat, storage, movement devices, monitoring devices.

The treatment and logistics aspect is relevant across several industries, including paper among others, and we can leverage that expertise to expand and develop more opportunities in the future.

And last piece of clarification for me. Was the customer located in the same geographic region as most of your upstream oil and gas operations or somewhere else?

That one was in an area there is oil and gas activity, and we do have a footprint there, and we're active in the oil and gas space. It fit in the sense of logistics as well as our ability in the treatment side of how you treat water, how you move water, how you contain it, all the various things that we do every day. But yes, it was in an area that we already had established operations.

Our next question comes from Tom Curran with B. Riley. Please go ahead.

John, when it comes to your vision for what the ideal version of integration between water solutions and chemicals looks like, what conceptually should the next phase entail? And what should be the specific value creation or synergies associated with that next stage of better optimized integration?

So Tom, thanks for joining in the question. The reality is, we have a base business today that has a very large relationship between water quality and the chemistry that's applied to that. So if you think of this today, if it's water in a pit that potentially will be used for a frac job, that water is a certain type of water, and it's going to have chemicals applied to it to make it the right piece of water to get ready to frac with. Then you move into the actual frac phase where you're adding chemicals for the frac job itself going downhole into that water. We logically participate there. Then you get on the backside after the frac job and you think about the drill out or the completion cycle of it. So the chemistry that's used in the fluids or the water that is used during the drill-out phase to be able to efficiently and effectively complete the well. We participate in that space. And the last piece where we participate, Tom, is in the produced water treatment for reuse. That's a very important piece for us because that is potentially a source water and a value-add that we get. So the biggest thing is our base business Phase I. So how can we bring together the effects of what we do every day, but we didn't really have them linked up together, either in the pre-treatment of water getting ready for a frac, the chemicals in the water used to frac, the chemicals in the water used to complete. And then how can we repurpose this water in the produced side of the world to be able to make it where we can frac with it again on it. That's the synergy, first step, Tom.

So returning to and more fully realizing the original strategic rationale behind the Rockwater Energy Solutions acquisition.

That is correct and to bring that together and couple them. And actually if you really think about it, Tom, it's really important what the water looks like, what type it is and that it stays consistent. You don't want that water changing. And then matching the chemistry to that stabilized water in its quality to both drive cost to the job because if that water is not stable, you could be applying too much chemical or not enough chemical, and you can either affect both the cost of the job as well as the effectiveness of the job, the results of the job. So bringing that together to make sure that we can bring value and couple it together is a really big piece of the first step of our base business, Tom.

Great. And then turning to the Industrial Solutions group and the opportunities set there. Two-part question. First, John, did this industrial paper mill project, did it end up using or could it lead to a reactivation of the idle pipeline that you have in the Haynesville? And whether it's this specific project or just the industrial opportunity set more broadly going forward, could it lead to a reactivation of either that idle pipeline Haynesville or the one in the SCOOP/STACK, is the first part of that question? And then the second is turning to the M&A effort. Would you be open to and are you currently evaluating prospects that would expand the Industrial Solutions group?

Yes. First of all, I would say that we're fairly early. We believe that the reality of the synergy is there. We believe our skill sets, our people, our knowledge base really will fit into the industrial space outside of the oil and gas business because of the same dynamics that what we do in the oil and gas space exists there. But to your question about whether that idle pipeline or any idle pipeline in the company, it was not part of that paper mill solution that we brought to the customer or got hired to do. We do believe, whether it's our water sources or our pipeline facilities, whether they're idle or active, we believe they absolutely could be part of a value-add industrial solution outside of the oil and gas, Tom. We fully believe that. Along with all our skill sets and assets and knowledge base and ability to match chemistry, but our sources and pipelines could be part of that, too, Tom.

Thank you. I would like to turn the floor over to management for final comments.

Sure. Just thank everybody for joining the call. And again, we're looking forward to what we're able to do with this company, both with the base business as well as being able to use our skills assets people to enter other places outside of the oil and gas industry as well. So thank you all.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.