Greetings, and welcome to the Select Energy Services Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Chris George, Vice President of Investor Relations and Treasurer. Thank you, Mr. Chris George. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Select Energy conference call and webcast to review our financial and operational results for the fourth quarter of 2021. With me today are John Schmitz, our Founder, Chairman, President and CEO; Nick Swyka, Senior Vice President and Chief Financial Officer; and Michael Skarke, Executive Vice President and Chief Operating 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 9, 2022. 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 23, 2022. And therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. Additionally, the comments made by management during this 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, our current reports on Form 8-K, as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Also, please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. And now I'd like to turn the call over to our Founder, Chairman, President and CEO, John Schmitz.

Thanks, Chris. Good morning and thank you for joining us. I'm excited to be discussing Select Energy again with you today. Overall, 2021 was very exciting for Select. Having been back in the CEO seat for a little over a year now, I'm pleased with the progress we've made on executing our strategy of improving and bolstering our base business, advancing our technology, ESG and diversification efforts, and executing on our strategic M&A. I'd like to start by highlighting some of our 2021 achievements. We finished the year with total revenues of $765 million and adjusted EBITDA of $50 million, while seeing revenue, margins and adjusted EBITDA grow every quarter throughout the year. On the technology and sustainability front, we continue to advance our water recycling efforts. We've invested in six facilities during 2021, backed by long-term contracts. This sets the stage for significant growth in our recycled volumes for 2022. We are also having constructive conversations with our customers every day, and I believe we will continue to build on our recent success with more long-term contract development opportunities in 2022. We are also very active on the M&A front during 2021. As I've stated many times, I believe consolidation is very important for this industry. Through a combination of cash and stock consideration, we closed on the acquisitions of Complete Energy Services, Agua Libre Midstream, HB Rentals and UltRecovery during 2021. Additionally, we are set to close on the acquisition of Nuverra Environmental Solutions. In doing so, we've added nearly $300 million of run rate revenues to an already growing base business and acquired a strategic portfolio of infrastructure assets, including gathering and distribution pipelines, disposal facilities, and landfill operations. Importantly, we have also welcomed more than 1,200 new skilled employees to the Select family. In a challenging economic environment and a tight labor market, these new team members will be critical to driving our continued success in 2022. Through these consolidation opportunities, we have meaningfully improved and expanded our operational capabilities and geographic breadth. I also believe we have a tremendous opportunity to create revenue synergies and capture cost savings, while improving our margin profile through increased efficiency and pricing gains across the business. During 2021, we executed a number of strategic investments and partnerships with unique emerging technologies and energy transition platforms, including ICE Thermal Harvesting, Deep Imaging Technologies, ESG Solutions, and Emissions Rx. As we look forward, we will continue to look for unique opportunities to invest in and advance our technology, sustainability, and diversification initiatives. While the fourth quarter was relatively stable from an industry activity standpoint, our revenue growth well exceeded the industry activity growth. We continue to see the benefits of a strong commodity price backdrop overall, with oil prices around $90 and natural gas prices of more than $4. I believe 2022 will be a strong year for the industry, with North America onshore E&P budgets expected to be up 25% to 35% year-over-year. Supported by our continued investment in technology, our recent acquisitions, and our strong balance sheet, Select is well-positioned to grow and succeed in 2022. Select's leadership in water and chemical solutions is driven by our operational reliability, our committed focus on safety and sustainability, our leading technology platform, and our highly skilled and dedicated employee base that's now more than 3,500 strong. Our unique integrated platform of water and chemical solutions provides a truly differentiated value proposition for our customers, and I look forward to continuing to provide them with the operational excellence they have come to rely on from Select. Speaking directly to the fourth quarter, we've wrapped up the year with another strong showing, with revenues increasing 25% quarter-over-quarter and adjusted EBITDA growing by more than 70% to $26 million. In addition to the growth we've seen in the base business, we've already seen strong contributions from our recent acquisitions. However, we still have much room for improvement as our operational integration strategy advances in the coming quarters. I'll let Nick speak to our first quarter and 2022 financial outlook in more detail, but I feel very good about our continued ability to grow the business, meaningfully improve our pricing, achieve cost synergies, capture market share, and generate free cash flow during 2022. With the sizeable portfolio of infrastructure assets we recently acquired, we're well-positioned to continue to build around these assets and further develop unique sustainable solutions, including gathering pipelines, and our water recycling and integrated fluid match solutions. We remain very focused on growing our less cyclical production and industrial-related revenues and adding contracted revenues through our recycling and pipeline infrastructure. Ultimately, this will further stabilize and enhance our cash flow generation capabilities, differentiate Select from its competitors, and provide incremental capital allocation opportunities. Again, I'm very pleased with our recent acquisitions, our technology strategy, our recycling projects, and our other strategic investments. With growing activity, strong commodity prices, and improved operations and financial performance, 2022 is setting up to be a very exciting year for Select. With that, I'll hand it over to Nick to discuss the financial performance and outlook in more detail.

Thank you, John, and good morning, everyone. We continue to gain steam on our strong financial recovery, adding 25% quarterly revenue growth, while expanding margins and reporting positive net income. Our $255 million of fourth quarter revenue increased $50 million from the third quarter and $94 million from the second. More importantly, we're bringing more of this revenue through to the bottom line with adjusted EBITDA growth of over 70% to $26.4 million from $15.1 million in the third quarter and fourth quarter net income of $11.1 million from a $14.2 million net loss in the third quarter. To accomplish this, we're successfully leveraging all three elements of our strategy as John outlined. We are driving recovery through our base businesses, gaining market share, and strengthening margins. Our base businesses pre-acquisitions grew revenue 14% quarter-over-quarter, while the EIA and other third-party sources estimate industry completions grew low-single-digits. The clearest example of this core business improvement came from our Chemicals segment, which grew revenues by 22% quarter-over-quarter, while improving margins by two percentage points, even though none of our recent acquisitions directly benefited the Chemicals segment. In regards to advancing our technology, ESG initiatives, and diversification efforts, our latest three recycling projects that came online during the fourth quarter contributed to growth in both revenue and margins through the Water Infrastructure segment, and will contribute further during 2022. Overall in 2021, we recycled 25 million barrels of produced water through our fixed facilities, and we expect to continue driving these volumes higher. This recycling alleviates demand for freshwater sources in water stressed regions, while also limiting waste disposal, which is particularly important in areas of seismicity concerns. Finally, I'll touch on our strategic M&A. We believe we executed each of these transactions at extremely attractive valuations and they have begun to contribute materially to the bottom line. The integration of Complete was largely accomplished during Q4 although we have additional efficiencies still to realize in regards to Agua Libre and HB Rentals. We expect to finish those integrations over the course of Q1 with increased margins going forward. With the closing of the Nuverra acquisition, we will gain complementary service capabilities and add strategic infrastructure assets across the Bakken, Haynesville and Northeast regions, as well as future development opportunities for our consolidated water network. Additionally, we expect meaningful cost synergies, particularly given Nuverra's standalone public company costs. Overall, we expect to have completed our integration and consolidation efforts for these acquisitions by the end of the summer, which should drive further profitability over the course of the year. In addition to the anticipated cost synergies, we also expect additional revenue synergies going forward. These water infrastructure networks and assets bring additional development potential, especially in regard to linking in new gathering pipelines and recycling facilities. Given the advanced state of current customer discussions around some of these recently acquired assets, we're confident in our ability to execute on additional projects during 2022. Looking at the segments individually, the Water Services segment grew its revenues by 25% in the fourth quarter, while holding gross margins between 15% and 16%. Short-term operational inefficiencies related to the acquisition and integration of Basic's production services operations obscured margin improvements and other legacy businesses. Looking forward, we expect 5% to 10% revenue growth in the first quarter with slightly higher margins. This revenue growth and margin improvement will come through a combination of pricing improvements, market share gains, the consolidation of Basic's operations, and contributions from Nuverra. That said, these margin improvements will be balanced by modest friction from the initial Nuverra integration efforts in the coming weeks. Water Infrastructure revenue grew by 27% to $47 million in the fourth quarter, driven by increased activity around our New Mexico pipeline, additional recycled water volumes, and contributions from newly acquired Agua Libre assets. Additionally, gross margins increased by over three percentage points as well. We anticipate that activity growth, combined with the full quarter contribution from these recycling facilities, and additional contributions from the Agua Libre acquisition should result in 10% to 15% revenue growth in the first quarter, with gross margins in the mid to high 20% range. I touched on Oilfield Chemicals segment's fourth quarter performance earlier. But to reiterate, our recent research and development activities have led to new treatment technologies for produced water reuse that have gained additional traction and led the market share growth. We expect Chemicals to see revenues around the same level in the first quarter as the fourth, with modestly higher gross margins as pricing improvements outdistance higher raw material costs for oil linked polymers. Our reactivated Tyler facility is performing well and enabled margin improvement through reduced freight costs during the fourth quarter. Looking at SG&A, transaction costs accounted for about $2.3 million of our total SG&A of $25 million during the fourth quarter. While we likely will see additional transaction and integration-related costs for another couple of quarters, we're targeting total SG&A of under 9% of revenue for the year as we continue to drive cost synergies across our existing platform from recent acquisitions. Free cash flow in the fourth quarter came in at negative $6.4 million while CapEx declined in the fourth quarter relative to the third; our strong revenue growth required an incremental $23 million of cash usage for working capital. Overall, our cash on hand decreased by about $22 million during the quarter to $86 million. Cash was also impacted by the $16.1 million of consideration used for the acquisitions of the Agua Libre and HB Rentals assets. Overall, our total liquidity at year-end was $203 million with no bank debt, and we expect this to increase over the course of 2022. We've tried to judiciously balance the use of cash and stock in our recent acquisitions and our impending Nuverra acquisition fits this model. We'll be issuing approximately 4.15 million shares of full consideration for the equity and anticipate retiring the approximately $19 million of Nuverra bank debt with cash on hand for total consideration of around $50 million. Combined with higher working capital needs amid continuing integration efforts, this will reduce our Q1 cash balance, but we expect solid free cash flow for the full-year. Looking towards 2022, the Nuverra acquisition will partially contribute to Q1 results that we will still be integrating the business which may result in near-term inefficiencies through the first half of the year. That said, the incremental segment guidance I provided earlier, combined with the positive macro environment, leaves us optimistic that quarterly adjusted EBITDA will continue to move sequentially higher from the $26 million seen in Q4 and that we will generate solid net income in 2022. In the fourth quarter, we were able to execute strong growth with just $4.1 million of net CapEx finishing the year at just $28 million of net CapEx meaningfully under original guidance. We will continue to fund a large portion of our investments in infrastructure such as gathering pipelines and water recycling facilities and other initiatives through asset sales from our acquisitions. We're constantly seeking to maximize return on assets and cash flow by optimizing our asset base, consolidating operations, exiting inefficient operations that cannot be economically consolidated and using a portion of that cash to exploit higher return opportunities. We anticipate 2022 net CapEx of $50 million to $70 million, depending on the ultimate execution of numerous contemplated contracted fixed infrastructure and recycling discussions, with about half of that expected spend tied to maintenance CapEx. The difficult steps we previously took throughout the downturn in 2020 and 2021 have enabled us to better capitalize on the changing and improving environment of today. We will continue to make targeted investments to meet our customers' growing demand for sustainable water and chemical solutions, consolidate a fragmented industry into stronger, more dynamic networks and create enhanced value for our investors through disciplined capital management. Thank you. And with that, we'll open it up to questions.

Thank you. We'll now be conducting a question-and-answer session. Our first question comes from the line of Ian MacPherson with Piper Sandler. Please proceed with your question.

Just a lot of moving pieces in recent months and quarters with acquisitions and congratulations on those. It makes it a little bit foggy from our perspective with respect to comping your business on a sequential basis. But obviously the Chemicals business outperforming the broader market and the margins were encouraging in Q4. And I wonder if you could just speak generally for Chemicals and Water Services. How your pricing negotiations are going across the platform in this inflationary environment, and how you see your pricing power in 2022. And in terms of being able to expand margins organically going forward? Or if you think it's maybe more of a realistic ambition to maintain rather than expand margins organically?

Ian, this is John. Before we get to your question, thanks for your question. As you may have seen, we just released our announcement that we closed Nuverra Environmental Solutions this morning. So, I just want to put that out there before we get started here. With that, we'll answer your question. So, Ian, we are having success pushing pricing both on the Chemical side and with our Water Solutions various business units. One thing we're mindful of is we're still in an inflationary environment here. So with that success, we are still seeing cost pressures on labor, oil-linked polymers, and other raw materials. So we have been successful, and obviously, our customers are posting good results in this environment with WTI where it is, and we expect to continue to grow that margin. But we are addressing cost pressures as well.

And Ian, this is Michael Skarke speaking specifically about chemicals. In relation to the fourth quarter, we saw an adoption of our specialty FRs. Those performed really well in treating produced and produced water. Hence we're seeing the market move more and more in that direction, and we've seen a bigger demand for our products. A complementary point is that we've been making good strides on specialty FRs. We've been able to pull through some of our other products, specifically scale and biocide, which helps us increase the revenue on a per well basis.

Super. Thank you, guys. John, also, I wonder if we could dig into your M&A pipeline. You've been quite busy recently, closing on Nuverra this morning, congratulations. If you were to scale the opportunity set for the year ahead relative to so much that you've already done recently, how would you compare that opportunity set and your attitude towards continuing to use the balance sheet to grow the business?

Yes, Ian, we continue to be always eyes open when it comes to M&A opportunities. We feel like we add a strategic asset and geographic footprint as we think around water and chemistry, recycling in fixed pipeline systems. And we feel like we did it at a really deep value. But we're going to judge M&A that way moving forward. It's got to fit the mold of where we want to be and what we want to do. We want to make sure that the return is proper because we have a lot of opportunity in-house. Now if you think about all these assets we've put together and the different things that we can do around those assets, then, as Michael said, matching chemistry to what the industry is doing now with produced water and recycling. So M&A is on our mind; we watch it, but it's got to be valued. We've got to get strategic assets where we want them. And we've got a lot of opportunities that we're discussing with customers today in-house.

I think it would stand to reason that your sweet spot of bid-ask spreads may be in the rearview mirror now, but would you disagree with that?

It really, if you think about it, Ian, maybe the bid-ask is as far as just M&A in general. But when you put the strategic match—matching our abilities or our asset base that we already have in and around more assets that could be on the market, or potential M&A. When you look at that in total, that's where we really find value. Buying these assets like we bought them, and we're going to continue to watch closely and find more things of that nature, Ian.

And our next question comes from the line of J.B. Lowe with Citi. Please proceed with your question.

Hey, good morning guys. Quick question. I don't know if you went through this in your prepared remarks, but in terms of water infrastructure and the visibility you guys have into the Bakken over the next couple of quarters. I'm just wondering what do you expect that business line could do in Q2 and Q3?

Historically, Q2 is the breakup season in the Bakken. Typically, we do see some retreat there. However, with Nuverra coming into the fold here, we have picked up some great assets in the Bakken that can work with our systems and infrastructure there. We expect, longer-term beyond Q2, that we'll have some real opportunities to build out a broader network there, but as you've noted, Q2 historically with Bakken is not the peak of the year.

Fair enough. Another question was just on—and it's kind of maybe a tough one given all the moving parts. But what do you think your base business? And I guess it also depends on what you define as your base business, but kind of ex the integration costs that you guys expect over the next few quarters, what do you think incrementals could do maybe on a segment-by-segment basis, or just on a corporate basis? You guys have any insight into that kind of ex the transaction charges?

Yes, so historically, we've seen 30% incrementals. I think that's a reasonable estimate to use going forward. We mentioned that we feel from customer discussions and what our customers put out there that we will see North America CapEx of 25% to 35%, and we have seen and are continuing to see additional pricing gains here. That factors into the 25% to 35%. So I'd say the pricing environment is stronger than usual when it comes to that 30% incremental, but at the same time, the cost inflation environment is also stronger than usual too. So I think 30% is a reasonable assumption to use across. But we do have those benefits of finding cost synergies when we're putting these businesses together. So over the next six months, we do have more cost synergies to reach here with not just Nuverra but also with Agua Libre and HB Rentals to an extent as well.

Our next question comes from the line of Tom Curran with Seaport Research Partners. Please proceed with your question.

Good morning. For Water Infrastructure on the base business side, you highlighted the contribution to sequential growth of the Northern Delaware pipelines. By that, I assume you specifically mean the two big pre-frac systems, the Legacy GRR network and then the pipeline you built for that super major anchor tenant. For those two pre-frac pipelines, could you tell us how utilization rose from Q3 to Q4 and what you're expecting for 2022? What sort of volume mix do you expect between the anchor tenant and spot sales over the course of this year?

So the Q4, we had really good volume for our anchor tenant, which displays some of the spots fill activity we had during the quarter. As we look out to the rest of the year, we're going to see the anchor tenant come down off of an annualized number from Q4. But we do expect spot sales to pick up and have already had some of those awarded. The one other thing I would note is that New Mexico, like many other markets are moving to more recycling. And that's an area we are participating in and working on providing more recycled water solutions in that basin as well. So while that could have some ability to bring down the pipeline volumes, we see it as an opportunity to increase overall revenue and margins.

Got it. And then turning to your existing opportunity set of produced water gathering and recycling facility investment opportunities is—and here, I'm specifically speaking to, what's in your existing growth CapEx budget that could determine where you come out in that net CapEx range between $50 million and $70 million. So just that existing opportunity set does it mainly consist of projects that are similar in size and nature to the six we've just seen you execute, call it that $2 million to $5 million of CapEx size range? And does it include any opportunities to simply purchase or acquire an existing facility that's currently owned by a customer?

So this is Michael. I'll speak to the opportunity set. We are involved in multiple discussions with multiple customers, largely in the Permian, but really across the infrastructure base that we've added around recycling. I expect that we're going to be able to deliver some of those solutions to the market, which is why we've provided that forecast. In terms of the CapEx, you're exactly right. What we're looking at would be kind of within the range that you mentioned in terms of acquisitions of other customer systems or competitor systems that would be outside the CapEx range we provided.

Got it. And then, Michael, I guess my last one will be for you as well. It's a two-parter, sort of a wish list heading into 2022. First, for recycling, what technology, what area are you focused on investing in, whether it's via bolt-on acquisitions or would you already have in-house that you're just going to develop further via R&D? Where are you focused, that you want to expand your capabilities in for recycling? And then turning to the Industrial Solutions Group, what targets or strategy does Walt have for 2022?

Sure, so on the recycling, our primary focus is around building out our existing infrastructure footprint. We've acquired a considerable amount of assets from Agua Libre and now Nuverra and we see opportunity around those assets to service their existing customers and nearby customers with those assets. There's also an opportunity for us to build standalone systems like we've done in the past in the Midland Basin. From a geography perspective, half the rigs in the Midland Basin are assuming the Permian Basin and that's where the recycling is probably most prevalent on a volume standpoint. So we're focused there, but we're clearly looking beyond that. We've got solutions and are involved in discussions outside of West Texas to Mexico and outside of Texas in general. As it relates to Industrial Solutions, Walt has finished his market assessment. He's come up with his business plan and we're in the early stages of building a team and staffing a group that is capable of executing that strategy. We're expecting to start making progress and gaining momentum in the back half of this year.

And this concludes the questions-and-answers portion of the call. I would now like to hand the call back over to John Schmitz for any final comments.

Thanks everybody for participating with us and allowing us to discuss Select and the opportunities that we have in front of us for 2022. I look forward to talking to you next quarter.

And ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.