Greetings, and welcome to the Select Water Solutions 2023 Fourth Quarter and Year End 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, Chris George, Senior Vice President, Corporate Development, Investor Relations and Sustainability. Thank you. You may begin.

Thank you, operator, and good morning everyone. We appreciate you joining us for Select Water Solutions' conference call and webcast to review our financial and operational results for the fourth quarter and full year of 2023. With me today are John Schmitz, our Founder, Chairman, President, and Chief Executive Officer, 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 to John, 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 selectwater.com. There will also be a recorded telephonic replay available until March 6, 2024. 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 21, 2024, 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 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. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. As a reminder, the Company made certain changes to its segment reporting structure during the second quarter of 2023. These changes were driven by several operational and strategic factors. However, the changes in segment reporting have no impact on the Company's historical financial position, results of operations, or cash flows. Prior periods have been recast to include the water sourcing and temporary water logistics operations within the Water Services segment and remove these results of operations from the Water Infrastructure segment. Historical segment information recasted to conform to the new reporting structure is available as supplemental financial information in the Investors section of the company's website. Please refer to the company's current report on Form 8-K filed with the SEC concurrent with our earnings release for additional information. 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 am pleased to be discussing Select Water Solutions again with you today. Overall, 2023 was a record-setting year for Select. I'd like to start by highlighting some of our key achievements over the past year and we'll let Nick speak to the fourth quarter in a bit more detail. During 2023, we grew revenues by 14% and adjusted EBITDA by 33% year over year, finishing the year with total revenues of approximately $1.6 billion and adjusted EBITDA of $258 million. As importantly, we also finished the year with record net income, earnings per share, and free cash flow. Each of our segments saw year-over-year revenue and gross profit gains during 2023. Most critically, we made tremendous progress, accelerating the growth and profitability of our water infrastructure segment with contributions from a number of acquisitions in late 2022 and early 2023, as well as organic projects that came online throughout the year. We grew Water Infrastructure revenue by 84% and gross profit by 162% during 2023, as compared to 2022. Operationally, we significantly exceeded our expectations by growing recycled volumes by more than 100% year-over-year while disposal volumes and systems utilization increased materially as well. We also continue to find ways to capture market share and improve the efficiency of our capital in Water Services and Chemical Technology segments, growing gross margins by more than 200 basis points in each segment during 2023 and generating a significant amount of cash flow from these segments to fund our growth strategy. With record operating cash flow, we were able to fund a diverse capital allocation strategy throughout 2023, including funding our modest maintenance CapEx needs, expediting our growth CapEx plans, particularly around our Water Infrastructure segment, increasing our base dividend by 20% during the year, expanding our share repurchase program while also executing six small bolt-on acquisitions. Importantly, we were able to execute these capital allocation priorities while also repaying all of our outstanding debt throughout the year and building a substantial $57 million cash position on the balance sheet at year end. The strength of our recent financial performance, including the strong free cash flow generation from our Water Services and Chemical Technology segments, positioned us to continue to execute a number of strategic priorities already in 2024, including funding a trio of additional strategic asset acquisitions during the first quarter of 2024 while also announcing a number of additional organic capital projects. The recent acquisitions for Tri-State and Iron Mountain in the Haynesville, as well as additional disposal and recycling assets in the Rockies, provide accretive operations and further development potential for two of our critical regional infrastructure networks. The addition of the slurry and solid treatment facilities also expand the scope of Select's capabilities in the Haynesville region, broadening our full life cycle waste stream management capabilities for our customers and adding incremental value across our pro forma position in the basin. Importantly, each deal fits our near-term strategy to grow and expand our production base and contracted revenues within our Water Infrastructure segment. Most significantly, following our latest acquisition, we expect more than 90% of our Haynesville revenues to be production-oriented during 2024, representing stability in the basin that may face near-term drilling and completion activity disruption from recent natural gas price volatility. As a company, we expect to see more than a third of our overall revenues come from production-related activities during 2024. This is a tremendous strategic shift for our business in the span of only a few years, as less than 10% of our revenues were production-weighted during our previous peak revenue years. From an organic project standpoint, I am pleased to provide several additional long-term contracts through the finish line in recent months. In the Permian, we were able to add substantial incremental acreage dedication to one of our largest Midland Basin recycling facilities. While we added additional contracted pipeline connections into our recently completed flagship Delaware Basin recycling facility. In the Northeast, we added additional acreage dedication with a targeted minimum volume commitment to supplement the long-term income stream of an existing disposal asset. The largest project, both from a capital spend and long-term value creation standpoint, however, is our Thompson pipeline system in the Bakken. This project is supported by a 225,000 acre dedication from a blue-chip operator in the region. This pipeline will utilize the third and last remaining federal permit we have of Lake Sakakawea in North Dakota. As many of you may recall, this has been a very lengthy permitting and business development effort. But I'm very pleased we've been able to partner with a premier operator in the region to underwrite the development of the system, which should come online late summer of 2024. While the Permian clearly remains the largest portion of our business and the greatest area for additional opportunities, so far this year we've already announced new projects and acquisitions in the Haynesville, Northeast, Rockies, and Bakken regions in addition to the Permian. Additionally, these opportunities have encompassed a comprehensive range of Select capabilities, including water recycling, pipeline distributions, gathering and disposal, water transfer, fluids handling, and solid waste management. Despite recent commodity price and activity volatility, we continue to experience increased demand for new infrastructure development opportunities across all basins, as water infrastructure constraints remain a significant challenge for our customers. I believe Select's operational and geographic diversity is one of our core strengths, providing us with an array of capital allocation prospects that allow us to make the best decisions to drive long-term shareholder value across a portfolio of opportunities. With a very strong backlog of additional greenfield, brownfield, and bolt-on, infrastructure, systems, projects, and acquisitions, Select's Water Infrastructure segment is positioned to be one of the fastest growing infrastructure franchises in the industry. Accordingly, we expect to see annual Water Infrastructure segment revenues grow by 30% to 40% during 2024, with segment gross profits growing by 40% to 50% on a year-over-year basis. We expect about half the segment growth to come from M&A and the remaining half to come from organic projects. With continued organic growth and other potential strategic efforts, I believe we could potentially see Water Infrastructure gross profits reach as high as 50% of our consolidated profitability on a stand-alone basis by the end of 2025. Similar to the growth in our production-weighted revenues, this would represent a significant achievement for a segment that represented a mere 7% of the Company's profitability during our previous peak revenue year in 2018. While we maintain a high level of conviction around the continued growth opportunities in our Water Infrastructure segment and the oil prices remain attractive at current levels for our customers, recent volatility in the natural gas prices and anticipated declines in our customers' budget on a year-over-year basis are likely to have impacts on the completions weighted revenues within our Water Services and Chemical Technology segments, though we believe we can continue to find opportunities to improve the margin profile of each segment on a year-over-year basis in 2024. Additionally, as we look for ways to further improve our margins and stabilize our cash flows, we will continue to evaluate our Water Services segment in particular for underperforming or non-strategic locations for potential consolidation during 2024, which, when combined with the modest declining macro activity outlook, will drive water service segment revenues down on a year-over-year basis. Our water services business remains critical to our overall success, as we must drive free cash flow and strong return on assets out of this segment. If there are yards or components of this segment that we determine cannot achieve these objectives, we will look to redeploy those personnel, resources, and capital into other regions or parts of our business that can. We expect our water services and chemical technology segments to generate more than 70% to 80% of their gross profit into free cash flow, providing a very attractive source of capital funding for our water infrastructure growth initiatives. Accordingly, driven by the substantial continued growth in our Water Infrastructure segment over the course of 2024, we firmly anticipate growing our adjusted EBITDA on a year-over-year basis during 2024 and expect to pull through at least 40% of this adjusted EBITDA into free cash flow after accounting for all maintenance and growth CapEx, providing substantial optionality for additional strategic investment initiatives or incremental shareholder returns. We will remain attentive to every dollar of capital we deploy, and with this free cash flow we will prioritize capital allocation to the most strategic areas of our business, especially where we have the most opportunity to grow our production weighted and long-term contracted revenues, expand our proprietary application of automation, chemistry or recycling technologies, and integrate full lifecycle water infrastructure and chemistry solutions around our existing Water Infrastructure asset base. I firmly believe in the infrastructure growth strategy we've undertaken recently, which I believe best positions Select to drive long-term shareholder value. And ultimately, I believe that Select remains uniquely positioned in a competitive energy landscape to advance the integration of water and chemical technology solutions with high-margin long-term contracted infrastructure. I am very excited about what the future holds for Select and look forward to executing on this vision during 2024. At this point, I'll hand it over to Nick to speak about our financial results and 2024 outlook in a bit more detail.

Thank you, John, and good morning, everyone. As John mentioned, 2023 marked a record year for Select across many annual financial metrics. These include $1.6 billion of revenue, $74.4 million of net income, $0.73 earnings per share, $258 million of adjusted EBITDA, and finally, $285 million of cash provided by operating activities. These record financial results enabled us to provide $87 million of total returns to shareholders over the course of the year, raised our quarterly dividend by 20%, and retire our outstanding debt balance, finishing the year in a strong net cash position and with $307 million of liquidity. Importantly, we achieved this success despite the steady headwind from declining levels of drilling and completions activity over the back half of the year. Select's ongoing transition to a more infrastructure-based, production-leveraged, full lifecycle water company has aligned our profitability and cash flow generation with critical secular growth drivers unique to our business, increased water recycling by our customers, infrastructure networks that balance water supply and demand across customers and regions, and industry consolidation that demands high-quality partners with the size, scope, and networks to serve the largest operators, all continue to benefit Select Water Solutions, even as activity levels have softened with recent commodity price volatility. While the more completions-levered Water Services and Chemical Technologies segments were ultimately impacted by industry activity declines, the fourth quarter saw continued revenue and profitability gains in the Water Infrastructure segment. During Q4, the Water Infrastructure segment increased revenue by more than 4% to $60.8 million. And gross margins, which we customarily provide in terms prior to depreciation and amortization, increased by over 300 basis points to 43%. The projects we announced yesterday exemplify our ability to add value to our existing infrastructure networks through steady incremental commercialization. We have a long history of unique access and usage agreements across many regions, which in the case of the Thompson Pipeline put us in an exclusive position to execute a new greenfield project backed by long-term contracts. For the recycling network expansions on both the Delaware and Midland sides of the Permian, our existing systems comprising large acreage and multi-customer gathering, recycling, and disposal create both optionality and additional contracting opportunities. These expanded networks will see enhanced utilization and water balancing capabilities that make the expansions highly accretive. And finally, even in gas basins like the Marcellus and Utica, long-term water gathering and disposal agreements from steady production sources remain an attractive growth option. In addition to these organic growth opportunities, we also announced three recent infrastructure acquisitions across multiple basins in January. These are not economically distressed entities similar to our previous acquisition wave, but rather discrete, underutilized, or highly contracted assets located within the footprint of two of our regional infrastructure networks. While the first quarter will see some expenses related to integration and standardization of these newly acquired assets, pushing the expected gross margin in water infrastructure down slightly to 39% to 42%, we expect revenues to move higher by mid-single-digit percentages. As we move through the year, we expect gross margins to resume their upward trajectory into the mid-to-high 40s, as we connect these acquired assets to our network to boost utilization, bring on new projects like the ones announced yesterday, and continue to execute on our backlog of additional projects currently under discussion. We may also elect to move forward with additional acquisitions where we see discrete assets with the ability to provide accretive economics to our existing networks. As John mentioned, we believe an aspirational, but achievable goal for this segment, is to reach 50% of our overall corporate gross profit contribution by the end of 2025, underpinned by repeatable, predictable, high-margin revenue streams. The growing weight of these higher-margin revenue streams allows us to provide additional certainty around return of capital to shareholders. We returned nearly 10% of our current market cap in cash to shareholders in 2023 in the form of dividends, distributions, and buybacks. In the fourth quarter, we raised our quarterly dividend by 20% to $0.06 a share, while completing another $12 million of share buybacks. While we remain open to tactical buybacks from within cash flow and a strong balance sheet, in the near term we are prioritizing execution on infrastructure projects and potential incremental asset bolt-ons as a use of capital while we maintain our commitment to the recently increased regular dividend. To fund these investments alongside capital returns, our Water Services and Chemical Technology segments each provide strong cash flow at low capital intensity, returning 70% to 80% of profits and cash flows after CapEx. In the fourth quarter, the Water Services segment outperformed overall industry activity data, with revenues declining by 4%, against a decline in completions activity of about 8% for the EIA, while margins increased by nearly 200 basis points with our cost management and margin enhancement efforts. With continued activity volatility and some operational consolidation underway, we expect a modest mid-single-digit percentage step-back in first-quarter revenue with margins in the 19% to 21% range, followed by additional margin improvement later in the year. Chemical Technologies revenue declined by a bit over 8% sequentially in Q4, relatively in line with activity levels, with margins down six points to 14%. The business was impacted by a bit over $2 million of legacy production chemicals inventory write-downs and year-end insurance adjustments, accounting for about three percentage points of the gross margin decline. Even so, the results here came in below our expectations for the fourth quarter, even after accounting for the items I referenced. We expect both revenue and margins to improve modestly for this segment in the first quarter, due to certain key customer activity increases and cost realignments to match manufacturing throughput. While fourth-quarter SG&A increased by $7.4 million to $46 million, the majority of this, or $6.2 million, related to higher transaction and rebranding costs in the fourth quarter relative to the third. We expect SG&A to decline to the low $40 million range in the first quarter, as our rebranding initiative winds down, though transaction costs related to our recent acquisitions will remain. Altogether, for the first quarter of 2024, we expect consolidated adjusted EBITDA of $52 to $56 million, as customer activity and operational consolidation activities impact our Water Services segment and short-term integration-related costs from our new acquisitions affect the quarter as well. However, driven by the substantial continued growth in our Water Infrastructure segment over the course of 2024, and an anticipated margin improvement in our Services & Chemicals segments, we firmly anticipate growing our adjusted EBITDA on a year-over-year basis during 2024. The fourth quarter also saw multiple sizable tax-related impacts. Select's growing and sustained profitability in recent years has triggered an assessment that our long-standing net operating loss carryforwards covered by our Tax Receivable Agreement are likely to provide a benefit to the company under reasonably evaluated forward-looking projections in the next few years. Currently, we have recognized a deferred tax asset related to future tax savings in the TRA liability into our quarterly and annual financial statements. These adjustments reflect forward-looking assessments formed by independent third-party advisors and may change as time progresses and company financial performance and capital spending evolves. They also may be impacted by changes to the US tax code. I encourage all listeners to review our 2022 annual 10-K financial report found on our website, as well as our 2023 10-K which should be made available this week to understand our tax attributes in the TRA in greater detail. Our fourth-quarter net income of $27.6 million was positively benefited by a $61.9 million release of a valuation allowance associated with deferred tax assets, partially offset by a tax by tax receivable agreements expense of $38.2 million. While we anticipate cash tax payments in 2024 to be a relatively modest $4 million to $6 million including state taxes, our book tax expense percentage applied to pretax operating income is likely to increase to the low 20% range. From an accounting perspective, this forecasted tax expense would primarily impact existing deferred tax assets in 2024 prior to becoming a cash outlay in future years. Depreciation and amortization expect will continue in the mid to high $30 million range quarterly, modestly increasing from recent acquisitions and organic infrastructure development, and quarterly interest expense should increase to $2 million to $3 million per quarter as we employ our sustainability-linked lending facility to execute our recent acquisitions. This facility provides an attractive cost of capital for us and we will continue to see the interest rate reduction benefits of outperforming our sustainability KPIs for water recycling and employee safety targets for the second consecutive year since the facility's initiation. With fourth-quarter net CapEx of $28 million, we finished the year at $118 million, just below our previous guidance of $120 million to $130 million. We are entering 2024 with a healthy ongoing project backlog and additional development opportunities related to react to the recent acquisitions and expect $140 million to $160 million of net CapEx in 2024. We anticipate $50 million to $60 million of this CapEx going towards ongoing maintenance and about $15 million going towards margin improvement initiatives. The remaining largest component of this overall spend is for growth CapEx, which is heavily weighted towards infrastructure growth projects. Additionally, we anticipate generating $10 million to $20 million of proceeds from asset sales to net against this growth CapEx spending during the year in 2024. As we've outlined, we expect to exceed our 2023 adjusted EBITDA in 2024 and convert more than 40% of those dollars into free cash flow from operations after CapEx. As we move forward with our vision of growing long life, high return water infrastructure and shareholder value in 2024, I'd like to conclude with a couple of our accomplished financial goals from 2023. We reduced our accounts receivable balances over the course of the year by over $110 million or $170 million from the end of Q1 and ended the year not just debt-free, but with $57 million of cash on hand. During 2023, we converted nearly two-thirds of our adjusted EBITDA into free cash flow to the bottom line while investing the dollars needed to grow water and infrastructure profitability by over 160% year-on-year. This success is due to sustained dedicated performance across many select teams, both support and operations to integrate and realize value from our investments and translate that value into dollars in the door. I'd like to thank them for their hard work. And with that, I'll open it up to questions.

Thank you. Our first question comes from Jim Rollyson with Raymond James. Please proceed with your question.

And certainly a great year from a free cash flow and capital return perspective. John, on your comments, when I look at water infrastructure, which is clearly the growth driver here with a lot of outlook for incremental capital projects that's all backed by contract, you're kind of talking about mid-single-digit growth in the first quarter for revenues but 30% to 40% growth for the full year. Can you maybe just kind of lay out the timeline of how the combination of M&A that you recently completed, plus growth projects. How that kind of drives revenues throughout the course of the year. Just trying to think about how we step up from modest growth in Q1 to getting to the 30% to 40% for the full year?

Yes. So Jim, it's a combination of some of these M&A things that we've done or assets that are being utilized and performing well within the guidance that we're applying here and has an effect. Some of the M&A our assets that once they're in our system, they will provide that kind of margin improvement and stability as well. But we have to lay pipe to hook them up or to make the system if you will. If you just look at our general, organic application, it's all going to be from four months to eight months. The time you approve the AEFA, get the right to start building the facility, laying the pipe, and then bringing that system online and then getting the utilization fully up to speed. So, it's going to be a progression across the whole year to get the margin improvement that we're looking for, that we think shorter period, we'd think that we can get that up in the 40% and 45% and headed toward our goal of 50% as we walk through this period of development and interconnection. But I'm going to let Michael speak on it a little bit to Jim to make sure, he is direct with me on the operational side of the company.

Yes, thank you, John. So Jim, as an example, the Thompson pipeline that we announced, that's not going to contribute in the first half of this year, but we do expect it to be a meaningful contributor in the back half of the year. And that's not to say that's the difference, but that's just an example. We have a number of other projects that we're working on and expect to come to fruition that we think would be contributing in the back half of the year as well. So it's really just kind of a steady ramp as we integrate the assets we've acquired, we increase the utilization and expand upon the assets we acquired. And then we're successful in executing the construction projects that we've already announced, as well as some that we hope to announce in future quarters.

Got it. So it's a pretty radical step up throughout the course of the year as that stuff hits and with all the new kind of project announcements that you see, it's kind of an ongoing growth story from that perspective. I presume the contracting strategy that you guys have had for some time on payback periods is still in place. As you talk about things like the Thompson pipeline project and the Delaware Basin recycling project, et cetera, that kind of contracting strategy and implied margin and payback period embedded there is still something we should expect?

That's correct. It's the same. It's the same investment thesis we've had on all of the projects we're bringing on are accretive from a margin standpoint and you're seeing us kind of bounce around our footprint because we really have asset optionality between recycling and distribution and gathering and disposal. We've got geographic, you know our geographic diversification across our footprint. So we're really looking for the right project, the right investment, the right strategic fit, and we'll do it organically or inorganically. And so, it's really trying to make sure that we have the right solution across a pretty wide arrangement of investment opportunities.

And I might add that, on expansion opportunities, those are even more accretive. I see at the Thomson Greenfield, large dollars, great margin living within those contracting guidelines we set out when we talk about the Midland Basin expansion, the Delaware Basin network expansion, those are very quick paybacks because you have a smaller capital outlay, but higher utilization on the system from that.

Right. And then just one last question, Nick, last year you obviously got a lot of benefit from getting your working capital efficiency kind of down to where you wanted and certainly contributed a lot to the free cash flow. Maybe as you switch into '24, I think you mentioned in the press release, you won't get the same incremental working capital benefits. So, how are you thinking about free cash flow in absolute or maybe relative to your 2023 levels? I know you gave the 40% flow through from EBITDA, but you didn't give us full year EBITDA. So, I'm just kind of trying to understand how you're thinking about year-over-year free cash flow?

Good observation, Jim. So certainly, cash flow and returns to shareholders are a core priority to us. Did not give the full year EBITDA guidance, but I think from that trajectory, you can assume that we are indicating a higher adjusted EBITDA through the quarters, and that's backed by the infrastructure projects that we listed, as well as Michael said, the ones that are currently under discussion and the incremental investments we're making in the acquisitions that take those assets we've acquired at a very reasonable price and then boost the utilization through connecting them to our network. So, correct, we don't have the same working capital opportunity this year. That's a positive reflection on the overall health and efficiency of the company. But we do see a continued opportunity to generate substantial free cash flow with our strong balance sheet. We'll have multiple options to not just invest that free cash flow and highly accretive infrastructure, long lives contracted investments there, but we also continue our legacy of nearly $90 million in 2023 shareholder returns through regular dividend and tactical share buybacks. So, that's all on the table, and we'll continue progressing that kind of.

Got it. Thanks for answering my questions, guys.

Thanks, Jim.

Thank you, Jim.

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

Good morning, guys. Dollars in the door indeed. A few questions on your Water Infrastructure operation in the Bakken. Is the anchor tenant behind this contracted build-out of the Point Thompson branch, a historical user of either of the other pipelines to Charleston or Hybris in branch? And then, would you expect any of the customers on that block in sourcing and pre-frac water transfer networks can lead to produced water handling or recycling opportunities in the Bakken? And just where are you at in the Bakken in general on the produced water handling and recycling side in terms of opportunities?

Sure, John. This is Michael. I'll take the first cut at it. So, very astute question. You're showing your tenure with the company by this question. The short answer is yes. The customer that we're contracting to underwrite the Thompson for us is one of the legacy customers under our Charleston system and is a long-term relationship for us labor force in North Dakota. We are excited about the opportunity which has been in the works for a very long time. It's the right solution for them, that's going to allow them to unlock a lot of the acreage north of the river and we're going to be able to provide the water and provide the water transfer. So, it's an Infrastructure Service solution that we're excited about. We think that we'll have the opportunity to continue to expand it beyond that anchor tenant. In terms of the second question around produced water, North Dakota, I think we've talked in the past, is one of the more challenging basins to migrate towards produced water. Part of it is the constituents of the flowback and produced water. Part of it is state regulations on transferring that water. But we do expect to see a produced water reuse occur in North Dakota like we're seeing frankly in every other basin. And I think despite this contracted position, we are well positioned to serve our customers there just like we're doing everywhere else. So, I would still say it's an opportunity for us to help these customers on those in North Dakota.

Got it. And then, Michael off, I'll stick with you for my second one as well. A bit of a step out here to a longer-term topic, but on the topic of surface water discharge staying Two Rivers and Creeks and potential beneficial reuse such as for agriculture, the state of Colorado, New Mexico, and Texas have each formed produce work consortium to study where the science and technology are at and consider whether it's become sufficiently viable to propose regulatory changes. You know, it has a time started to arrive. I know that Select has been involved in several aspects of this R&D, including multiple smaller scale pilot projects. Would you just update us on when and where you might see the first meaningful commercial opportunities related to surface water discharge and or beneficial reuse? And then what Select is currently focused on to help the industry reach the point at which that necessary level of treatment and filtration can be done economically and at scale?

Great question, Tom. So we're aware of all the organizations and consortiums that you mentioned. We are active members in all of them. We have a very strong and seasoned technical team that is participating in those commissions trying to make sure that Select in the industry arrives at the right spot. We've got an R&D team that's invested millions of dollars over the last couple of years to try to make sure that we're aware of the leading solutions in the market and working to drive the costs down. It really has not been a technical issue. It's been a cost issue and a reliability issue. So we've been working hard to try to bring the capital costs as well as the operating costs down to something that might not necessarily compete with disposal, but provides a certainty. And so if you think about it as an insurance premium on top of disposal, it could be viewed as somewhat economic. We're working with a number of operators on that. We haven't done many press releases, and I don't think you will because it still is kind of in the R&D phase for us. But we're very active. We're a participant. I think we'll be one of the leaders in the space that brings the solutions to the market. We're looking at multiple. I mean, there's really three technologies that people believe are viable, and we're participating in studies in all three. In terms of your last question, where we will see that first, I still think it'll be the Permian Basin. That's where you have the largest amount of produced water coming out per barrel of oil. You've got the most benches. As of recently, you've had the most induced seismicity. And so for a number of reasons, and from an economic standpoint, it's going to be one of the most competitive areas. So for a number of reasons, I think that's going to be where you'll see the majority of the pilots, and they will be a first mover to this solution, much like they were a first mover around produced water reuse.

Very helpful. Thorough answer and Michael. Thank you. I'll turn it back.

Our next question comes from the line of Jeff Robertson with Water Tower Research. Please proceed with your question.

Thank you, good morning. John, you talked about the notion that Select's business will transition over time to more and more long-term revenue backed by contracts. Can you talk about how the system integrations that you all have in various producing basins really underpin that idea? I've been able to help operators balance their supply demand needs?

Sure. The way I think about it and where the value is really driven toward the sustainability or reduced cost to the operator is when it becomes a system with optionality. So, a system of gathering large quantities with effective choice of where that volume could be driven to, whether it's disposal, recycle, out of basin movement across other asset bases, becomes part of the system. And when it does, it really brings them real value either at least operating expense or through authority for expenditures on the drilling completion side of the business on it. So that's the way that we really have been able to come up with these ideals, opportunities, conversations that turn into contracts as we've taken all these assets out of these different transactions and started building systems out of them with real value add or choices to be made with that volume of water.

Maybe just to expand on that, Jeff, a little bit. I mean, we really like the infrastructure, the contracted cash flow, the production related cash flow from infrastructures. That's why it's been a strategic initiative of ours to grow that. We like the ability to provide that along with the service, to provide the full solution. So it's an infrastructure service solution. And we've had a really strong service business historically, but as John mentioned here a few minutes ago, at our previous revenue peak infrastructure was 7% of gross profit. And this year we expect infrastructure chemicals to be north of 50%, and infrastructure alone to be 50%. So we're really looking to expand that. And then once we have that built out, it will just provide the optionality that Nick spoke to earlier, as well as the ability for us to have kind of contracted and uncontracted volumes flowing through our system. So that's truly the archetype of what we're working on.

Hey, Michael.

Sorry, Jeff.

I was going to say does the pricing policy? You mentioned pricing volatility and obviously, affecting operator budgets. But this pricing volatility and consolidation is having an impact on the type of conversations Select has with its customers over the duration of contracts or how contracts are structured?

Not necessarily. I don't think that's the case. There are definitely implications for consolidations. If you examine our customer base, we cater to everyone, although we tend to favor the larger operators. We welcome consolidation because we believe that scale attracts scale. Often, larger operators are the ones looking towards long-term solutions. This enables us to engage in very productive discussions regarding significant economic fixed asset expansions or the enhancement of our current assets. Naturally, we need a partner to support this, so we are having those discussions. I believe that with increased consolidation, there will be more opportunities for these conversations.

Jeff, I want to add to what Michael said. There is indeed consolidation happening and we are all aware of it. Our main focus is on how we can create value, and when we do, we want to ensure that we share that value appropriately. We believe in the value of these systems, and we continue to demonstrate it while seeking out new opportunities to do so. Additionally, we see significant value in being able to integrate those services through the contract, as Michael mentioned. The system we are implementing on the north side of Lake Sakakawea will include water transfer as part of the overall solution, which adds value to that acreage and the customer.

Thanks. For the last question, regarding the adjusted EBITDA outlook for 2024 that you mentioned, does that outlook only include the three acquisitions announced in the first quarter? Or are you considering the possibility of other acquisitions in your discussion of 2024 adjusted EBITDA?

No Jeff, that's purely the acquisitions we've made. And then the projects we've given here now in our overall growth CapEx for Water Infrastructure we have a number of projects under discussion. If they all come to fruition, that CapEx number would move higher, if none of them do then that would move lower. I certainly don't expect either of those outcomes. But we do anticipate a number of conversions of new infrastructure projects that we look forward to announcing in the next few quarters. Most of those that are announced over the next quarter or two will have some impact in 2024.

Hi. Can you hear me okay?

Hi, John.

Just one question on. I'm curious, if you're starting to see any signs of distressed opportunities from a consolidation perspective particularly in places like the Haynesville?

Yes, this is John. I would say the acquisitions and opportunities have various components. The downturn or the current activity traction has positively influenced those discussions. Moving forward, I want to emphasize that many of the assets you see us acquiring fit seamlessly into our system. Their value may either be diminished by the system or enhanced, but they need to be integrated into the system, and that's guiding these discussions as well, John.

Since there are no further questions at this time, I'd like to hand the call back to John Schmitz for closing remarks.

Thanks to everyone for joining the call and your interest in learning more about Select Water Solutions. Look forward to speaking with you again next quarter.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.