Greetings and welcome to the Select Energy Services First Quarter 2018 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris George, Investor Relations. Thank you. You may begin.

Thank you, operator. And good morning everyone. We appreciate you joining us for the Select Energy Services Conference Call and Webcast to review our 2018 First Quarter Results. With me today are John Schmitz, our Executive Chairman, Holli Ladhani, our President and Chief Executive Officer and Gary Gillette, Senior Vice President and Chief Financial Officer. Before I turn the call over, I have a few house-keeping items to cover. A replay of today’s call will be available by webcast and accessible from our website at selectenergyservices.com. There will also be a recorded replay available until May 18, 2018 and the access information is included in yesterday’s earnings release. Please note that the information reported on this call speaks only as of today, May 11, 2018 and therefore time sensitive information may no longer be accurate as of the time of the replay 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 Energy’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, 2017 or subsequent quarterly reports on Form 10-Q and our current reports on Form 8-K to understand those risks, uncertainties and contingencies. Also, please refer to our first quarter earnings announcements released yesterday for reconciliations of non-GAAP financial measures. And now, I would like to turn the call over to our founder and Executive Chairman, Mr. John Schmitz.

Thank you, Chris and welcome everyone to the Select Energy 2018 first quarter conference call. While the start of the year was not without its challenges, we were very encouraged with how the company has progressed over the course of the first quarter. Even in a challenging cost environment, we managed to grow our margins and deliver meaningful adjusted EBITDA growth compared to our fourth quarter 2017. Positive net income of $16 million and positive free cash flow. The integration of the legacy operations is succeeding due to the hard work of our team and we expect to achieve 20 million in annualized synergies. Looking at the macro environment, operator activity was generally slow to ramp in the early part of the quarter due primarily to a number of seasonal factors including, weather-related shutdowns in January and sand supply issues in February. However, we saw a strengthening in the overall trajectory as we move through the quarter which led to an increase in the March activity that benefited our financial results. After the slow start, the market showed a solid overall increase in the first quarter. According to Baker Hugher, the horizontal rig count has since climbed above 900 rigs, a level not seen in over three years. Completions also trended up modestly in the first quarter and based on our internal estimates, we believe that the average frac [ph] fleet count in the first quarter was relatively flat to start the year, but showed notable growth in March. Overall we believe, there is still an under supply of horse power as the DUC inventory continued to grow to just shy of 7700 wells, the highest count since the EIA began keeping data in 2013. As we move through 2018, we anticipate seeing continued growth in both frac crews & sand supplies, as new horse power enters the market and in-basin [ph] sand mines begin to come online both which we believe are very positive to Select. Additionally, the recent upward moves in oil prices are clearly favorable to our customers, which provides a solid backdrop of activity levels for the remainder of 2018. We continue to believe that the recent market trends, favorite completion oriented service providers and that within the completion segment our market-leading water solutions and chemical capabilities position us uniquely within the service sector. We bring unique scale, expertise and technology to our customers to handle this ever increasing completion intensity. As completions continue to grow in size and scale, our customers require increasingly complex, logistic solutions, including water sourcing, monitoring, transferring and infrastructures as well as produced water reuse. We provide services for nearly all of the major operators, even those that, that source some of their own water and those that have invested in infrastructures and continue to believe that we are best positioned to provide these customers with services and solutions that will be needed. With that, let me turn it over to Holly.

Thanks, John. I’d like to first provide an update on our integration activities. Now that we’re more than six months into the merger, the major aspects of integration are behind us. Integrations are always challenging, but with everything that the team has accomplished in the last six months, we expect integration will consume fewer resources going forward. We’ve taken the necessary steps to consolidate facilities and service lines in order to optimize our asset utilization and improve our market coverage. And as I mentioned in our previous call, our water solutions financial reporting systems were consolidated onto a single ERP system in January. This has provided much better visibility into the combined financial and operational performance of the business, helping the team to manage the operations more effectively and improve margins throughout the first quarter. I’d also note that we began seeing benefits of our consolidation savings in the first quarter and we continue to believe we’ll achieve the $20 million of annualized cost savings and our run rate by the end of the third quarter. Now let me shift gears to our financial performance during the quarter. To remind everyone, while our first quarter 2018 results include a full quarter’s contribution from the merger, the financials we reported for fourth quarter of 2017, only included two months of Rockwater operations given in November 1 closing date of the merger. We’ve provided summary information in the press release about Rockwater’s performance in October of 2017, which in conjunction with our published Q4 financials will provide a snapshot of Q4 on a combined basis for sequential comparison. Gary will provide a detailed overview of reported results next, but I’ll speak to these combined numbers to provide a better basis for comparison to the prior quarter. As we expected, revenues were relatively…

Thank you, Holli and good morning everyone. As Holli mentioned, as I walk through our first quarter financial results in sequential comparison to our fourth quarter 2017 results, I want to remind everyone that our fourth quarter 2017 results include only two months of contribution from Rockwater following the closing of the merger. We reported total revenues of $376 million for the first quarter of 2018, up 24% sequentially from the fourth quarter of 2017. Adjusted EBITDA was $59.6 million, up 36% from the fourth quarter. Net income for the first quarter was $16.1 million as compared to net loss of $14.9 million in the fourth quarter 2017. Now turning to our segment results, our water solution segment generated revenues of $258 million in the first quarter of 2018 compared to $217 million in the fourth quarter. Segment gross profit before depreciation and amortization was $63.5 million compared to $47.9 million in the third quarter, an increase of 32.6%. Our oilfield chemical segment generated revenues of $63.6 million compared to $41.6 million in the fourth quarter, and gross profit before depreciation and amortization of $6.5 million during the first quarter as compared to $4.6 million in the fourth quarter. Our Wellsite services segment, generated revenues of $55.2 million in the first quarter 2018 compared to $45.6 million in the fourth quarter. Gross profit, again before depreciation and amortization was $8.8 million compared to $8.3 million in the fourth quarter. Now turning to the balance sheet and cash flow in the quarter, significant uses of cash during the quarter included net CapEx of $31 million, working capital growth of $18.2 million and $2.7 million related to non-recurring deal cost including rebranding. We ended the quarter with $75 million of borrowings on our revolver and cash on the balance sheet of approximately…

Thank you. We'd now be conducting a question and answer session. [Operator Instructions]. And our first question comes from Ian McPherson from Simmons. Please go ahead.

Hey, thanks. Good morning. Nice quarter.

Thanks, Ian. Good morning.

Good morning.

Holli, there always seems to be something in Q1. We had weather. We had sand delays. Now we have very threatening Midland differentials. Given your copious view of what's happening on the ground there across the breath of customers in the Permian? How much of an impact do you seeing on containing the rate of completion expansion from here forward based on that new constraint? Are you seeing it is big issue yet?

You know, Ian, we're not really hearing much from our customers that they're going to delay their completions because of the takeaway capacity constraints. It seems like and maybe as our particular customer base, but most seem to plan to hedge pretty well. And I was just hedging the differentials that are securing the takeaway capacity or some combination of both. So, at least in our current forecast we're not building in any sort of issue here in the near term in 2018 and it seems like additional capacity will hopefully be online for 2019. And so don't see any long-term implications either.

Okay. So, all together I would infer that you're seeing healthy rates of improvement in top line and margin-wise across the franchise in Q2?

Yes. The way we track our business internally as we look at frac spreads, so trying to figure out that top line revenue; and if you at – again we exited Q1 with a higher number frac spreads that were out there and we will expect that to continue to improve over the course of the year which obviously benefits our business. When we think about margins we still think. Obviously, when you look at something like water solutions we were around 22% in Q1 close to 25% than Q2, I'm sorry, in Q4 we were 22%. Q1 looks more like 25%. And we were able to be building on that over the course of quarter and we think there are continued opportunities to improve on that as we move to the rest of the year. That's going to be associated with things like labor cost, pricing improvement, replacing rental equipment, there's a pretty good list of – there's no silver bullet, but there's a pretty good list of things we can continue to focus on to improve our margins.

And Charleston throughput, I presume also was a favorable delta going forward?

Excuse me. Yes. That helps. We had two issues in Q4 around the Bakken. One was utilization of the Charleston line because of one major customer. They did reinitiate their program and sort of middle of Q1, so -- and we would expect that line to be fully utilized as we move forward. So that will be an incremental benefit to Q2. Now that pricing pass through challenge that we had in Q4, that largely continue to exist in Q1, but we -- and we'll have a little bit of that carryover into Q2, but probably a third of the impact on margins relative to what we saw in Q1, so that will another slight benefit going forward.

Okay. Thanks. And then, on the chemical side; once you've finished your expansion, your facility to CapEx, is that -- and based on where kind of fundamentals are for those products today? Is that aspired to be a mid-teens margin business by some point later this year?

That certainly our goal is to try to exist somewhere around there; we're going to have to build up over the course of the year. The expansion in Midland, we won't see the real benefits of that much in Q2, that will probably more of a Q3. But the good news is we are testing full scale batches right now and we're out with customers already filling the pipeline to be able to move that product. And because of the cost savings on not to having to transport it from outside the basin, but it will have an improvement on our margin. So that among some other challenges fuel and freight, CDL drivers like every else is facing, when we saw some of those issues we would expect to be closer to that mid-teens gross margin as we exit the year.

Our next question is from Sean Meakim from JPMorgan. Please go ahead.

Thank you. Hi, good morning.

Good morning, Sean.

So, Holli, as we sort of to ramp local sand volumes through the year, I'm curious if you just give us a little more clarity on how that shift in the supply chain for your customers impact your business in terms of your logistics or kind of just puts and takes of what the impact would be on margins within Water Solutions?

Sure. We're generally agnostic to the type of sand that's being put into the blender. So, if you think about it you know, sand, water, chemicals that's what goes into the blender and our business is going to continue to be driven by the water volumes and the chemical volumes which are highly correlated to the sand volume. But being a regional sand versus up from the Midwest doesn't really impact our margins. What I'll tell you is it just the logistical constrains and the competition for drivers in the truck traffic and the opportunities for there to be delays in those regional sand mines. Those are complex challenging operation to be able to bring on line and some of the players in the market are quite seasoned and have done this many times and they'll probably have fewer glitches than those that are new players. So I think the potential risk to us is that the shift to more regional sand creates more downtime because operators are struggling to get the volume they need in the timeframe that they were hoping for.

Got it. That makes sense. And then, there's varying degrees of recourse available for certain service providers, if there are delays due to logistical challenges from the operator. To the extent that when you run into these issues where sand levels – location et cetera, if you're not pumping water is there any recourse or any standby rate, that are worth mentioning? Or in such a situation if you're not pumping water, is that actually mean that there is loss volume for particular day or particular set of days?

Probably more the ladder, Sean, we do as the market has improved in some instances we have been able to negotiate standby rates for our equipment, but that's probably still on the minority at this time. And so, if the water is not moving or the chemicals not being pumped then that's going to have implications on our revenue.

Okay. Got it. Thank you. And then, just thinking about the dynamic in pricing versus volumes to drive the topline, you talked about some of the pricing headwinds, it's like they're abetting. Looking forward to the rest of the year, what are the characteristic of the market do you think you need to see to be able to enjoy broader pricing improvement as we go through 2018?

Yes. I guess what I think about that one, Sean, is we have been seeing pricing improvements, it just not been meaningfully exceeding the inflation of our costs. When you think about something like labor, it was probably 500 basis points higher than we were planning for Q1, but we were able to overcome that with pricing improvements. And so I think the best way for at least how we been thinking about is in Q2 we would expect the pricing improvements to sort of neutralize the cost inflation and then assuming that we can continue to manage our cost structure, and I do think that there opportunities for us to do that, then the further pricing improvements that we should hopefully be able to achieve because of the tightness in the market, we'll start to see some of that actually drop out to margin in the back half of the year.

Our next question is from James Wicklund from Credit Suisse. Please go ahead.

Good morning, guys. Good quarter. Thank you.

Good morning Jim.

You guys have typically said, talked about your focus on pre-frac, okay. And we've talked little bit in the past on post-frac if you would. And investors here an awful lot about treating and recycling and disposal and flow back and you guys have said before that this kind of too competitive market that you wanted to focus more on the pre-frac side of thing. Is that changing? Does that change? The scale overcome some of those issues and over time do you become a broader based company? Or is the focus still going to be primarily bent on the pre-frac side of the business?

I'll let John supplement, but what I would say is that pre-frac is still the focus of our business, but the reuse where you started that just another source of what for us to be able to transport and get to the blender. And so, there are opportunities that create for us that's also on the treatment side, the storage side, but generally speaking I would say pre-frac is going to continue to be our focus.

Is it the margin -- I'm sorry John go ahead, you're going to attribute.

Jim, I would just going to say, we do participate in the post-frac, but we participate in the manner that we take the water and treated and turn into a frac fluid that we gather revenue by all the applications in to the blender. So when we say we don't participate in post-frac its really gathering systems and development at disposal wells. We do take that product and use it for pre-frac revenue in a meaningful way in this company.

Okay. And the two segments that you mentioned that that still doesn't look attractive enough in the global world today that actually make any kind of focus or attempt to be in anyway, right?

Correct. We -- direct position in the pre-frac side and we continue to be able to [Indiscernible] logistical correct water sources. We've now have move forward with some more contracts around those water sources and that allows us to then start thinking about forward development infrastructure pipelines to get to areas of use, as well as contractual arrangements with our customers around that water sources well. That's where our focus is, Jim.

Okay. Thank you for that. And Holli, as you look through 2018 and into 2019 what do you think that the market missing in terms of the outlook, just I'm not going ask too deep of looking a crystal ball, but in the 2019 if anything, what are investors missing that the industry is seeing that aren't quite aligned today. Is there anything?

That's a good question, Jim. Again, I keep coming back to where thing focused on looking at frac spreads because that's what going to – that look those in the blenders what's going to drive our business. When I look across what folks are focusing on there are going to be – the only challenge I see that people may not think about a lot, but its more of a near term issues that we're still not – this space doesn't humming and moving like oil machine, right, because there's…

Very good point.

…to that just complete tightness of equipment, and it just hard to keep things as efficient as you typically would. So, I think that will be something in the near term, but longer term we continue to be very constructive on the level of activity that's going to be out there. And I think if you look specifically to select and how -- what people may or may not be focusing that we certainly spend a lot time focusing on is one of the things we highlight is net income in the first quarter which isn't always something you see.

It's a rarity in my world, yes, I know it.

And cash flow. We spend a substantial amount of investing in our business in Q1 but we're able to do that out of the cash flow this business generated. We'd expect to be able to do same thing in Q2 and then likely then get ahead of that, such that where we absolutely expect to be free cash positive after all of our capital maintenance and growth for this year that puts us in a position to have a incredibly healthy balance sheet which then gives us more options from a capital allocation strategy going forward.

That's where we all supposed to be hoping for. Okay, guys. Thank you very much. I appreciate it.

Thank you.

Our next question is from Tom Moll from Stephens. Please go ahead.

Good morning. Thanks for taking my questions.

Good morning.

So, I wanted to get your take on the Water Solutions' landscape in the Permian. Can you update us on what the competitive landscape looks like? How it's evolving? You and some of your peers have been active as of late on the M&A side. Can you talk about how – despite how fragmented the market continues to be scale, gives you an advantage over some of the smaller players? And then if you had to squint to the medium term, how do you think the basin evolves on the Water Solutions side. Do you see more larger scale M&A on the horizon, tuck-in, organic growth, some combination of all of those?

Yes. Let me start with the competitive landscape and then John talk about how we're thinking about M&A and those sorts of things. But when you specifically look at the Permian by far is the busiest basin that's out there, for its 50% of the probably rigs and frac crews are running in the Permian. It's over a third of our business. And we don't expect that to change. Clearly you have to think about the Permian being a bit different. I'll tell you one thing that does help us Tommy as this, having a national footprint this is when it really matters because we're able to adjust and shift our resources around, but I'll tell you those that the margin difference or the range within our margins from one region to another is relatively tight. So its not as if the Permian is overwhelmed in a negative way with competition to hurt our margins more than other areas, but just because of busy it doesn't mean it’s a highest margin area either. So we're able to essentially import resources from other regions into the Permian to help elevate that, because it is having probably the biggest issues that relates to employment and being able to support our services, but because we have that national footprint we can help subsidize that for some other regions. So clearly, the Permian is it own animal, great opportunities but also the challenges. And maybe John do you hit little bit on M&A [ph].

Sure. So on the M&A piece of it, we think we have a very solid position in pre-frac, I mean sizeable lead in the marketplace and that's where our team is very focused and developing. And when we think about M&A, we really thing about strategic sources, how can we leverage that position? We think about customer ads. So can we buy us a smaller player that gives us a customer ad which we done and was one of our acquisitions. We think about geographic footprint and we enter a piece of the basin where we don't have a foot hole today. And then technology, so can we add technology that really helps us, take a source water and make it into a very strategic piece of frac water and then treatment piece of it and the technology is well. So, when we think about M&A if it has one or more those things in it. We're interested. And we've executed on some of those, since we come together as a company and right before we came together and feel strong that we'll continue to do that in the pre-frac side of the business.

Yes. Thank you for those answers. And then just as a follow-up. Have you seen any evolution in terms of the completion design for your customers with respect to lateral length, number of stages in particular proppant intensity? Certainly all those have been bullish or rather tailwinds for your pre-frac side of the business in recent quarters, but any current update you can give us there would be helpful? Thanks.

Yes. The operators are continuing to look at different ways to complete these wells. So, by no means have they optimized how to get the most oil and gas out of these formations. So I think we'll continue to see it evolve. I'll tell you that we're not probably seeing at least with the leading edge guys, significance amount of addition proppant per foot, let's say, but what you are seeing is the fast followers and then the next guys working their way up to that best practice. So we are still seeing as an industry probably more sand pump per foot, but it just because people are following up with the leaders. But you're seeing those innovative operators continuing to look at different designs, how to push the envelope, it might has to do with the timing of how they are completing these wells that you probably read about that we're in about, worrying about the parent-child interference. It's the chemistry that being utilized to maximize production. How they're flowing these wells back is changing. So, I would say it’s absolutely continuing to evolve then I think the regional sand is going to also have some implication on the fluid system that they're going to need to use. So that's why it so important for all of us just to stay connected to know how to then shift and steer our business to take advantage of those opportunities.

Thank you. That's all from me.

Our next question is from Tom Curran from the B. Riley FBR. Please go ahead.

Good morning.

Good morning, Tom.

Excellent execution in the tough environment this quarter and several good questions so far. Holli, when we were on the road you mentioned that for workforce expansion, you would ideally hit a hiring cadence of 50 to 100 new employees per month. Could you update us on where you're at and speak to how you're equipment automation initiatives from pumps and now also manifolds should help, mitigate Select's labor burden?

Yes. It’s a great question, Tom, because labor is I think one of the largest. I mean, that's one of the biggest challenges the whole industry is going to face. And we are actually – we're finding success in the recruiting side and adding people. The problem is the retention. So we are as laser focused on retention as we are recruitment so that we make sure those ads are actually net positive ads and I think there are some things there that hopefully will allow us to solve those issues other than just wage increases, right. That's not good for the industry. But we're highly focused on that. And then to your point it will be through technology which I'll tell you in Q1 just because of some delays and some equipment coming in we weren't able to automate as many pieces of equipment as we would have hope, but that is accelerating in Q2 and we'll continue to do so in Q3 and with we do expect to be able mitigate that need to be able to grow with headcount. We can grow without net headcount ad. So and to your points that's not only on the pumps but it's on manifold just sits there several areas that we can attack this from which we do believe will differentiate us from our competitors.

Great. And then, on the Bakken pipeline, would you tell us where volume was at for April relative to October before your one anchor tenant concludes its 2017 program? And then, Ian already asked about the Charlson line, so I'll tackle the Iverson branch. In saying that you expect total pipeline utilization to remain high over the balance of 2018, What are you assuming for Iverson and if you're not factoring your much of a pickup would arising utilization therefore offer upside?

This is John. So I'll take that one. The high utilization rate that we talk about was the Charlson system and the Iverson system, although it’s active, there's not a lot frac activity in and around the Iverson. There's also other sources, water that creates competitiveness nature that we don't see in the Charlson area. So our utilization in the high numbers is really directed direct to the Charlson system and not the Iverson system. We do deliver – as you work your way West in that system you use production treatment of water, so it’s flush water that you flush these wells with everyday, that water is in the -- in the Iverson area and that happens to the Iverson pipeline so there’s a constant flow of water daily that’s used in the production lot for the well that’s different than just frac water used compared to the Charlson. And as far as rates are concerned, you know you’re gonna move to the Charlson about 30 million barrels a day, I mean a year with all the things that you can for deploy water with store water in our big surface containment areas and continue to pump water out of the -- out of the lake, and then sell into the pump which will end up for the customers. So it’s about 30 million utilized, when you’re fully utilized on the Charlson.

Thanks for that clarification, John. And while we’re on the Bakken, any incremental developments on moving forward with a potential point Thomson [ph] branch. I know that the intake construction has been completed, but where, how far along are you in discussions about a good commitment that would warrant undertaken construction of a natural point Thomson line?

Yes, as an anti construction is ongoing and it’s 90% finished when a couple of weeks from 90% you could actually take water off of the Thomson take on the Northside Lake. We’re in negotiations with one customer that would be a base customer that we would then be able to spend capital dollars and lay the line on that base, base take commitment out of that customer. That’s ongoing, it is not finished yet, and the design of the pipeline itself you know there has been engineering work done. We continued to size, route ride away all the things you have to do before you actually execute provided that you get the commitment out of the customer you want.

Okay. And then I’ll conclude with questions about two of your dormant assets. First, for the roughly 1000 miles of underutilized rates and way in the Delaware basin that you obtained be it [Indiscernible] acquisition, would you please tell us what percentage of that mileage is exclusive and the steps to monetizing some of it, and then turning to the Cornhill [ph] health facility in the stack play, have there been any signs of the potential to reactive that pipeline?

Yes, the system in Northern Delaware we believe that right away is very strategic and we continue to use that right away to develop pipeline systems and expand our pipeline systems. So it’s not dormant in the sense that it has not been utilized in some proportion of share and it continues to do that. I think in the Northern Delaware it’s really important to note that we’ve now secured some very strategic water rights that adds to our ability to have sourced water to run through that, right away and then utilize them right away and actually expand that right away to deliver those new source waters throughout the system and into our customers blenders. For Cornhill [ph] you just started to have something you know potentially we could move water through it, it’s very early, it’s happened in the last two weeks to three weeks. We are not very sure where it goes, but we do have some conversation going on with some customers that are going to get active in an area.

Thank you. This concludes the question and answer session. I’d like to turn the floor back over to management for any closing comments.

Obviously thanks to everyone for participating today and certainly look forward to talking to you again soon. Thanks.