Select Water Solutions, Inc. (WTTR) Q4 2022 Earnings Report, Transcript and Summary

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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris George. Thank you, Chris. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Select's conference call and webcast to review our financial and operational results for the fourth quarter and full year of 2022. 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 to John, I have a few housekeeping items to cover. A replay of today's call will be available via webcast and accessible from our website at selectenergy.com. There will also be a recorded telephonic replay available until March 8, 2023. 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 22, 2023, 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 management. However, these 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. 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 again with you today. Overall, 2022 was a very exciting time for Select, and I'd like to start by highlighting some of our achievements over the past year. During 2022, we grew revenues by 81% and adjusted EBITDA by 290%, finishing the year with total revenues of approximately $1.4 billion and adjusted EBITDA of $195 million. As importantly, we finished the year with record net income and earnings per share. Across our segments, we achieved record revenues in both Water Infrastructure and Chemicals, while Water Services continue to reap the benefits of our consolidation and technology initiatives, achieving all-time high levels of revenue on a per employee basis. Select has always been dedicated to maintaining a strong balance sheet, and discipline allowed us to capitalize during a dislocated market over the last two years. We've closed on a dozen different strategic acquisitions and executed a meaningful number of organic growth projects, adding a sizable portfolio of contracted and production-weighted revenues, bringing incremental financial stability to our business. For example, we recently signed multiple new long-term contracts to support new recycling projects in the Delaware Basin. We continue to see a tremendous amount of interest from our customer base around contracting new infrastructure development, particularly around full lifecycle solutions and I see a number of opportunities for additional growth this year. The additional stability provided by these initiatives, acquisitions, projects and contracts give us incremental optionality in our capital allocation strategy. Accordingly, I am proud to have initiated our first-ever quarterly dividend during quarter four 2022. Having just paid our second-ever dividend last week, I look forward to building and enhancing a solid track record of returning capital to shareholders as a component of our overall capital allocation framework. Over the last couple of years, Select has remained steadfast and focused on executing our strategy of building and bolstering the core water and chemicals business, advancing our technology, sustainability and diversification efforts as well as executing on our strategic M&A. It is clear to me that these efforts have been paying off. 2022 represented a culmination of sorts for this strategy as well as an opportunity for a new beginning, one which reinforces our connection to water. At our core, Select is dedicated to our vision to be the recognized leader and trusted partner in sustainable water management solutions. Select was initially built over the last 15 years to service the oil and gas industry. And in that time, we have refined our focus to become a technology leader uniquely positioned as the only integrated full life-cycle water and chemistry company in the industry. We continue to develop new and creative chemistry technologies that have helped us grow our market share in the industry. These efforts have helped lead the industry towards sustainable recycling and reuse solutions. During 2022 alone, Select recycled 174 million barrels of produced water for reuse or more than 7 billion gallons of water. This is equal to more than two months of water usage of the city of Austin, Texas. Approximately, two thirds of this came from our fixed facilities under long-term contracts, with the other third coming from our active mobile operations. These recycling solutions will provide critical, sustainable solutions for traditional energy industry, allowing it to continue to prosper as part of the energy transition in years ahead. The last 10 years have seen the dramatic impact in the United States and, to a lesser extent, globally of the shale revolution. This has revitalized the U.S. oil and gas production and created an abundance of economical energy that is essential ingredient to fueling the power of human ingenuity and progress. We believe the important contribution of responsible energy production is too often taken for granted. As the world seeks to reduce energy poverty and improve energy access for all people, we can also mitigate the risk of climate change through thoughtful innovation and investments to develop sustainable ways to produce affordable, reliable, clean energy as part of a comprehensive energy transition. Ultimately, Select will remain firmly committed to advancing new and sustainable solutions for our customers and other stakeholders that are responsible for producing the energy needed to power homes, the fuels that provide mobility to the global economy and the refined products needed to engineer advanced materials and technologies. However, our expertise in sustainable water and chemical solutions has a diverse range of application beyond our traditional niche within unconventional shale resource development and production. Whether that is through full lifecycle water and waste management solutions, developing creative technologies to support the energy transition are more broadly advancing into other industrial sectors, we believe Select is uniquely positioned to capitalize on new growth opportunities using and building upon our existing expertise. In recent years, we have closed on a dozen strategic acquisitions, while also divesting noncore assets and operations that were not strategic to our vision. With our diverse capabilities and that pace of change, it is clear to me that Select is ready for a realignment. Accordingly, I am excited to announce our corporate rebranding initiative. During the first half of 2023, Select intends to change its name to Select Water Solutions, Inc. We will remain traded on the New York Stock Exchange under the stock ticker, WTTR, embracing our heritage as a water-first company. For now, our corporate and financial segment reporting structures are not changing. However, this rebranding will align our employees and field operations, consolidating more than 10 unique brands and DBAs currently operating nationwide. This change will also significantly simplify our external communications with our customers and ensure that we are receiving maximum brand recognition for our capabilities and technologies across the entire platform of our operations. To embody our new corporate identity, we also have launched a new brand logo. I believe it's a bold and vivid emblem for the future of Select, a future connected by water. I look forward to deploying our new brand into the marketplace in months ahead. Whether it's about uniting our teams around integrated water and chemistry, creating sustainable partnerships with our customers, integrating large infrastructure networks or being good stewards for our surrounding communities, our business is all about making connections. And whether it's molecules or pipelines or people, we are all connected by water. Importantly, this initiative also prepares Select for the years ahead of us. Supported by our recent acquisitions, advanced chemical technologies, organic infrastructure growth opportunities and our other strategic investments, I see meaningful revenue, EBITDA and net income growth in 2023. We will continue to seek new and exciting opportunities, both organically and through M&A, while also making sure to hold ourselves accountable through improving the base business and constantly evaluating what fits our strategy long term. I am very excited about what the future holds for Select and look forward to further executing on this vision through additional earnings growth, shareholders’ returns and strategic execution during 2023. Now I’d like to turn it over to Nick to provide more details on our fourth quarter financial performance, our 2023 outlook and the other ongoing initiatives. Nick?

Thank you, John, and good morning, everyone. 2022 was a transformational year for Select. We increased our annual net income by $105 million, initiated our first-ever regular dividends and completed numerous corporate and asset acquisitions that offer vast infrastructure development potential. We also exceeded our annual employee safety and water-recycling targets embedded in our sustainability-linked credit facility, which translates to a lower borrowing rate. Building on these accomplishments, we expect even greater things ahead. At Select Water Solutions, we plan to consolidate our various brands and operations for greater efficiency while expanding our Water Infrastructure for greater impact. During 2023, after two years of rapid organic growth, coupled with a dozen acquisitions, we will seek, first and foremost, to meaningfully boost our operating margins. Cost inflation has eased for the various inputs in our business. And this, combined with internal efficiency efforts, provides us with an opportunity to carry a larger part of the revenue dollar through to the bottom line. With revenue run rate performance already approaching all-time high levels and expected to increase further during the year, we will endeavor forward with a relentless approach to achieving incremental efficiencies across the business. This represents a tremendous opportunity for us to pull through additional profitability and cash flow into the business. Next, we will seek to build upon our infrastructure asset footprint through organic investments around recycling, pipelines and system capacity. Our capital-light business model consumed just $41 million of net CapEx last year, coming in below our previous guidance of $45 million to $50 million from last quarter and well below our original guidance of $50 million to $70 million coming into last year. During 2022, we were able to apply cash generated from the sale of unneeded or duplicative assets into targeted strategic investments, like developing new recycling facilities or enhancing our advanced chemistry from our research lab through in-basin manufacturing. With our most recent acquisitions in the fourth quarter, we’ve added core Midland Basin water recycling and infrastructure systems to complement our Northern Delaware pipeline and distribution footprint and additional Bakken assets around our pipeline and disposal networks there. Quality assets like these have a higher value potential within our portfolio than they do on a stand-alone basis, given our ability to fund further development with minimal leverage and importantly, our ability to tie them into a growing infrastructure network strategically suited to balanced water needs across many different customers. 2023 will bring an acceleration of our infrastructure network investments as we advance customer discussions and leverage our leading position across multiple basins. These investments will be supported by long-term contracts that will grow Select cash flow for years to come. Depending on market conditions and the ultimate realization of various projects under discussion with customers, we expect 2023 net CapEx to come in between $90 million to $130 million, after giving effect to roughly $20 million of expected asset sales. Finally, and most importantly, we expect 2023 to bring a large uplift in free cash flow. Through the rebranding and streamlining of operations, systems integration into a single ERP and other working capital initiatives, we expect to deliver free cash flow of roughly two thirds of our adjusted EBITDA. This would not only comfortably fund our capital program, but also offer additional flexibility and optionality around our commitment to shareholder returns while rebuilding a strong net cash position. We expect to see the benefits of these efforts accelerate in the second quarter as we further work through acquisition integration in the first quarter. On the subject of free cash flow, we realized a meaningful improvement to $24 million of cash flow from operations less net CapEx in the fourth quarter. Cash flow from operations increased from $5.4 million in the third quarter to $35.4 million in the fourth. This cash flow was applied towards $35 million in total acquisition-related cash consideration and costs, plus the elimination of $13 million of Breakwater bank debt in conjunction with the closing of that acquisition, which, along with $11 million of net CapEx and $6 million of dividend payments, still resulted in a very modest net debt position of $9 million. We finished the quarter with $16 million drawn on our sustainability-linked credit facility and $213 million of total liquidity. Fourth quarter revenue of $382 million grew by 2% or $6.6 million sequentially. Acquisitions from November onward contributed about $15 million of total revenue for the quarter. The quarter was impacted by winter weather delaying customer activities in most all regions, which when combined with certain non-ordinary expenses and insurance reserve adjustments totaling $8.4 million, decreased net income to $7.6 million from $24.7 million and adjusted EBITDA to $52.2 million from $62.8 million. Looking forward, we expect revenue and margin expansion across the business in the first quarter. The Water Services segment experienced some weather-related challenges in January, but we anticipate modestly increased revenue with gross margins before D&A, improving by two percentage points to three percentage points as we work through Breakwater integration and an uneven outlook in gassier basins. We expect Water Infrastructure will take the biggest step forward in Q1, as we benefit from a full quarter of our infrastructure-related acquisitions combined with the recent investments we’ve been making to deliver 20% to 25% revenue growth, with gross margins before D&A in the high 20s [ph] to 30% range. I’m excited about the new organic recycling project John announced and the additional returns it will bring in the latter part of this year and beyond. The Chemicals segment, which was not directly affected by the latest acquisition activity, continues to see strong organic revenue expansion. Our advanced chemistry solutions continue to gain share across multiple water-related applications and have led to expanded relationships with certain key customers. We anticipate first quarter revenue continuing near this record-high fourth quarter number with relatively stable gross margins. While the first quarter should demonstrate a solid step forward in our financial performance, I fully expect to see further improvement in our revenue, earnings and free cash flow generation over the remainder of 2023 as well. SG&A of $34.1 million was impacted by $3.9 million of transaction costs in the fourth quarter. While the first quarter will also have some transaction costs as well as rebranding initiative costs, we aim to decrease SG&A as a percent of revenue back down to 8% as we work through those costs over the course of the first half of the year. We expect depreciation and amortization expense to be in the low $30 million range per quarter and tax expense to remain minimal through 2023. Generating positive free cash flow through improved working capital management is a core priority. And as I mentioned earlier, we see a very robust cash flow profile ahead of us for the full year. With that, I’ll hand it back to John for some final remarks. John?

Thanks, Nick. Before we jump into question and answers, I’d like to take a moment to thank our now over 4,000 employees, including our newest team members joining us from Breakwater, Cypress and elsewhere. I think we have brought together the best water and chemical experts in the industry and will continue to benefit from the consolidation of this team into one Select. We have the asset base, balance sheet, customer relationships and technical expertise to really build something special. I’m very excited to jump into 2023 alongside them, and I look forward to reaching new heights under the banner of Select Water Solutions. Thank you. And with that, we’ll open it up to questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Luke Lemoine with Capital One Securities. Please proceed with your question.

Hey good morning. Luke Lemoine, Piper Sandler. John or maybe Nick, you’ve done several acquisitions this year, and you’re continually to invest organically, and you have various initiatives along with the recycling facility that you announced yesterday. Once all this is integrated and you complete the reorg, how should we think about revenue or profitability potential? Just a little tough on our side as we don’t get kind of segment-level KPIs, but you talked about significant rev and profitability growth. And just wanted to see if you could frame this up a little bit outside of a 1Q for us?

Sure. So we gave some 1Q direction there. I think as you look out into the rest of the year, that pace of growth that you saw in the Water Infrastructure Group from second to third quarter and then moving into first quarter from what we described today, I think you have some solid tailwinds behind that, given that the majority of that CapEx total for this year will be focused on connecting that infrastructure, on adding recycling projects around it and doing so, in many cases, on a contracted long-term basis. So given that, I think that’s the segment that you’ll see the most torque in through the remainder of the year. As we look at Water Services, we have some good opportunities there, but we’re very focused there on taking out costs in the system, on integrating operations, on putting together what we’ve acquired on a unified basis throughout the Lower 48 shale basins. On Chemicals, we’ve had great momentum there without any transaction benefit. We do have the ability to expand that further beyond existing roof line. We also have the ability to continue to innovate around some new R&D that we have under development. And so I think you’ll see the continuation of very strong performance in the Chemicals group as well. But overall, I think based on our acquisitions, the asset footprint, our ability to invest in that existing asset footprint, you’re going to see the strongest growth in high margin infrastructure opportunities.

Yes. Luke, this is John. I’ll add to it a little bit with Nick here. I think if you look at the history of the company, you go back to 2018, you’ll see really the high point of the company somewhere around $1.6 billion and $260 million of EBITDA. If you think about what we just did in 2021 and 2022 and look at the transactions that we did and what we’ve added. The revenue opportunity is very much shifted into that infrastructure asset base. The assets that we put together, whether it’s disposal wells or contracts or surface use agreements with ranches, the ability to exchange water, the ability to put infrastructure in place around recycling and distribution and collection and management of waste streams to productive streams. It’s just way different. And as Nick said, that’s where the majority of the CapEx will be targeted. But the opportunity of this company because of these transactions and because of this asset base is way more directed now to fixed contract relationship, long-term full recycle application of water – life cycle of water being a lot of the revenue now is coming out of the production side of the well, instead of just the drilling and completion side of the well. So it is very much a different asset base that we’ve created, and it heavily weighted to the opportunity within the infrastructure piece of the business.

Okay. And then on the rebranding and reorganizing, you talked about streamlining a bit [ph] taking cost out, reorganizing, and getting a good uplift to free cash flow with this. Anything you kind of hear on the quantification of that, either on margin side or kind of costs that are being taken out?

Yes, I’ll go first. I think some of the early wins with the transactions that we did probably was at the very – either at the very top of the company in the executive branch or down into the operations and consolidating of yards and things of that nature. But we’re – we have a lot of work to do. And to be clear about it, it’s a lot of work is we inherited multiple ERP systems, multiple field ticketing systems, multiple processes that are different from one company to another, from one region to another, and that consolidation is in front of us, it’s not behind us. And that integration is in front of us and not behind us. Nick mentioned that we’re going to execute on a new ERP system in the first half of this year that really has a big effect on streamlining and processing and being able to manage the working capital different than it’s being managed today. It also has the comments around the rebranding of going from, as Chris said, a dozen different or 10 different companies that go to market across the United States to really three different positions that will take to market and bill our customers and communicate with our customers and what we can do with that single ERP system. So the streamlining that needs that is still in front of us is really the integration of the rebranding and the integration of the ERP system and field ticketing system. And that is really where a big piece of the working capital is hung up today.

Yes. If we talk about working capital more specifically, so I think the rebranding is really about the company we’re becoming and how we position ourselves in the market. It does have that working capital benefits as well. Now if we look at fourth quarter’s overall cash flow performance, our operating cash flow improved from 5 million to 35 million. As I mentioned, our free cash flow increased by 35 million. And so we made considerable progress there. Now we acquired working capital through the Breakwater corporate acquisition. We built working capital through a partial quarter of operations from the entirety of our acquisitions that you don’t typically collect given the partial quarter and the 60 days they operated. And so the overall working capital number did increase. So we made good progress there. We certainly have a lot more work to do. We expect this – working capital will turn into a pretty big tailwind as I mentioned for 2023. We expect free cash flow in 2023 that’s extremely strong. That’ll provide us a lot of optionality, whether it’s new organic investments, increasing or considering new mechanisms of shareholder returns or considering new acquisitions. So I’m really excited about the potential there for 2023.

Okay, got it. Appreciate the time.

Thanks, Luke.

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

Good morning.

Good morning, Tom.

Nick, just picking up where the conversation just left off around working capital. Could you update us on where you’re at then with the integration of the collection processing systems, the various field ticketing approaches given the latest batch of acquisitions? And then also when you would expect to complete the migration to Microsoft 365? I believe as of the last call, you expect it to finish the migration by the end of [indiscernible]. But again, I don’t know if maybe that’s slid out because of the additional assets that you’ll now be attempting to include in that?

Yes, thank you. So Tom, that target remains the same, obviously with acquisitions, that brings a little more work and a little more process and new avenues to ensure, we fully integrate. But first half is still the target there. Now that doesn’t mean we’ll see all the benefits from it in the first half. Probably doesn’t mean we’ll see all the benefits in the third quarter. There’s always a little learning curve and transition time. But in the long run, as John mentioned, going from the eight brands to the three through which we’re billing customers going from three ERPs to one that’s going to provide a lot of streamlining and a lot more I’d say ease of access and ability to work with customers across all of our sales platforms to drive better working capital management. So we’re in the early innings of that. We still have some more integration work to do in addition to the technology initiatives here. But I think given, our improvement in the fourth quarter that’s the pace of improvement we’d like to see in the 2023 even if fourth quarter didn’t meet our objectives on the free cash flow front.

Tom, if I could, this is John. I’d like to add a little bit to Nick’s comments. One of the things that’s very unique with what we’ve been able to do with this asset base and the footprint and the opportunity that we’ve developed is we want to make sure that whatever we put that on top of, whether it’s the ERP system or the field processing ticket that it fits and can it allow us to harvest this opportunity properly. And in the case of field ticketing, we ended up with four through the transactions. We’re going to one, and that one took several months or times and efforts to make sure we picked the right one that fits the opportunity in what we’re going to do with this asset base. So it is in front of us. It is going to be executed. We think we’ve thought through it very well to the asset base and the footprint as long – along with what we think is the opportunity, primarily around that infrastructure position we put together now.

Understood. Thanks for that additional explanation, John. For water services, do you still expect water services to be able to achieve a gross margin in the low 20s for 2Q through 4Q and what will be the key determinants in terms of the streamlining and efficiency initiative you’re pursuing of the division’s ability to sustainably reach that level?

Tom, this is Michael Skarke. In short, yes, we still expect that for water services. That’s what we’re looking at in forecasting going forward. In terms of streamline and efficiency, it’s just continuing to execute the base business. I mean, as John mentioned, we put a lot of companies together and we’re working through processes and making sure that we can make it as efficient as possible. So that it simplifies our operations and allows us to be more efficient when we’re delivering the solution to the customer.

Yes, Tom, I put one piece with it. When you think about service components like this, it’s very, very important that you have real time information that you can act off of. I’ve always said, you’ve got to get the information on Tuesday and act on Wednesday. And in the oilfield service business, we put a lot of companies together. The processes are different. The information flow is going to be consolidated and put in a disciplined mode, but we have to have that information to run really good margins in a service business. We will get that information, and we do believe we can hit that kind of margins in that sector of our business.

That’s helpful. And then last one for me. Would you please update us on your split between oil-directed and natural gas-oriented activity? And give us an idea of what your 1Q guidance assumes on the natural gas-oriented side of your customer base?

Yes. So we've, of course, seen the same weakness that the market has there. Our overall breakdown, Tom, we're 50% Permian for starters. We largely mirror the Lower 48 unconventional rig count. As far as gas-weighted, overall, that's about a 80-20 oil to gas. You can point to some associated gas in the Permian and what does that have impacts on activity there. But we do have some very strong production focused assets, especially in the Haynesville. We don't benefit from lower gas prices, certainly. But for ongoing production infrastructure systems, that's going to be a lot less impacted than new completions. So overall, a lot of our customers do have active hedging profiles near-term weakness, hopefully with Freeport coming back online, the need for Europe to rebuild inventories. We do see some improvement in that market, but we're very well positioned, both to weather it and to offer customers solutions to lower cost there.

Yes, the one thing I would add to that, Tom, is on the natural gas side, with prices coming down, we've seen a material increase in conversations around pipeline solutions and recycling because they're going to be more efficient. And so it's a way for the operator to reduce their AFEs and LOE expense. And on the recycling side, whether it's natural gas or oil, we do think this is a secular trend and something that we're going to continue to see kind of – obviously, it will pick up and slow down somewhat, but regardless of activity.

Yes, Tom, this is John. And if you go across the space, as Nick said, you can really follow our revenue base according to where rigs are running the Lower 48. But the most really important piece as far as that infrastructure and the stability of that infrastructure revenue and revenue growth or profitability, our recycling facilities, and especially now that we bought Breakwater, are very strong within the Permian Basin. And if you think produced water, that care system or that gathering and disposal system in the Haynesville that we got with Nuverra is very strong in the production lifecycle of the well on it. So although we do get affected by natural gas prices, it's not near, has directed just to areas that probably could potentially have slowdown in activity, but most importantly is where we're really focusing our capital dollars where the asset base gives us the biggest opportunity for long-term contracts and high gross margin that really pokes either to production-related lifecycles or high levels of activity.

Got it. That all makes sense, and it's nice to hear some silver linings on the natural gas side given the unique nature of your exposure. Thanks for taking my questions. I’ll turn it back.

Thanks, Tom.

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

Thanks for taking my questions. A question on the rebranding effort. You mentioned – or you referenced the notion of additional diversification opportunities. Can you talk about what – maybe at a high level, just what kind of opportunities those might entail? And what they would be – or how they would be margin accretive to your existing businesses?

Sure. This is John. I appreciate the question. We look at it as what our skill sets within this company that we have developed the technology, put the position together in all round sourcing of water movement, containment, delivery. And as that process happens, we've now really focused and developed the position of adding the right chemistry in two areas of that. One is we add the chemistry to make the water usable for the application after we source it. And two, we put the chemistry with that water to do the job it needs to do, which is fracking in this case. We believe that if we can match water and chemistry in the manner that we do in the fracking side of this business or in the waste management side of this business in full life cycle, we believe that fits into a lot of different industries. So we actually have done that some, and it could be just chemistry. And we've done that somewhere, it's just water. But the uniqueness of matching water and the chemistry needed to make usable is what we're focused on and how we could take that into other areas besides just the oil and gas space.

Yes. This is Michael again. Just to elaborate on one of the things John mentioned around waste management. So two of the acquisitions we closed in the last 1.5 years expanded our operation in the waste management. And managing drilling muds, pit bottoms and other oilfield waste products is really a logical fit for us and a natural organic expansion as we look to continuing to grow the business. We did develop an industrial team, and this is something that we've tasked them with doing because the opportunity is right here in front of us, and they're well positioned to apply in the chemistry and managing kind of the full waste management lifecycle.

Okay, thank you.

Our next question comes from the line of Shawn Boyd with Next Mark Capital. Please proceed with your question.

Thank you. Can you hear me okay?

Yes, Shawn, go ahead.

Great. CapEx guidance, I thought net CapEx was expected to be $40 million to $50 million next year, and it looks like we're talking about $90 million to $130 million now. So did I have that correct? Or was I off on that estimation?

Yes, Shawn, that was our guidance for 2022 there. Or most recently, we finished at $41 million for 2022. Looking at that $90 million to $130 million, we think of it as 50-50 on the maintenance and growth side. So I think that number is pretty accurate for where we expect our maintenance to come in.

Got it. Okay. So the number I have is for the previous year? Understood. And at this point, I guess I want to go back to kind of something, I think, Luke asked and that's sort of like a little bit different way, which is the assets that you've got at this point, what are you – how would you steer us in terms of organic growth of each segment? I can see the emphasis on Water Infrastructure, but if you can give us just a little bit of guidelines here in terms of how we're thinking about organic growth going forward, it would be helpful, by segment.

Yes, sure. So I think we've laid out Q1, as I mentioned, with the bulk of growth investment going towards Water Infrastructure, and most of that is going to be around existing assets building those out, enhancing them oftentimes with contracted revenue with production-levered revenue, that's really going to be the large focus of our growth CapEx piece here. So we have a number of active customer discussions. We announced a big recycling project in our press release yesterday that we're really exciting – excited about. That comes with a long-term contract with the respected large independent E&P. And so we're expecting to have a lot more of those coming down the pike here this year, and we will definitely share those quarterly as we consummate those deals.

That does conclude our question-and-answer session. And therefore, we will – I will turn the call back over to John Schmitz for closing remarks.

Yes. Thank you, Operator. I appreciate the interest today in Select Energy. We are very excited about the asset base we've been – we have put together in the last two years now. We think we've got great opportunities in the infrastructure side of the business because of these assets and transactions and relationships to the customer base as well as to the landowners and the movement of this water across the space. So look forward to talking to you next quarter, and thank you very much.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.