Select Water Solutions - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $349.0M, down 6.0% q/q and 6.9% y/y; gross margin compressed to 12.7% (from 16.8% in Q3), and the quarter posted a net loss of $2.1M, while Adjusted EBITDA was $56.2M, below Q3’s $72.8M and roughly in line with Q4 2023’s $58.3M.
• Water Infrastructure remained the profit engine: Q4 revenue $76.8M (-6% q/q, +26% y/y) with gross margin before D&A at 54.7%; management expects segment revenue to dip low-single-digits in Q1 2025 then accelerate with sharp double‑digit q/q growth in Q2–Q3 as new Permian projects come online, with margins ≥50% through 2025.
• 2025 outlook: company guides Q1 2025 Adjusted EBITDA of $60–$64M, Water Infrastructure revenue and gross profit growth of 15–25% for 2025, and consolidated record Adjusted EBITDA with higher consolidated margins; net capex targeted at $170–$190M (maintenance $50–$60M).
• Strategic expansion: announced Colorado water rights/storage partnership (initial $62M, option to invest up to $84M more) targeting ultra long-term municipal/industrial/agricultural contracts with high margin profiles and low volatility cash flows, broadening the infrastructure mix beyond oil & gas.
• Consensus estimates from S&P Global for Q4 2024 were not available at preparation time; comparisons to Street are therefore not provided. We anchor estimate comparisons on S&P Global when available.

What Went Well and What Went Wrong

• What Went Well

  • Water Infrastructure durability: despite asset conversion downtime, gross margin before D&A held at 54.7% in Q4; management reiterated confidence in maintaining 50–60% margins through 2025 and achieving 15–25% y/y segment revenue/gross profit growth in 2025.
  • Contracting momentum and scale: portfolio exceeds 2.5M acres under dedication/ROFR with record backlog; Q4 added a 15‑year Northern Delaware expansion (31k dedicated acres) and a 7‑year Central Basin Platform recycle project (124k acres).
  • Cash generation: Q4 cash from operations (CFO) was $67.8M (+31% q/q), and full year CFO reached $234.9M; Q4 free cash flow (FCF) was $16.2M and FY 2024 FCF was $77.4M, providing funding for growth and shareholder returns.

• What Went Wrong

  • Seasonal and mix headwinds: consolidated gross margin contracted to 12.7% (from 16.8% in Q3); Water Services revenue fell 10.6% q/q with margins before D&A down to 16.4% (from 20.5% in Q3), and Chemical Technologies margin was 12.9% (below prior-year 14.1%).
  • Q4 profit softness vs internal aims: Adjusted EBITDA of $56.2M came in “a bit below” expectations due to higher costs in Water Services and Chemical Technologies, and diluted EPS was -$0.02 vs +$0.15 in Q3.
  • Near-term deferral in Infrastructure revenues: asset conversions and buildout in Northern Delaware will push some revenue into Q2, with management guiding low single-digit revenue decline in Q1 before inflecting in Q2–Q3.

Transcript

Operator (participant)

Ladies and gentlemen, good morning and welcome to the Select Water Solutions Fourth Quarter and Year-End 2024 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. If anyone should require operator assistance during the conference, please signal the operator by pressing star, then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Williams, Vice President, Corporate Finance and Investor Relations at Select Water Solutions. Please go ahead.

Garrett Williams (VP of Corporate Finance and Investor Relations)

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 2024. With me today are John Schmitz, our Founder, Chairman, President, and Chief Executive Officer, Chris George, Executive Vice President and Chief Financial Officer, Michael Skarke, Executive Vice President and Chief Operating Officer, and Mike Lyons, Executive Vice President and Chief Strategy and Technology 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 5th, 2025. 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 19th, 2025, 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 law. 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.

Now, I'd like to turn the call over to John.

John Schmitz (Founder, Chairman, President, and CEO)

Thanks, Garrett. Good morning and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. Overall, 2024 was another record-setting year for Select, both operationally and financially. I'll start by highlighting some of our big wins over the past year, walk through the general outlook for 2025, and discuss a number of large strategic opportunities. I'll then hand it off to Chris to speak to the fourth quarter and future outlook in a bit more detail. During 2024, we transported, recycled, and disposed of record water volumes. This resulted in 26% annual revenue growth and strong 62% growth in annual gross profit from our Water Infrastructure segment. A new all-time high performance for consolidated Adjusted EBITDA and Adjusted EBITDA margins and strong cash flow from operations.

With this strong operating cash flow in 2024, we were able to fund a diverse capital allocation strategy throughout the year, including expediting our organic growth CapEx plans focused on the Water Infrastructure segment, executing nearly a dozen small bolt-on infrastructure acquisitions, increasing our base dividend by 17% during the year, while also funding our maintenance capital to support our market-leading Water Services and Chemical Technologies company. With a clear primary focus on our Water Infrastructure growth strategy, we continue to sign up big organic infrastructure projects with large acreage dedications. During 2024, we signed up eight major new organic infrastructure projects under long-term contracts, encompassing about $150 million of growth capital to be spent across 2024 and 2025. We also added more than a dozen additional bolt-on contracts to the existing assets in the portfolio as well.

These initiatives, combined with our recent acquisitions, will provide strong continued growth for the segment in 2025 and well into 2026 as new projects come online and we continue to enhance the broader networking and utilization potential of our infrastructure assets. Operationally, in 2024, we moved more than 1.5 billion barrels of water, a market-leading scale and breadth that continues to grow every day. We continue to grow our recycled volumes, far outpacing our annual sustainability-linked credit facility targets, while disposal volumes and overall systems utilization increase materially as well. Through our organic expansion and acquisitions in Water Infrastructure, we've increased the percentage of our profitability coming from our production-weighted revenue, as demonstrated by a 43% increase in produced water disposal volumes year-over-year. Overall, we built a very strong portfolio of contracts over a relatively short period of time.

We now have more than 2.5 million acres under long-term area dedication, encompassing an estimated 1.3 million acres of existing leasehold, supporting a combination of disposal, pipeline, and recycling solutions. Even with this pace of growth, our new project potential backlog continues to grow and currently sits at a record high. These dedications cover acreage in the best operational basins across the U.S. and provide a significant backlog of future well inventory, produced water volumes, and captive future revenue and cash flow opportunity. I truly believe the future financial outlook for Select is the strongest it has ever been. From an organic project standpoint, I was very pleased to get several additional long-term contracts to the finish line in the fourth quarter.

For example, in the fourth quarter, we were able to add a substantial new 124,000-acre dedication, underwriting a new greenfield recycle project in the Central Basin Platform area of the Permian Basin. The anchor tenant for this facility is an existing recycling customer and one that Select has successfully developed multiple recycling and Water Infrastructure facilities in both the Midland and Delaware Basins. This customer's loyalty is a testament to our operational and technical capabilities, and it reinforces our position as a trusted partner to help our customers add resilience to their development plans and achieve their operational, financial, and stewardship goals through value-add solutions. Additionally, in the fourth quarter, we signed a 15-year agreement for another new recycling facility and 20-plus miles of incremental pipeline network build-out that further expands our existing Northern Delaware water network and infrastructure in Lea County.

This contract adds another 31,000 dedicated acreage to the system, bringing our total Northern Delaware position to approximately 600,000 combined dedicated acres in Lea County alone. To further support our Northern Delaware network, in January, we acquired an existing six-mile produced water pipeline with 45,000 barrels per day of throughput capacity from a key customer. This line is integrated directly into our newest expansion that I just spoke about and will further commercialize the broader network with additional customers. As we plan longer term, we also acquired approximately 2,100 surface acres of largely private ranch land during the fourth quarter in the Northern Delaware and Eddy County to the southwest of our current Lea County system. As a surface resource owner, this asset can provide us with high-margin, recurring revenue streams on a standalone basis.

More importantly, it positions us for further westward expansion for future recycling and infrastructure development and long-term network integration across the entire Northern Delaware Basin in New Mexico. Our continued system build-out and expansion across the Northern Delaware Basin integrates increased storage, recycling, transportation, and disposal, providing enhanced commercial water balancing flexibility that will benefit our customers' development plans and support the increasing complexity and intensity for both their completions and production operations. With a very strong backlog of additional greenfield, brownfield, and bolt-on infrastructure projects and acquisitions, Select's Water Infrastructure segment is established as one of the fastest-growing infrastructure franchises in the industry. Accordingly, we expect to see annual Water Infrastructure segment revenue and gross profit to continue to grow by 15%-25% during 2025 and further growth ahead into 2026.

Before we get to our Water Services and Chemical Technologies segments, I'd like to speak to our views on the energy markets for 2025. Overall, we expect a fairly steady commodity price environment across both oil and natural gas markets, with some potential medium-term upside to the natural gas as LNG demand continues to grow. U.S. Lower 48 activity levels are expected to modestly reduce compared to 2024 overall and hold flat to modestly higher relative to the second half of 2024. Even with these activity levels, we expect our Chemical Technologies segment to drive solid revenue growth in 2025 and maintain our expectations that we can improve the margin profile of both the Chemical Technologies and Water Services segments this year.

Our Water Services business remains critical to our overall success, and we must drive continued Free Cash Flow, improved margins, and a strong return on assets out of this segment. We fully require both our Water Services and Chemical Technologies segments to convert more than 70% of their gross profit into Free Cash Flow, providing an ongoing source of capital funding for our Water Infrastructure growth initiatives and expect that to continue into 2025. However, as we look for ways to further improve our margins, stabilize our cash flows, and enhance our returns within Water Services, we will continue to evaluate the segment for underperforming non-strategic areas of potential consolidation during 2025.

If there are yards or service offerings that we determine cannot achieve our required objective over the course of 2025, we will look to redeploy those personnel, assets, and potential capital resources into other regions or parts of the business that can. These efforts, combined with the modestly declining macro activity outlook, should drive Water Services revenue modestly down on a year-over-year basis, while gross margins before D&A ultimately improve across the period. Looking across the entire company for 2025, driven primarily by the continued growth in our Water Infrastructure segment, we firmly anticipate seeing stronger year-over-year Adjusted EBITDA growth during 2025. We also expect to pull through at least 30% of this Adjusted EBITDA into Free Cash Flow after accounting for all maintenance and growth CapEx and should provide good optionality for capital allocation, including incremental shareholder returns, additional organic or inorganic investments, or additional strategic initiatives.

We are always reviewing additional strategic growth initiatives that we can capitalize on our expertise. At Select, we have spent more than 15 years developing water resources and solutions for the energy industry. While we have more recently pioneered and successfully capitalized on the transition toward produced water recycling and large-scale network development, Select has a core legacy of sourcing, contracting, storing, and moving fresh water to where it is demanded. I have always believed that this diversified expertise has a potential application outside the traditional energy sector. And to that end, we are excited to announce that the further advancement and diversification of our Water Infrastructure platform with the expansion of our Colorado operations in the municipal, industrial, and agricultural water markets.

In February 2025, we committed to initial $62 million investment alongside multiple strategic partners to consolidate one of the largest senior water rights and storage portfolios in the state of Colorado, along with rights to cover 16,300 acre-feet of source water per year, as well as complementary water storage assets. This is the equivalent to an annual volume of approximately 125 million barrels per year or 350,000 barrels per day. In addition to Select's operational capabilities, our key partners in this investment bring substantial experience investing in municipal and industrial water, real estate, and energy projects. And in addition to capital, our partners are also contributing a combination of existing water rights, storage assets, and real property.

These water resources are well-positioned to serve high-end growth markets in Colorado, and the mere aggregation of these very senior and strategic water rights into a single consolidated portfolio creates a substantially enhanced economic opportunity. As we commercialize the asset, we expect to convert additional storage options and construct approximately 16,000 acre-feet of reservoir storage that only further enhances the value and the deliverability of our significant water resource. This is a natural extension of Select's existing capabilities and expertise that provides our shareholders unique exposure as a land and resource owner to high gross margin, long-term contracted, and growing cash flows. While this type of opportunity will have longer paybacks compared to our current Water Infrastructure investments, we believe this investment fits well within our infrastructure growth strategy and will be a foundational part of our future business.

With this opportunity, we become a land and resource owner of very strategic senior water rights and storage infrastructure that will be critical to the commercial, industrial, and social expansion of Colorado in the coming years. Over the next couple of years, we intend to sign several ultra-long-term supply agreements with municipal, industrial, or agricultural customers, and by doing so, provide low-risk, long-term increasing cash flows that both our shareholders and the Colorado stakeholders can count on. The very long-term nature of municipal water contracts would introduce an increased term to our contract portfolio, with agreements in this space often providing for up to 50 years of dependable lease water income. We look forward to growing alongside local economies and providing a highly needed water solution through a project with great long-term returns.

Select strives to operate our business at the intersection of good stewardship and good economics, and we are proud to build on that value with this project. To conclude, I firmly believe in the infrastructure growth strategy we have undertaken recently. I believe this strategy best positions Select to drive long-term shareholder value, and ultimately, I believe that Select remains uniquely positioned in the competitive energy landscape and now the municipal and industrial sector 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 further executing on this vision during 2025 and into 2026 and beyond. At this point, I'll hand it over to Chris to speak to our financial results and our 2025 outlook in a bit more detail. Chris?

Chris George (EVP and CFO)

Thank you, John, and good morning, everyone.

As John mentioned, 2024 was an important year for Select across many key annual financial metrics. This includes generating $1.5 billion of consolidated revenue, 53% gross margins in Water Infrastructure, $258 million of Adjusted EBITDA, $235 million of cash flow from operating activities, and finally, $78 million of Free Cash Flow. These financial results enabled us to invest strategically in the business alongside providing $38 million of total returns to shareholders across dividends and buybacks over the course of the year. We were able to raise our quarterly dividend by 17% while finishing the year with a strong balance sheet that we have further enhanced subsequent to year-end. In January of this year, Select entered into a new five-year sustainability-linked credit facility, including $300 million of revolving commitments and $250 million of funded term loan commitments.

This facility provides a very attractive financing cost of capital within the traditional bank markets, which I believe will help support enhanced equity returns over time. Select has always maintained a disciplined approach to the use of leverage, which has benefited us during times of cyclical stress in the market, and we firmly expect to maintain this discipline in the future. However, Select's ongoing transition to a growing infrastructure-based production-levered full-life cycle water solutions company provides us with a chance to enhance our capital structure in support of the significant opportunities we have ahead of us. Even with the fully funded term loan, we maintain a net debt-to-EBITDA leverage ratio at closing substantially below one times, ensuring we sustain a strong conservative balance sheet with enhanced overall liquidity.

This new facility also reinforced our overall commitment to good stewardship through the renewal of our two primary sustainability-linked KPIs, growing our recycled produced water volumes, and maintaining a market-leading employee safety record through a total recordable incident rate well below industry averages. Supported by tremendous operational performance and technical advancement in recent years and substantial ongoing capital investment, we set a new five-year target to recycle more than 400 million barrels of produced water annually by 2030, more than eight times the original target we set up and since surpassed back in 2022, and more than two and a half times our 2024 results.

Increased demand for water recycling by our customers has led to significant investment and numerous facility expansions, while our infrastructure networks that balance water supply and demand across customers and regions have been instrumental in allowing our customers to manage their produced water waste streams while maintaining consistent, dependable, and geographically optimized access to demanded completions water. This increasing need for water recycling and our ability to reliably deliver these critical volumes is exemplified by a recent announcement from earlier this month highlighting that we recently reached 50 million barrels of lifetime volumes recycled at our second facility in partnership with Oxy. Importantly, we were able to reach this milestone in half the time it took to get there with our first Oxy-backed facility. These networks will continue to see enhanced utilization and water balancing capabilities that make these expansions highly accretive.

As John noted, between our acreage and area dedications, we have amassed a portfolio of over 2.5 million acres of produced water handling and treatment opportunities overlaying the best geology in the United States. The Northern Delaware facility expansion we executed in the fourth quarter and the new Central Basin Platform recycling project highlight examples of the types of projects we expect to continue bolstering our dedicated acreage portfolio with, and we added another 150,000 acres under dedication in the fourth quarter alone. The dollar-weighted average contract duration of our 2024 executed contracts was over 10 years in length, and when looking at the overall contract portfolio, given the majority of our acreage dedications were only just put in place over the past 24 months or so, there is still a tremendous amount of long-term captive revenue opportunity within the scope of our portfolio.

While many of these contracts do have completions market activity exposure to them, the overall returns are underwritten conservatively, and we pride ourselves on ensuring we are underwriting not just the customer, but the geology and the geography as well. In 2024, we reached our goal of 50% or greater gross margins in Water Infrastructure well ahead of schedule, which led to gross profit growth of 62% on the year, significantly outpacing our strong revenue growth of 25% for the segment.

We are proud to deliver on the strategic goals and targets we have set forth as we transform our company, and accordingly, we maintain our expectation of delivering 50%+ gross margins during 2025, as well as driving the gross profit contribution from our Water Infrastructure segment to greater than 50% of the consolidated gross profit for Select by the end of 2025, underpinned by more contracted high-margin revenue streams. Water Infrastructure maintained a strong 55% gross margin before D&A during the fourth quarter, alongside a more modest 6% revenue decline during the period. This revenue decline was substantially less than the 10%-15% decline we potentially anticipated, as certain key assets that we planned to take offline during Q4 were ultimately taken offline much later in the quarter than originally anticipated, as we worked with our customers to support their development activities late into the quarter.

While this delay was a benefit to Q4, these asset conversion efforts, combined with the continued system expansion requirements driven by multiple new recent contracts and acquisitions supporting our Northern Delaware buildout, will result in a further deferral of certain Water Infrastructure revenues until the second quarter, resulting in a low single-digit percentage revenue decline during the first quarter. However, with a number of ongoing projects set to come online during the second quarter and the anticipated strong growth in Water Infrastructure's performance over the full course of 2025, we firmly anticipate a strong second half 2025 run rate that significantly exceeds the first half. We expect a double-digit percentage upward growth trajectory in each of the second and third quarters of 2025 for our Water Infrastructure segment, driving towards year-over-year growth of 15%-25% for the segment overall in 2025.

As we continue to commercialize the new facilities over the course of the year, we also believe there remains capacity utilization enhancement that can drive further upside into 2026 alongside new contract wins or other strategic enhancements. Looking at our other segments in more detail, in the fourth quarter, the Water Services segment saw revenues decline by about 10%, driven primarily by seasonal activity declines. While this was on the better end of our expected revenue guidance, our gross margins before D&A and services during the fourth quarter decreased to 16.4%, a disappointing outcome which we expect to recover from during the first quarter of 2025. We expect a low to mid-single-digit percentage revenue increase in the first quarter for Water Services, with margins recovering back to the 21%-22% range, with additional margin improvement following later in the year.

Switching over to Chemical Technologies, even with seasonal activity declines in the fourth quarter, this segment saw strong sequential revenue growth of 14% during Q4, driven by continued new product development, key customer wins, and ongoing market share gains. While margins came in lighter than our expectations at 13%, we expect both revenue and margins to continue to improve for this segment in the first quarter and throughout 2025 as increased production volumes drive continued product cost efficiency and improve manufacturing absorption rates across the rest of the year. In the fourth quarter, SG&A modestly increased to $39 million. We expect SG&A to track towards 10%-11% of revenue in both the first quarter and full year 2025 as the business mix shifts to an increased weighting to higher margin revenue streams.

Altogether, we saw consolidated Adjusted EBITDA of $56 million during the fourth quarter of 2024, a bit below our expectations, largely resulting from higher cost impacts within our Water Services and Chemical Technology segments. For the first quarter of 2025, we expect an uplift in consolidated Adjusted EBITDA to $60 million-$64 million as customer activity gradually ramps across the quarter from low fourth quarter activity levels. While this is below where we would like to have been, given the accelerated growth trajectory we expect in Water Infrastructure starting in Q2 and the anticipated margin improvement in our Water Services and Chemical segments, we firmly expect another year of record Adjusted EBITDA, with our second-half of 2025 exit rate positioning 2026 for another record year thereafter.

Looking below the line, we anticipate cash tax payments in 2025 to be relatively modest, $5 million-$10 million, including state taxes, and our book tax expense percentage applied to pre-tax operating income to likely stay in the low 20% range. I expect depreciation, amortization, and accretion will continue in the low $40 million range quarterly, modestly increased from recent acquisitions and continued capital investment. Additionally, quarterly interest expense should increase to $4 million-$5 million per quarter in support of the funded term loan component we added to our debt structure with the recently announced sustainability-linked credit facility. With fourth quarter net CapEx of $52 million, we finished the year at $157 million of net CapEx, below our previous guidance of $170 million-$190 million. The bulk of this reduction represented a mere timing impact of ongoing project spend, which should carry over into 2025.

We are entering the year with a healthy ongoing project backlog and additional development opportunities related to the recent acquisitions and contracts, and currently expect $170 million-$190 million in net CapEx in 2025. We anticipate $50 million-$60 million of this CapEx going towards ongoing maintenance and margin improvement initiatives. The remaining largest component of this overall spend is for growth CapEx, which is heavily weighted towards infrastructure growth projects. To fund these Water Infrastructure investments, alongside our ongoing capital returns, our Water Services and Chemical Technology segments each provide strong cash flow at low capital intensity, returning 70%-80% of profits and cash flows after CapEx, as John noted. Additionally, we anticipate generating $10 million-$20 million of net proceeds from asset sales to net against this gross CapEx spend during the year.

As we've outlined, we expect to see stronger year-over-year growth in Adjusted EBITDA in 2025 and should convert 30% of those dollars into Free Cash Flow from operations after CapEx on a consolidated basis. This should provide us with good optionality to continue to evaluate further enhancements to our shareholder return program and, more importantly, continue to invest in the business. As we think about our overall capital allocation framework, we continue to prioritize adding long-term contracts, production-weighted revenues, and generally finding ways we can enhance a baseload of stability long-term to our diversified water solutions platform. Accordingly, I'm very excited about our most recent investment in a very unique portfolio of water rights in Colorado for long-term municipal, industrial, or agricultural development.

These water rights and the anticipated projects we can develop over time should provide a great way to enhance the stability of our business long-term through repeatable, predictable, and perpetual growth. While initially structured for Select as a minority investment whereby we own 35% of the limited partnership and 25% of the general partnership, as we find opportunities to contract these water and storage rights, Select has the exclusive right to invest up to another approximately $84 million in the partnership over the next three years through the accumulation of additional water rights and buildout of additional infrastructure. In doing so, we would anticipate transitioning to a majority 56%+ ownership position over time and eventually operating these assets long-term.

While it will take some time for this investment to translate to realized earnings, we believe the partnership could generate $20 million-$30 million of consolidated annual net income out of initial anchor contract underwritings, with longer-term earnings potential that's more than double that upon full commercialization and rate realization. Because we expect this asset will be primarily underpinned by municipal customers with structured offtake and ratable pricing escalators, the long-term risk profile and anticipated volatility of these assets are expected to be very low, which should provide very high-quality, repeatable, and predictable cash flows that can be financed efficiently, used to fund additional long-term growth or return to shareholders over time. We believe there are many more opportunities for Select to utilize the strengths of our integrated water and chemical expertise in new and creative ways, and I'm excited to jump-start that initiative with this initial investment.

In summary, 2024 was a great year for Select as we hit a number of key milestones, advanced our strategic initiatives, and improved our overall financial performance and while the first half of 2025 may start out of the gates a bit slower than we would have liked to have seen, more importantly, I believe with our continued organic infrastructure investments, M&A execution, and enhanced balance sheet, we are well positioned to see a strong pace of growth into the second half of 2025 and will continue to capitalize on additional opportunities throughout the year. Ultimately, Select remains distinctively positioned to advance a unique integration of water and chemical technology solutions with high-margin, long-term contracted infrastructure. I'm excited about the infrastructure-oriented strategy we've undertaken and the incremental value it brings to our customers, our company, and our shareholders, and I look forward to the year ahead.

With that, I'll hand it over to the operator for any questions. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Jim Rollyson from Raymond James. Please go ahead.

Jim Rollyson (Director of Oilfield Services)

Hey, good morning, everyone. And that's a lot of information to unpack, but maybe we could start, John, with the new venture in Colorado.

I guess you and I have talked about this kind of potential foray into the municipal side of the business as a longer-term strategy, so kind of interesting to see that here front and center, but maybe you or Chris could talk a little bit about the kind of timeline of investment cycle there and really the return profile and margin profile, just maybe compared to what you've been doing on the recycling side, so we get a little sense of that.

John Schmitz (Founder, Chairman, President, and CEO)

Sure, so as we said in the beginning of the call, Mike Lyons is in here with us too, Jim. I don't know if you've met Mike yet or not, but he's one of the people that's heading up our efforts here as well.

But when we look at it, we think of it in an opportunity to put really high gross margin related revenue through the company with contracts that could be up to 50 years in length, and these contracts have escalators in them that really juice the returns over the course of the contract life. The other way we look at it is it's really, when we say repeatable, predictable, it's very predictable and repeatable in the sense that we own the water rights, and those water rights are in nature just completely repeatable. They don't go away. They're not depleting, they're river water rights and water rights off of a land adjacent and storage that we will build off those water rights for the management of the water as we go forward.

But let me open it up, and maybe Mike or Chris have some addition to it here.

Chris George (EVP and CFO)

Yeah, Jim, as we think about, too, your kind of specific point around the returns and how that compares to our traditional infrastructure and recycling projects, I mean, it's definitely a different type of opportunity. This is really more of a resource development opportunity. So it does come with what I would say are meaningfully higher margins than our traditional Water Infrastructure projects. It's obviously a large upfront investment to procure and consolidate those resources together, but that provides immediate valuation uplift for our investment and longer-term.

While the payback might be a little more extended here as we spend the next couple of years getting these contracts in place, we ultimately think that the overall returns are very competitive, if not better than some of our other opportunities here, and we're quite comfortable making the investment. And frankly, the long-term stability and predictability of it, like John said, create a very different tenor and profile to this opportunity. Mike, anything else to add?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah, I'll maybe just add, I mean, the big operating model change here is this position Select to truly be a land and resource owner. These are very senior water rights with broad reach across the state, either through exchange programs or physical canal connectivity. So this is a scarce resource that is in very high demand across the state, and we're looking to partner with those who need it most.

And I think, as Chris was saying, the asset is really up and to the right because we see even demand in excess of 50,000 acre-feet of water just in the immediate vicinity that we can go get, which is many multiples the size of even this water asset that we are consolidating here. And this is one of the largest water holdings now in Colorado, once consolidated. So I think this puts us in a great position to partner with the local communities, with local businesses, create jobs, and I think the economics behind it, as Chris said, are very competitive.

Jim Rollyson (Director of Oilfield Services)

Man, that sounds certainly appealing, and the long-term nature of this coming from you guys from having an oil field background is probably a welcome change.

Maybe shifting gears for a follow-up, Chris, just if you look, obviously, there's a little bit of puts and takes on Water Infrastructure from a short-term perspective in that your fourth quarter had a little bit of benefit in that business from kind of the timing of taking some facilities offline. That's going to hit in Q1. And then as you kind of laid out, you ramp into the back half of the year. If we think about that 15%-25% revenue growth, I'm just trying to understand some of the puts and takes here. Obviously, whatever that revenue impact is of facilities being offline temporarily through the growth part of that or expansion. And then if you get up to the 20% or 25% end of that full-year growth, where does that put your kind of exit rate revenue run rate?

As I look into going into Q4, I mean, it seems like the math can get you into the mid-20s or higher % year-over-year growth by the time you're in 4Q over this year's or 2024 4Q. Is that in the right zip code or maybe a little color on how you think about that?

Chris George (EVP and CFO)

Yeah, I mean, certainly, Jim, as we think about the full year versus the trajectory across the year, you are going to exit at a, I would say, substantially higher exit rate than we're going to see in the first half of this year.

Now, if you kind of put that into perspective, I would think that the third quarter, and you'll see a little seasonality always impact the business, but the third quarter and the second half run rate should be something that approaches 50% or even double the kind of growth percentage rate that you'll expect to see on a full-year basis. So your revenue trajectory and profitability trajectory heading into 2026, inherently absent incremental investment should provide good continued uplift and growth into next year. And we would expect to continue to find opportunities to invest over the course of this year that help support that.

Jim Rollyson (Director of Oilfield Services)

Got it. And then just if I could sneak one little thing in here, you mentioned in the prepared remarks and the press release, at or above 50% margins, 1Q obviously impacted by those facilities being offline.

But is there any reason to think that this kind of mid-50%+ range you've been over the last couple of quarters doesn't kick back in once you're kind of normalized in the second through the fourth quarters?

Chris George (EVP and CFO)

No, I mean, Jim, we've been quite pleased to have gotten to those kind of levels here. We certainly got to that 50%+ ahead of schedule. We probably got higher than we thought we might be able to do over the course of 2024 as well. So we're quite comfortable with our ability to maintain margins in that 50%-60% range. As we continue to bring new investments online, there's always a little bit of time to work through the operational efficiency of those assets. But certainly, as we look forward, we expect to maintain margins in that overall 50%-60% range.

And I think we've been positively performing to the upside there, and we were able to maintain 55% in the fourth quarter even with some of that revenue softness. So near-term, maybe a little lower than that as we get these new assets brought online and work through that initial efficiency piece. But I think that we're underwriting well within that range and have opportunity to continue to maintain or grow that.

Jim Rollyson (Director of Oilfield Services)

Appreciate that. Opportunity sounds exciting. Thanks, guys.

Operator (participant)

Thank you.

Chris George (EVP and CFO)

Thanks, Jim.

Operator (participant)

The next question comes from the line of Bobby Brooks from Northland Capital Markets. Please go ahead.

Bobby Brooks (VP and Senior Equity Research Analyst)

Hey, good morning, guys. Thanks for taking my question. I want to continue on with the Colorado piece. I think that was really interesting and exciting news, but obviously also there's kind of a lot of questions that come up with it.

So I guess just maybe starting off, could you just help me piece together kind of what you guys are bringing to the table? It seems like you're actually supplying some fresh water. Obviously, you're also bringing your expertise of dealing with water, but what are you guys really bringing to the table here, and maybe what are the partners bringing?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah, sure thing. So as we mentioned, I mean, we've been active in this space for more than 15 years. We've operated in and around Colorado for a large majority of that time. So we bring everything from automation, managing canal movements, headgate management, ditch management. So I think we're definitely bringing the operator skill set to this.

I think in addition, I think we'd be remiss not to recognize along those 15 years, I mean, we have built and managed very large freshwater resources and commercialized them for our oil and gas customers very successfully, and we continue to do so in many of the other basins that are still predominantly freshwater basins. So from a day-to-day feel, this is very much our normal operations. I think it's just taking it and expanding it into some higher-valued markets. The other folks that we are partnered with, I think, bring similar expertise and also brought access to these very unique entities that bring extremely senior water rights, as I mentioned, with very broad reach, existing storage assets, so large-scale reservoirs and options to further build thousands of acres of physical land and real property that I would mention also has very good access to power infrastructure as well.

And as you think about some of the customers we're targeting, data centers and other customers like that are absolutely on the list. So really, this is, in summary, leveraging our existing capabilities, some key strategic partners to unlock new water and new value.

Bobby Brooks (VP and Senior Equity Research Analyst)

Got it. That's excellent coloring. And so maybe could you just talk about, so you've been in and around Colorado doing stuff with water for 15 years. Could you maybe just talk about how did this opportunity really develop? Was it an outbound with your team kind of having a conversation, "Hey, we think there's an opportunity to consolidate some assets here and kind of diversify the revenues," or was this kind of an inbound deal? I'm just kind of curious how it developed.

Chris George (EVP and CFO)

Yeah, Bobby, maybe to start, obviously, as we continue to look to build out the overall strategy, we've had a focus on what might be opportunities that make sense to take our current capabilities, our current expertise, and how do we deploy that expertise into some diversification strategies. So this kind of opportunity has always been on the tables of potential future horizons step out as we build out the infrastructure strategy overall. So it's certainly kind of been part of the thought process, and we've had ongoing dialogues, relationship development work over the last couple of years. But Mike, you want to speak to this one more specifically?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah, I think as a part of our core business, we're always asking what else and what next. And so I think this largely answers that.

As I said, our core operations, especially in Colorado, I mean, we feel the water scarcity in that market every day. We already own water rights, own wells, operate wells, own storage. I mean, we're in that market every day. When you look at the forecasted demand, you talk to municipalities, you talk to industrial customers all looking to source water, you realize that doing it successfully and at a large scale is just quite challenged. I think what we saw here was a very, very unique asset that largely hadn't touched those markets. Through the combination of the skill sets of our partners, of Select, we're able to, again, bring this new water to new customers.

And ultimately, we've been looking and will continue to look across all of the freshwater assets that we hold to see if there are additional pathways to new growth as well in other basins and other geographies.

Chris George (EVP and CFO)

And one thing to add, Bobby, when you think about how water resources are managed and regulated and permitted, it's a very localized market, state-by-state and region-by-region. And so a lot of those experiences we have in terms of managing water resources overlap with other demand applications for water like these municipal agricultural type of applications. And so we're oftentimes historically working through our own water rights, permitting, and seniority through some of these other areas.

And so in doing so, we've got a lot of relationships and experience and application around how our water rights translate across the space and what other rights are out there that we might be able to utilize or develop on our own.

Bobby Brooks (VP and Senior Equity Research Analyst)

Awesome. That's terrific coloring. Then maybe just one last one for more on the base business. So Chemical Technologies, nice sequential step up. And you guys see some nice growth there in 1Q with the guidance that you've given. You guys have called out new product initiatives driving market share gains. So I just wanted to dive a little deeper there. Where are you winning market share and why and from who?

Michael Skarke (EVP and COO)

Yeah, no, it's a good question. We certainly have seen quite a bit of progress over recent months and in the back half of the year.

We certainly saw a little bit of dislocation in our chemicals business over the course of 2024, but it really started to ramp back up in the back half of the year as some of our new product development really took hold in the latter part of 2024. As the market ebbs and flows, we've certainly seen more, I would say, pressure on the completions market space around some of the pressure pumping relationships. It's definitely been a lower activity environment, but as we continue to translate our expertise around chemistry and around water to relationships with our operator customers, it's translated to opportunities to solve the problems that we face, particularly as we push more towards produced water reuse and recycling. The products that are required for those solutions lend more towards specialty application of chemistry.

They lend more towards developing new and creative ways to apply new products to those recycled barrels. And so that's been a key focus for us as we continue to advance our recycling strategy as well. So that's been the focus. But as we look forward, I mean, we certainly see strong, I think, growth recovering in that business and the margins improving as we continue to ramp up the production through our manufacturing facilities and see those share gains. But John, you want to add anything there?

John Schmitz (Founder, Chairman, President, and CEO)

Yeah. We would point out that as a big portion of that business comes out of the Permian Basin, we have the only in-basin reactive chemistry plant there.

What's become very important and continues to be important is as we came off of freshwaters and onto produced waters, the matching of that chemistry to that water has become very important, and that's the staying in front of it with new formulas and new methods in which we apply. The other thing that's become very apparent is chemistry is getting affected by the laterals. So the longer laterals, the different kind of makeup of chemistry matched to that water is becoming more and more important. And we have developed really direct relationships with the operators that people drill in these long laterals and produce in these wells, frac in these wells.

Whether it's direct spec'd-in chemistry that goes through the frac horsepower company or direct to operator chemistry applications, we're working with the owners of that reservoir rock to how to advance the chemistry to make it do what it's supposed to do in longer laterals and do it with the dirty water that we're using now to frac with versus fresh.

Michael Skarke (EVP and COO)

Yeah, no, that's a great point John raises. The type of chemical product that's required to maximize your productivity out of a well at the end of a four-mile lateral versus the end of a two-mile lateral is a different type of product. It requires a different application of stability to it to get out to that full lateral length. So that's been one of the key areas that we've been focused on as well as we continue to extend out these lateral lengths over time.

How do you maximize the efficiency of that product? Ensure that you get the same type of benefit at the end of that four miles that you're looking to get out of that first or second mile.

Bobby Brooks (VP and Senior Equity Research Analyst)

Terrific coloring. I really appreciate it, guys, and I'll return to the queue. Thank you.

John Schmitz (Founder, Chairman, President, and CEO)

Thanks, Bobby.

Operator (participant)

Thank you. The next question comes from the line of Jeff Robertson from Water Tower Research. Please go ahead.

Jeff Robertson (Managing Director in Natural Resources)

Thank you. Good morning. On the Colorado business, did I hear right that the demand in the vicinity that you can access with this venture is upwards of 50,000 acre-feet?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah. Hey, Jeff, this is Mike. Yeah, I mean, this is based on, I mean, the demand is higher than that.

This is based on us just being in the market and thinking about what our natural market is around the assets where we have easy accessibility through either physical or other exchange transfer means, so the answer is yes, that just the demand in the area really dwarfs the size of this asset, and this asset is already one of the larger water holdings in the state that is not directly owned by a municipality at the moment, so it is.

Jeff Robertson (Managing Director in Natural Resources)

Mike.

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Please.

Jeff Robertson (Managing Director in Natural Resources)

How would you go about increasing beyond the 16,300 acre-feet that this initial business covers to be able to tap into the greater demand that you see?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

I think looking farther, so the life cycle of this asset, initially, we're actually taking advantage of a bunch of unique state programs, so high-efficiency farming, lease-fallow practices.

It allows us to both create jobs and economic value for local agricultural customers, but also to begin to bring some of this water to municipal and industrial customers over time. If you look carefully in these various ditch systems and groundwater rights systems, there are still shares of these three different share types that we own that, at least in my opinion, over time, we are a natural owner of these shares as well and can continue to bring them to market. I think having it in a consolidated play with the complementary storage just makes it even higher value to the end customers.

So I think it's that coupling of senior water rights, storage assets, physical land, and access to that power and other utility infrastructure that allows this asset even to continue to grow beyond what I would call a pretty conservative underwriting of what we've marked out today and some of the return profiles and potential margin delivery.

Michael Skarke (EVP and COO)

Yeah, and Jeff, we're pretty comfortable with the market demand and the total addressable market opportunity here. We've utilized not only our own research, but third-party experts and research in this space and in this region to help supplement our underwriting capabilities here, so we're pretty confident in the long-term demand.

To your point, there's definitely opportunity to continue to add to the scale of the resource over time, albeit it takes the relationships, the effort, and the ability to aggregate into a larger resource that can be supplemented for the size of the contracts that we're talking about.

Jeff Robertson (Managing Director in Natural Resources)

Can you talk a little bit about how long it took to work together with the partners that you have to get you to the point where you are today? And the reason I'm curious is I'm curious as to the ability to use this as some sort of a template in other areas like you spoke about.

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah, it's a great question. I mean, similar to Select, our partners have been in this basin and in this business around municipal and industrial water for, I would say, 10 to 15, if not 20 years as well.

So I think the partnership is very complementary of folks that only do this as their core business. I think these are folks that make markets that routinely buy and sell water shares, and then us, obviously, who own and administer and operate water shares. So I think the deal itself, I think, came together fairly naturally, I would say. I mean, there's an understanding and an appreciation of everybody's skills from across the table. And I think that let the deal come together pretty quickly. And I think will also get us into market quickly as we approach customers for LOIs and eventually in the coming two, three years, like the actual executed signed contracts and the margins starting to show up on the P&L. And honestly, the demand in the market is high.

I'm probably being a little conservative here, but there are folks in ongoing discussions right now who are in desperate need of the water.

Jeff Robertson (Managing Director in Natural Resources)

You're obviously familiar with a lot of the permitting issues in Colorado. I'm just curious about the regulatory requirements that you have to deal with to get to the point where you have these ultra long-term municipal contracts.

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Out of the gates, because we are leveraging these state programs around, and obviously, each water share has a different use case attached to it, there's no regulatory or, I would say, water court risk here. We're taking fully the as-existing shares and putting them to work. And again, I'll highlight that as it's actually a unique capability of this partnership, our ability to work with farmers, with landowners, and put in place this lease-fallow program.

That's not a small lift, but the folks that are in this partnership have done it and know how to do it very well. So this allows us, Jeff, to get out of the gates with a large chunk of that 16,000 acre-feet holding as available to go to market. And then, of course, over time, we'll continue to monetize that asset, and that gets us towards the higher end of the gross profit targets that Chris had mentioned. I want to ask John also to chime in on this as he's been very close to this.

John Schmitz (Founder, Chairman, President, and CEO)

Yeah, Jeff, the one thing that I want to point out because it's really important, I mean, we've known these people for a while. We do believe that the skill sets complement each other in a meaningful way.

But with that, we also want to point out we've been in the DJ Basin for more than 15 years. The DJ Basin has been procuring freshwater rights and dealing with regulatory and movement and all the various things you had to do in the same manner for 15 years. I mean, we've been in the DJ Basin since the beginning of really applying freshwater into horsepower and procuring and moving and swapping and doing all the things that this exact project is just in a bigger way and with municipality. We've been doing it, Jeff.

Jeff Robertson (Managing Director in Natural Resources)

If I could ask one more just on the base business, Chris, do you have anything in your expectations for margins and infrastructure to reflect the potential for increased utilization on your water assets in some of the gassier areas?

Chris George (EVP and CFO)

Yeah, that's a good question, Jeff.

I mean, certainly, as John spoke to earlier, I think we probably see a fairly steady commodity price environment overall. That said, we do see upside in the gas markets and particularly probably some upside opportunity in the Haynesville. Thinking about that Haynesville position, our business is 90%+ weighted to production in the Haynesville. We built a very strong market-leading infrastructure platform out there with our large pipeline gathering infrastructure. So to the extent we start to see gas market upside and opportunity, I think the first and foremost, it's probably going to come out of that basin. And we are clearly positioned to capitalize on that with easily the largest disposal platform in the Haynesville overall.

Jeff Robertson (Managing Director in Natural Resources)

Thank you for taking my questions.

John Schmitz (Founder, Chairman, President, and CEO)

Thank you.

Chris George (EVP and CFO)

Thanks, Jeff.

Operator (participant)

Thank you. The next question comes from the line of John Daniel from Daniel Energy. Please go ahead. Hey, guys. Good morning.

John Daniel (Founder and CEO)

Thank you for including me. I guess the first one is, and not knowing much about municipal or industrial water markets, but is there much in the way of M&A opportunities that you guys could prosecute to expand?

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Yeah. I mean, it's a good question, John. I think first and foremost, we'll be focused on a more organic strategy. Obviously, through this partnership, we're deploying capital to consolidate and to some extent acquire these water resources from legacy owners of those rights. So part of the play here is effectively an acquisition and consolidation of those legacy rights into a larger consolidated portfolio that can then be aggregated into the scale of contracts we're talking about. So that was a component of the strategy here. So we view this one as more of a resource play.

In terms of other opportunities, I mean, we're not looking to get downstream into the municipal markets. We're looking to focus on being a resource owner and an infrastructure provider. So as we think about acquisitions, these type of opportunities trade at different values than legacy energy and oil and gas markets do. And if we can build our way into those opportunities, I think that should be a great way for us to participate and deploy capital and provide overall returns that are competitive with our existing business, but can substantially provide, I think, enhanced long-term value.

John Daniel (Founder and CEO)

Okay. Thank you. And then just one going back to the Haynesville, someone just asked about that. If I'm not mistaken, aren't the rules with water treatment disposal a little bit trickier in Louisiana versus Texas?

What's the opportunity if all of a sudden there's a call on incremental gas drilling in 2026 in Louisiana? How much capacity do you have? Are any operators reaching out to you now to sort of get prepared?

Michael Skarke (EVP and COO)

Yeah, John, this is Michael. So as you know, the rules vary state-to-state in terms of what you can do in terms of water treatment. The Haynesville is more similar to Texas than it would be to perhaps the Northeast or the Bakken or New Mexico, where you are more challenged. So we have done water treatment in the Haynesville. We could easily ramp that up to support activity. We've built the largest disposal gathering and network in East Texas, North Louisiana. So we're well positioned to take advantage of increased activity there.

And to the extent that they're able to get the gas out of the Marcellus, we're also very well positioned there as the largest disposal provider in the Marcellus/Utica and able to perform the largest transfer provider there as well. So we would welcome the increase in activity from LNG, associated with natural gas. And I think we're very well positioned to ramp up and take care of our customers. John, anything you want to add? Sorry.

John Schmitz (Founder, Chairman, President, and CEO)

Hey, John, one thing that I know Michael addressed the recycling, and we see some of that in the Haynesville, probably see more of it. He discussed a little bit about our system. Our system is a very unique system. There is different application rights to dispose water between Louisiana and Texas.

Our system goes across Louisiana, and the best acreage there. It comes into Texas into the best disposal capacity in that area in Texas. We have a unique position of being able to deal with the regulatory authority as it relates to disposal as well.

Michael Skarke (EVP and COO)

Maybe to put an example of that, John, we announced that we have 2.5 million acres under dedication. If you break that down by region, our largest region is the Permian and the Haynesville. The Permian is fairly obvious given all the deals we've done in the last year and hopefully expect to do in the next year. The Haynesville one that might be a bit surprising until you look at the system that we have there and how you really can't replicate it. That's where we're getting a large concentration as well.

John Daniel (Founder and CEO)

How much of that is being piped? Because when you go up there and drive around, you don't see nearly the same number of trucks today as you did a few years back. And I don't know if that's because the piping or just because activity is down. Just kind of a micro question, but just curious.

Michael Skarke (EVP and COO)

Yeah. Well, activity is certainly down. So that would be a part of it. But the overwhelming majority of it is piped for us. I mean, that's really what sets us apart is the pipeline we have that goes into a variety of disposal wells that creates that reliable, predictable offload for the customer that is in-basin and reducing their LOE.

Mike Lyons (EVP and Chief Strategy and Technology Officer)

John, when you think about the limitations around new disposal capacity, I mean, there's certainly some states that are going to be more restrictive than others that you're probably quite familiar with. When you think about how you resolve that, you either need to figure out recycling to meet the demand for that disposed barrel through a synthetic disposal application. You need to figure out how to deploy it via long-distance out-of-basin disposal, which is effectively what our Haynesville system does, which is take that volume from Louisiana to Texas, or you need to think about longer-term the transition towards recycling application for beneficial reuse. I mean, when you're limited in new disposal capacity, I mean, those are really your three options without impeding the ability to produce the barrel of oil.

And so if you're going to keep the barrel of oil producing or produce more barrels, you got to figure out how to solve it via one of those avenues.

John Daniel (Founder and CEO)

Okay. Thank you for all the good color and congrats on the continued signing of new contracts.

John Schmitz (Founder, Chairman, President, and CEO)

Thank you.

Mike Lyons (EVP and Chief Strategy and Technology Officer)

Thanks, John. Thanks.

Operator (participant)

Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to John Schmitz for his closing comments.

John Schmitz (Founder, Chairman, President, and CEO)

Yeah. Thanks to everybody for joining the call and for your interest in learning more about Select Water Solutions. And we look forward to speaking to you again next quarter. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, the conference of Select Water Solutions has now concluded. Thank you for your participation. You may now disconnect your lines.